-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BD3ct+1vnSdxw3kbxTsMYtQ5KwsLQiAZXrtL3aO0w2Coajg1fqiGa507FO77TwYj LL49SrRCeQZxgbT2aY9ksw== 0000950130-01-500794.txt : 20010424 0000950130-01-500794.hdr.sgml : 20010424 ACCESSION NUMBER: 0000950130-01-500794 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010420 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEAM COMMUNICATIONS GROUP INC CENTRAL INDEX KEY: 0001035700 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 954519215 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-23307 FILM NUMBER: 1608059 BUSINESS ADDRESS: STREET 1: 11818 WILSHIRE BLVD. STREET 2: SUITE # 200 CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: (310) 312- MAIL ADDRESS: STREET 1: 12300 WILSHIRE BLVD STREET 2: #400 CITY: LOS ANGELES STATE: CA ZIP: 90025 10KSB 1 d10ksb.txt FORM 10-KSB Washington, D.C. 20549 FORM 10-KSB (Mark One) [X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 or [_] Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to ___________ 000-23307 (Commission File No.) TEAM COMMUNICATIONS GROUP, INC. (Name of small business issuer in its charter) California 95-5419215 ------------------------------ ------------------------------ (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 11818 Wilshire Blvd., Suite 200, Los Angeles, California 90025 (Address of principal executive offices) (Zip Code) (310) 312-4400 (Issuer's telephone number, including area code) Securities registered under Section 12(b) of the Exchange Act: Title of each class Common Stock Name of each exchange on which registered NASDAQ National Market Securities registered under Section 12(g) of the Exchange Act: None Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [_] No [X] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The Issuer's revenues for its most recent fiscal year were $14,932,400. The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity as of March 31, 2001 was approximately $28,125,000 million. The number of shares outstanding of each of the issuer's classes of common equity as of April 6, 2001, was 14,401,339 shares of common stock, no par value. Transitional Small Business Disclosure Format (check one): Yes [X] No [_] Documents Incorporated by Reference: NONE TABLE OF CONTENTS
Page ---- PART I Item 1. Description of Business......................................... 1 Item 2. Description of Property......................................... 4 Item 3. Legal Proceedings............................................... 4 Item 4. Submission of Matters to a Vote of Security Holders............. 5 PART II Item 5. Market for Common Equity and Related Stockholder Matters........ 5 Item 6. Management's Discussion and Analysis of Financial Condition And Results of Operations....................................... 6 Item 7. Financial Statements............................................ 14 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........................................ 30 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act............... 30 Item 10. Executive Compensation.......................................... 32 Item 11. Security Ownership of Certain Beneficial Owners and Management...................................................... 36 Item 12. Certain Relationships and Related Transactions.................. 38 Item 13. Exhibits and Reports on Form 8-K................................ 39
i Introductory Comment Throughout this Annual Report on Form 10-KSB, the terms "we," "us," "our" and "our company" refer to Team Communications Group, a California corporation. Forward Looking Statements This contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. When used in this Annual Report, the words "may," "will," "expect," "anticipate," "continue," "estimate," "project" or "intend" and similar expressions identify forward-looking statements regarding events, conditions and financial trends in connection with our future plan of operations, business strategy, operating results and financial position. Discussions containing such forward-looking statements may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations." Current shareholders and prospective investors are cautioned that any forward-looking statements are not guarantees of future performance. Such forward-looking statements by their nature involve substantial risks and uncertainties, certain of which are beyond our control, and actual results for future periods could differ materially from those discussed in this Annual Report, depending on a variety of important factors, among which are our need for additional capital to pursue our business plans; our current liquidity crisis; the existence of a number of class action lawsuits against our company; a pending inquiry by the Securities and Exchange Commission regarding certain transactions which took place in 1999 and 2000; recent significant changes in our senior management; the success or failure of our new management's efforts to implement our business strategy; the level of acquisition opportunities available to us and our ability to price and negotiate such transactions on a favorable basis, our ability to properly manage growth and successfully integrate acquired companies and operations (if acquisitions are completed), our ability to compete with major established companies, our ability to attract and retain qualified personnel, and other risks which may be described from time to time in future filings with the Securities and Exchange Commission. ii PART I ------ Item 1. Description of Business A. History and General Overview We were incorporated in February 1995 under the laws of the State of California. Since inception, we have focused our efforts on the development, production and distribution of a variety of television programming, including dramatic and reality-based series, specials and made-for-television movies for exploitation in the domestic and international television markets. We currently derive substantially all of our revenues from distribution fees from the licensing of programming acquired from others, and the marketing and licensing of our original programming. In the United States, our production activities have focused on programming produced for cable and network television channels such as The Discovery Channel, The Family Channel, Showtime Networks and USA Network. We are engaged in developing concepts and acquiring literary and other story properties, the most promising of which serve as the basis for our series, pilot films, or made-for-television movies. If a script is accepted for production as a television movie or pilot, or if a pilot is accepted for production as a series, we and the network or distributor negotiate a license fee or distribution advance. This fee is a flat sum payment through which we generally attempt to cover a significant portion of our production costs and overhead. We do not customarily approve production of any genre unless we have pre-sold the property to a United States television network or a station group. With respect to series for the networks, HBO, Showtime and other cable channels, we generally attempt to negotiate significant license fees for both series and television movies. In many cases, we may invest additional sums in excess of network license fees to produce the best possible pilot, as the pilot is an essential sales tool in gaining network acceptance of a proposed series. In these cases, we will attempt to cover the excess production costs from working capital, third-party financing, projected sales of the episodes in the foreign marketplace, or a combination of these financing techniques. B. Operations Our operations are currently divided into two principal operating segments: development and production and the global distribution of television programming. Production and Development. 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 telecast. In 2000, we produced, directly or in conjunction with third parties, series of episodes and television movies which included: (i) 13 episodes for MTV of a one hour series called "Live Through This"; (ii) the final four episodes of "Destination: Style" for Discovery's Travel Channel, (iii) five episodes of one- hour dramas called "The Call of the Wild," based on Jack London's classic novel, for Discovery's Animal Planet (this series began production in November 1999 with our Canadian production partner; after producing a total of 13 episodes through fiscal 2001, we do not anticipate continuing production of further episodes of this series); (iv) a two hour movie for ABC called "Final Jeopardy" which was broadcast on April 9, 2001; and (v) a two hour movie for MTV called "Anatomy of a Hate Crime." We are also in the process of co-producing six one hour episodes for the Travel Channel of a series called "Weird Worlds." 1 Distribution. An active part of our business is the marketing of our own ------------ product as well as product acquired from third-party producers to the international marketplace. Our current library includes selected distribution rights to approximately 1,600 hours of family, dramatic, reality-based series, television movies and theatrical motion pictures. With the rapid increase of networks and cable and satellite channels, there is an expanding demand for top- quality programming. C. Industry Background The global television market has experienced substantial growth since 1985 and we believe this market will continue to experience substantial growth during the foreseeable future as commercial broadcast outlets and cable and satellite channels expand to provide increasingly varied and specialized content to consumers throughout the world. In the United States alone, there have been numerous new television channels which have commenced operation since 1985. Such growth has led to the development and commercialization of specialized cable and satellite channels and distribution outlets, which, in turn, has led to increased demand for top quality and cost efficient programming in many categories and subjects. Europe, Latin America, the Middle East, Asia and the Pacific Rim are all experiencing similar growth with respect to satellite and cable channels. D. Business Strategy Our operating strategy is to fulfill the demand for programming by: (i) expanding the activities of our development and production and distribution operating segments; (ii) implementing strategic acquisitions of film, television and video libraries and production companies; and (iii) entering into joint ventures and strategic alliances with, or acquisitions of, domestic and international unaffiliated third parties. We believe that such joint ventures, strategic alliances or acquisitions will reduce our financial risks. We intend, subject to financing, to acquire, co-produce and co-finance other series, movies and specials from third party producers in order to increase our programming library and self distribute such product on a worldwide basis. We believe that there are unique business opportunities to acquire other emerging companies, as well as more established production and distribution entities, which are engaged in programming development, production, distribution (including the dissemination of product on and through the Internet) and other related media investments. While the number of distribution channels has been increasing, we believe there are economic incentives, including economies of scale and depth of financial and programming capability, for programmers and distribution entities to consolidate. We are currently in various stages of discussion with domestic and foreign producers of television films, to establish strategic alliances and/or joint ventures relating to the distribution and merchandising of their products. However, our ability to consummate and implement any of these proposed arrangements is subject to our ability to obtain much needed financing which, in turn, may be adversely impacted by our recent negative financial disclosures and pending litigation and governmental investigations. See Item 3.--Legal ----- Proceedings and Item 6.---Management's Discussion and Analysis of Financial - ----------- ------------------------------------------------- Condition and Results of Operations. - ----------------------------------- E. Recent Adverse Developments In early 2001, our board of directors were notified by our chief financial officer of certain irregularities in a number of transactions, including arrangements entered into by our Team Dandelion subsidiary in the United Kingdom. As a result of these developments: . our former chairman and chief executive officer resigned and new senior executive officers were retained; . we were required to substantially restate our fiscal 1999 statement of operations and incurred a $42.7 million net loss for the year ended December 31, 2000; 2 . on and after March 9, 2001, a number of shareholder class action lawsuits were filed in the United States District Court for the Central District of California against our company, the former chief executive officer and a former chief financial officer; . the United States Securities and Exchange Commission is currently conducting an investigation into these matters, and the continued listing of our shares of common stock is currently under review by representatives of The Nasdaq Stock Market Inc.; . we are in default in payment of certain of our debt obligations; and . we face severe working capital and cash liquidity shortages. Although we are relying heavily on the business experience, reputation and expertise of Michael Jay Solomon and other members of our new management team to reestablish confidence in our company, there can be no assurance at this time that we will be able to successfully overcome these obstacles. These recent adverse developments are more fully described in Item 6.--Management's ------------ Discussion and Analysis of Financial Condition and Results of Operations - Risk - ------------------------------------------------------------------------------- Factors. - ------- F. Closing of European Operations In October 1999, we completed the purchase of Dandelion Distribution Ltd. ("Team Dandelion"), located in the United Kingdom ("UK"), for $2.5 million in cash and 386,847 shares of common stock. As a result of our investigation and conclusion that various transactions entered into by our UK subsidiary lacked economic substance, we have closed our operation in the UK and have written off not only our investment in Team Dandelion but also approximately an additional $21.0 million in revenues recorded in fiscal 1999 and the first three fiscal quarters of 2000. We closed our Team Dandelion office in the UK effective as of April 30, 2001. We continue to maintain and license the Dandelion library of theatrical motion pictures and television series. G. Competition The television industry is highly competitive. We compete with, and will compete with, many organizations, including major film studios, independent production companies, individual producers and others, including networks, who seek the rights to attractive literary properties, the services of creative and technical personnel, the financing for production of film and television projects and favorable arrangements for the distribution of completed films. Many of our competitors are substantially larger in size and capacity than we are and many have greater financial and personnel resources and longer operating histories. In addition, the television industry is currently evolving into an industry in which certain multinational, multi-media entities, including Viacom/CBS/Paramount, The News Corporation/Twentieth Century Fox, The Walt Disney Company-ABC, AOL/Time Warner and Vivendi/Universal, are anticipated to be in a position, by virtue of their control over key film, magazine, and/or television content and their control of key network and cable outlets, to dominate certain communications industry activity. These competitors have numerous competitive advantages, including the ability to acquire financing for their projects and attract superior properties, personnel, actors and/or celebrity hosts. H. Employees We currently employ 16 full-time employees, four of whom are members of senior management. In the last three months we have reduced our staff by approximately 45%. We also use temporary employees on an as-needed-basis to accommodate our needs as our projects go into production. None of our employees are represented by a labor organization. 3 Item 2. Description of Property We lease approximately 11,000 square feet of office space at 11818 Wilshire Boulevard, Los Angeles, California from an unaffiliated third party. The lease is for a period of five years which began on February 15, 2000. The initial rent is $2.85 per square foot and gradually increases to $3.21 per square foot in the fifth lease year. The cost of the build out for the new space was approximately $1,200,000, of which approximately 30% was paid by the landlord. We believe that this office space will be adequate for our requirements over the term of the lease. Additional space, if necessary for growth or short term productions, is available throughout the Los Angeles area at commercially reasonable rates. We are currently subletting our excess office space to third parties, including potential joint venture partners. Item 3. Legal Proceedings On September 5, 2000, a suit was filed against us alleging, breach of contract and fraud in a matter styled Frankfurter Film Products Inc. ("FFP") v. TEAM Communications Group, Inc., filed in the Federal Court in Los Angeles, California. This action arises out of an April, 2000 agreement pursuant to which FFP and we agreed, subject to certain conditions, to form an operating entity in Germany. The complaint seeks unspecified damages, including the market value of 1,500,000 shares of our common stock. On September 11, 2000, we filed a counter suit against FFP, Datty Ruth, Michael Smeaton and Winfried Hammacher alleging, inter alia, fraud, intentional and negligent misrepresentations, breach of contract and breach of the duty of good faith and fair dealing. The cross complaint seeks damages in excess of $90,000,000, the exact amount of which will be subject to proof. No discovery has taken place in the action. Subsequently, we voluntarily dismissed Datty Ruth, Michael Smeaton and Winfried Hammacher from our counter suit. Although we are currently in settlement discussions with FFP, which may involve a revised working relationship, there can be no assurance that a settlement of this litigation will be consummated on commercially acceptable terms, if at all. On or after March 9, 2001, a number of securities class action complaints were filed against us, our former chief executive officer and a former chief financial officer in the United States District Court for the Central District of California on behalf of purchasers of our publicly traded securities during the period between November 23, 1999 and February 12, 2001. These class action complaints were brought pursuant to the Securities Exchange Act of 1934, as amended, and allege violation of Section 10(b) and Rule 10b-5 thereunder, and Section 20(a) of that Act. These actions were a result of our February 13, 2001 public announcement concerning the substantial losses and financial adjustments we expected to incur in fiscal 2000. The plaintiffs seek unspecified damages. We are currently evaluating the merits of such claims. We currently maintain directors and officers liability insurance coverage, including coverage of our company for securities claims (the "D&O policies"). However, there can be no assurance that our insurance will cover us or that it will be adequate to fully pay damages, if any, and expenses in connection with these pending class actions or other similar actions which may be filed against us. In April 2001, we were advised by Harold Brown d/b/a Marquee Entertainment that Renown Pictures, Ltd., an affiliate of Noel Cronin, the former head of our Team Dandelion subsidiary, was in default under a $950,000 10% installment note which we have guaranteed. The holder of such note has orally agreed to forebear from commencing suit on our guaranty if we are able to arrange for payment of approximately $119,000 plus accrued interest within the next 30 days. If we or the maker of the note are unable to timely finance such installment payment, we may be held liable for the entire unpaid balance plus accrued interest. 4 Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of our security holders during the fiscal year ended December 31, 2000. PART II ------- Item 5. Market for Common Equity and Related Stockholder Matters Our common stock trades on the Nasdaq National Market under the symbol "TMTV." The following table sets forth the high and low last sales prices for the time period that our common stock has been publicly traded. Sales Prices For Common Stock ------------------------------ Quarter Ending High Low - -------------- ---- --- March 31, 1999 $ 2.87 $1.75 June 30, 1999 10.25 2.75 September 30, 1999 8.18 6.00 December 31, 1999 7.94 5.00 March 31, 2000 19.50 4.06 June 30, 2000 16.00 7.56 September 30, 2000 9.00 5.88 December 31, 2000 7.75 1.94 March 31, 2001 4.06 0.50 Since November 29, 1999, our common stock has also traded on the German Neuer Market under the symbol "TME." Holders As of April 7, 2001, there were 66 holders of record of the Company's common stock. The Company believes that there are approximately 136 beneficial owners of the Company's common stock. Dividends We did not pay any dividends on our common stock in 2000 and we do not anticipate paying dividends in the foreseeable future. We currently intend to retain any future earnings for reinvestment in our business. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent on our financial condition, results of operations, capital requirements and other relevant factors. Recent Sales of Unregistered Securities During 2000, we issued the following securities: . in March 2000, we issued 64,800 shares of our common stock to Arab International Trust, Ltd. in exchange for the cancellation of $162,000 of indebtedness we owed; . in March 2000, we issued 128,600 shares of our common stock to Film Recoveries, Inc. in consideration for our acquisition of the Prestige film library of 28 titles; 5 . in March 2000, we issued 67,117 shares of our common stock to National Securities Corporation upon the cashless exercise of certain underwriters' warrants granted to such firm in connection with our initial public offering; . in November 2000 we sold 100,000 shares of our common stock to Arbora Vermogensverwaltungen AG for $500,000; . during 2000, we also issued an aggregate of 990,300 shares of our common stock to various persons upon exercise of outstanding warrants and stock options, for which we received an aggregate of $3,162,100. For information concerning the proposed issuance and sale of shares of our common stock in 2001 to certain members of our new executive management, see Item 12. Certain Relationships and Related Transactions. ----------------------------------------------- Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2000, 1999 and 1998 should be read in conjunction with our financial statements included elsewhere in this Annual Report. When used in conjunction in the following discussion, the words "believes," "anticipates," "intends," "expects" and similar expressions are intended to identify forward looking statements. Such statements are subject to certain risks and uncertainties, which could cause results to differ materially from those projected including, but not limited to those set forth in "Risk Factors" of this Item 6. A. General Discussion We derive substantially all of our revenues from distribution fees from the licensing of programming acquired from others, and the licensing of our original programming. We are engaged in developing concepts and acquiring literary and other story properties, the most promising of which serve as the basis for our series, pilot films, or made-for-television movies. If a script is accepted for production as a television movie or pilot, or if a pilot is accepted for production as a series, we and the network or distributor negotiate a license fee or distribution advance. This fee is a flat sum payment through which we generally attempt to cover a significant portion of our production costs and overhead. We do not customarily approve production of any genre unless we have pre-sold the property to a United States television network or a station group. With respect to series for the networks, HBO, Showtime and other cable channels, we generally attempt to negotiate significant license fees for both series and television movies. In many cases, we may invest additional sums in excess of network license fees to produce the best possible pilot, as the pilot is an essential sales tool in gaining network acceptance of a proposed series. In these cases, we will attempt to cover the excess production costs from working capital, third-party financing, projected sales of the episodes in the foreign marketplace, or a combination of these financing techniques. Our trade receivables historically increase as revenue increases. In accordance with SFAS No. 5, we record an allowance for doubtful accounts based, in part, on historical bad debt experience. Primarily as a result of our recent investigation regarding the lack of economic substance of certain agreements and related arrangements involving our Team Dandelion subsidiary, we recorded a $13.4 million provision for an allowance for doubtful accounts in 2000, as compared to allowances for doubtful accounts of $662,000 in 1999 and $664,000 in 1998. 6 Typically, when we make a sale of a product, the purchaser of such product agrees to a payment schedule, usually based upon a time table which is either tied to milestones in the development of the product or the time period of the contract. If customers fail to make scheduled payments, our license agreements produce that we can repossess and resell such product. Because these payments often are spread out over a period of time, up to two years, the payments to be made in the future are recorded as discounted trade receivables. B. Results of Operations Fiscal Year 2000 Compared to Fiscal Year 1999 (Restated) -------------------------------------------------------- In late December 2000, our former Chief Financial Officer communicated concerns to our board of directors regarding certain of our transactions and those of our affiliates. In response, we initiated an investigation by an independent counsel and accountant. Thereafter, we and our independent auditors determined that approximately $21.0 million should be restated and charged against our results of operations in the fourth quarter of our fiscal year ended December 31, 2000 which, together with additional write downs of approximately $15.0 million in the value of our film libraries, and $6.7 million for other matters, resulted in a loss of approximately $42.7 million for fiscal 2000. In addition, we restated our 1999 statement of operations which resulted in a loss of approximately $4.3 million in 1999, as compared to previously reported net income of approximately $1.8 million. A substantial portion of these write-offs and adjustments to previously reported income were made by us after we investigated the following transactions: . We were informed that certain "deferred guarantee distribution agreements" with third party licensees to distribute film titles and/or film libraries were subject to additional agreements or amendments granting rescission rights to the third party licensees. Although we do not currently possess signed copies of all of such signed agreements or amendments, we now believe that these license agreements may be terminable at will and, accordingly, have excluded from income any purported revenues therefrom. . We determined that certain entities associated with the former managing director of our Team Dandelion subsidiary that had entered into deferred guarantee agreements with us were inactive entities that appeared not to have the financial or other ability to distribute films. Accordingly, we have increased our reserves for bad debts with respect to such guaranteed contracts. . We determined that three film libraries acquired during the years 1999 and 2000 were acquired at prices that substantially exceeded their fair value, although we continue to distribute these libraries to television stations in the countries in which we have distribution rights. It further appears that proceeds received from the sale of these film libraries to us were used to pay amounts due to us under distribution agreements with other entities. As a result of these findings, for the year ended December 31, 2000, we reported a net loss of approximately $42.7 million on total revenues of approximately $14.9 million compared to a net restated loss of approximately $4.3 million on total revenues of approximately $13.6 million for the year ended December 31, 1999. Our results for our fiscal year ended December 31, 1999 were restated in March 2001. The restatement of our 1999 statement of operations resulted in a net negative adjustment of approximately $6.1 million to our reported net income for such year. Cost relating to revenues was approximately $32.0 million for the year ended December 31, 2000 as compared to approximately $7.3 million for the year ended December 31, 1999. Gross profit (loss) margin on sales of television programming for the year ended December 31, 2000 was (115%) compared to 46% for the year ended December 31, 1999. The negative gross profit margin for the year ended December 31, 2000 was due to the substantial reductions in reported sales revenues and increased costs resulting from the questioned transactions and other matters described above. 7 General and administrative expense was approximately $12.4 million for the year ended December 31, 2000 compared to approximately $8.8 million for the same period in 1999. Such general and administrative costs increased by approximately $3.6 million primarily due to consulting fees, compensation and the addition of the U.K. and German operations overhead. We also incurred an extraordinary loss of $1.0 million for the year ended December 31, 1999 related to the early extinguishment of approximately $5.8 million in debt. There were no such amounts for the year ended December 31, 2000. For the year ended December 31, 2000, the Company incurred $1,033,000 in interest expense and capitalized approximately $104,400 in interest on debt related to production. This is compared to $817,600 of interest expense incurred for the year ended December 31, 1999. The increase in the amount of interest incurred by us is due to an increase in our debt in 2000. Accounts receivable at December 31, 2000 were approximately $1.4 million (net of reserves for doubtful accounts of approximately $14.2 million), of which approximately 91% are derived from entities domiciled outside the United States. In 1999, all of our accounts receivable were derived from foreign entities. Restated accounts receivables in 1999 were approximately $8.8 million (net of reserves for doubtful accounts of approximately $831,000). The reduction in accounts receivable in 2000 is partially attributable to a $13.4 million reserve taken in 2000 against a receivable that was deemed fully collectible in 1999. Fiscal Year 1999 (Restated) Compared to Fiscal Year 1998 --------------------------------------------------------- After giving effect to the elimination of approximately $10.5 million of previously reported revenues, restated revenues in fiscal 1999 were approximately $13.6 million, which were substantially identical to our revenues in 1998. Costs relating to revenues were approximately $7.3 million for the year ended December 31, 1999 as compared to approximately $9.1 million for the year ended December 31, 1998. The costs relate to amortization of production or acquisition costs of television programming for which revenue was recognized during the period. Gross profit margin on sales of television programming for the year ended December 31, 1999 was 46% compared to 33% for the period ended December 31, 1998. The higher gross profit margin for the year ended December 31, 1999 was due to our selling television programming acquired by us at attractive rates as opposed to selling more programming owned and produced by us in the year ended December 31, 1998. General and administrative expense increased to approximately $8.8 million for the year ended December 31, 1999 from approximately $3.3 million for the same period in 1998. Due to our increased activities related to film production, the 1999 amount excludes approximately $1.7 million in general and administrative expense that was capitalized to television programming costs, as an allocation of costs related to production, in accordance with SFAS No. 53. The overall increase in general and administrative expenses of $7.2 million is a result of an increase in employee expenses, primarily for our increased activities in production and development and European expansion, an increase in the accounts receivable allowance for doubtful accounts and certain litigation costs. The increase is also due to expenses associated with the issuance of securities to outside consultants as payment for their services. We also incurred an extraordinary loss, net of tax, of $1.0 million related to the early extinguishment of $5.8 million in debt in 1999. Interest expense was $0.8 million for the year ended December 31, 1999, as compared to $0.9 million for the year ended December 31, 1998. Accounts receivable at December 31, 1999 were approximately $8.8 million, all of which are from entities domiciled outside the United States. These receivables represent approximately 15% of our total assets. As a consequence of our October 1999 acquisition of Dandelion, certain receivables resulting from sales made prior to the acquisition are now considered due from related parties for financial reporting purposes. In June 1999, we entered into a five year license agreement for certain territories including the UK of 20 made-for- television movies with Renown Pictures, Ltd., a UK company owned by Noel Cronin, formerly the owner of Dandelion. At December 31, 1999 the receivable due from Renown was 8 approximately $2.2 million. Subsequent to December 31, 1999, we received payments of $1.5 million per the terms of the agreement. Noel Cronin is also a director of String of Pearls Plc. In September 1999, we entered into a 10 year license agreement for certain European territories including Germany, France and Italy, of 20 made-for-television movies with String of Pearls Plc. At December 31, 1999, the receivable due from String of Pearls Plc was approximately $5.0 million, which Mr. Cronin personally guaranteed in accordance with a written document we relied upon. Mr. Cronin has since disputed the validity of his guaranty. We intend to actively pursue collection of the full amount of this receivable from both String of Pearls Plc and Mr. Cronin. However, in fiscal 2000 we fully reserved this account receivable as a doubtful account, as compared to the $831,000 we had established as an allowance for doubtful accounts as of December 31, 1999. C. Liquidity and Capital Resources. The television industry is highly capital intensive. During the year ended December 31, 2000, the Company used cash of approximately $29.6 million. Our operating activities were funded primarily from the remaining cash proceeds of the issuance of common stock in a public offering in Germany that closed during the fourth quarter of 1999. We had a loan from Mercantile Bank for $875,000 as of December 31, 2000. As of March 31, 2001, the outstanding credit at Mercantile Bank was increased to $2,000,000. The borrowings are secured by substantially all of our assets. During the third quarter, we closed a $1,792,700 financing transaction with Imperial Bank with respect to the television series, "Call of the Wild." Pursuant to this transaction, we were to defer all of our distribution fees for distributing "Call of the Wild" until Imperial Bank's loan was repaid. The net proceeds of the loan were approximately $1,573,000. This loan was refinanced in October pursuant to a financing transaction with Call of the Wild Distribution LLC, an unaffiliated third party ("CWD"), and Heller EMX Inc. We sold to CWD our interest in the series "Call of the Wild", and then leased back the series. In connection with such agreements we have agreed to repay to CWD the sum of $7,044,000 which amount has been assigned to Heller. Heller provided the acquisition loan to CWD to acquire the series. We netted $7,644,000 from the transaction and used some of the proceeds to payoff the loan from Imperial Bank. Our guaranty is secured by all rights to the "Call of the Wild" television series and is due in November 2002. The amount guaranteed bears interest at 4.625% over LIBOR. We continue to pursue alternative financing for production and under the terms of such financing we may defer a significant portion if not all of our distribution fees until such financing is repaid. We have defaulted in the payment of our March and April 2001 installments due to Heller and are currently in discussions to restructure the repayment schedule and our credit agreement. There can be no assurance, however, that we will be able to successfully consummate a restructuring of this indebtedness which would waive our defaults on commercially satisfactory terms, if at all. If we are unable to restructure this indebtedness, Heller could foreclose on the "Call of the Wild" television series and seek damages against us for the deficiency, if any, they realize upon sale of such collateral. In April 2001, we were advised by Harold Brown d/b/a Marquee Entertainment that Renown Pictures, Ltd., an affiliate of the former head of our Team Dandelion subsidiary, was in default under a $950,000 10% installment note which we have guaranteed. The holder of such note has orally agreed to forebear from commencing suit on our guaranty if we are able to arrange for payment of approximately $119,000 plus accrued interest within by May 15, 2001. We are also in arrears in the payment of approximately $28,000 in rent under our current office lease. On November 29, 1999, we completed the sale of 6,150,000 shares of our common stock, 150,000 shares of which were sold by and for the account of a selling shareholder, in an underwritten offering on the German Neuer Markt (the "German Offering"). The German Offering was underwritten by Gontard & MetallBank AG and a group of associated underwriters. The offering price was $6.21 per share. The net proceeds to us were approximately $31,500,000 after deducting underwriting fees and estimated offering expenses. Approximately $9,400,000 of the net proceeds was used to repay our outstanding indebtedness. 9 As a result of significant cash expenditures incurred by us in 2000, at December 31, 2000 our cash position was only $2.6 million, which has since deteriorated to approximately $214,000 at March 31, 2001. At December 31, 2001 and March 31, 2001, our borrowing availability under existing credit lines was $125,000 and $-0-, respectively. At March 31, 2001, our rate of monthly cash expenditures exceeded our cash revenues by approximately $200,000. In an effort to preserve our remaining cash resources, we have undertaken to reduce our operating expenses and hope to achieve annualized cost reductions of approximately 40% by the end of 2001. We are also actively seeking private sources of financing, including increasing our bank lines and obtaining additional equity from third party sources. Although we recently received a $1.0 net increase in our banking facility to a total of $2.0 million, such increased facility has been fully drawn upon and, to date, we have not obtained any additional cash equity financing. Even with our reduced level of expenditures, there is no assurance that we will be able to generate sufficient cash, either from operations, sales of assets or external financings, to meet our operating costs and other cash payment obligations. The opinion of our auditors in certifying our financial statements for the fiscal year ended December 31, 2000 contains a "going concern" qualification in which they express reservations and doubts about our ability to sustain our business and operations, absent immediate financing. Although we continue to actively explore a variety of types of debt or equity financing, no assurance can be given that such financing can ultimately be obtained or, if obtained, that it will be on reasonably attractive terms. D. Risk Factors Although we have generated profitable operations prior to 1999, we incurred significant losses in each of fiscal years ended December 31, 2000 and 1999, and have experienced a negative cash flow from operations during each of the past five fiscal years. We can not assure you that we will be able to be profitable in the foreseeable future or that we will be able to generate positive cash flow from our operations. We are also subject to certain factors affecting the television industry generally, such as (a) sensitivity to general economic conditions; (b) critical acceptance of our products; and (c) intense competition. Virtually all of our competitors are substantially larger than we are, have been in business longer than we have and have more resources at their disposal. The television industry is currently evolving into an industry in which certain multi-national, multi- media entities, because of their control over key film, magazine, and/or television content, as well as key network and cable outlets, will be able to dominate certain communications industry activities in the United States and abroad. These competitors have numerous competitive advantages, including the ability to acquire financing for their projects and attract superior properties, personnel, actors and/or celebrity hosts. As a result of our recent public announcement disclosing the adverse financial results for fiscal 2000, in March 2001 we were named as a defendant in a number of class action suits. See Part 1, Item 3, "Legal Proceedings." The ----------------- amounts of damages sought in these lawsuits are unspecified. There can be no assurance that our insurance will cover us or, if we are covered, that it will be adequate to fully pay damages, if any, and expenses we may incur from this litigation. In addition, the existence of this litigation may materially and adversely effect our ability to raise much needed capital. The SEC and the NASD are currently reviewing the events and circumstances leading up to the restatement of our 1999 statement of operations and extensive net losses in 2000. The SEC could seek to take action against us or others and the NASD may commence proceedings to delist us from trading on the Nasdaq Stock Market, either of which events would have a material adverse effect on our financial condition and prospects. 10 As of December 31, 2000, we wrote off approximately $12.0 million of the accounts receivable reflected on our September 30, 2000 balance sheet as a result of our conclusion that certain assets and contractual arrangements lacked economic substance. After giving effect to such write-off, we had approximately $1.4 million in receivables net of reserves, of which 50% were represented by one customer. To cover the possibility that one or more of our customers could fail to pay monies owed to us, we currently maintain an allowance for doubtful accounts of approximately $14.2 million. If we are required to make an additional allowance for these receivables, our results of operations and financial condition in future periods could be adversely affected. Since December 31, 2000, we have collected approximately $544,000 of our December 31, 2000 receivables. Substantially all of our revenues are derived from the production and distribution of television series and made-for-television movies. The television industry in general, and the development, production and distribution of television programs, in particular, is highly speculative and involves a substantial degree of risk. Since each project is an individual artistic work and its commercial success is primarily determined by audience reaction, which is volatile and unpredictable, there can be no assurance that any entertainment property will make money. Even if a production is a critical or artistic success, there is no assurance that it will be profitable. In particular, to the extent that our product caters to the tastes of television audiences in the United States, our results may be affected by the inability to attract audiences in our newly addressed markets, especially Europe. If we are unable to attract productions which compete effectively in the global marketplace, our financial condition and results of operations could be materially adversely affected. The television industry is highly capital intensive. Our operations have been characterized by ongoing capital shortages caused by extensive expenditures in acquiring or producing television films, slowness in collecting receivables and the inability to establish an adequate long term banking relationship. For example, in November 1999 we completed a public offering of our securities in Germany, resulting in net proceeds to us of approximately $31,500,000. However, as a result of debt repayments and substantial expenditures in 2000, as of March 31, 2001, our cash position was only $214,000. In an effort to preserve our remaining cash resources, we have undertaken to reduce our operating expenses and hope to achieve annualized cost reductions of approximately 45% by the end of 2001. We are also actively seeking private sources of financing, including increasing our bank lines and obtaining additional equity from third party sources. Although we recently received a $1,000,000 net increase in our banking facility, we fully utilized such increased facility and, to date, we have not obtained any additional cash debt or equity financing. There is no assurance that such financing will be available on commercially acceptable terms, if at all. There can be no assurance that once we commit to produce a series which has been licensed to a network, that the network will order and broadcast enough episodes so that we can syndicate the series in the United States. Typically, there needs to be at least 65 episodes of a series produced in order to "strip" or syndicate the series in the daily re-run market. Networks can generally cancel a series at stated intervals and, accordingly, do not commit in advance to exhibit a series for more than a limited period. If a series is canceled before the minimum number of shows necessary to syndicate or "strip" have been produced, there is the risk that the production costs of the project will not be fully recovered. Similar risks apply for a series produced for a non-network medium. Our revenues and results of operations are significantly dependent upon the timing and success of the television programming we distribute, which cannot be predicted with certainty. Revenues for any particular program may not be recognized until the program is produced and available for delivery to the licensee. Production delays may impact the timing of when revenues may be recognized under generally accepted accounting principles. Significant sales of our product take place at the industry's major selling markets, the most important of which are MIP-TV and MIPCOM-TV (the International Film and Program Market for TV, Video, Cable & Satellite) which take place in France in the second and fourth quarters, respectively, and NATPE, which takes place in the United States in January. Finally, production commitments are typically obtained from networks in the spring (second quarter), although production activity and delivery may not occur until later periods. We may experience significant quarterly variations in our operations, and results in any particular quarter may not be indicative of results in subsequent periods. Such variations may lead to significant volatility of our share price. 11 Our results will also be affected by the allocation of revenue between product we produce and own as compared to product which we distribute on behalf of third party producers and for which we are paid a distribution fee. In addition, our margins are also affected by the age of the product which we acquired from third parties or previously produced. Where we are paid a distribution fee, our expenses as a percentage of revenue will typically be higher, and our margins lower, because we record as an expense the participations owing to the copyright owners. Where we are exploiting products which we own outright we do not record such expenses, and our margins will typically be higher. With respect to sales of our own product, rather than recording a participation expense, we record as an expense the amortization of our acquisition or production costs, which amortization is typically recognized over several financial reporting periods. Sales of older products owned by us, where acquisition or production costs may be substantially or fully amortized, will have significantly higher margins than initial sales on newer products where the sales potential of the product has not been tested and we are incurring significant production costs. Our business also depends upon the protection of the intellectual property rights that we have to our film properties. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and exploit our products. Monitoring unauthorized use of our products is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our film properties, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States and Europe. In recent years, there has been significant litigation in the United States involving intellectual property rights. We may become party to litigation in the future to protect our intellectual property rights or as a result of the alleged infringement of other's intellectual property. These claims and any resulting lawsuits could subject us to significant liability and invalidation of our property rights. Such litigation could also force us to take measures harmful to our operations, such as to stop selling certain products or to obtain a license from the owner of infringed intellectual property. Any such infringement claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert management's attention and materially adversely affect our financial condition and results of operations. The market price of our common stock has declined since our announcement in February 2001 from approximately $3.3125 per share to $0.875 per share as at March 28, 2001. Accordingly, it may be anticipated that any equity-type financing we are able to obtain in the future will result in significant dilution to our shareholders. Our common stock has been listed on the Nasdaq SmallCap Market since July 29, 1998 and on the Frankfurt Stock Exchange's Neuer Market since November 29, 1999. On April 24, 2000, our stock commenced trading on the Nasdaq National Market System. The market prices for securities of companies with limited operating history, including us, have historically been highly volatile both on Nasdaq and the Frankfurt Stock Exchange's Neuer Market. Significant volatility in the market price of our common stock may arise due to factors such as: . our developing business; . a continued negative cash flow; . relatively low price per share; . relatively low public float; . variations in quarterly operating results; . general trends in the television industry; . the number of holders of our common stock; and . the interest of securities dealers in maintaining a market for our common stock. As long as there is only a limited public market for our common stock, the sale of a significant number of shares of our common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered, and could cause a severe decline in the price of our common stock. Sale of substantial amounts of our common stock, the issuance of substantial amounts of warrants and options granting the right to receive shares of our common stock or the prospect of such sales or 12 issuances, respectively, could materially adversely affect the market price of our common stock. We have outstanding approximately 14.5 million shares of common stock, and approximately 2.9 million shares of common stock are issuable upon exercise of outstanding warrants and options. Of these shares, approximately 1,680,000 shares are restricted shares under the Securities Act of 1933, as Amended (the "Act"). We filed a registration statement on Form S-8 under the Act to register the sale of approximately 1,000,000 shares of our common stock reserved for issuance under our 1999 Stock Option, Deferred Stock and Restricted Stock Plan. Shares of our common stock issued upon exercise of options are available for sale in the public market, subject in some cases to volume and other limitations. F. Recent Accounting Pronouncements. We have adopted certain new accounting requirements for television and film companies respective to financial reporting in the United States. We recognize revenues from licensing agreements covering entertainment product when the product is available to the licensee for telecast, exhibition or distribution, and other conditions of the licensing agreements have been met in accordance with Statement of Financial Accounting Standards ("SFAS") No. 53 "Financial Reporting by Producers and Distributors of Motion Picture Films" and Statement of Position ("SOP") 00-02 "Accounting by Producers and Distributors of Film" which intends to amend the existing guidelines. As required by SFAS No. 53, we value our film cost at the lower of unamortized cost or net realized value on an individual title basis. Film costs represent those costs incurred in the development, production and distribution of television products. These costs have been capitalized in accordance with SFAS No. 53. Amortization of film cost is charged to expense and third party participations are accrued using the individual film forecast method whereby expense is recognized in the proportion that current year revenues bear to an estimate of ultimate revenue. As the Company previously was subject to the requirements of SFAS No. 53 we now follow the guidance in the Statement of Position, "Accounting by Producers and Distributors of Films." This Statement of Position is effective for financial statements for fiscal years beginning after December 15, 1999. The Company elected to adopt this Statement of Position early and such pronouncement has approximately a $4.0 million impact on the Company's results of operations and financial position as of and for the year ended December 31, 2000. G. Additional Information We intend to provide an annual report to our security holders. The annual report will include audited financial statements. We are subject to the informational requirements of the Exchange Act and, in accordance with the rules and regulations of the SEC, we file reports, proxy statements and other information. You may inspect such reports, proxy statements and other information at public reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street N.W., Washington, DC 20549; Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 7 World Trade Center, New York, New York 10048; and 5670 Wilshire Boulevard, Los Angeles, California 90036. Copies of such material can be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street N.W., Washington, DC 20549, at prescribed rates. For further information, the SEC maintains a website that contains reports, proxy and information statements, and other information regarding reporting companies at http://www.sec.gov or call (800) SEC-0330. 13 Item 7. Financial Statements REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Team Communications Group, Inc. We have audited the consolidated balance sheet of Team Communications Group, Inc. and subsidiaries as of December 31, 2000 and as of December 31, 1999 (restated), and the related consolidated statements of operations, shareholders' equity and cash flows for the two years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards required that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of Team Communications Group, Inc. and subsidiaries at December 31, 2000 and as at December 31, 1999, and the consolidated results of its operations and its cash flows for the years ended December 31, 2000 and 1999 (restated), in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company has experienced recurring losses and has had negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with respect to these matters are described in Note 2 to the financial statements. These financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ STONEFIELD JOSEPHSON, INC. STONEFIELD JOSEPHSON, INC. CERTIFIED PUBLIC ACCOUNTANTS Santa Monica, California April 13, 2001 14 PART 1 - FINANCIAL INFORMATION Company or group of companies for which report is filed: TEAM COMMUNICATIONS GROUP, INC. Item 1 Financial Statements CONSOLIDATED BALANCE SHEETS (Dollar Amounts in 000's)
DECEMBER 31 ----------- 1999 2000 (Restated) ------ -------- ASSETS Cash and cash equivalents $ 2,610.8 $21,088.7 Trade receivables, net of allowance of doubtful accounts of $14,155.5 and $831.0, respectively, including $5,275.0 due from related parties at December 31, 1999 1,376.1 8,830.6 Television programming costs, net of accumulated amortization of $29,600.0 and $15,322.3, respectively 24,080.4 27,592.6 Due from officer - 0 - 170.4 Fixed assets net 1,878.8 595.7 Goodwill - 0 - 1,048.2 Prepaid and other assets 668.9 1,415.8 ---------- --------- Total Assets $ 30,615.0 $60,742.0 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, accrued expenses and other liabilities $ 7,128.7 $ 7,873.3 Deferred taxes - 0 - 763.8 Deferred revenue 3,327.0 559.4 Accrued participations 1,120.7 3,771.5 Bank line of credit - 0 - 350.0 Notes payable 8,688.0 153.8 Accrued interest 230.4 32.1 ---------- --------- Total Liabilities $ 20,494.8 $13,503.9 ---------- --------- Commitments and contingencies Shareholders' equity: Preferred stock no par value; 10,000,000 shares authorized, no shares issued and outstanding Common stock, no par value: 40,000,000 shares authorized; 14,246,339 and 12,895,509 issued and outstanding, respectively 1.0 1.0 Paid in capital 57,566.4 51,693.0 Accumulated other comprehensive loss (352.2) (26.0) Accumulated Deficit (47,095.0) (4,429.9) ---------- --------- Total shareholders' equity 10,120.2 47,238.1 ---------- --------- Total liabilities and shareholders' equity $ 30,615.0 $60,742.0 ========== =========
The accompanying notes are an integral part of these financial statements. 15 TEAM COMMUNICATIONS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollar Amounts in 000's)
YEAR ENDED DECEMBER 31 --------------------------------- 1999 2000 (Restated) ------ ----------- Revenues, including related parties of $5.275 in 1999 $ 14,932.4 $13,612.0 Cost of revenues 32,017.5 7,335.1 Bad debt expense 5,375.0 662.0 Restructuring Expense 3,500.0 - General and administrative expenses 12,415.9 7,771.3 ----------- --------- Loss from operations (38,376.0) (2,494.4) Interest expense (929.4) (817.6) Interest income 747.3 96.0 ----------- --------- Loss before income taxes (38,558.1) (3,216.0) Provision for state income taxes, current ( 107.0) - ----------- --------- Loss before extraordinary item and cumulative effect of accounting change $ (38,665.1) $(3,216.0) Extraordinary loss from early extinguishment of debt - (1,034.5) Cumulative effect of change in accounting principle - See Note 2 (4,000.0) - ----------- --------- Net loss $ (42,665.1) $(4,250.5) =========== ========= Basic and diluted loss per common share Loss before extraordinary item and cumulative effect $ (2.80) $ (0.57) Extraordinary loss - (0.18) Cumulative effect (.29) - ----------- --------- Net loss per common share - basic and diluted $ (3.09) $ (0.75) =========== ========= Weighted average number of shares outstanding - basic and diluted 13,798.2 5,658.7 =========== =========
The accompanying notes are an integral part of these financial statements. 16 TEAM COMMUNICATIONS GROUP, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Dollar amounts in 000's)
Accumulated Common Stock Other --------------------- Number of Paid In Treasury Comprehensive Accumulated Shares Par Value Capital Stock Loss Deficit ---------- --------- ------- -------- ------------- ----------- Balance at December 31, 1998 2,816,135 $1.0 $ 7,612.7 $(34.6) $ - $ (179.4) Net loss for the year ended December 31 1999 (restated). See Note 12 (4,250.5) Sale of treasury stock 17,000 34.6 Issuance of common stock in connection with conversion of debt 1,219,974 2,299.6 Issuance of common stock for services 464,000 1,032.4 Issuance of warrants for services 318.1 Issuance of warrants for debt 443.5 Issuance of debt with beneficial conversion feature 730.0 Issuance of common stock for Dandelion acquisition 386,847 2,500.0 Issuance of common stock in the German Offering 6,000,000 31,508.5 Private placement of common stock 1,188,334 4,255.2 Exercise of warrants 763,219 788.8 Issuance of stock for legal settlements 40,000 203.9 Foreign currency translation adjustment $ (26.0) --------- ----- --------- -------- ------- ----------- Balance at December 31, 1999 (Restated) 12,895,509 $1.0 $51,693.0 $ - $ (26.0) $ (4,429.9) Net loss for the year ended December 31, 2000 (42,665.1) Issuance of common stock for film library acquisition 128,572 912.0 Private placement of common stock and conversion of debt 164,800 500.0 Issuance of warrants for services 1,299.3 Issuance of common stock for cashless exercise of representation warrants 67,117 Exercise of warrants and options 990,341 3,162.1 Foreign currency translation adjustment (326.2) ---------- ---- --------- ------ ------- ---------- Balance at December 31, 2000 14,246,339 $1.0 $57,566.4 $ - $(352.2) $(47,095.0) ========== ==== ========= ====== ======= ==========
The accompanying notes are an integral part of these financial statements. 17 TEAM COMMUNICATIONS GROUP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in 000's)
YEAR ENDED DECEMBER 31, 1999 ---- 2000 (Restated) ---- ---------- OPERATING ACTIVITIES Net loss $(42,665.1) $ (4,250.5) Adjustments to reconcile net income to cash used for operating activities Depreciation and amortization 1,371.4 28.9 Amortization of television programming costs 39,833.4 7,335.1 Provision for doubtful accounts 13,439.8 1,662.1 Additions to television programming costs (35,409.2) (19,108.8) Amortization of notes payable discount - 41.1 Stock and warrants issued in exchange for services 1,299.3 1,554.4 Change in assets and liabilities, including effect of acquisition: (Increase) decrease in trade receivables 5,985.3 (3,659.8) (Increase) decrease in prepaid and other assets 746.9 (1,263.6) Increase (decrease) in accounts payable, accrued expenses and other liabilities (1,280.8) 2,616.6 Increase (decrease) in deferred revenue 2,767.6 86.5 Increase in accrued participations (2,650.8) 745.7 Decrease in accrued interest 198.3 (498.8 Foreign currency translation adjustment (326.2) (26.0) ------------ ----------- Net cash used for operating activities (28,660.7) (14,737.1) ------------ ----------- INVESTING ACTIVITIES: Purchase of fixed assets (1,606.4) (173.2) Acquisition of Dandelion, net of cash acquired - (2,021.7) (Increase) decrease in due from officer 170.4 (25.0) ------------ ----------- Net cash used for operating activities (1,436.0) (2,219.9) ------------ ----------- FINANCING ACTIVITIES Proceeds from issuance of notes payable and warrants 10,610.6 10,998.9 Change in bank line of credit (350.0) (764.0) Principal payment on loan due to shareholder - (500.0) Issuance of common stock 3,662.1 37,726.3 Sale of treasury stock - 34.6 Extraordinary charge for early retirement of debt - 1,034.5 Principal payment of notes payable (2,304.2) (11,512.3) ------------ ----------- Net cash provided by financing activities 11,618.5 37,018.0 ------------ ----------- Net change in cash (18,477.9) 20,061.0 Cash at beginning of year 21,088.7 1,027.7 ------------ ----------- Cash at end of year $ 2,610.8 $ 21,088.7 ============ =========== Supplemental disclosure of cash flow information: Interest paid $ 835.5 $ 930.0 Income taxes paid $ 152.3 $ 17.4
The accompanying notes are an integral part of these financial statements. 18 TEAM COMMUNICATIONS GROUP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES (Dollar Amounts in 000's)
Year Ended December 31, 2000 1999 ---- ---- Issuance of shares in connection with the acquisition of Dandelion $ - $2,500.0 Issuance of shares and warrants in connection with services provided to us $1,299.3 $1,554.4 Issuance of shares in connection with extinguishment of debt $ - $2,229.6 Issuance of shares in connection with acquisition of film rights $ 912.0 ---
The accompanying notes are an integral part of these financial statements. 19 TEAM COMMUNICATIONS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- DESCRIPTION OF THE COMPANY: Team Communications Group, Inc. (formerly known as DSL Entertainment Group, Inc.) and its wholly owned subsidiaries (collectively, the "Company") are primarily engaged in developing, producing, and distributing dramatic and reality-based television series, mini-series, animated series, programs, specials, and made-for-television movies for telecast, exhibition or distribution in the domestic and foreign television and home video markets. The Company's primary focus is on developing and producing family drama, children programming and reality-based programming for both domestic and international broadcast networks and cable channels such as Discovery's Animal Planet, The Travel Channel, The Learning Channel, The Showtime Networks, Fox Family Channel and The Discovery Channel. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Going Concern - ------------- For the years ended December 31, 2000 and 1999, the Company has had negative cash flows from operations of $30,700,200 and $14,737,100, respectively and has incurred net losses of $42,665,100 and $4,250,500, respectively. The Company's expenses continue to exceed its income. In addition, the Company requires an immediate infusion of working capital to continue its present operations. The Company is taking the following steps to obtain financing and raise working capital: . Attempting to sell up to $4 million in equity . Refinancing of film programming inventory . Close-down of European offices . Strategic partnerships and mergers . Significant reductions in Company overhead . Increased sales effort on a world-wide basis There can be no assurances that the Company will be able to achieve any of these objectives. There can be no assurances that the Company will be able to obtain such additional funds or that, if obtained, it will be able to achieve or sustain significant revenues or profitability in the future. Principles of Consolidation - --------------------------- The accompanying consolidated statements include the accounts of Team Communications Group, Inc. and subsidiaries. All significant intercompany transactions and accounts have been eliminated. Foreign Currency Translation - ---------------------------- The financial statements of subsidiaries outside the United States are generally measured using the local currency as the functional currency. Assets, including goodwill, and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items are translated at average monthly rates of exchange. The resulting translation adjustments 20 are reported as other comprehensive income. Gains and losses from foreign currency transactions are included in net earnings. Revenue Recognition - ------------------- Revenue from licensing agreements covering entertainment product owned by the Company is recognized when the entertainment product is available to the licensee for telecast, exhibition or distribution, and other conditions of the licensing agreements have been met in accordance with generally accepted accounting principles. The portion of recognized revenue which is to be shared with the producers and owners of the license program material (participations payable and due to producers) is accrued as the revenue is recognized. Deferred revenues consist principally of advance payments received on television contracts for which program materials are not yet available for broadcast or exploitation. Such amounts are normally repayable by the Company only if it fails to deliver the related product to the licensee. Sales to five major customers accounted for approximately 85% and 73% of the Company's total operating revenue for the year ended December 31, 2000 and 1999. Cash - ---- The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. Cash equivalents consist of interest-bearing securities with original maturities of less than 90 days. 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 generally accepted accounting principles. 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 a method approximating straight line depreciation. Fixed assets are net of $578,400 in accumulated depreciation at December 31, 2000. Prepaid and Other Assets - ------------------------ The balance represents security deposits and prepaid expenses. 21 Debt with Stock Purchase Warrants and Beneficial Conversion Features - -------------------------------------------------------------------- The proceeds received from debt issued with stock purchase warrants is allocated between the debt and the warrants, based upon the relative fair values of the two securities and/or beneficial conversion features. Fair value of the debt element of the financial instrument is determined by discounting the future payments of principal and interest, based upon management's estimate of its borrowing rate for similar financial instruments of this risk (generally 15%), and the balance of the proceeds is accounted for as additional paid in capital. The resulting debt discount is amortized to expense over the term of the debt instrument, using the effective interest method. In the event of settlement of such debt in advance of the maturity date, a loss is recognized based upon the difference between the then carrying amount (i.e., face amount less unamortized discount) and the amount of payment. When debt is redeemed or converted to share of common stock prior to maturity any remaining discount is expensed to Extraordinary loss from early extinguishments of debt as reflected in the 1999 financial statements. Unclassified Balance Sheet - -------------------------- In accordance with the provisions of SOP 00-02, the Company has elected to present an unclassified balance sheet. Financial Instruments - --------------------- The carrying amounts of financial instruments including cash and cash equivalents, short term accounts receivable, accounts payable, loans payable, and deferred revenue approximated fair value as of December 31, 2000, because of the relatively short maturity of these instruments. The carrying value of long term accounts receivable approximated fair value as of December 31, 2000, because the instruments are valued at the Company's effective borrowing rate. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially differ from those estimates. Concentration of Credit Risk - ---------------------------- One customer represented approximately 40% of the trade receivable balance at December 31, 2000. Net Earnings Per Common Share - ----------------------------- The Company computes net earnings per share following SFAS No. 128, "Earnings Per Share." Under the provisions of SFAS No. 128, basic net income per share is computed by dividing the net income available to common shareholders for the period by the weighted average number of common shares outstanding during the period. Common equivalent shares have been excluded as their effect would be antidilutive. 22 Recent Pronouncements Effective Subsequent to 1999 - -------------------------------------------------- In June 1998, the United States Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," initially effective for fiscal years beginning after June 15, 1999 and extended to June 15, 2000 by SFAS No. 137. The Company anticipates that due to its limited use of derivative instruments, the adoption of SFAS No. 133 will not have a material effect on its financial statements. An entity that had previously been subject to the requirements of SFAS No. 53 should follow the guidance in a Statement of Position 00-02, "Accounting by Producers and Distributors of Films" and SFAS No. 139, which rescinded SFAS No. 53. The Company elected to adopt this Statement of Position early and such pronouncement has approximately a $4.0 million negative impact on the Company's results of operations and financial position as of and for the year ended December 31, 2000. In December 1999, the Securities and Exchange Commission (the "Commission") issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which is to be applied beginning with the fourth fiscal quarter of fiscal years beginning after December 15, 1999, to provide guidance related to recognizing revenue in circumstances in which no specific authoritative literature exists. The adoption of this statement did not have a material impact on the Company's financial position, results of operations or liquidity. In January 2001, the FASB Emerging Issues Task Force issued EITF 00-27 effective for convertible debt instruments issued after November 16, 2000. This pronouncement requires the use of the intrinsic value method for recognition of the detachable and imbedded equity features included with indebtedness. Management does not believe that this pronouncement will have a material impact on the financial statements. In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44 ("Interpretation 44"), "Accounting for Certain Transactions Involving Stock Compensation." Interpretation 44 provides criteria for the recognition of compensation expense in certain stock-based compensation arrangements that are accounted for under APB Opinion No. 25, Accounting for Stock-Based Compensation. Interpretation 44 was effective July 1, 2000, with certain provisions that are effective retroactively back to December 15, 1998 and January 12, 2000. The adoption of this statement did not have a material impact on the Company's financial position, results of operations or liquidity. NOTE 3 - ACQUISITIONS AND DISPOSITIONS In October 1999, the Company completed its acquisition of Dandelion Distribution Ltd. (Dandelion). Aggregate consideration consisted of 386,847 shares of the Company's common stock for an equity value of $2.5 million and $2.5 million in cash. The acquisition was accounted for using the purchase method of accounting, and accordingly, the acquisition cost of $5.2 million (including transaction costs) has been allocated to the assets acquired and liabilities assumed based on estimates of their fair value. While goodwill was recognized at acquisition, the Company's management determined that there was an impairment in accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" and determined that a writedown of $2.5 million was required as of December 31, 2000. 23 Pro Forma operating results for 1999 as if the acquisition had taken place at the beginning of that year, are as follows (restated): (in Thousands, except per share amounts) (unaudited) Acquisition 1999 ---------------- Revenue $15,820 Operating Loss (2,787) Loss before extraordinary item (3,349) Net loss (4,474) Basic EPS Loss before extraordinary item per share (0.59) Net loss per share (0.79) The Company decided to close down the U.K. operations on March 31, 2001. All costs for such divestiture have been accrued as of December 31, 2000. The Company also closed its German offices and has accrued $950,000 relative to such restructuring transactions. See Note 12. NOTE 4 -- TELEVISION PROGRAM COSTS: Television program costs consist of the following: (Dollar Amounts in 000's) 1999 ---- 2000 (Restated) ---- ---------- In process and development $ 734.0 $ 480.0 Released, less accumulated amortization 23,346.4 27,112.6 --------- --------- $24,080.4 $27,592.6 ========= ========= Based on management's estimates of future gross revenue as of December 31, 2000, approximately 70% of the $23,346,400 in unamortized released television program costs will be amortized during the three years ending December 31, 2003 and 90% will be amortized during the five years ending December 31, 2005. NOTE 5 -- INCOME TAXES: Deferred taxes result from temporary differences in the recognition of expense for tax and financial statement reporting purposes. A reconciliation of the difference between the statutory federal income tax rate and the Company's effective income tax rate applied to income (loss) before income taxes are as follows for the periods ending: DECEMBER 31, 1999 ---- 2000 (Restated) ---- ---------- Statutory federal tax rate 35% 35% State income tax provision 0% 0% Changes in valuation allowance (35%) (35%) 24 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. The components of the net deferred liability are as follows: 2000 1999 ---- ---- Deferred income tax assets Net operating loss carry-forwards $ 18,800 $ 1,700.0 Deferred revenue 1,300 1,500.0 Allowance for doubtful accounts 5,700 300.0 -------- --------- Total deferred income tax assets 25,800 3,500.0 Deferred tax liability U.K. basis -0- 763.8 Valuation reserve (25,800) (3,500.0) -------- --------- Net deferred income tax liabilities $ -0- $ 763.8 ======== ========= The Company's net operating loss carry-forward for federal and state income taxes is approximately $47,000,000 expiring in 2016 and 2017. NOTE 6 -- RELATED PARTY TRANSACTIONS: As a consequence of the Company's October 1999 acquisition of Dandelion, certain receivables resulting from sales made prior to the acquisition are now considered due from related parties for financial reporting purposes. In June 1999 the Company entered into a five-year license agreement for certain territories, including the UK, of 20 made-for-television movies with Reknown Pictures, Ltd., a UK company owned by Noel Cronin, formerly the owner of Dandelion. Noel Cronin is a director of String of Pearls Plc ("SOP"). In September 1999, the Company entered into a ten-year license agreement with String of Pearls Plc for certain European territories, including Germany, France and Italy, for 20 made-for-television movies ("MOWS"). In a separate agreement in March 2000, the Company licensed from SOP the Italian rights to 19 feature films. Noel Cronin is a director of Leisureville Ltd., doing business as DD Video. In August 1999, the Company entered into a ten-year license agreement with DD Video to acquire worldwide television rights excluding the United Kingdom for certain films and documentaries. In April 2000, the Company entered into a ten-year license agreement with DD Video to acquire worldwide television rights excluding the United Kingdom for the same films and documentaries. As a result of a special investigation by the Company's Board of Directors (the "Board"), it was determined that the foregoing related party transactions, except for the second DD Video license agreement of April 2000, were without economic substance. These transactions were reversed in the current year, reserved as part of the prior year restatement, or the transactions were substantially impaired and fully reserved in the current year. 25 The due from officer balance at December 31, 2000 represents $1,045,000 of payments made by the Company on behalf of and short-term interest free loans made to the Chairman and CEO, net of a 100% reserve. NOTE 7 -- COMMITMENTS AND CONTINGENCIES: On October 24, 1999, the Company was served with a complaint from Beyond Entertainment ("Beyond"), the licensee of Water Rats Seasons I & II. The complaint, which seeks an accounting and termination of the license agreement. In March 2001, the Company settled with Beyond for $675,000, which amount was accrued at December 31, 2000. On September 5, 2000, suit was filed against the Company alleging, breach of contract and fraud in a matter styled Frankfurter Film Products Inc. ("FFP") v. TEAM Communications Group, Inc., filed in the Federal Court in Los Angeles, California. This action arises out of an April, 2000 agreement pursuant to which FFP and the Company agreed, subject to certain conditions, to form an operating entity in Germany valued at 1.5 million shares of the Company's common stock. Although the Company is currently in settlement discussions with FFP, which may involve a revised working relationship, there can be no assurances that the settlement of this litigation will be consummated on commercially acceptable terms, if at all. On or after March 9, 2001, a number of securities class action complaints were filed against the Company, its former chief executive officer and a former chief financial officer in the United States District Court for the Central District of California on behalf of purchasers of the Company's publicly traded securities during the period between November 23, 1999 and February 12, 2001. These class action complaints were brought pursuant to the Securities Exchange Act of 1934, as amended, and allege violation of Section 10(b) and Rule 10b-5 thereunder, and Section 20(a) of that Act. These actions were a result of the Company's February 13, 2001 public announcement concerning the substantial losses and financial adjustments expected to be recorded for fiscal 2000. The plaintiffs seek unspecified damages. The Company is currently evaluating the merits of such claims. The Company maintains directors and officers liability insurance coverage, including coverage of the Company for securities claims (the "D&O policies"). There can be no assurance that the D&O policies will cover the Company or that it will be adequate to fully pay damages, if any, and expenses in connection with these pending class actions or other similar actions which may be filed against the Company. The Company leases office space and certain office equipment. The total lease expense was $363,700 and $165,000 for the periods ended December 31, 2000 and December 31, 1999, respectively. The various operating leases to which the Company is presently subject require minimum lease payments for the years ending December 31, as follows: 2001 $ 412,700 2002 424,500 2003 436,300 2004 448,200 Thereafter 52,500 ---------- Total $1,774,200 ========== NOTE 8 -- NOTES PAYABLE: 26 On December 31, 2000, the Company had outstanding $875,000 loan secured by all the assets of the Company, which accrues interest on the outstanding balance at 1.75% over Mercantile Bank's certificate of deposit rate. The Company defaulted on certain financial obligations and received a waiver from the bank of a financial covenant violation. The Company obtained a loan in the amount of $150,000 from Nick Kahla, which carries interest at 17% per annum and matured on March 16, 1999. As of December 31, 2000, the total liability including accrued interest is $219,600. The note is secured by substantially all the assets of the Company. The Company is currently negotiating with Nick Kahla to pay off this note. In October 2000, the Company received a $8,139,000 11.4% loan from a financial institution. The loan has a term of one year and is secured by the Company's television series "Call of the Wild." As of December 31, 2000, $7.3 million remains outstanding on this loan. As of March 31, 2001, the Company was in default in payment of installments due for the two months ended March 31, 2000. The Company scheduled future debt repayment is as follows: 2001 $4,620 2002 3,514 2003 277 2004 153 2005 + 124 ------ Total $8,688 ====== NOTE 9 -- GEOGRAPHIC INFORMATION: The Company operates in a single industry segment, the development, production and distribution of television programming. The Company's operations include sales to the following regions: DECEMBER 31, ------------ 1999 ---- 2000 (Restated) ---- -------- North America $10,400,000 $ 7,900,000 Europe 3,932,000 4,612,000 South America 100,000 700,000 Asia 500,000 400,000 ----------- ----------- Total $14,932.000 $13,612,000 =========== =========== NOTE 10 -- STOCK OPTION PLANS: The Company has established a stock option plan for its employees, its non- employee directors and consultants (the "1999 Stock Option Plan"). The 1999 Stock Option Plan allows for options (including Incentive Stock Options) to be granted to employees and consultants at fair market value at date of grant. These options may be immediately exercisable and expire over a period determined by the Stock Option Committee of the Board of Directors (the "Committee"). The Committee is comprised of two members of the Board of Directors. The 1999 Stock Option Plan 27 has options available to grant based on 20% of the outstanding shares of common stock. The total number of options available to grant under this plan is 2,805,000 as of December 31, 2000. A summary of the Key Employee Plan as of and for the periods December 31, 2000 and December 31, 1999 is presented below: Weighted Average Key Employee Plan Share Exercised Price - ----------------- ----- --------------- Outstanding as of January 1, 1999 222,000 Granted 1,567,500 5.06 Exercised (33,010) 1.91 Forfeited/Expired - - --------- Outstanding as of December 31, 1999 1,756,490 Granted 965,500 5.87 Exercised (167,490) 1.65 Forfeited/Expired (604,500) 1.00 - 14.88 --------- Outstanding as of December 31, 2000 1,950,000 ========= Weighted average for value of options outstanding 5.44 ========= The following table summarizes information about options outstanding at December 31, 2000 and 1999: Exercise Shares Exercisable at Shares Exercisable At Total Shares Price December 31, 2000 December 31, 1999 ------------ ----- ----------------- ----------------- 20,000 $0.47 20,000 49,990 $1.00 49,990 100,000 $1.65 100,000 30,000 $2.00 30,000 30,000 $2.50 30,000 865,000 $4.88 865,000 865,000 750,000 $5.00 750,000 0 99,000 $5.50 85,000 99,000 422,500 $6.04 250,000 271,563 50,000 $6.25 6,250 90,000 $7.00 11,250 --------- --------- 1,950,000 1,483,053 ========= ========= The Company has elected, as permitted by SFAS No. 123, "Accounting for Stock Based Compensation", to account for its stock compensation arrangements under the provisions of APB No. 25, "Accounting for Stock Issued to Employees". Accordingly, because the exercise price of the Company's employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding the effect on operations is required by SFAS 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. Pro forma information using the Black-Scholes method at the date of grant is based on the following assumptions: Expected life (years) 2.5 years, Risk-free interest rate 6.5%, Dividend yield, Volatility 1.26. 28 This option valuation model requires input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing model does not necessarily provide a reliable single measure of fair value of its employee stock options. For purposes of proforma disclosures, the estimated fair value of the options is amortized to expense over the option's vesting period. The Company's pro forma information for the years ended December 31, 2000 and 1999 is as follows: December 31, 1999 2000 (restated) ---- ---------- Net loss, as reported $(42,665,100) $(4,250,000) Proforma net loss (45,311,100) $(7,402,000) Basic historical loss per share (3.10) $ (0.72) Proforma basic loss per share (3.29) $ (1.31) During 1999, the Company granted 85,000 warrants exercisable at $2.16, 200,000 warrants exercisable at $2.20, 340,000 warrants exercisable at $6.50 and 35,000 warrants exercisable at $7.61 to eight outside parties in connection with debt raised by the Company. During 2000, the Company received $3,162,100 from the exercise of warrants and options representing 990,000 shares of common stock. The Company sold 100,000 at $5.00 per share and issued warrant to outside parties at $1.88 to $6.00 for a total value of $1,299,300. The issuance of such warrants resulted in $1.5 million in consulting expense. Also, 128,600 shares were issued for film rights valued at $912,000. NOTE 11 - GERMAN OFFERING: In November 1999, the Company completed an equity offering on Germany's Neuer Markt of 6,000,000 shares of its common stock at approximately $6.21 per share, raising net proceeds of approximately $31.5 million. Note 12 - RESTATEMENT OF FINANCIAL STATEMENTS As a result of a special investigation by the Company's Board of Directors (the "Board") and the conclusion that various transactions entered into by the U.K. subsidiary lacked economic substance, the Company requested the resignation of the former chief executive officer and the managing director of the U.K. subsidiary. Accordingly, new management appointed by the Board determined that the following transactions representing revenues previously recorded in the quarterly financial statements during 2000, and additional write-offs and reserves should be recorded in the fourth quarter of fiscal 2000: Amount ------ 1) Write-off of accounts receivable $13,000,000 2) Write-down of film inventory 20,000,000 3) Write-off of U.K. investment 2,500,000 29 4) Reserve for closedown of European offices 1,000,000 5) Reserve for amounts due the Company from former Chief Executive Officer 1,000,000 ----------- Total $37,500,000 =========== Also, it was determined that certain receivables at December 31, 1999 resulted from transactions similar to those referred to above and net income was reduced by a $6.0 million write-off resulting in a loss of $4,250,000 ($.75 per share). Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure No change in, or disagreement with, our independent auditor occurred during the fiscal year ended December 31, 2000. PART III -------- Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act A. Directors and Executive Officers Our directors and executive officers, together with their respective ages and positions with us, are as follows: Name Age Position - ---- --- -------- Michael Jay Solomon 63 Chairman of the Board of Directors and Chief Executive Officer Jay J. Shapiro 50 President, Chief Operating Officer and acting Chief Financial Officer James Waldron 36 President of Production Eric Elias 46 Senior Vice President and General Counsel Martin Y. Mayeda 47 Vice President and Group Controller W. Russell Barry/(1)(2)/ 65 Member of the Board of Directors Alan D. Liker/(1)(2)/ 63 Member of the Board of Directors David Kenin/(1)(2)/ 59 Member of the Board of Directors - -------------------------------------------------------------------------------- (1) Member of the Compensation Committee (2) Member of the Audit Committee Michael Jay Solomon assumed the role of our Chairman of the Board and Chief Executive Officer on February 13, 2001. Mr. Solomon has been a member of our Board of Directors since August 1998. Since 1994, Mr. Solomon has been the principal stockholder, Chairman and Chief Executive Officer of Solomon Broadcasting International, Inc. and Solomon International Enterprises, Inc., television communications companies He currently serves on the Boards of Directors of the International Council of the National Academy of Television Arts and Sciences and the New York University Stern School of Business. From 1989 to April 1994, Mr. Solomon was President of Warner Bros. International Television. In 1978, Mr. Solomon was the founder, Chairman and Chief Executive Officer of Telepictures Corporation which became the largest television syndication company in the United States and one of the largest international television distribution companies. In 1985, Telepictures merged with Lorimar Pictures and Mr. Solomon became its President and a member of its board of directors. In 1989 Lorimar Telepictures 30 was acquired by Warner Brothers and Mr. Solomon became President of Warner Brothers International Television, where he supervised world-wide sales and marketing efforts directed at television, cable and satellite companies. Jay J. Shapiro became our President, Chief Operating Officer and acting Chief Financial Officer on March 16, 2001. Mr. Shapiro will assist us in overseeing our corporate, financial and fiduciary activities worldwide. From 1993 to 2000, Mr. Shapiro, a certified public accountant, operated a private accounting and consulting practice specializing in servicing the television industry. During such period, he served as a temporary corporate officer for several publicly traded entertainment companies. Mr. Shapiro received his B.B.A. from the University of Wisconsin and a MBA (with Distinction) in Accounting and Finance from Arizona State University Graduate School of Business Administration. James Waldron has been the President of Team Entertainment Group, our production division since June, 2000. From May 1999 to June 2000, Mr. Waldron worked as a packaging agent at Creative Artists Agency (CAA). Mr. Waldron's responsibilities with CAA included overseeing international programming and first run syndication. From 1986 to 1999, Mr. Waldron was the Executive Vice President of Programming for Pearson Television North America. From 1994 to 1996, Mr. Waldron worked with David Gerber at ITC Productions to produce the telefilms, "The Price of Love" for FOX, "Royce" for Showtime and the miniseries "Nothing Last Forever" for CBS. W. Russell Barry has been a member of the Board of Directors since March 16, 1999. Currently, he is a television consultant and independent producer. From 1986 to the present, Mr. Barry has served as President and Chairman (as of June, 1995) of Turner Program Services, the television distribution company for Turner Broadcasting. Alan D. Liker, became a member of our Board of Directors on April 25, 2000. For more than the past five years, Mr. Liker has served as a consultant, advisor and member of the board of directors of a number of companies, including Budget Rent-A-Car Worldwide and Herbalife International. For more than thirty years Mr. Liker has practiced law with a number of law firms in Los Angeles, California and engaged in independent business activities. David Kenin, became a member of our Board of Directors on June 1, 2000. From 1997 to date, Mr. Kenin has operated Kenin Partners, a media consulting firm. Kenin Partners consults companies regarding issues relating to new technology, sports rights and domestic and international television. From 1994 to 1996, Mr. Kenin was president of CBS Sports. Eric Elias has served as Senior Vice President and General Counsel since our formation in 1995. From 1980 to 1995, Mr. Elias was engaged in general private practice of law in California. Martin Y. Mayeda is our Vice President and Group Controller. Mr. Mayeda joined us on October 16, 2000 and manages the financial reporting, public filings and due diligence with prospective merger and acquisition candidates. Additionally, Mr. Mayeda's duties include budgeting, general corporate and departmental financial forecasting and the integration of operational systems on a global basis. Prior to joining us, from July, 1998 to May, 2000, Mr. Mayeda served as Vice President and Controller for Imperial Credit Commercial Mortgage Investment Corp. From August 1996 to July 1998, Mr. Mayeda was the Planning Director of Business Analysis for Sega Game Works. While with Sega, Mr. Mayeda was involved in the analysis, development and preparation of Sega's eight year business plan and participated in the feasibility review process of Sega's arcade and operations division. From 1995 to 1996, Mr. Mayeda has served as Vice President, Finance for Solomon International. From 1994 to 1995, Mr. Mayeda served as Vice President, Finance for ICS Communications. Compliance With Section 16(a) of The Securities Exchange Act Of 1934 Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than 10% of the Company's outstanding common stock, to file with the Securities and Exchange Commission (the "SEC") initial reports of ownership and reports of changes in ownership of 31 common stock. Such persons are required by SEC regulation to furnish the Company with copies of all such reports they file. Based solely on a review of Forms 3 and 4 furnished to us since January 1, 1999, Drew S. Levin, Timothy A. Hill, Eric Elias, Larry Friedricks, Paula Fierman and Stuart Gruca, have filed all Forms 3 or Form 4, although such filings were not made on a timely basis. Item 10. Executive Compensation The following table provides certain summary information concerning the compensation earned for services rendered in all capacities to us for the fiscal years ended December 31, 2000, 1999, and 1998 by our Chief Executive Officer and certain executive officers (collectively, the "Named Executive Officers"): Summary Compensation Table
Annual Compensation Long-Term ------------------- Compensation ------------ Securities Underlying All Other Name and Principal Position Year Salary Bonus Options Compensation - --------------------------- ---- ------ ----- ------- ------------ Michael Jay Solomon, Chairman and 2000 $ $ 10,000 $ 58,331 Chief Executive Officer Drew S. Levin, former Chairman and 2000 644,000 285,000 750,000 12,654 Chief Executive Officer/(1)/ 1999 463,326 588,025/(1)/ 1,115,000 14,250 1998 220,000 145,000 85,000 13,400 James Waldron, President of 2000 201,936 120,000 60,000 4,200 Production 1999 1998 Martin Y. Mayeda, Vice President 30,000 and Group Controller 2000 26,442 Jonathan D. Shapiro 2000 Former President and Chief 1999 220,000 262,500 90,000 2,111 Operating Officer/(2)/ 1998 37,500 Timothy A. Hill/(3)/ 2000 97,997 75,000 134,569 Senior Vice President and Chief 1999 127,630 85,000 40,000 4,200 Financial Officer 1998 37,593 10,000 1,400 Eric Elias 2000 200,000 - 6,000 Senior Vice President and General 1999 17,288 25,000 50,000 139,034 Counsel 1998 12,500 170,000 Jane Sparango/(4)/ 2000 127,404 20,000 Senior Vice President Development 1999 103,577 15,000 and Programming 1998 13,077 Declan O'Brien/(5)/, Senior Vice 2000 150,000 25,000 30,000 4,200 President, Development 1999 102,788 15,000 1998 57,307
(1) Approximately $335,000 of Mr. Levin's bonus accrued for services performed in fiscal 1999 was paid in fiscal 2000. Mr. Levin resigned effective February 12, 2001. 32 (2) Mr. Jonathan D. Shapiro resigned effective January 14, 2000. (3) Mr. Hill resigned in August 2000. (4) Ms. Sparango was terminated in April 2001. (5) Mr. O'Brien was terminated in April 2001. STOCK OPTION GRANT TABLE Set forth below is information with respect to grants of stock options during the fiscal year ended December 31, 2000, to the Named Executive Officers. All such options were granted with an exercise price equal to the market value of the underlying common stock on the date of the grant. Stock appreciation rights are not available under our 1999 Stock Option Plan. OPTION GRANTS IN 2000
Individual Grants ----------------- % of Total Options Number of Securities Granted to Employees in Exercise Expiration Named Officers Underlying Options Fiscal Year Price Date -------------- ------------------ ----------- ----- ---- Drew S. Levin 750,000/(1)/ 77.7% $5.875 (1) Michael Jay Solomon 10,000/(2)/ 1.0% $ 8.00 Jay J. Shapiro -0-/(3)/ Jamie Waldron 60,000/(4)/ 6.2% $9.125 June 2005 Jane Sparango 20,000/(5)/ 2.1% $6.125 Declan O'Brian 30,000/(6)/ 3.1% $6.125 Martin Mayeda 30,000/(7)/ 3.1% $ 5.87 October 2005 Jonathan D. Shapiro -0- Timothy A. Hill -0- Larry Friedricks -0- Paula Fierman -0- Eric Elias -0-/(8)/
__________________________________ (1) All stock options issued to Mr. Levin (including options to purchase 865,000 shares at $4.875 per share issued to him in December 1999) were terminated in connection with his resignation as President and Chief Executive Officer on February 12, 2001. In addition, under our 1999 Stock Option Plan, to the extent not exercised all options granted to Mr. Levin expire on May 12, 2001, 90 days after termination of his employment. (2) Does not include (i) 30,000 five year options exercisable at $2.50 per share issued to Mr. Solomon in October 1998, of which 22,199 options vested as of December 31, 2000; (ii) 10,000 five year options exercisable at $8.00 per share issued to Mr. Solomon in 1999, 2,000 of which options vested as of December 31, 2000; and (iii) 1,200,000 five year options exercisable at $0.81 per share issued to Mr. Solomon on March 16, 2001, of which 400,000 options are fully vested, and the remaining options vest in two equal installments in February 2002 and February 2003. On March 16, 2001, the closing price of our common stock, as traded on the Nasdaq National Market, was $0.81 per share. (3) Does not include 400,000 five year options exercisable at $0.81 per share issued to Mr. Shapiro on March 16, 2001, of which 133,333 options are fully vested, and the remaining options vest in two equal installments in February 2002 and February 2003. 33 (4) Mr. Waldron's 60,000 options vest monthly during the period from June 19, 2000 through June 18, 2002. Does not include 175,000 five year options exercisable at $0.81 per share issued to Mr. Waldron on March 16, 2001, of which 58,333 options are fully vested, and the remaining options vest in two equal installments in February 2002 and February 2003. (5) Under our 1999 Stock Option Plan, to the extent not exercised all options granted to Ms. Sparango expire in July 2001, 90 days after termination of her employment. (6) Under our 1999 Stock Option Plan, to the extent not exercised all options granted to Mr. O'Brien expire in July 2001, 90 days after termination of his employment. (7) Does not include 40,000 five year options exercisable at $0.81 per share issued to Mr. Mayada on March 16, 2001, of which 13,333 options are fully vested, and the remaining options vest in two equal installments in February 2002 and February 2003. (8) Does not include 200,000 five year options exercisable at $0.81 per share issued to Mr. Elias on March 16, 2001, of which 50,000 options are fully vested, and the remaining 150,000 options vest in three equal installments on December 31 in each of 2001, 2002 and 2003. STOCK OPTION EXERCISES AND YEAR-END HOLDINGS During the fiscal year ended December 31, 2000 none of the stock options granted in 2000 or prior thereto to any of the Named Executive Officers in the preceding table were exercised. None of the 1,975,000 stock options granted to Messrs. Solomon, Shapiro, Waldron and Elias on March 16, 2001 at an exercise price of $0.81 per share have been exercised. None of our outstanding options as at December 31, 2000 held by any of the Named Executive Officers, whether or not exercisable, had any value based upon the $4.625 per share closing trading price of our common stock on Nasdaq as at December 31, 2000. We have no long- term incentive compensation plans pursuant to which stock appreciation rights may be awarded. DIRECTOR COMPENSATION Under the 1999 Stock Option, Deferred Stock and Restricted Stock Plan, Mr. Solomon (who was then a non-employee director) and Mr. Russell Barry, each received an option to purchase 30,000 shares of our common stock at the then effective exercise price of $2.50 per share and $2.00 per share, respectively. Mr. Solomon received his option in 1998 and Mr. Barry in 1999. Alan Liker, a non-employee director, received a total of $0 and $20,000 respectively in consulting fees in fiscal 1999 and 2000, which was paid to him at the rate of $5,000 per month between September and December, 2000. Mr. Solomon entered into a consulting agreement with the Company on August 7, 2000, at which time he became an employee and director. He received a total of $58,331 in consulting fees in 2000 which were paid to him at the rate of $16,666 per month between months of August and December, 2000. Non-employee directors received no other compensation from us in fiscal 1999 or in fiscal 2000. On February 18, 2000, the Board of Directors approved issuing to all newly elected non-employee directors, an option to purchase 30,000 shares of our common stock, to vest ratably over the first year of service. The Board of Directors also approved issuing to all incumbent non-employee directors, an annual option grant of 10,000 shares, to vest ratably over that year of service. On March 16, 2001, stock options to purchase 10,000 shares at an exercise price of $0.81 per share were granted to each of Messrs. Alan Liker, Russell Barry and David Kenin, our non-employee directors. Employment Agreements and Termination of Employment, and Change in Control Agreements Michael Jay Solomon. On March 16, 2001, Mr. Solomon signed an employment agreement with us to serve as our Chairman and Chief Executive Officer, effective as of February 12, 2001. The term of Mr. Solomon's agreement is for approximately three years, commencing as of February 12, 2001 and ending on March 31, 2004. Mr. Solomon is to be paid an annual salary of $600,000 with annual increases of $75,000 on each anniversary date of the agreement. Mr. Solomon shall also receive an annual bonus, 34 payable on March 31/st/ in each of 2002, 2003 and 2004, equal to 7.5% of the net income before taxes we may earn in each of the immediately preceding three fiscal years ending December 31, 2001, 2002 and 2003, respectively. Mr. Solomon has agreed to defer 50% of his salary until such time as we are able to raise not less than $3.0 million of additional financing. Under the terms of his employment agreement, Mr. Solomon was granted stock options to purchase 1,200,000 shares of our common stock at an exercise price equal to $0.81 per share. On March 16, 2001, the date of execution of Mr. Solomon's employment agreement, the closing price of our common stock as traded on Nasdaq, was $0.81 per share. 400,000 of the options vest immediately and the remaining 800,000 options vest in equal amounts on the next two anniversary dates of the agreement, subject to early vesting upon the occurrence of certain events, including a change in control of our company. All options expire 90 days after the termination of Mr. Solomon's employment with us. The agreement also entitles Mr. Solomon to receive a cash payment upon the occurrence of a change in control, provided that he does not elect to remain with the successor company, and the amount of such payment, if any, depends on the value of our outstanding equity at the time of such change of control being equal to or in excess of $3.00 per share. Jay J. Shapiro. Mr. Shapiro has signed an employment agreement with us to serve as our President and Chief Operating Officer dated as of March 1, 2001. The term of Mr. Shapiro's agreement is for approximately three years, commencing as of March 1, 2001 and ending on March 31, 2004. Mr. Shapiro is to be paid an annual salary of $400,000 with annual increases of $25,000 on each anniversary date of the agreement. Mr. Shapiro shall also receive an annual bonus, payable on March 31/st/ in each of 2002, 2003 and 2004, equal to 5.0% of the net income before taxes we may earn in each of the immediately preceding three fiscal years ending December 31, 2001, 2002 and 2003, respectively. Mr. Shapiro agreed to defer 50% of his salary until such time as we are able to raise not less than $3.0 million of additional financing. Under the term of his employment agreement, Mr. Shapiro was granted stock options to purchase 400,000 shares of our common stock at an exercise price equal to $0.81 per share. On March 16, 2001, the date of execution of Mr. Shapiro's employment agreement, the closing price of our common stock as traded on Nasdaq, was $0.81 per share. 133,333 of the options vest immediately and the remaining 266,667 options vest in equal amounts on the next two anniversary dates of the agreement, subject to early vesting upon the occurrence of certain events, including a change in control of our company. All options expire 90 days after the termination of Mr. Shapiro's employment with us. The agreement also entitles Mr. Shapiro to receive a cash payment upon the occurrence of a change in control, provided that he does not elect to remain with the successor company, and the amount of such payment, if any, depends on the value of our outstanding equity at the time of such change of control being equal to or in excess of $3.00 per share. Jane Sparango. We entered into an employment agreement with Jane Sparango to serve as Vice President of Development and Production. The initial term of the Sparango agreement was for one year, which began on November 9, 1998, and was extended for an additional one year period. Ms. Sparango's salary for the period November 9, 1998 to February 12, 1999, was $85,000. Her salary for the period February 13, 1999, through the end of the term shall be at the rate of $100,000 per year. Ms. Sparango shall also be eligible for discretionary stock option grants. On April 6, 2001, Ms. Sparango's employment with our company was terminated. We intend to negotiate a settlement of her employment agreement. Declan O'Brien. We entered into an employment agreement with Declan O'Brien to serve as our Senior Vice President, Development and Production. The term of the O'Brien agreement is for 3 years, commencing on January 1, 2000 and ending on December 31, 2002. Mr. O'Brien is to be paid a base salary of $150,000 for year one, and $165,000 for the second and third years. In addition to his base salary, Mr. O'Brien shall be paid an annual bonus of not less than $25,000. On April 6, 2001, Mr. O'Brien's employment with our company was terminated. We intend to negotiate a settlement of his employment agreement. James Waldron. Mr. Waldron entered into an employment agreement with the Company, dated as of June 9, 2000, under which Mr. Waldron will serve as President of our Team Entertainment Group division . The term of the Waldron agreement is for two years commencing June 19, 2000, with the Company having the right to extend the agreement for an additional one year. Mr. Waldron receives an annual salary of $375,000 through June 18, 2001 and $425,000 for the one year period ending June 18, 35 2002 and during the additional option year ending June 18, 2003. Mr. Waldron is entitled to receive a bonus equal to 4% of the net profits (as defined) we derive from productions either initiated or supervised by Mr. Waldron during his employment. However, Mr. Waldron is entitled to receive on or before June 30/th/ of each anniversary year of his employment a minimum annual bonus of $120,000. Mr. Waldron received a bonus of $60,000 on commencement of his employment and was entitled to receive an additional $60,000 in 2000. On March 16, 2001, we paid Mr. Waldron his accrued bonus through June 2001 by issuing to him 74,074 shares of our common stock (the closing price of our common stock on Nasdaq on such date). Mr. Waldron received 60,000 stock options under his employment agreement at an exercise price of $9.125 per share and is entitled to receive an additional 30,000 options if we elect to extend his employment beyond June 18, 2002. All options expire 90 days after the termination of Mr. Waldron employment with us. Martin Mayeda. Mr. Mayeda has signed an employment agreement with the Company to serve as Vice President and Group Controller dated as of October 16, 2000. The term of the Mayeda agreement is for one year, with the company having the right to extend the term of the agreement for two additional years. Mr. Mayeda receives a base salary of $125,000 with increases to $140,000 and $155,000 in the second and third year of the agreement, if extended by our company. Mr. Mayeda shall be eligible to participate in all bonus and profit sharing plans adopted by us. Mr. Mayeda was granted 30,000 stock options on October 16, 2000 at an exercise price of $5.87 per share which vest ratably over 48 months from the date of grant. All options expire 90 days after the termination of Mr. Mayeda's employment with us. Eric S. Elias. Mr. Elias has signed an employment agreement with the Company in March 2001 to serve as Senior Vice President and General Counsel, effective as of January 1, 2000. The term of the Elias agreement is for three year, with the company having the right to extend the term of the agreement for two additional years. Mr. Elias receives a base salary of $260,000 with increases to $275,000 and $300,000 in the second and third year of the agreement. Mr. Elias shall be eligible to participate in all bonus and profit sharing plans adopted by us. Mr. Elias was granted 200,000 stock options on October 16, 2000 at an exercise price of $0.81 per shares which vested to the extent of 50,000 options on March 23, 2001, and 50,000 additional options on December 31/st/ in each of 2001, 2002 and 2003.. All options expire 90 days after the termination of Mr. Elias' employment with us. Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth, as of March 31, 2001, certain information regarding the ownership of common stock by: (i) each person who is known by the us to own of record or beneficially more than 5% of the outstanding common stock; (ii) each of our directors; and (iii) each named executive officer; and (iv) all directors and executive officers as a group. Except as otherwise indicated, the shareholders listed in the table have sole voting and investment power with respect to the shares indicated.
Shares beneficially owned/(2)/ ------------------------- Name and Address /(1)/ Number Percentage - ---------------- ------ ---------- Michael Jay Solomon /(3)/ 1,355,926 9.4% Jay J. Shapiro /(4)/ 349,383 2.4% Jamie Waldron /(5)/ 104,074 .7% Martin Mayeda /(6)/ 13,333 .1% W. Russell Barry /(7)/ 40,000 .3% Alan Liker /(8)/ 10,000 .1% David Kenin /(8)/ 10,000 .1% Eric Elias /(9)/ 124,846 .9% Drew S. Levin /(10)/ 450,123 3.1% All Officers and Directors (8 persons) 2,457,685 17.1% - -----------------------------------------------------------------------------------------------------------
* Less than 1% of the outstanding shares of common stock. (1) Unless otherwise indicated, the address of each listed stockholder is c/o Team Communications, Inc., 11818 Wilshire Boulevard, 2nd Floor, Los Angeles, California 90025. 36 (2) Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after March 31, 2001, are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person. Unless otherwise indicated in the footnotes below, the persons and entities named in the table have sole voting and investment power with respect to all shares beneficially owned, subject to community property laws where applicable. The number and percentage of shares beneficially owned are based on the aggregate of 14,401,339 shares of common stock outstanding as of March 31, 2001. (3) Includes (i) an immediately exercisable option to purchase 30,000 shares of common stock at an exercise price of $2.50 per share, (ii) 925,926 shares of common stock which Mr. Solomon agreed to purchase in March 2001, and (iii) 400,000 shares issuable under immediately exercisable options at an exercise price of $0.81 per share. Does not include an additional 800,000 shares issuable under options granted to Mr. Solomon on March 16, 2001 at an exercise price of $0.81 per share, 50% of which are exercisable in February 2002 and the balance in February 2003. (4) Includes 216,050 shares purchased for $0.81 per share on March 16, 2001 and 133,333 shares issuable under immediately exercisable options at an exercise price of $0.81 per share. (5) Includes (i) 74,074 shares purchased for $0.81 per share in March 2001 in lieu of payment of a $60,000 accrued bonus obligation to Mr. Waldron, (ii) 30,000 immediately exercisable options at $9.125 per share issued to Mr. Waldron in June 2000. (6) 13,333 immediately exercisable options at $0.81 per share issued in March 2001 to Mr. Mayeda. (7) Includes an option to purchase 30,000 shares of common stock at an exercise price of $2.00 per share and an option to purchase 10,000 shares at an exercise price of $0.81 per share. (8) Includes options to purchase 10,000 shares at an exercise price of $0.81 per share awarded to all non-employee directors in March 2001. (9) Includes (i) 12,346 shares purchased in March 2001 for $0.81 per share, (ii) an option to purchase 12,500 shares of common stock at $5.50 per share granted in August 1998, (iii) an immediately exercisable option to purchase 50,000 shares of common stock at $6.25 per share granted in October 1999, and (iv) immediately exercisable options to purchase 50,000 shares of common stock at $0.81 per share issued on March 16, 2001. Does not include an additional 150,000 shares issuable at $0.81 per share under options exercisable on December 31/st/ in each of 2001, 2002 and 2003. (10) Consists of shares of common stock owned of record and by Mr. Levin, our former President and Chief Executive Officer. Does not include (i) options to purchase 85,000 shares of common stock at an exercise price of $5.50 per share, (ii) options to purchase 250,000 shares of common stock at an exercise price of $6.063 per shares, (iii) options to purchase 865,000 shares of common stock at an exercise price of $4.88 per share, and (iv) options to purchase 750,000 shares of common stock at an exercise price of $5.00 per share; all of which options were terminated in February 2001 at the time of Mr. Levin's resignation as an executive officer of the Company, and which options pursuant to the 1999 Stock Option Plan expire 90 days after termination of employment, if and to the extent unexercised. 37 Item 12. Certain Relationships and Related Transactions In June 1999 the Company entered into a five-year license agreement for certain territories, including the UK, of 20 made-for-television movies with Reknown Pictures, Ltd., a UK company owned by Noel Cronin, formerly the owner of Dandelion. Noel Cronin is a director of String of Pearls Plc ("SOP"). In September 1999, the Company entered into a ten-year license agreement with String of Pearls Plc for certain European territories, including Germany, France and Italy, for 20 made-for-television movies ("MOWS"). In a separate agreement in March 2000, the Company licensed from SOP the Italian rights to 19 feature films. In August 1999, we acquired the "Victory 1" library from DD Video for $3,400,000. Mr. Cronin sold DD Video to its current owners in April 1998. Mr. Cronin is a director of DD Video. He has stated to us that he received no compensation, either directly or indirectly, in respect of this action. In April 2000, we acquired the "Victory 1" library from DD Video for $650,000. As a result of a special investigation by the Company's Board of Directors (the "Board"), it was determined that the foregoing related party transactions, except for the second DD Video license agreement of April 2000, were without economic substance. These transactions were reversed in the current year, reserved as part of the prior year restatement, or the transactions were substantially impaired and fully reserved in the current year. Gontard & MetallBank, the underwriter of the German Offering, owns 500,000 shares of our outstanding common stock. This represents 4% of our outstanding stock. These shares were purchased at a price of $4.00, a discount of approximately $2.00 per share from the then current market price. In connection with the German Offering, Gontard & MetallBank received commissions and fees, including the reallowance for members of the underwriting syndicate. At December 31, 2000, Drew S. Levin, our former Chairman and Chief Executive Officer, was indebted to us in the amount of $1,045,000, representing payments made by us on behalf of Mr. Levin to third parties and short-term interest free loans made by us to Mr. Levin. In February 2001, at the request of our Board of Directors, Drew S. Levin resigned as our Chairman and Chief Executive Officer. In connection with his resignation, Mr. Levin's employment agreement with us was terminated and all stock options previously granted to Mr. Levin were terminated. We are currently attempting to recover from Mr. Levin the amounts owed by him to our company. In March 2001, Michael Jay Solomon agreed to purchase 925,926 of our shares of common stock, valued at $750,000 or $0.81 per share. 185,185 of such shares will be issued to Mr. Solomon in lieu of a $150,000 cash signing bonus under his employment agreement in payment for services previously rendered to us. Mr. Solomon agreed to pay the balance of $600,000 by delivering his personal 8% promissory note payable in March 2004 and secured by Mr. Solomon's assignment to us of adequate collateral and marketable securities unrelated to our shares. In addition, we are currently reviewing a film library currently owned by Mr. Solomon's affiliate Solomon Entertainment, Inc., and independently appraised at approximately $660,000. Subject to completion of our due diligence as to such library, we intend to purchase such asset from Mr. Solomon's affiliate in reduction of a portion of his $600,000 note payable. In March 2001 Jay J. Shapiro agreed to purchase 216,050 shares of our common stock valued at $175,000 or $0.81 per share. 62,728 of such shares were issued to Mr. Shapiro in lieu of a $50,000 cash signing bonus under his employment agreement in payment for services previously rendered to us. Mr. Shapiro agreed to pay the balance of $125,000 by delivering his personal 8% promissory note payable in March 2004 and secured by other marketable securities. In March 2001, Eric Elias, our Senior Vice President and General Counsel, purchased for cash a total of 12,346 shares of our common stock at a price of $0.81 per share. 38 Alan Liker, a member of our board of directors, received consulting fees from us aggregating $20,000, which was paid to him at the rate of $5,000 per month during the period between September and December 2000. Michael Solomon, a member of our Board of Directors, received consulting fees from us aggregating $58,331, which was payable to him at the rate of $16,666 per month during the period from August to December 2000. We believe that the foregoing transactions were on terms no less favorable to us than those available from unaffiliated parties. It is our current policy that all transactions with officers, directors, 5% shareholders and their affiliates will be entered into only if such transactions are approved by a majority of the disinterested independent directors, and on terms no less favorable to us than could be obtained from unaffiliated parties and are reasonably expected to benefit us. Item 13. Exhibits and Reports on Form 8-K (a)(1) Financial Statements. Financial Statements are included in Item 7, Part II of this Annual Report. (a)(2) Exhibits: SEQUENTIALLY EXHIBIT NUMBERED FILING NUMBER DESCRIPTION STATUS - ------ ----------- ------ 3.1 Amended and Restated Articles of Incorporation, as amended (9) 3.2 By-laws of the Company (1) 4.1 Form of Warrant Agreement March 1996 (1) 4.2 Form of Warrant Agreement May 1996 (1) 4.3 Form of Warrant Agreement February 1997 (1) 4.4 Gontard & MetallBank AG Promissory Note, dated as of September 29, 1999 (9) 4.11 Agreements re LoCoMoTioN Financing with South Ferry #2, L.P. (1) 4.14 Form of Financial Advisory Agreement between National Securities Corporation and the Company (1) 4.15 Specimen Certificate (1) 4.16 Form of National Securities Corporation's Warrant (1) 4.18 Form of Promissory Notes (1) 4.19 Securities Purchase Agreement between the Company and Austinvest Anstalt Balzers; Esquire Trade & Finance Inc.; Amro International, S.A. and Nesher Inc., dated as of March 19, 1999 (3) 4.20 Form of Debenture re: Austinvest Anstalt Balzers, dated as of March 19, 1999 (3) 4.21 Form of Warrant re: Austinvest Anstalt Balzers, dated as of March 19, 1999 (3) 4.22 Form of Registration Rights Agreement between the Company and Austinvest Anstalt Balzers; Esquire Trade & Finance Inc.; Amro International, S.A. and Nesher Inc., dated as of March 19, 1999 (3) 4.23 Amendment to Securities Purchase Agreement with Austinvest Anstalt Balzers; Esquire Trade & Finance Inc.; Amro International, S.A. and Nesher Inc., dated June 28, 1999 (amends 4.19) (6) 4.24 Securities Purchase Agreement between the Company 39 and VMR Luxembourg, S.A., dated as of February 25, 1999 (6) 4.25 VMR Debenture, dated as of February 25, 1999 (6) 4.26 VMR Warrant, dated as of February 25, 1999 (6) 4.27 VMR Registration Rights Agreement, dated as of February 25, 1999 (6) 4.28 Securities Purchase Agreement between the Company and VMR Luxembourg S.A., dated July 26, 1999 (6) 4.29 VMR Debenture, dated as of July 26, 1999 (6) 4.30 VMR Security Agreement, dated as of July 26, 1999 (6) 4.31 VMR Registration Rights Agreement, dated as of July 26, 1999 (6) 4.32 Securities Purchase Agreement between the Company and Hudson Investors LLC, dated as of August 5, 1999 (6) 4.33 Hudson Investors LLC Registration Rights Agreement, dated as of August 5, 1999 (6) 4.34 Hudson Investors LLC Debenture, dated as of August 5, 1999 (6) 4.35 Hudson Investors LLC Warrant, dated as of August 5, 1999 (6) 4.36 1999 Stock Option, Deferred Stock and Restricted Stock Plan (7) 4.37 Amendment No. 1 to VMR Securities Purchase Agreement dated as of October 6, 1999, amending the February 25, 1999 Securities Purchase Agreement (10) 10.1 Agreement with Mel Giniger (1) 10.2 Agreement with Beyond Distribution PTY. Limited (1) 10.3 Interpublic Group of Companies Contract (1) 10.4 Employment Agreement, dated as of August 1, 1999, between the Company and Drew Levin as amended as of October 29, 1999, as further amended as of February 15, 2000 (11) 10.6 Agreement with Alliance Production Ltd. re Total Recall (1) 10.7 Interpublic -- Team Co-financing Agreement (1) 10.8 Miramax Term Sheet (1) 10.9 Agreement with Leucadia Film Corp. (1) 10.10 Agreement with DD Video, dated August 2, 1999 (9) 10.11 Dandelion Distribution Ltd., Share Purchase Agreement dated as of October 1, 1999 (9) 10.13 Employment Agreement, dated as of October 1, 1999, between Dandelion Distribution Ltd., and Noel Cronin (9) 10.14 Employment Agreement, dated as of October 11, 1999, between Dandelion Distribution Ltd., and John Clutton (9) 10.16 Agreement between the Company and Gontard & MetallBank AG re: secondary listing and public offering of the Company's common stock in Germany (9) 10.18 Employment Agreement, dated as of August 17, 1999 between the Company and Timothy A. Hill (8) 10.21 Investment Banking Agreement by and between the Company and Glen Michael Financial (8) 10.22 Consulting Agreement, dated November 17, 1999 between the Company, Investor Relations Services, Inc., and Infusion Capital Investment Corporation (8) 40 10.23 Agreement with Film Libraries, Inc. dated June 25, 1999 and Agreement with Film Brokers, Inc., dated June 25, 1999, re: commission for purchase (6) 10.24 Agreement with Renown Pictures, Ltd., dated as of June 28, 1999 (6) 10.25 Financial Consulting Agreement, dated March 15, 1999, between the Company and Century City Securities, Inc., and Letter from Company dated July 29, 1999 re: payment under Financial Consulting Agreement (8) 10.26 Form of Consultants' Warrant for Ralph Olson, Investor Resource Services, Inc., Aurora Holdings, Inc., Affiliated Services, Inc., Amber Capital, Inc., and Hedblom Partners, Ltd. (8) 10.27 Consulting Agreement, dated May 3, 1999 between the Company and Marathon Consulting Corporation (8) 10.28 Employment Agreement dated as of November 15, 1999, between the Company and Paula Fierman (9) 10.29 Employment Agreement dated as of November 1, 1999, between the Company and Larry Friedricks (9) 10.30 Lease between the Company and The Marcel George Family Trust of September 2, 1982, dated November 3, 1999 (9) 10.31 License Agreement with String of Pearls Plc, dated as of September 10, 1999 (9) 10.32 Employment Agreement dated October 29, 1998, between the Company and Jane Sparango (11) 10.33 Employment Agreement dated as of January 1, 2000, between the Company and Declan O'Brien (11) 10.34 Employment Agreement, dated March 16, 2001 between the Company and Michael J. Solomon (12) 10.35 Employment Agreement, dated March 16, 2001 between the Company and Jay J. Shapiro (12) 10.36 Employment Agreement, dated March 23, 2001 between the Company and Eric S. Elias (12) 10.37 Employment Agreement, dated June 9, 2000 between the Company and James M. Waldron (12) 10.38 Employment Agreement, dated October 12, 2000 between the Company and Martin Y. Mayeda (12) 10.39 Form of compliant in class action litigation filed in the United States District Court for the Central District of California (12) 21 Subsidiaries of the Registrant (9) (1) Incorporated by reference to the Registrant's Registration Statement on Form SB-2, file No. 333-26307, effective July 29, 1998. (2) Incorporated by reference to the Registrant's Current Report on Form 8-K dated March 29, 1999. (3) Incorporated by reference to the Registrant's Current Report on Form 8-K dated February 5, 1999. (4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB dated April 15, 1999. (5) Incorporated by reference to the Registrant's Current Report on Form 8-K dated June 8, 1999. 41 (6) Incorporated by reference to the Registrant's Quarterly Report on Form 10- QB dated August 19, 1999. (7) Incorporated by reference to the Registrant's Definitive Proxy Statement on Form 14A dated May 28, 1999. (8) Incorporated by reference to the Registrant's Registration Statement on Form SB-2, File No. 333-83217, effective August 27, 1999. (9) Incorporated by reference to the Registrant's Registration Statement on Form SB-2, File No. 333-89323, effective November 23, 1999. (10) Incorporated by reference to the Registration Statement on Form SB-2, File No. 333-91283, effective December 8, 1999. (11) Incorporated by reference to the Registrant's Annual Report on Form 10-K dated April 14, 2000. (12) Filed herewith. (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K on January 27, 2000 to report that on January 14, 2000, Mr. Jonathan Shapiro and the Company entered into a Settlement Agreement, whereby the parties agreed to terminate Mr. Shapiro's Employment Agreement with the Company and sever their business relationship. As a result of that agreement, Mr. Shapiro resigned as a director of the Registrant, effective January 14, 2000. 42 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TEAM COMMUNICATIONS GROUP, INC. By: /s/ Michael Jay Solomon ------------------------------- Michael Jay Solomon Chairman of the Board of Directors and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Michael Jay Solomon Date: April 20, 2001 ----------------------------- Michael Jay Solomon Chairman of the Board of Directors and Chief Executive Officer /s/ Jay J. Shapiro Date: April 20, 2001 ----------------------------- Jay J. Shapiro President, Chief Operating Officer and acting Chief Financial Officer /s/ W. Russell Barry Date: April 20, 2001 ----------------------------- W. Russell Barry /s/ Alan D. Liker Date: April 20, 2001 ----------------------------- Alan D. Liker /s/ David Kenin Date: April 20, 2001 ----------------------------- David Kenin 43 EX-10.34 2 dex1034.txt EMPLOYMENT AGREEMENT MICHAEL J. SOLOMON EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement"), is entered into this __ day of March 2001, to be effective as of February 12, 2001 (the "Effective Date"), by and between TEAM COMMUNICATIONS GROUP, INC., a California corporation (the "Company") having offices at 11818 Wilshire Boulevard, 2nd floor, Los Angeles, California 90025, and MICHAEL J. SOLOMON, an individual residing at 14 Beverly Park, Beverly Hills, CA 90210 (the "Executive"); W I T N E S S E T H: WHEREAS, the Executive has heretofore served as a member of the board of directors of the Company; and WHEREAS, the Executive has extensive experience in connection with licensing, marketing, and promotion and development of consumer and entertainment products of all types and descriptions; and WHEREAS, the Company desires to assure itself of the right to the Executive's services from and after the date hereof, on the terms and conditions of this Agreement; and WHEREAS, the Executive is willing to render services to the Company from and after the date hereof, on the terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: 1. Nature of Employment. (a) Subject to the terms and conditions of this Agreement, the Company shall retain the Executive, and the Executive shall render services to the Company, as its Chairman of the Board of Directors and Chief Executive Officer. In such connection, the Executive shall supervise, direct and be responsible for (i) the implementation of all corporate policies and directives established by the Board of Directors of the Company, (ii) the operation and management of the Company; and (iii) such other duties and responsibilities as are customarily performed by a Chief Executive Officer of a corporation. The Executive shall report to and shall be subject to the ultimate direction and guidance of the Board of Directors of the Company. (b) Throughout the period of his employment hereunder, the Executive shall devote such portion of his business time and efforts as he shall reasonably determine shall be required to perform his duties and responsibilities hereunder on behalf of the Company faithfully, diligently and to the best of his ability. The Company expressly acknowledges that the Executive has informed the Company of the nature and extent of the other business activities in which he is engaged which take up a portion of his business and professional time, and the Company hereby expressly agrees that the Executive may continue to engage in such other business activities; provided, however, the Executive does hereby covenant and agree that in connection with engaging in any such other business activities, he shall not compete with or engage in activities which represent an actual or potential conflict of interest with the business then engaged in by the Company, unless otherwise expressly approved by the other members of the Board of Directors of the Company. By its execution of this Agreement, the Company and the Board of Directors hereby approve of the Executive serving as Chairman of the Board of Directors of Victory Entertainment Corp. ("Victory"), a producer and distributor of television and Internet programming and marketer of program-related branded consumer merchandise, so long as such activities on behalf of Victory do not interfere with the obligations of the Executive hereunder, including those set forth in the first sentence of this Section 1(b). (c) The Executive shall do such traveling as may reasonably be required in connection with the performance of such duties and responsibilities; provided, however, that the Executive shall not be assigned to regular duties such as would reasonably require him to relocate his permanent residence from the greater Los Angeles, California area. (d) Throughout the term of this Agreement, the Company shall cause the Executive to be nominated for election to the Board of Directors of the Company, and, if so elected, the Board of Directors shall elect him to the position of Chairman of the Board of Directors. 2. Term of Employment; Termination. (a) Subject to prior termination in accordance with Section 2(b) below, the Executive's full-time employment hereunder shall commence on the Effective Date and shall continue through and including March 31, 2004 (the "Initial Term"). Following the Initial Term, this Agreement shall continue on the same terms and conditions set forth herein for additional one (1) year periods (each a "Renewal Period"), unless either the Company or the Executive elects to terminate this Agreement by written notice to the other given not later than thirty (30) days prior to the expiration date of the Initial Term or any Renewal Period. (b) In addition to termination at the end of the Initial Term or any Renewal Period, this Agreement: (i) may be terminated at any time upon mutual written agreement of the Company and the Executive; (ii) may be terminated at any time, at the option of the Executive, upon thirty (30) days' prior written notice to the Company, in the event that (A) the Company shall fail to make any material payment to the Executive required to be made under the terms of this Agreement, or (B) the Company shall fail to perform any other material covenant or agreement to be performed by the Company under this Agreement or under the Registration Rights Agreement (as hereinafter defined) and shall fail to cure or remedy same within thirty (30) days after written notice thereof by the Executive to the Company; (iii) may be terminated, at the option of the Board of the Company (the Executive abstaining from any such vote), at any time "for cause" (as hereinafter defined); 2 (iv) may be terminated, at the option of the Company, at any time in the event of the "permanent disability" (as hereinafter defined) of the Executive; or (v) shall automatically terminate upon the death of the Executive. (c) As used herein, the term "for cause" shall mean and be limited to the mutual agreement of the parties or a final determination as provided in Section 11 of this Agreement that there has occurred: (i) a material breach of this Agreement by the Executive which in any case was not corrected within thirty (30) days after written notice of same from the Company to the Executive (which notice shall specify in detail the nature of Executive's alleged breach); (ii) gross negligence or malfeasance by the Executive in the performance of his duties and responsibilities hereunder; (iii) in the absence of a breach by the Company of its obligations hereunder, the voluntary resignation by Executive as an employee of the Company without the prior written consent of the Company, or (iv) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. No act or failure to act on the Executive's part shall deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. (d) As used herein, the term "permanent disability" shall mean, and be limited to, any physical or mental illness, disability or impairment that prevents, or is reasonably likely to prevent, the Executive from continuing the performance of his normal duties and responsibilities hereunder for a period (i) in excess of six (6) consecutive months, or (ii) of six (6) months or more (whether or not consecutive) in any twelve (12) month period. For purposes of determining whether a "permanent disability" has occurred under this Agreement, the written determination thereof by two (2) qualified practicing physicians selected and paid for by the Company (and reasonably acceptable to the Executive) shall be conclusive. (e) Upon any termination of this Agreement as provided in Section 2(b), the Executive (or his estate or legal representatives, as the case may be) shall be entitled to receive any and all (i) earned but unpaid Base Salary (as such term is hereinafter defined) appropriately prorated to and as of the effective date of termination (based on the number of days elapsed prior to the date of termination), and (ii) any other amounts then due and payable to the Executive hereunder; provided, however, (A) if such termination was as a result of the application of the provisions of Section 2(b)(ii) above, in addition to any other amounts then due and payable to the Executive, the Executive or his estate or legal representatives shall be entitled to receive the Base Salary through the entire Initial Term of this Agreement or any Renewal Period, if applicable; and (B) if such termination was as a result of the application of the provisions of Section 2(b)(iv) or Section 2(b)(v) above, in addition to any other amounts then due and payable to the Executive, the Executive or his estate or legal representatives shall be entitled to receive the Base Salary for a period equal to the lesser of eighteen (18) months following the effective date of termination of this Agreement or the remaining Initial Term of this Agreement or any Renewal Period, if applicable. 3 All such payments shall be made on the next applicable payment date therefor (as provided in Section 3 below) following the effective date of termination. Such payments shall constitute all amounts to which the Executive (or his estate or legal representative) shall be entitled upon termination of this Agreement. (f) Notwithstanding anything to the contrary contained in this Agreement, if it shall be established or mutually agreed that termination of this Agreement by the Executive under the provisions of Section 2(b)(ii) above was valid and for good reason, in addition to (and not in lieu of) any other payments and remedies then available to the Executive pursuant to Section 2(e) above, all Options granted under Section 4 of this Agreement shall become fully Vested Options (as hereinafter defined), and all payments under Section 401(k) plans for the benefit of the Executive shall become fully vested, to the extent permitted under any then existing plans. 3. Compensation and Benefits. (a) Base Salary. As compensation for his services to be rendered hereunder, the Company shall pay to the Executive an annual base salary of Six Hundred Thousand ($600,000) Dollars per annum (the "Base Salary"). Such Base Salary shall be subject to (i) increase as provided in Section 3(b) hereof, and (ii) payroll deductions and other withholdings as and to the extent required by law from time to time. Such Base Salary shall be payable to the Executive in accordance with the Company's payroll practices. Notwithstanding the foregoing, until such time as the Company shall have received gross proceeds aggregating Three Million ($3,000,000) Dollars or more from any one or more public or private issuance of debt or equity securities of the Company, strategic alliance, joint venture, partnership, lease, franchise or license agreement which shall be approved by the Board of Directors of the Company (individually a "Financing" and collectively "Financings"), fifty (50%) percent the Executive's Base Salary shall accrue, as hereinafter provided, and be deferred. At such time as one or more Financings of Three Million ($3,000,000) Dollars or more shall have been obtained, all accrued and unpaid Base Salary, calculated from the Effective Date of this Agreement shall become immediately due and payable to the Executive or his legal representatives. In addition to (and not in lieu of) the foregoing Base Salary, in recognition of the significant services heretofore performed by the Executive on an emergency basis, the Company does hereby award to the Executive a signing bonus of One Hundred and Fifty Thousand (150,000) shares of Company Common Stock, to be issued to the Executive as soon as practicable following the execution and delivery of this Agreement. (b) Annual Increases in Base Salary. Effective as of April 1, 2002 and on each March 31st (an "Anniversary Date") thereafter during the Initial Term of this Agreement the Executive's annual Base Salary shall be increased during the twelve (12) consecutive months commencing April 1 and ending March 31 (each an "Anniversary Period") to the amounts set forth below for each Anniversary Period in question: 4 Anniversary Period Base Salary ------------------ ----------- April 1, 2002 to March 31, 2003 $650,000 April 1, 2003 to March 31, 2004 $725,000 (c) Bonus. Commencing with March 31, 2002 and on each subsequent March 31st Anniversary Date during the Term of this Agreement, the Company shall pay to the Executive an annual cash bonus (the "Bonus"), subject to the provisions of this Section 3(c). Such annual Bonus shall be equal to seven and one-half (7.5%) percent of the "Company Net Pre-Tax Earnings" (as hereinafter defined) achieved by the Company in each of the fiscal years of the Company immediately preceding the Anniversary Date in question, commencing with the fiscal year ending December 31, 2001. As used herein, the term "Company Net Pre-Tax Earnings" shall mean the consolidated net income of the Company and each of its consolidated subsidiaries in each of the fiscal years ending during the Term of this Agreement (commencing with the fiscal year ending December 31, 2001), including all extraordinary gains or losses, all as set forth on the audited consolidated statements of income(loss) of the Company for such fiscal year, plus the amount actually deducted on the statements of income for such fiscal year in respect of income taxes, after giving effect to the application of any benefits derived from the utilization of any net operating loss carryforwards in such fiscal year. (d) Fringe Benefits. The Company shall provide the Executive with to an automobile allowance of $1,500 per month to enable the Executive to lease a Company car of his choosing. To the extent reasonably required in connection with the performance of his duties hereunder, the Company will also provide and pay for two full-time secretaries for the Executive who shall work in the premises of the Company. The Company shall also make available to the Executive, throughout the period of his full-time employment hereunder, such benefits and perquisites as are generally provided by the Company to its executive employees, including but not limited to eligibility for participation in any group life, health, dental, vision, disability or accident insurance, pension plan, profit-sharing plan, retirement savings plan, 401(k) plan, or other such benefit plan or policy which may presently be in effect or which may hereafter be adopted by the Company for the benefit of its employees generally; provided, however, that nothing herein contained shall be deemed to require the Company to adopt or maintain any particular plan or policy, or to preclude the Company from amending or terminating any plan or policy. Except for his eligibility under COBRA or as provided in any such benefit plan, the Executive acknowledges that he will cease to be eligible for all or substantially all of such fringe benefits following the conclusion of his full-time employment, and the Executive will not make any claim for any such benefits for which he is not then eligible. (e) Life Insurance. The Company shall promptly obtain and, throughout the Initial Term of this Agreement and any Renewal Period shall maintain and pay the premiums on, one or more policies of term life insurance insuring the life of the Executive in the amount of $3,000,000. Upon the death of the Executive, all proceeds of such life insurance shall be paid to the person(s), estate or legal representatives of the Executive designated as the beneficiaries of such life insurance policies. The Executive agrees to submit to all physical examinations as may be required in order to obtain such life insurance. Upon termination of this Agreement for any reason, other than the Executive's death, the Company shall continue to pay the premium on such life insurance policy(ies) for a minimum of six (6) months following the effective date of 5 such termination. At the Executive's request, the Company shall assign the ownership of such life insurance policy(ies) to the Executive or his designee, provided, that such assignee shall pay all premiums on such life insurance from and after the date of such assignment. (f) Expenses. Throughout the term of this Agreement, Company shall also reimburse the Executive, upon presentment by the Executive to the Company of appropriate receipts and vouchers therefore, for any and all actual and reasonable out-of-pocket business expenses incurred by the Executive in connection with the performance of his duties and responsibilities hereunder; provided, however, that no reimbursement shall be required to be made for any expense which is not properly deductible (in whole or in part) by the Company for income tax purposes, or for any expense item which has not previously been approved as and to the extent required in accordance with the Company's standard policies and procedures in effect from time to time. To the extent that the Executive shall travel to other cities or countries on behalf of the Company he shall have the right to be accompanied by his spouse (if required or beneficial for business purposes in the judgment of the Executive) and all travel, lodging and related expenses incurred in connection with such business trips shall be paid or reimbursed by the Company. 4. Stock Options. The Company and the Executive do hereby agree that the Company shall issue stock options to the Executive under the Company's 1999 Stock Option, Deferred Stock and Restricted Stock Plan (the "Plan"), in accordance with the provisions of this Section 4 and the Plan. (a) The Executive is hereby granted options (the "Options") to purchase an aggregate of one million two hundred thousand (1,200,000) shares (the "Option Shares") of the common stock, no par value, of the Company (the "Common Stock"), all upon the terms and conditions set forth in this Section 4. (b) The exercise price of the Options to purchase all 1,200,000 Option Shares shall be eighty-one cents ($.81) per Option Share (the "Exercise Price"); such price being the closing price of the Company's Common Stock, as traded on the Nasdaq Stock Exchange, Inc. ("Nasdaq") on the date of execution of this Agreement. (c) Options to purchase an aggregate of 400,000 Option Shares shall vest immediately as of the Effective Date of this Agreement (the "Vested Options"). Once any of the Options becomes a Vested Option it may be exercised by the holder at any time or from time to time, in whole or in part, prior to the expiration of the term of such Vested Option. Each Vested Option shall (i) have a term of five (5) years from the date such Option becomes a Vested Option, (ii) shall be exercisable for a period of ninety (90) days following termination of the Executive's employment with the Company, and (iii) shall contain such other terms and conditions that are consistent with options previously granted by the Company to other senior executives under the Plan. 6 (d) Subject to earlier vesting upon the occurrence of any one of the "Early Vesting Events" (hereinafter defined), Options to purchase the remaining 800,000 Option Shares (the "Unvested Options") shall vest, as follows: - -------------------------------------------------------------------------------- Number of Options Vesting Date of Vesting ------------------------- --------------- - -------------------------------------------------------------------------------- 400,000 February 12, 2002 - -------------------------------------------------------------------------------- 400,000 February 12, 2003 - -------------------------------------------------------------------------------- Once an Unvested Option shall vest, it shall be deemed to be a Vested Option for all purposes of this Agreement and the Registration Rights Agreement (as hereinafter defined). (e) Notwithstanding the foregoing vesting schedule, upon the occurrence of the earliest to occur of: (i) a valid termination of this Agreement by the Executive pursuant to the provisions of Section 2(b)(ii) above, (ii) a "Change in Control" (as hereinafter defined), or (iii) the consummation of a "Significant Transaction," as hereinafter defined (each a "Early Vesting Event"), all Unvested Options shall immediately become Vested Options upon consummation of any such Early Vesting Event. As used herein, the term "Change in Control" shall mean the sale of all or transfer of all or substantially all of the assets or securities of the Company to any unaffiliated third party, whether pursuant to a stock sale, asset sale, merger, consolidation or like combination, in each case, where the power to elect a majority of the members of the Board of Directors of the Company shall be vested in such unaffiliated third party. As used herein, a "Significant Transaction" shall mean the occurrence of either or both of the following during the Initial Term of this Agreement while the Executive shall continue to serve as Chief Executive Officer of the Company: (i) one or a series of public or private equity and/or equity equivalent type financings for the benefit of the Company which shall provide the Company with gross proceeds (before customary fees, commissions and other related transaction expenses) of not less than $25.0 million; or (ii) any acquisition by the Company of stock or assets of any third party, or the Company consummating any merger, joint venture, consolidation or related combination with any one or more third parties (not otherwise constituting a Change in Control), as a result of which the average closing price of the Company's publicly traded Common Stock, as reported on the Nasdaq Stock Exchange, Inc. or any other national securities exchange, for thirty (30) consecutive trading days shall be at least $5.00 per share. (f) Subject at all times to immediate vesting of all Unvested Options upon the occurrence of an Early Vesting Event, in the event that this Agreement shall be terminated prior to the expiration of the Initial Term for any of the reasons specified in Section 2 (other than Section 2(b)(ii)) above), all Unvested Options as at the date of such termination shall be forfeited by the Executive and shall terminate and be deemed to have expired as at the date of such termination. 7 (g) All Options granted pursuant to this Section 4 may be exercised by the Executive at any time or from time to time, in whole or in part, for a period of five (5) years from the date such Options shall become Vested Options. To the extent not fully exercised all Vested Options shall expire and be of no further force or effect after their respective expiration dates. (h) The Company covenants and agrees from time to time during the Initial Term of this Agreement and thereafter it shall, within 30 days from the date of each request by the Executive (provided that no such request shall be made more than two times in each Anniversary Period), prepare and file with the Securities and Exchange Commission ("SEC") and use its best efforts to cause to be declared effective a registration statements on Form S-8 (or other applicable form for registering securities) so as to register for resale under the Securities Act of 1933, as amended, all Option Shares applicable to Vested Options held by the Executive or the Solomon Family Trust. (i) The Executive shall have the right to assign the Options and all Option Shares to the Solomon Family Trust or any other trust, foundation or other entity formed for the benefit of the Executive or members of his family. 5. Change in Control Payment. In the event that, in connection with a Change in Control which results in value being received by the Company's stockholders (in cash or fair value of stock or other securities) of $3.00 per share or more (the "Stock Valuation"), the Executive shall elect to resign his employment with the Company, the Company or any successor in interest to the Company shall pay to the Executive, a cash amount (the "Change in Control Payment") which shall be equal to the amounts set forth below, based upon the Stock Valuation in effect as at the time of or in connection with such Change in Control. - -------------------------------------------------------------------------------- Stock Valuation Change in Control Payment --------------- ------------------------- - -------------------------------------------------------------------------------- $3.00 per share $1,000,000 - -------------------------------------------------------------------------------- $3.01 per share to $4.00 per share $1,000,000 plus $3,333 for each one cent above $3.00 up to $4.00; - -------------------------------------------------------------------------------- $4.01 per share to $5.00 per share $1,333,333 plus $6,666 for each one cent above $4.00 up to $5.00; - -------------------------------------------------------------------------------- $5.01 per share to $6.00 per share $2,000,000 plus $10,000 for each one cent above $5.00 up to $6.00; and - -------------------------------------------------------------------------------- Over $6.00 per share $3,000,000. - -------------------------------------------------------------------------------- 8 6. Vacation, etc. (a) During the period of his full-time employment hereunder: (i) The Executive shall be entitled to take, from time to time, normal and reasonable vacations with pay, consistent with the Company's standard policies and procedures in effect from time to time, at such times as shall be mutually convenient to the Executive and the Company, and so as not to interfere unduly with the conduct of the business of the Company. Such vacation time may aggregate up to six (6) weeks per year. (ii) The Executive shall further be entitled to paid holidays, personal days and sick days in accordance with the Company's standard policies and procedures in effect from time to time. 7. Company Property; Confidentiality. (a) The Executive hereby acknowledges and confirms that all ideas and other developments or improvements conceived by the Executive, whether alone or with others, during the term of this Agreement (whether or not during working hours), that are within the scope of the business operations of the Company or any of its subsidiaries or that relate to any business of any type conducted or proposed to be conducted by the Company or any of its subsidiaries, constitute the exclusive property of the Company or the subject subsidiary. The Executive shall assist the Company or its subsidiaries (as applicable) as required in order to establish, confirm and evidence the Company's or its subsidiary's ownership of such ideas, developments and improvements, and shall execute and deliver any and all such agreements, instruments and other documents as may be necessary or appropriate in connection therewith. (b) Upon termination of this Agreement under any circumstances, and otherwise upon request of the Company or any of its subsidiaries, the Executive shall immediately return all property of the Company and/or its subsidiaries utilized by the Executive in rendering services hereunder, to the extent in the Executive's possession or under his control. (c) After the termination or expiration of his employment hereunder, the Executive shall not divulge, furnish or make accessible to anyone (otherwise than in the regular course of business of the Company) any confidential or nonpublic knowledge or information with respect to the business or plans of the Company. 8. Non-Assignability. In light of the unique personal services to be performed by the Executive hereunder, it is acknowledged and agreed that any purported or attempted assignment or transfer by the Executive of this Agreement or any of his duties, responsibilities or obligations hereunder shall be void. 9. Notices. Any notices, requests, demands or other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been given when delivered 9 personally or three (3) days after being mailed by certified mail, return receipt requested, addressed to the party being notified at the address of such party first set forth above, or at such other address as such party may hereafter have designated by notice; provided, however, that any notice of change of address shall not be effective until its receipt by the party to be charged therewith. 10. General. (a) Neither this Agreement nor any of the terms or conditions hereof may be waived, amended or modified except by means of a written instrument duly executed by the party to be charged therewith. Any waiver or amendment shall only be applicable in the specific instance, and shall not constitute or be construed as a waiver or amendment in any other or subsequent instance. No failure or delay on the part of either party in respect of any enforcement of obligations hereunder shall in any manner affect such party's right to seek or effect enforcement at any other time or in respect of any other required performance. (b) Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the express prior written consent of the other party; provided, however, that the Company or any successor or assign may, at any time and from time to time, assign this Agreement as part of the sale of all or any substantial portion of the business of the Company. (c) The captions and section headings used in this Agreement are for convenience of reference only, and shall not affect the construction or interpretation of this Agreement or any of the provisions hereof. (d) This Agreement, and all matters or disputes relating to the validity, construction, performance or enforcement hereof, shall be governed, construed and controlled by and under the laws of the State of California. (e) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns. (f) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original hereof, but all of which together shall constitute one and the same instrument. (g) This Agreement constitutes the sole and entire agreement and understanding between the parties hereto as to the subject matter hereof, and supersedes all prior discussions, agreements and understandings of every kind and nature between them as to such subject matter. (h) This Agreement is intended for the sole and exclusive benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns, and no other person or entity shall have any right to rely on this Agreement or to claim or derive any benefit herefrom absent the express written consent of the party to be charged with such reliance or benefit. 10 (i) If any provision of this Agreement is held invalid or unenforceable, either in its entirety or by virtue of its scope or application to given circumstances, such provision shall thereupon be deemed modified only to the extent necessary to render same valid, or not applicable to given circumstances, or excised from this Agreement, as the situation may require; and this Agreement shall be construed and enforced as if such provision had been included herein as so modified in scope or application, or had not been included herein, as the case may be. 11. Resolution of Disputes, Binding Arbitration. (a) Whenever a claim shall arise involving the interpretation or application of this Agreement, the complaining party shall so notify the other party in writing. Such notice shall specify all facts known to the complaining party giving rise to such claim or dispute and shall estimate (to the extent reasonably possible) the amount of potential liability arising therefrom. If the other party shall be duly notified of such dispute, the parties shall attempt to settle and compromise the same. (b) In the event that any dispute involving the interpretation or application of this Agreement which cannot be settled or compromised, as aforesaid, within twenty (20) days of receipt of the subject claim, either the complaining party or the other party shall promptly thereafter submit the dispute for final and binding arbitration to JAMS or End-Dispute before a three-person panel of arbitrators who shall be either (i) retired federal judges, or (ii) other persons experienced in resolving commercial disputes and who are acceptable to both the complaining party and the other party to such dispute (the "Arbitration"). Any such Arbitration shall be in Los Angeles, California. The panel of arbitrators shall be selected within twenty (20) days of submission of such dispute to Arbitration. The parties shall use their collective best efforts to promptly schedule and conduct the hearings before such arbitrators, with a view toward concluding such arbitration proceedings not later than thirty (30) days from the first submission of the dispute to arbitration. In addition to, and not in lieu of, arbitration as a means of dispute resolution hereunder, any party hereto shall have the right to seek specific enforcement of this Agreement, or other injunctive or equitable relief or remedy before any court of competent jurisdiction. (c) In connection with any Arbitration pursuant to this Section 11, the arbitrators shall, as part of their award, allocate the fee of the Arbitration, including all fees of the arbitrators, the cost of any transcripts, and the parties' reasonable attorneys' fees, based upon and taking into account the arbitrators' determination of the merits and good faith of the parties' claims and defenses in the subject proceeding. (d) The decision and award of the arbitrators shall be final and binding upon the parties hereto and shall be enforceable in any court of competent jurisdiction, including any federal or state court in the State of California. Any process or other papers hereunder may be served by registered or certified mail, return receipt requested, or by personal service, provided that a reasonable time for appearance or response is allowed. (e) Any rights established by reason of such settlement, compromise, arbitration or litigation shall promptly thereafter be satisfied by the losing party in such amount 11 as shall be necessary to satisfy all applicable losses or damages sustained or incurred by the complaining party, as determined in accordance with such settlement and compromise, or by final nonappealable order or judgment of the applicable judicial or arbitration panel. (f) In connection with the defense of any third party claims for which claims for indemnification have been made hereunder, each party will provide reasonable access to its and the Company's books and records as and to the extent required for the proper defense of such third party claim. Neither party shall consent to any settlement or purport to bind any other party to any settlement without the written consent of the other party. (g) Notwithstanding anything to the contrary set forth above, in the event and to the extent that the complaining party shall believe that such party shall then have no adequate remedy at law, the complaining party shall have the right, in addition to and not in lieu of the right to obtain compensatory or other monetary relief, to seek and obtain injunctive relief, specific performance or such other equitable remedies as any court of competent jurisdiction shall deem appropriate in the circumstances. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the date first set forth above. TEAM COMMUNICATIONS GROUP, INC. By:___________________________________ ______________________________________ MICHAEL J. SOLOMON 12 EX-10.35 3 dex1035.txt EMPLOYMENT AGREEMENT JAY J. SHAPIRO EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement"), is entered into this __ day of March 2001, to be effective as of March 1, 2001 (the "Effective Date"), by and between TEAM COMMUNICATIONS GROUP, INC., a California corporation (the "Company") having offices at 11818 Wilshire Boulevard, 2nd floor, Los Angeles, California 90025, and JAY J. SHAPIRO, an individual residing at 2468 Nalin Drive, Bel-Air, California 90077 (the "Executive"); W I T N E S S E T H: WHEREAS, the Executive has heretofore served as a senior executive officer of the Company; and WHEREAS, the Company desires to assure itself of the right to the Executive's services from and after the date hereof, on the terms and conditions of this Agreement; and WHEREAS, the Executive is willing to render services to the Company from and after the date hereof, on the terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: 1. Nature of Employment. (a) Subject to the terms and conditions of this Agreement, the Company shall initially retain the Executive, and the Executive shall initially render services to the Company, as its President and Chief Financial and Administrative Officer. In such connection, the Executive shall, subject to the approval of the Chairman and Chief Executive Officer, supervise and direct (i) the financial affairs, administration and operational systems of the Company; and (ii) such other duties and responsibilities as are customarily performed by a President and Chief Financial and Administrative Officer of a corporation. The Executive shall report to and shall be subject to the ultimate direction and guidance of the Chief Executive Officer and the Board of Directors of the Company. (b) Throughout the period of his employment hereunder, the Executive shall devote his full business and professional time and efforts to faithfully, diligently and to the best of his ability, perform his duties and responsibilities hereunder on behalf of the Company. (c) The Executive shall do such traveling as may reasonably be required in connection with the performance of such duties and responsibilities; provided, however, that the Executive shall not be assigned to regular duties such as would reasonably require him to relocate his permanent residence from the greater Los Angeles, California area. 2. Term of Employment; Termination. (a) Subject to prior termination in accordance with Section 2(b) below, the Executive's full-time employment hereunder shall commence on the Effective Date and shall continue through and including March 31, 2004 (the "Initial Term"). Following the Initial Term, this Agreement shall continue on the same terms and conditions set forth herein for additional one (1) year periods (each a "Renewal Period"), unless either the Company or the Executive elects to terminate this Agreement by written notice to the other given not later than thirty (30) days prior to the expiration date of the Initial Term or any Renewal Period. (b) In addition to termination at the end of the Initial Term or any Renewal Period, this Agreement: (i) may be terminated at any time upon mutual written agreement of the Company and the Executive; (ii) may be terminated at any time, at the option of the Executive, upon thirty (30) days' prior written notice to the Company, in the event that (A) the Company shall fail to make any payment to the Executive required to be made under the terms of this Agreement, or (B) the Company shall fail to perform any other material covenant or agreement to be performed by the Company under this Agreement or under the Registration Rights Agreement (as hereinafter defined) and shall fail to cure or remedy same within thirty (30) days after written notice thereof by the Executive to the Company; (iii) may be terminated, at the option of the Board of the Company (the Executive abstaining from any such vote), at any time "for cause" (as hereinafter defined); (iv) may be terminated, at the option of the Company, at any time in the event of the "permanent disability" (as hereinafter defined) of the Executive; or (v) shall automatically terminate upon the death of the Executive. (c) As used herein, the term "for cause" shall mean and be limited to the mutual agreement of the parties or a final determination as provided in Section 9 of this Agreement that there has occurred: (i) a material breach of this Agreement by the Executive which in any case was not corrected within thirty (30) days after written notice of same from the Company to the Executive (which notice shall specify in detail the nature of Executive's alleged breach); (ii) gross negligence or malfeasance by the Executive in the performance of his duties and responsibilities hereunder; (iii) in the absence of a breach by the Company of its obligations hereunder, the voluntary resignation by Executive as an employee of the Company without the prior written consent of the Company, or (iv) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. No act or failure to act on the Executive's part shall deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. 2 (d) As used herein, the term "permanent disability" shall mean, and be limited to, any physical or mental illness, disability or impairment that prevents, or is reasonably likely to prevent, the Executive from continuing the performance of his normal duties and responsibilities hereunder for a period (i) in excess of six (6) consecutive months, or (ii) of six (6) months or more (whether or not consecutive) in any twelve (12) month period. For purposes of determining whether a "permanent disability" has occurred under this Agreement, the written determination thereof by two (2) qualified practicing physicians selected and paid for by the Company (and reasonably acceptable to the Executive) shall be conclusive. (e) Upon any termination of this Agreement as provided in Section 2(b), the Executive (or his estate or legal representatives, as the case may be) shall be entitled to receive any and all (i) earned but unpaid Base Salary (as such term is hereinafter defined) appropriately prorated to and as of the effective date of termination (based on the number of days elapsed prior to the date of termination), and (ii) any other amounts then due and payable to the Executive hereunder; provided, however, (A) if such termination was as a result of the application of the provisions of Section 2(b)(ii) above, in addition to any other amounts then due and payable to the Executive, the Executive or his estate or legal representatives shall be entitled to receive the Base Salary through the entire Initial Term of this Agreement or any Renewal Period, if applicable; and (B) if such termination was as a result of the application of the provisions of Section 2(b)(iv) or Section 2(b)(v) above, in addition to any other amounts then due and payable to the Executive, the Executive or his estate or legal representatives shall be entitled to receive the Base Salary for a period equal to the lesser of eighteen (18) months following the effective date of termination of this Agreement or the remaining Initial Term of this Agreement or any Renewal Period, if applicable. All such payments shall be made on the next applicable payment date therefore (as provided in Section 3 below) following the effective date of termination. Such payments shall constitute all amounts to which the Executive (or his estate or legal representative) shall be entitled upon termination of this Agreement. (f) Notwithstanding anything to the contrary contained in this Agreement, if it shall be established or mutually agreed that termination of this Agreement by the Executive under the provisions of Section 2(b)(ii) above was valid and for good reason, in addition to (and not in lieu of) any other payments and remedies then available to the Executive pursuant to Section 2(e) above, all Options granted under Section 4 of this Agreement shall become fully Vested Options (as hereinafter defined), and all payments under Section 401(k) plans for the benefit of the Executive shall become fully vested, to the extent permitted under any then existing plans. 3. Compensation and Benefits. (a) Base Salary. As compensation for his services to be rendered hereunder, the Company shall pay to the Executive an annual base salary of Four Hundred Thousand 3 ($400,000) Dollars per annum (the "Base Salary"). Such Base Salary shall be subject to (i) increase as provided in Section 3(b) hereof, and (ii) payroll deductions and other withholdings as and to the extent required by law from time to time. Such Base Salary shall be payable to the Executive in accordance with the Company's payroll practices. Notwithstanding the foregoing, until such time as the Company shall have received gross proceeds aggregating Three Million ($3,000,000) Dollars or more from any one or more public or private debt or equity issuance of securities of the Company, strategic alliance, joint venture, partnership, lease, franchise or license agreement which shall be approved by the Board of Directors of the Company (individually a "Financing" and collectively "Financings"), fifty (50%) percent the Executive's Base Salary shall accrue, as hereinafter provided, and be deferred. At such time as one or more Financings of Three Million ($3,000,000) Dollars or more shall have been obtained, all accrued and unpaid Base Salary, calculated from the Effective Date of this Agreement shall become immediately due and payable to the Executive or his legal representatives. In addition to (and not in lieu of) the foregoing Base Salary, in recognition of the significant services heretofore performed by the Executive on an emergency basis, upon execution of this Agreement, the Company does hereby award to the Executive a cash signing bonus in the amount of $50,000. (b) Annual Increases in Base Salary. Effective as of April 1, 2002 and on each March 31st (an "Anniversary Date") thereafter during the Term of this Agreement the Executive's annual Base Salary shall be increased during the twelve (12) consecutive months commencing April 1 and ending March 31 (each an "Anniversary Period") to the amounts set forth below for each Anniversary Period in question: Anniversary Period Base Salary ------------------ ----------- April 1, 2002 to March 31, 2003 $425,000 April 1, 2003 to March 31, 2004 $450,000 (c) Bonus. Commencing with March 31, 2002 and on each subsequent March 31st Anniversary Date during the Term of this Agreement, the Company shall pay to the Executive an annual cash bonus (the "Bonus"), subject to the provisions of this Section 3(c). Such annual Bonus shall be equal to five (5.0%) percent of the "Company Net Pre-Tax Earnings" (as hereinafter defined) achieved by the Company in each of the fiscal years of the Company immediately preceding the Anniversary Date in question, commencing with the fiscal year ending December 31, 2001. As used herein, the term "Company Net Pre-Tax Earnings" shall mean the consolidated net income of the Company and each of its consolidated subsidiaries in each of the fiscal years ending during the Term of this Agreement (commencing with the fiscal year ending December 31, 2001), including all extraordinary gains or losses, all as set forth on the audited consolidated statements of income(loss) of the Company for such fiscal year, plus the amount actually deducted on the statements of income for such fiscal year in respect of income taxes, after giving effect to the application of any benefits derived from the utilization of any net operating loss carryforwards in such fiscal year. 4 (d) Fringe Benefits. The Company shall provide the Executive with a Company car of his choosing and grant him an automobile allowance of $1,000 per month. The Company shall also make available to the Executive, throughout the period of his full-time employment hereunder, such benefits and perquisites as are generally provided by the Company to its executive employees, including but not limited to eligibility for participation in any group life, health, dental, vision, disability or accident insurance, pension plan, profit-sharing plan, retirement savings plan, 401(k) plan, or other such benefit plan or policy which may presently be in effect or which may hereafter be adopted by the Company for the benefit of its employees generally; provided, however, that nothing herein contained shall be deemed to require the Company to adopt or maintain any particular plan or policy, or to preclude the Company from amending or terminating any plan or policy. Except for his eligibility under COBRA or as provided in any such benefit plan, the Executive acknowledges that he will cease to be eligible for all or substantially all of such fringe benefits following the conclusion of his full-time employment, and the Executive will not make any claim for any such benefits for which he is not then eligible. (e) Life Insurance. The Company shall promptly obtain and, throughout the Initial Term of this Agreement and any Renewal Period shall maintain and pay the premiums on, one or more policies of term life insurance insuring the life of the Executive in the amount of $1,000,000. Upon the death of the Executive, all proceeds of such life insurance shall be paid to the person(s), estate or legal representatives of the Executive designated as the beneficiaries of such life insurance policies. The Executive agrees to submit to all physical examinations as may be required in order to obtain such life insurance. At the Executive's request, assign the ownership of such life insurance policy(ies) to the Executive or his designee, provided, that such assignee shall pay all premiums on such life insurance from and after the date of such assignment. (f) Expenses. Throughout the term of this Agreement, Company shall also reimburse the Executive, upon presentment by the Executive to the Company of appropriate receipts and vouchers therefore, for any and all actual and reasonable out-of-pocket business expenses incurred by the Executive in connection with the performance of his duties and responsibilities hereunder; provided, however, that no reimbursement shall be required to be made for any expense which is not properly deductible (in whole or in part) by the Company for income tax purposes, or for any expense item which has not previously been approved as and to the extent required in accordance with the Company's standard policies and procedures in effect from time to time. To the extent that the Executive shall travel to other cities or countries on behalf of the Company, when traveling by air, he shall have the right to travel business class and all travel, lodging and related expenses incurred in connection with such business trips shall be paid or reimbursed by the Company. 4. Stock Options. The Company and the Executive do hereby agree that the Company shall issue stock options to the Executive under the Company's 1999 Stock Option, Deferred Stock and Restricted Stock Plan (the "Plan"), in accordance with the provisions of this Section 4 and the Plan. 5 (a) The Executive is hereby granted options (the "Options") to purchase an aggregate of four hundred thousand (400,000) shares (the "Option Shares") of the common stock, $.01 par value per share , of the Company (the "Common Stock"), all upon the terms and conditions set forth in this Section 4. (b) The exercise price of the Options to purchase all 400,000 Option Shares shall be eighty one cents ($0.81) per Option Share (the "Exercise Price"); being the closing price of the Company's Common Stock, as traded on the Nasdaq Stock Exchange, Inc. ("Nasdaq") on the date of execution of this Agreement. (c) Options to purchase an aggregate of 133,333 Option Shares shall vest immediately as of the Effective Date of this Agreement (the "Vested Options"). Once any of the Options becomes a Vested Option it may be exercised by the holder at any time or from time to time, in whole or in part, prior to the expiration of the term of such Vested Option. Each Vested Option shall (i) have a term of five (5) years from the date such Option becomes a Vested Option, (ii) shall be exercisable for a period of ninety (90) days following termination of the Executive's employment with the Company, and (iii) shall contain such other terms and conditions that are consistent with options previously granted by the Company to other senior executives under the Plan. (d) Subject to earlier vesting upon the occurrence of any one of the "Early Vesting Events" (hereinafter defined), Options to purchase the remaining 266,667 Option Shares (the "Unvested Options") shall vest, as follows: - -------------------------------------------------------------------------------- Number of Options Vesting Date of Vesting ------------------------- --------------- - -------------------------------------------------------------------------------- 133,333 February 12, 2002 - -------------------------------------------------------------------------------- 133,334 February 12, 2003 - -------------------------------------------------------------------------------- Once an Unvested Option shall vest, it shall be deemed to be a Vested Option for all purposes of this Agreement and the Registration Rights Agreement (as hereinafter defined). (e) Notwithstanding the foregoing vesting schedule, upon the occurrence of the earliest to occur of: (i) a valid termination of this Agreement by the Executive pursuant to the provisions of Section 2(b)(ii) above, or (ii) a "Change in Control" (as hereinafter defined), or (iii) the consummation of a "Significant Transaction," as hereinafter defined (each a "Early Vesting Event"), all Unvested Options shall immediately become Vested Options upon consummation of any such Early Vesting Event. As used herein, the term "Change in Control" shall mean the sale of all or transfer of all or substantially all of the assets or securities of the Company to any unaffiliated third party, whether pursuant to a stock sale, asset sale, merger, consolidation or like combination, in each case, where the power to elect a majority of the members of the Board of Directors of the Company shall be vested in such unaffiliated third party. 6 As used herein, a "Significant Transaction" shall mean the occurrence of either or both of the following during the Initial Term of this Agreement while the Executive shall continue to serve as President and Chief Financial and Administrative Officer of the Company: (i) one or a series of public or private equity and/or equity equivalent type financings for the benefit of the Company which shall provide the Company with gross proceeds (before customary fees, commissions and other related transaction expenses) of not less than $25.0 million; or (ii) any acquisition by the Company of stock or assets of any third party, or the Company consummating any merger, joint venture, consolidation or related combination with any one or more third parties (not otherwise constituting a Change in Control), as a result of which the average closing price of the Company's publicly traded Common Stock, as reported on the Nasdaq Stock Exchange, Inc. or any other national securities exchange, for thirty (30) consecutive trading days shall be at least $5.00 per share. (f) Subject at all times to immediate vesting of all Unvested Options upon the occurrence of an Early Vesting Event, in the event that this Agreement shall be terminated prior to the expiration of the Initial Term for any of the reasons specified in Section 2 (other than Section 2(b)(ii)) above , all Unvested Options as at the date of such termination shall be forfeit by the Executive and shall terminate and be deemed to have expired as at the date of such termination. (g) To the extent not fully exercised all Vested Options shall expire and be of no further force or effect after their respective expiration dates. (h) The Company covenants and agrees within 12 months from the Effective Date of this Agreement, the Company shall prepare and file with the Securities and Exchange Commission ("SEC") and use its best efforts to cause to be declared effective a registration statement on Form S-8 (or other applicable form for registering securities) so as to register for resale under the Securities Act of 1933, as amended, all Option Shares applicable to Vested Options held and any shares purchased by the Executive upon exercise of Vested Options. In addition, all other Option Shares applicable to Vested Options held by the Executive shall be included in any subsequent Form S-8 registration statements filed under the Securities Act of 1933, as amended. (i) The Executive shall have the right to assign the Options and all Option Shares to the Jay J. Shapiro Revocable Trust or any other trust, foundation or other entity formed for the benefit of the Executive or members of his family. 5. Change in Control Payment. In the event that, in connection with a Change in Control which results in value being received by the Company's stockholders (in cash or fair value of stock or other securities) of $3.00 per share or more (the "Stock Valuation"), the Executive shall elect to resign his employment with the Company, the Company or any successor in interest to the Company shall pay to the Executive, a cash amount (the "Change in Control Payment") which shall be equal to the amounts set forth below, based upon the Stock Valuation in effect as at the time of or in connection with such Change in Control. 7 - -------------------------------------------------------------------------------- Stock Valuation Change in Control Payment --------------- ------------------------- - -------------------------------------------------------------------------------- $3.00 per share $433,333 - -------------------------------------------------------------------------------- $3.01 per share to $4.00 per share $533,333 plus $5,555 for each one cent above $3.00 up to $4.00; - -------------------------------------------------------------------------------- $4.01 per share to $5.00 per share $777,777 plus $7,777 for each one cent above $4.00 up to $5.00; - -------------------------------------------------------------------------------- Above $5.00 $1,000,000 - -------------------------------------------------------------------------------- 6. Vacation, etc. (a) During the period of his full-time employment hereunder: (i) The Executive shall be entitled to take, from time to time, normal and reasonable vacations with pay, consistent with the Company's standard policies and procedures in effect from time to time, at such times as shall be mutually convenient to the Executive and the Company, and so as not to interfere unduly with the conduct of the business of the Company. Such vacation time may aggregate up to four (4) weeks per year. (ii) The Executive shall further be entitled to paid holidays, personal days and sick days in accordance with the Company's standard policies and procedures in effect from time to time. 7. Company Property. (b) The Executive hereby acknowledges and confirms that all ideas and other developments or improvements conceived by the Executive, whether alone or with others, during the term of this Agreement (whether or not during working hours), that are within the scope of the business operations of the Company or any of its subsidiaries or that relate to any business of any type conducted or proposed to be conducted by the Company or any of its subsidiaries, constitute the exclusive property of the Company or the subject subsidiary. The Executive shall assist the Company or its subsidiaries (as applicable) as required in order to establish, confirm and evidence the Company's or its subsidiary's ownership of such ideas, developments and improvements, and shall execute and deliver any and all such agreements, instruments and other documents as may be necessary or appropriate in connection therewith. (c) Upon termination of this Agreement under any circumstances, and otherwise upon request of the Company or any of its subsidiaries, the Executive shall immediately return all property of the Company and/or its subsidiaries utilized by the Executive in rendering services hereunder, to the extent in the Executive's possession or under his control. 8 8. Non-Assignability. In light of the unique personal services to be performed by the Executive hereunder, it is acknowledged and agreed that any purported or attempted assignment or transfer by the Executive of this Agreement or any of his duties, responsibilities or obligations hereunder shall be void. 9. Notices. Any notices, requests, demands or other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or three (3) days after being mailed by certified mail, return receipt requested, addressed to the party being notified at the address of such party first set forth above, or at such other address as such party may hereafter have designated by notice; provided, however, that any notice of change of address shall not be effective until its receipt by the party to be charged therewith. 10. General. (a) Neither this Agreement nor any of the terms or conditions hereof may be waived, amended or modified except by means of a written instrument duly executed by the party to be charged therewith. Any waiver or amendment shall only be applicable in the specific instance, and shall not constitute or be construed as a waiver or amendment in any other or subsequent instance. No failure or delay on the part of either party in respect of any enforcement of obligations hereunder shall in any manner affect such party's right to seek or effect enforcement at any other time or in respect of any other required performance. (b) Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the express prior written consent of the other party; provided, however, that the Company or any successor or assign may, at any time and from time to time, assign this Agreement as part of the sale of all or any substantial portion of the business of the Company. (c) The captions and section headings used in this Agreement are for convenience of reference only, and shall not affect the construction or interpretation of this Agreement or any of the provisions hereof (d) This Agreement, and all matters or disputes relating to the validity, construction, performance or enforcement hereof, shall be governed, construed and controlled by and under the laws of the State of California. (e) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns. 9 (f) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original hereof, but all of which together shall constitute one and the same instrument. (g) This Agreement constitutes the sole and entire agreement and understanding between the parties hereto as to the subject matter hereof, and supersedes all prior discussions, agreements and understandings of every kind and nature between them as to such subject matter. (h) This Agreement is intended for the sole and exclusive benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns, and no other person or entity shall have any right to rely on this Agreement or to claim or derive any benefit herefrom absent the express written consent of the party to be charged with such reliance or benefit. (i) If any provision of this Agreement is held invalid or unenforceable, either in its entirety or by virtue of its scope or application to given circumstances, such provision shall thereupon be deemed modified only to the extent necessary to render same valid, or not applicable to given circumstances, or excised from this Agreement, as the situation may require; and this Agreement shall be construed and enforced as if such provision had been included herein as so modified in scope or application, or had not been included herein, as the case may be. 11. Resolution of Disputes, Binding Arbitration. (a) Whenever a claim shall arise involving the interpretation or application of this Agreement, the complaining party shall notify the other party in writing within thirty (30) days of the complaining party's first receipt of notice of, or the complaining party's obtaining actual knowledge of, such claim, and in any event within such shorter period as may be necessary for the other party to take appropriate action to resist such claim. Such notice shall specify all facts known to the complaining party giving rise to such claim or dispute and shall estimate (to the extent reasonably possible) the amount of potential liability arising therefrom. If the other party shall be duly notified of such dispute, the parties shall attempt to settle and compromise the same. (b) In the event that any dispute involving the interpretation or application of this Agreement which cannot be settled or compromised, as aforesaid, within twenty (20) days of receipt of the subject claim, either the complaining party or the other party shall promptly thereafter submit the dispute for final and binding arbitration to JAMS or End-Dispute before a three-person panel of arbitrators who shall be either (i) retired federal judges, or (ii) other persons experienced in resolving commercial disputes and who are acceptable to both the complaining party and the other party to such dispute (the "Arbitration"). Any such Arbitration shall be in Los Angeles, California. The panel of arbitrators shall be selected within twenty (20) days of submission of such dispute to Arbitration. The parties shall use their collective best efforts to promptly schedule and conduct the hearings before such arbitrators, with a view toward concluding such arbitration proceedings not later than thirty (30) days from the first submission of the dispute to arbitration. In addition to, and not in lieu of, arbitration as a means of dispute 10 resolution hereunder, any party hereto shall have the right to seek specific enforcement of this Agreement or any Transaction Document, or other injunctive or equitable relief or remedy before any court of competent jurisdiction. (c) In connection with any Arbitration pursuant to this Section 9, the arbitrators shall, as part of their award, allocate the fee of the Arbitration, including all fees of the arbitrators, the cost of any transcripts, and the parties' reasonable attorneys' fees, based upon and taking into account the arbitrators' determination of the merits and good faith of the parties' claims and defenses in the subject proceeding. (d) The decision and award of the arbitrators shall be final and binding upon the parties hereto and shall be enforceable in any court of competent jurisdiction, including any federal or state court in the State of California. Any process or other papers hereunder may be served by registered or certified mail, return receipt requested, or by personal service, provided that a reasonable time for appearance or response is allowed. (e) Any rights established by reason of such settlement, compromise, arbitration or litigation shall promptly thereafter be satisfied by the losing party in such amount as shall be necessary to satisfy all applicable losses or damages sustained or incurred by the complaining party, as determined in accordance with such settlement and compromise, or by final nonappealable order or judgment of the applicable judicial or arbitration panel. (f) In connection with the defense of any third party claims for which claims for indemnification have been made hereunder, each party will provide reasonable access to its and the Company's books and records as and to the extent required for the proper defense of such third party claim. Neither party shall consent to any settlement or purport to bind any other party to any settlement without the written consent of the other party. (g) Notwithstanding anything to the contrary set forth above, in the event and to the extent that the complaining party shall believe that such party shall then have no adequate remedy at law, the complaining party shall have the right, in addition to and not in lieu of the right to obtain compensatory or other monetary relief, to seek and obtain injunctive relief, specific performance or such other equitable remedies as any court of competent jurisdiction shall deem appropriate in the circumstances. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the date first set forth above. TEAM COMMUNICATIONS GROUP, INC. By:___________________________________ ______________________________________ JAY J. SHAPIRO 11 EX-10.36 4 dex1036.txt EMPLOYMENT AGREEMENT ERIC S. ELIAS EMPLOYMENT AGREEMENT THIS AGREEMENT is made March 23, 2001, and is effective as of January 1, 2000, (the "Effective Date"), by and between TEAM COMMUNICATIONS GROUP, INC., a California corporation (herein referred to as the "Company"), and you, Eric S. Elias. In consideration of the mutual covenants, terms and conditions set forth herein, you and the Company agree as follows: 1. The Company hereby employs you pursuant and subject to the terms, conditions and provisions of this Agreement. You hereby accept such employment and agree to render your services to the Company as provided herein, where and when required by the Company (presently in Los Angeles, California), all of which services shall be performed conscientiously and to the full extent of your ability. You further agree to abide by all rules, regulations and policies of the Company. 2. Your title and position with the Company shall be Senior Vice President, General Counsel. 3. You shall report to the Company's chief executive officer, currently Michael J. Solomon and president, currently Jay J. Shapiro. Any conflict between divisions of responsibility between you and any other employee shall be resolved by the chief executive officer. 4. The services to be rendered by you hereunder shall include, without limitation, all services customarily rendered by persons engaged in the same capacity or in a similar capacity in the entertainment industry, and such other services as may be requested by the Company from time to time hereunder. 5. The Term of your employment by the Company under this Agreement shall commence as of the Effective Date and (unless earlier terminated pursuant to this Agreement) shall continue thereafter through December 31, 2003 (the "Term"). The Company shall thereafter have an option to renew this agreement for an additional two (2) years, through December 31, 2005 (the"Renewal Term"). 6. (a) As full consideration for all services to be rendered by you pursuant hereto, and for all rights and interests herein granted by you to the Company, and provided that you are not in breach or default of this Agreement and that you have kept and performed all of your obligations hereunder, and subject to the terms and conditions hereof, you shall be entitled to receive a base salary in an amount equal to Two Hundred Sixty Thousand Dollars ($260,000) commencing on the Effective Date and continuing through December 31, 2001. Commencing January 1, 2001 and continuing through December 31, 2002, you shall be entitled to receive a base salary in an amount equal to Two Hundred Seventy Five Thousand Dollars ($275,000). Commencing January 1, 2003 and continuing through the end of the Term, you shall be entitled to receive a base salary in an amount equal to Three Hundred Thousand Dollars ($300,000). In the event that the Company elects to exercise its option and extend your services for the Renewal Term, your base salary shall increase by five per cent (5%) cumulatively per year for each year of the Renewal Term. (b) Such compensation shall be paid in accordance with the Company's normal payroll practices. The Company may make such deductions, withholdings or payments from any sum payable to you pursuant to this Agreement as are required by any applicable law, rule or regulation for taxes or similar charges. Compensation payments made to you by the Company or 1 any affiliate of the Company shall be deemed made pursuant to this Agreement and any compensation paid to you from and after the Effective Date of this Agreement shall be deemed to have been paid hereunder. 7. In addition to the base salary set forth in Paragraph 6, and any stock options previously granted prior to the date of this agreement, as of March 23, 2001 you shall be granted 200,000 options to purchase shares of the Company's common stock at an exercise price of $0.81 per share. Such options shall vest as follows: 50,000 as of March 23, 2001 50,000 as of December 31, 2001 50,000 as of December 31, 2002 50,000 as of December 31, 2003 Such options shall have a five (5) year term commencing on the date of grant and shall be subject in all respects to the Team Communications Stock Option Plan. 8. Upon a sale of all or substantially all of the Company, or upon a "Change of Control" as defined below, Executive shall receive a further one time payment equal to one per cent (1%) of the "Net Appreciation." For purposes of this Agreement, "Net Appreciation" shall mean the difference between (i) the total purchase price consideration received by the Company (or its shareholders) in a sale or, in the event of a "Change of Control", the market value of the Company, determined by reference to its closing bid or ask price on the date the Change of Control occurs and (ii) the closing market value as of March 23, 2001. (a) For purposes of this Agreement, a "Change of Control" shall be deemed to occur : (i) upon a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; (ii) Any "person" (as such term is defined in Section 3(a)(9) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act) directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; (iii) during any period of two (2) consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board, including for this purpose any new director whose election or nomination for election by the Company's shareholders was approved by a vote of at least two thirds of the directors then still in office who were directors at the beginning of the Period (or whose election or nomination was similarly approved by the Board), cease for any reason to constitute a majority thereof; (iv) the sale or other disposition of all or substantially all of the assets of the Company; or (v) the merger of the Company with any other corporation or other entity if shareholders of the Company prior to the effective date of the merger own, immediately following the merger, less than seventy five per cent of the combined voting power of the surviving corporation or other entity excluding from such ownership any voting securities not received in exchange for or in respect of voting securities of the Company. (b) In the event that Executive leaves the employ of the Company either due to the 2 expiration of this Agreement, death, disability, or a termination without cause, in the event of a subsequent sale of all, or substantially all of the Company, or upon a Change of Control, which sale or Change of Control is either publicly announced or contracted for during the twelve (12) months after such leaving, Company shall pay Executive at the time of the closing of such sale or Change of Control (or of the closing of a subsequent sale or Change of Control which occurs at a later date but obviates the initial such sale or Change of Control, e.g., if a higher bid upsets an earlier agreed upon or announced transaction) one percent (1%) of the Net Appreciation. 9. You represent and warrant that you are free to enter into the Agreement and to grant the rights and interests to the Company that you purport to grant thereunder and that there are no agreements or arrangements in effect, whether written or oral, which could prevent you from rendering services to the Company during the Term. 10. On the condition that you are not in breach or default of the Agreement, the Company shall reimburse you for all of your reasonable expenses incurred while employed and performing your duties under and in accordance with the terms and conditions of the Agreement, subject to your full accounting therefor and your providing the Company with appropriate documentation, including without limitation receipts, for all such expenses in the manner required pursuant to Company's policies and procedures and the Internal Revenue Code, and subject to the Company's prior approval. Furthermore, for the period January 1, 2001 through December 31, 2001, the Company will provide you a monthly automobile allowance of Seven Hundred Fifty Dollars ($750) or an annual amount of Nine Thousand Dollars ($9,000). From January 1, 2002 through December 31, 2002, this amount will increase to Eight Hundred Fifty Dollars ($850.00) per month or an annual amount of Ten Thousand Two Hundred Dollars ($10,200). From January 1, 2003 through December 31, 2003, this amount will increase to One Thousand Dollars ($1000.00) per month or an annual amount of Twelve Thousand Dollars ($12,000). This allowance will be considered additional compensation and shall be paid along with your base compensation in accordance with the Company's normal payroll practices. 11. (a) In the event that (i) you become incapacitated or prevented from fully rendering your services hereunder by reason of your illness, mental, physical or other disability, and such incapacity or inability shall continue for sixty (60) consecutive days during any period of the Term; or (ii) the Company's normal operations are prevented or interrupted because of force majeure events or any other cause beyond the Company's sole control (e.g., any labor dispute, strike, fire, war, civil disturbance, act of God, governmental action or proceeding or any event sufficient to excuse performance as a matter of law), and such prevention or interruption shall continue for sixty (60) consecutive days during any period of the Term; then the Company shall have the right to terminate your employment under the Agreement immediately upon the expiration of said six (6)-week period without any further liability or obligation to you hereunder except for any accrued compensation payable to you as of the date of such termination (such a termination herein referred to as a termination "For Disability or Force Majeure"). (b) In the event you, at any time, materially breach any provision of the Agreement, fail, refuse or neglect (other than by reason of any above-referenced disability or incapacity) to reasonably perform fully your obligations hereunder, or engage or participate in any egregious willful misconduct in connection with any of your obligations under the Agreement, the Company shall have the right to terminate your employment under the Agreement at any time thereafter (such a termination herein referred to as a termination "For Cause"). In the event of any termination For Cause, you shall be entitled to receive only accrued compensation payable to you as of the date of such termination, without regard to any other compensation, benefits or perquisites. 3 (c) In addition to the right to terminate For Cause or For Disability or Force Majeure, the Company shall have the right to terminate your employment under the Agreement at any time for any reason, upon thirty (30) days' notice to you (such a termination herein referred to as a termination "Without Cause"); provided, however, that if termination of your employment is a termination Without Cause, you shall continue to be entitled to your base annual compensation under Paragraph 6 of the Agreement until the end of the Term. (d) Any termination under this Paragraph 11 shall not be deemed to be a waiver by the Company of any of the Company's rights or remedies otherwise available to the Company hereunder, at law, in equity or otherwise. 12. You shall not enter into any contracts or make any commitments on behalf of the Company outside of the ordinary course of your duties and services in the ordinary course of the Company's business nor for an amount in excess of such limits as may be specified by the Company without the prior written approval and consent of the Company in accordance with the standard practices and operating procedures thereof. 13. During the Term hereof you shall be entitled to: (a) The Company's basic health and life insurance benefits generally available to other senior executives of the Company, including any applicable major medical insurance benefits for you and your immediate family, subject to compliance with provisions relating to eligibility or qualification; and (b) During the term of this of this agreement four (4) weeks per year of vacation with pay and normal and customary holidays in accordance with the Company's policy for vacations and holidays for senior executives of the Company. (c) To participate in any Company retirement or similar benefit plan available to Company's senior executives, including, without limitation, the Company's 401(k), or IRA plan, subject to all terms and conditions of any such plan. (d) A reserved parking space and an unshared assistant/secretary For the purpose of determining your length of service with the Company with respect to the applicable provisions of any benefit to which you may be entitled hereunder (except with respect to stock options and the vesting provisions thereof), such determination shall include your previous term of service to the Company from March 1, 1995 through the date of this Agreement. 14. The Company may secure in its own name or otherwise, and at its own expense, life, health, accident and other insurance covering you or you and others, and you shall not have any right, title or interest in or to such insurance other than as expressly provided herein. You agree to assist the Company in procuring such insurance by submitting to the usual and customary medical and other examinations to be conducted by such physician(s) as the Company or such insurance company may designate and by signing such applications and other written instruments as may be required by the insurance companies to which application is made for such insurance. 15. During the Term, you shall not directly compete or materially interfere with the actual or contemplated businesses or activities of the Company. In this regard, during the Term, you shall not, without the prior written consent of the Company which consent shall not be unreasonably 4 withheld, become an officer or employee of any other business enterprise engaged in any of the actual business or activities of the Company. 16. Other than as required by the public disclosure obligations of the Company, or to your attorneys or accountants, you agree that you will not, during the Term or thereafter, disclose to any other person or entity the terms or conditions of the Agreement (including the financial terms thereof) and shall not directly or indirectly issue or permit the issuance of any publicity whatsoever regarding, or grant any interview or make any statements concerning, the Company's engagement of you hereunder without the prior written consent of the Company. 17. The primary place of your employment under the Agreement shall be the Los Angeles Metropolitan Area. You shall make such trips away from the County of Los Angeles as requested by the Company or as may be required for the conduct of your duties under the Agreement. Any air travel shall be business class if available, and if in excess of five (5) hours duration shall be first class. 18. The Company hereby represents and warrants that it has obtained all approvals necessary to enter into this Agreement. 19. The Agreement shall be governed by, and construed in accordance with, the laws of the State of California applicable to contracts entered into and fully performed therein. 20. The Company shall have the right to assign or otherwise delegate the Agreement or any of its rights or obligations thereunder, in whole or in part, to any person or entity. Without limiting the generality of the foregoing, the Company shall have the right to license, delegate, lend or otherwise transfer any of its rights to any or all of your services under the Agreement to any person, company or other entity controlling, controlled by, or under common control with the Company, and you agree to render such services required under the Agreement for such person, company or other entity as part of the services to be rendered under the Agreement for no additional compensation other than as provided for in this Agreement. You shall not have any right to assign, delegate or otherwise transfer any duty or obligation to be performed by you hereunder to any person or entity, nor to assign or transfer any rights hereunder. 21. All notices which either party is required or may desire to give to the other party under or in connection with the Agreement shall be sufficient if given by addressing the same to the respective party at the address set forth below or at such other place as may be designated by the respective party: To Company: Team Communications Group, Inc. 11818 Wilshire Boulevard 2nd floor Los Angeles, California 90025 Attention: Drew S. Levin To You: Eric S. Elias 22935 Oxnard Street Woodland Hills CA 91367 When notices addressed as required by this Paragraph 21 shall be hand delivered, telexed, or deposited, postage prepaid, registered or certified mail, in the United States mail, or delivered to a telegraph office, toll prepaid, the Company or you, as appropriate, shall be deemed to have delivered such notice. 5 22. You agree to execute and deliver to the Company such further documents and instruments as the Company may desire to further evidence, effectuate or protect the Company's rights hereunder. The Agreement may be modified only by a written instrument duly executed by each of the parties thereto. No person has any authority on behalf of the Company to make any representation or promise not set forth in the Agreement, and you hereby represent and warrant that the Agreement has not been executed in reliance upon any representation or promise except those contained therein. No waiver by the Company of any default or other breach of the Agreement shall be deemed to be a waiver of any preceding or succeeding breach or default. 23. This Agreement supersedes all prior or contemporaneous agreements, whether oral or written, between the parties hereto concerning the subject matter hereof, and constitutes the valid, binding and entire agreement between the parties with respect thereto, enforceable in accordance with its terms. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TEAM COMMUNICATIONS GROUP, INC. By /s/ Jay J. Shapiro ------------------------------------------ Jay J. Shapiro President and Chief Administrative Officer ACCEPTED AND AGREED TO: /s/ Eric S. Elias . - ---------------------- Eric S. Elias 6 EX-10.37 5 dex1037.txt EMPLOYMENT AGREEMENT JAMES MCGILL WALDRON EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of June 9, 2000, by and between TEAM COMMUNICATIONS GROUP, INC., a California corporation (herein referred to as the "Company"), and you, JAMES MCGILL WALDRON. In consideration of the mutual covenants, terms and conditions set forth herein, you and the Company agree as follows: 1. The Company hereby employs you pursuant and subject to the terms, conditions and provisions of this Agreement. You hereby accept such employment and agree to render your services exclusively to the Company as provided herein, where and when required by the Company (presently in Los Angeles, California), all of which services shall be performed conscientiously and to the full extent of your ability. You further agree to abide by all rules, regulations and policies of the Company. 2. Your title and position with the Company shall be President of TEAM Entertainment Group, a division of TEAM Communications Group, Inc. 3. You shall report to the Company's chief executive officer, currently Drew S. Levin. Any conflict between divisions of responsibility between you and any other employee shall be resolved by the chief executive officer. 4. The services to be rendered by you hereunder shall include, without limitation, all services customarily rendered by persons engaged in the same capacity or in a similar capacity in the entertainment industry, including the responsibility for, and oversight of, all production for the division, all TEAM affiliates, outside producers or production companies acquired by TEAM, and such other services as may be requested by the Company from time to time hereunder. You will not be responsible for overall corporate management, international sales and corporate marketing. Your services shall be exclusive to the Company during the Term of this Agreement. 5. (a) The Initial Term of your employment by the Company under this Agreement shall commence as of June 19, 2000, (the "Effective Date") and (unless earlier terminated pursuant to this Agreement) shall continue thereafter through June 18, 2002 (the "Initial Term"). (b) The Company shall have the option to extend the term for one (1) additional year (the "Option Term"), such option to be exercised by notifying you in writing no less than one hundred twenty (120) days prior to the end of the Initial Term. 6. (a) As full consideration for all services to be rendered by you pursuant hereto, and for all rights and interests herein granted by you to the Company, and provided that you are not in breach or default of this Agreement and that you have kept and performed all of your obligations hereunder, and subject to the terms and conditions hereof, you shall be entitled to receive a base salary in an amount equal to: (i) Three Hundred Seventy Five Thousand Dollars ($375,000) commencing on the Effective Date and continuing through June 18, 2001. (ii) From June 19, 2001 through the end of the Initial Term you shall be entitled to receive a base salary in an amount equal to Four Hundred Twenty Five Thousand Dollars ($425,000). 1 (iii) In the event that the Company elects to exercise its option to extend the term of your employment, from June 19, 2002 through June 18, 2003, you shall be entitled to receive a base salary in an amount equal to Four Hundred Seventy Five Thousand Dollars ($475,000). (b) Such compensation shall be paid in accordance with the Company's normal payroll practices. The Company may make such deductions, withholdings or payments from any sum payable to you pursuant to this Agreement as are required by any applicable law, rule or regulation for taxes or similar charges. Compensation payments made to you by the Company or any affiliate of the Company shall be deemed made pursuant to this Agreement and any compensation paid to you from and after the Effective Date of this Agreement shall be deemed to have been paid hereunder. 7. In addition to the base salary set forth in Paragraph 6, you shall be eligible to receive: (a) A discretionary bonus compensation as the Company's Board of Directors may elect to award to you in the Company's sole and absolute discretion. (b) A mandatory bonus determined as follows: (i) For each year of employment a minimum amount of $120,000 per twelve months of employment or pro rata portion thereof. This minimum bonus, for the first year of your employment only, will be payable $60,000 on your starting date and $60,000 ninety (90) days thereafter. It will thereafter be payable at the conclusion of each year of your employment on the anniversary date of your employment. For the avoidance of doubt, the next bonus (i.e., the bonus for the second year of employment) shall be payable on or about June 30, 2002. (ii) The minimum set forth in (b)(i) shall be applicable against a bonus in the amount of four per cent (4%) of your division's net profits during your employment, resulting from productions either initiated during your employment or which you are responsible for supervising during your employment (collectively, "Subject Productions"). For purposes of this agreement "Subject Productions" shall not include the series "Call of the Wild", "Destination Style", "Weird World" and "World's Most Mysterious Places." "Net profits" will be defined as gross revenue reported pursuant to the Company's audited 10-K filing from any source resulting from the exploitation of the Subject Productions, including barter revenue, less the direct costs of the division (reasonably allocated between the Subject Productions and the excluded productions, with the portion allocable to the latter not being charged), less 3% of actual production costs of the Subject Productions, as an overhead fee for the Company, less the amortized (pursuant to the 10-K) costs of development and production of the Subject Productions, less costs of financing of production and marketing of the Subject Productions, and less distribution fees of 20% (inclusive of any subdistributors or agents) for all sales(i.e., foreign, video, Internet, etc.) except domestic sales or syndication, which will be actual costs of sales (inclusive of any subdistributors or agents), with a floor of 20%, and a cap of 35%, plus actual barter sale costs. (iii) The bonus for this Section 7(b) shall be computed by Team's accounting department and submitted to you within120 days from the completion of the fiscal year end audit. In the event that you disagree with such calculation, you shall have 15 business days to object, at 2 which time you and the Company will negotiate for fifteen (15) days in good faith to achieve a final resolution. In the event that a resolution is not achieved, an accounting firm of your choice, reasonably acceptable to the Company shall prepare a separate report. The cost for such accounting firm shall be borne by you. If, following the audit and negotiations there remain unresolved issues, the parties will submit such unresolved issues to a single mutually acceptable arbitrator familiar with such entertainment related accounting issues, with the matter to be resolved pursuant to the rules of the American Arbitration Association. (iv) In the event that your employment should cease prior to the conclusion of the Company's fiscal year, currently December 31, and such termination is not "for cause" as defined herein, your bonus will accrue through the end of the then current fiscal year, and be thereafter calculated and paid pursuant to the schedule set forth above. (c) 60,000 stock options with the exercise price at the current market price on the date of grant. The date of grant will be June 19, 2000. These stock options will vest monthly over a period of two (2) years, or pro rata portion thereof. Such options shall have a five (5) year term commencing on the Effective Date and shall be subject in all respects to the Team Communications Stock Option Plan. (d) In the event that the Company elects to exercise its option to extend the term of your employment, from June 19, 2002 through June 18, 2003, you shall be entitled to receive thirty thousand (30,000) additional stock options with the exercise price at the current market price on the date of grant. The date of grant will be June19, 2002. These stock options will vest monthly over a period of one (1) year, or pro rata portion thereof. Such options shall have a five (5) year term commencing on the date of grant and shall be subject in all respects to the Team Communications Stock Option Plan. 8. You represent and warrant that you are free to enter into the Agreement and to grant the rights and interests to the Company that you purport to grant thereunder and that there are no agreements or arrangements in effect, whether written or oral, which could prevent you from rendering exclusive services to the Company during the Term, and that you have not made and will not make any commitment or do any act in conflict with the Agreement. 9. On the condition that you are not in breach or default of the Agreement, the Company shall reimburse you for all of your reasonable pre-approved expenses (including an entertainment allowance commensurate with other executives of your level in the entertainment industry) incurred while employed and performing your duties under and in accordance with the terms and conditions of the Agreement, subject to your full accounting therefor and your providing the Company with appropriate documentation, including without limitation receipts, for all such expenses in the manner required pursuant to Company's policies and procedures and the Internal Revenue Code, and subject to the Company's prior approval. Furthermore, the Company will provide you a monthly automobile allowance of Six Hundred Fifty Dollars ($650) or an annual amount of Seven Thousand Eight Hundred Dollars ($7,800). This allowance will be considered additional compensation and shall be paid along with your base compensation in accordance with the Company's normal payroll practices. 10. You and the Company agree that the services to be rendered by you pursuant to the Agreement, and the rights and interests granted by you to the Company pursuant to the 3 Agreement, are of a special, unique, extraordinary and intellectual character, which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in any action at law, and that a breach by you of any of the terms of the Agreement will cause the Company great and irreparable injury and damage. You hereby expressly agree that the Company shall be entitled to the remedies of injunction, specific performance and other equitable relief to prevent a breach of the Agreement by you. This provision shall not, however, be construed as a waiver of any of the rights which the Company may have hereunder, at law, for damages, or otherwise. 11. (a) If during the Term, you should (i) die or (ii) become so physically or mentally disabled whether totally or partially, that you are unable to perform the duties, functions and responsibilities required hereunder for (aa) a period of three (3) consecutive months or (bb) shorter periods aggregating to four (4) months within any period of twelve (12) months ("Disability"), then in such event, Company may, at any time thereafter, by written notice to you, terminate your employment hereunder. In the event of a question as to your disability, you agree to submit to reasonable medical examinations upon the request of Company. If your services are terminated, as aforesaid, you or your designated beneficiary shall be entitled to receive your prorated base salary, prorated share of the Bonus for that Fiscal Year, stock options vested as of that date and unused vacation, if any, earned through the date of your termination. (b) In the event that the Company's normal operations are prevented or interrupted because of force majeure events or any other cause beyond the Company's sole control (e.g., any labor dispute, strike, fire, war, civil disturbance, act of God, governmental action or proceeding or any event sufficient to excuse performance as a matter of law), and such prevention or interruption shall continue for one hundred twenty (120) consecutive days during any period of the Term; then the Company shall have the right to terminate your employment under the Agreement immediately upon the expiration of one hundred twenty (120) period without any further liability or obligation to you hereunder except for your prorated base salary, prorated share of the Bonus for that Fiscal Year, stock options vested as of that date and unused vacation as of the date of such termination (such a termination herein referred to as a termination "For Disability or Force Majeure"). (c) In the event you, at any time, breach any provision of the Agreement, fail, refuse or neglect (other than by reason of any above-referenced disability or incapacity) to perform fully your obligations hereunder, or engage or participate in any serious or willful misconduct in connection with any of your obligations under the Agreement, and such misconduct, breach, failure, refusal or neglect continues for forty eight (48) hours after you are placed on notice by Company of such misconduct, breach, failure, refusal or neglect, the Company shall have the right to terminate your employment under the Agreement at any time thereafter (such a termination herein referred to as a termination "For Cause"). In the event of any termination For Cause, you shall be entitled to receive only accrued compensation payable to you as of the date of such termination, without regard to any other compensation, benefits or perquisites. (d) In addition to the right to terminate For Cause or For Disability or Force Majeure, the Company shall have the right to terminate your employment under the Agreement at any time for any reason, upon thirty (30) days' notice to you (such a termination herein referred to as a termination "Without Cause"); provided, however, that if termination of your employment is a termination Without Cause, the Company shall not be entitled to take as an offset against your entitlement any sums earned by you during the remainder of the Term and you shall continue to 4 be entitled only to your base annual compensation under Paragraph 6 of the Agreement until the end of the then current Term (or Option Term if applicable). In the event that such termination is without cause, you will further receive the applicable bonus(es) pursuant to paragraph 7 of the Agreement, subject to the time frame, terms and conditions set forth in said paragraph 7 and all of the stock options granted for the then current Term (or Option Term if applicable) shall vest immediately upon such termination Without Cause, subject to the terms of the employee stock option plan. (e) Any termination under this Paragraph 12 shall not be deemed to be a waiver by the Company of any of the Company's rights or remedies otherwise available to the Company hereunder, at law, in equity or otherwise. 12. You shall not enter into any contracts or make any commitments on behalf of the Company outside of the ordinary course of your duties and services in the ordinary course of the Company's business nor for an amount in excess of such limits as may be specified by the Company without the prior written approval and consent of the Company in accordance with the standard practices and operating procedures thereof. 13. During the Term hereof you shall be entitled to: (a) The Company's basic health and life insurance benefits generally available to other senior executives of the Company, including any applicable major medical insurance benefits, subject to compliance with provisions relating to eligibility or qualification; and (b) You will be entitled to three (3) weeks vacation per year, with pay, and normal and customary holidays in accordance with the Company's policy for vacations and holidays for senior executives of the Company. (c) To participate in any Company retirement or similar benefit plan available to Company's senior executives, including, without limitation, the Company's IRA plan, subject to all terms and conditions of any such plan. (d) A reserved parking space and an unshared assistant/secretary 14. The Company may secure in its own name or otherwise, and at its own expense, life, health, accident and other insurance covering you or you and others, and you shall not have any right, title or interest in or to such insurance other than as expressly provided herein. You agree to assist the Company in procuring such insurance by submitting to the usual and customary medical and other examinations to be conducted by such physician(s) as the Company or such insurance company may designate and by signing such applications and other written instruments as may be required by the insurance companies to which application is made for such insurance. 15. During the Term, you shall not directly or indirectly compete or interfere with the actual or contemplated businesses or activities of the Company. In this regard, during the Term, you shall not, without the prior written consent of the Company, become an officer, employee, consultant, agent, partner (other than a limited partner) or director of any other business enterprise engaged in any of the actual or contemplated businesses or activities of the Company. 5 16. You agree that you will not, during the Term or thereafter, disclose to any other person or entity the terms or conditions of the Agreement (including the financial terms thereof) and shall not directly or indirectly issue or permit the issuance of any publicity whatsoever regarding, or grant any interview or make any statements concerning, the Company's engagement of you hereunder without the prior written consent of the Company. 17. The primary place of your employment under the Agreement shall be Los Angeles. You shall make such business trips as requested by the Company or as may be required for the conduct of your duties under the Agreement. Your air travel accommodations will be no less than business class (if available, otherwise first class) for domestic travel and first class for international. 18. The Company hereby represents and warrants that it has obtained all approvals necessary to enter into this Agreement. 19. The Agreement shall be governed by, and construed in accordance with, the laws of the State of California applicable to contracts entered into and fully performed therein. 20. The Company shall have the right to license, delegate, lend or otherwise transfer any of its rights to any or all of your services under the Agreement to any person, company or other entity controlling, controlled by, or under common control with the Company, and you agree to render such services required under the Agreement for such person, company or other entity as part of the services to be rendered under the Agreement for no additional compensation other than as provided for in this Agreement. Company shall not, however, have the right to materially change the nature of your duties or your reporting obligation. You shall not have any right to assign, delegate or otherwise transfer any duty or obligation to be performed by you hereunder to any person or entity, nor to assign or transfer any rights hereunder. 21. All notices which either party is required or may desire to give to the other party under or in connection with the Agreement shall be sufficient if given by addressing the same to the respective party at the address set forth below or at such other place as may be designated by the respective party: To Company: Team Communications Group, Inc. 11818 Wilshire Boulevard 2nd Floor Los Angeles, California 90025 Attention: Drew Levin To You: James Waldron 1064 Las Pulgas Road Pacific Palisades CA 90272 Notices addressed as required by this Paragraph 21 shall be hand delivered, telexed, or deposited, postage prepaid, registered or certified mail, in the United States mail, or delivered to a telegraph office, toll prepaid. Such notices shall be deemed delivered upon receipt by the addressee. 22. If the compensation provided by the Agreement shall exceed the amount permitted by any present or future law or governmental order or regulation, such stated compensation shall be reduced, while such limitation is in effect, to the amount which is so permitted. The payment 6 of such reduced compensation shall be deemed to constitute full performance by the Company of its obligations hereunder with respect to compensation for such period; provided, however, that the Company shall pay you the aggregate amount of such reduction if and when such payment becomes permissible at law. 23. You agree to execute and deliver to the Company such further documents and instruments as the Company may desire to further evidence, effectuate or protect the Company's rights hereunder. The Agreement may be modified only by a written instrument duly executed by each of the parties thereto. No person has any authority on behalf of the Company to make any representation or promise not set forth in the Agreement, and you hereby represent and warrant that the Agreement has not been executed in reliance upon any representation or promise except those contained therein. No waiver by the Company of any default or other breach of the Agreement shall be deemed to be a waiver of any preceding or succeeding breach or default. 24. Concurrently with your execution and delivery to Company of this Agreement, you shall execute and deliver to the Company an Employee Confidentiality Agreement in the form of Exhibit A attached hereto. 25. This Agreement supersedes all, prior or contemporaneous agreements, whether oral or written, between the parties hereto concerning the subject matter hereof, and constitutes the valid, binding and entire agreement between the parties with respect thereto, enforceable in accordance with its terms. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TEAM COMMUNICATIONS GROUP, INC. By /s/ Drew Levin ----------------------------------------- Drew Levin, Chairman and CEO ACCEPTED AND AGREED TO: /s/ James McGill Waldron . - ---------------------------- James McGill Waldron Social Security Number: ###-##-#### 7 EXHIBIT A EMPLOYEE CONFIDENTIALITY AGREEMENT In consideration of my employment, or my continued employment, as the case may be, by Team Communications Group, Inc., or by any direct or indirect subsidiary or affiliate of Team Communications Group, Inc. (such employer for the purposes of this Employee Confidentiality Agreement being hereinafter referred to as the "Company"), I agree with the Company as follows: As long as I shall remain in the employ of the Company I shall devote my best efforts and ability to the service of the Company in my employment capacity, as the Company shall from time to time direct, and I shall perform my duties faithfully and diligently. Further, I shall abide by all rules, regulations and policies of the Company (including without limitation those contained in the Company's current employee manual as it may hereafter be modified, supplemented or replaced), and I acknowledge that I am familiar with the same. I shall not, during my employment by the Company or thereafter, use or disclose to others without the prior written consent of the Company, any trade or business secrets, secret "know-how", confidential, secret, technical, financial or proprietary information or other nonpublic information relative to the business or activities of the Company, obtained by me while in the employ of the Company or otherwise. Upon leaving the employ of the Company, I shall not take with me any confidential, secret, technical, financial or proprietary data, drawings, documents or information obtained by me as the result of my employment, or any reproductions thereof. All such items and all copies thereof, including without limitation all memoranda, notes, records and other documents related to the actual or contemplated business or activities of the Company that were made or compiled by me, or made available to me during the term of my employment by the Company, shall be and remain the Company's property, and I shall surrender the same to the Company on the termination of my employment by the Company, or at any other time on request. I agree that the Company shall be entitled to injunctive or other appropriate equitable relief to prevent or remedy my proposed, anticipatory or actual breach of the terms of this agreement including, without limitation, the disclosure of any information, data, documents or other materials covered by the terms of this agreement. This agreement shall inure to the benefit of the Company, its subsidiaries, affiliates, allied companies, successors and assigns or the nominees of the Company; and I specifically agree to execute any and all documents considered necessary or desirable to assign, transfer, sustain or maintain inventions, discoveries, applications, copyrights, trademarks or patents, both in the United States and in foreign countries. IN WITNESS WHEREOF, I have hereunto signed my name as of the date of the Employment Agreement to which this document is attached and effective as of the Effective Date (as defined in the Employment Agreement). /s/ James McGill Waldron -------------------------- James McGill Waldron ACCEPTED: Team Communications Group, Inc. /s/ Drew Levin - ------------------------------- By: Drew Levin Its: Chairman and CEO 1 EX-10.38 6 dex1038.txt EMPLOYMENT AGREEMENT BETWEEN MARTIN Y. MAYEDA [Letterhead of Team Communications Group, Inc.] October 12, 2000 Mr. Martin Y. Mayeda 110 South Old Ranch Road Arcadia CA 91077 Dear Mr. Mayeda: Team Communications Group, Inc. ("TEAM" or the "Company") makes the following offer of employment to you: 1. Your title will be Vice President and Controller. You will be reporting to Michael Meltzer, Executive Vice President and Chief Financial Officer. 2. Your services will be exclusive to TEAM during the term of this agreement, and you will be based in Los Angeles. 3. Term: Start date to be October 16, 2000. The Initial Term of this agreement shall be for twelve (12) months. The Company shall have the option to extend the term of this agreement for an additional twenty four (24) months. Such option will be exercised by the Company no later than sixty (60) days prior to the end of the Initial Term. 4. Compensation: Base salary for the first twelve (12) month period of the initial term to be $125,000 per year, payable in equal installments on the Company's regularly scheduled salary cycle. In the event the Company exercises its option to extend the term of this agreement, the base salary for the second twelve (12) month period will be increased to $140,000 per year and for the third twelve (12) month period it will be increased to $155,000 per year. You will further be entitled to an annual bonus in an amount to be determined in the sole discretion of the compensation committee of the Board of Directors. In addition to the foregoing, the Company shall reimburse you for any pre-approved expenses you reasonably incur in performing the duties assigned hereunder. 5. You will be granted 30,000 stock options on your start date from the employee stock option plan. Such options will be priced at the lower of the closing market price on October 16, 2000 or the date of approval of such grant by the board of directors. These options will vest ratably over forty eight (48) months from the date of grant. 6. You will accrue two weeks vacation per year during the first year of your employment with the Company and, in the event the Company elects to extend the term of this agreement, three (3) weeks per year thereafter. Your health insurance will be the Company's "PPO" plan or comparable if it has changed and will commence on the first day of the full calendar month which commences 60 days after your start date. 7. Results and Proceeds: All results and proceeds of your services to TEAM shall be deemed a "work made for hire" and the sole, exclusive and absolute property of TEAM for any and all purposes whatsoever in perpetuity. Mr. Martin Y. Mayeda October 12, 2000 Page 2 8. Confidentiality: You agree that all proprietary information, trade secrets and internal operations of TEAM, including but not limited to the terms and conditions of this offer, shall remain confidential, except as necessity arises to have this agreement reviewed by attorneys, accountants or other professionals in the ordinary and usual course of business. You also expressly agree that this confidentiality provision will survive your employment, and continue to be binding upon you after your employment with TEAM. 9. Termination for Cause: For purposes of this Agreement, you may be terminated for "cause" as a result of (1) the occurrence of one of the following: (i) serious misconduct, dishonesty or disloyalty, directly related to the performance of duties for the company, which results from a willful act or omission or from gross negligence, and which is materially or potentially materially injurious to the operation, financial condition or business reputation of the Company; (ii) your being convicted in any criminal proceeding that may have a material adverse impact on the Company's reputation and standing in the community; (iii) drug or alcohol abuse, but only to the extent that such abuse has an obvious and material effect on the Company's reputation and/or on the performance of your duties and responsibilities under this Agreement; or (iv) willful and continued failure to substantially perform your duties under this Agreement, and (2) such event, conduct or condition that may result in termination for cause is not cured within thirty days after written notice is delivered to you from the Company. 10. Termination without Cause: In the event that, during the term of this Agreement, the Company terminates your employment for any reason other than Cause, then you shall be entitled to receive the remainder of the base salary in effect on the date of the termination of your employment for the balance of the then remaining term of this agreement. 11. In the event that your services are terminated for any reason prior to the completion of the Term hereof, you shall have a duty to mitigate any damages hereunder and any compensation earned by you in any capacity after the date of such termination shall reduce or mitigate the amounts payable by the Company hereunder. Please indicate your acceptance of, and agreement with, all of the above terms and conditions by signing the attached copy of this letter and returning it to me. Until such time, if any, that a more formal agreement is prepared, this letter agreement will serve to memorialize the agreement between the parties. Any such more formal agreement will incorporate the above and other usual and customary terms and conditions. Thank you. Sincerely, /s/ Eric S. Elias Eric S. Elias Business Affairs Agreed to and accepted: Dated: 16-Oct-00 /s/ Martin Y. Mayeda -------------------- ###-##-#### ---------------------------- Social Security Number EX-10.39 7 dex1039.txt FORM OF COMPLAINT IN CLASS ACTION UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CASE NUMBER STEVEN McKINHON, On Behalf of Himself and All Others Similarly Situated, CV- 01-02312FMC AIJx ------------------- PLAINTIFF(S), V. TEAM COMMUNICATIONS GROUP, INC., SUMMONS DREW S. LEVIN and TIMOTHY A. HILL, DEFENDANT(S). TO: THE ABOVE-NAMED DEFENDANT(S): YOU ARE HEREBY SUMMONED and required to file with this court and serve upon plaintiff's attorney William S. Lerach ------------------------------------, whose address is: MILBERG WEISS BERSHAD HYNES& LERACH LLP 600 W. Broadway Suite 1800 San Diego, CA 92101 619-231-1058 An answer to the complaint which is herewith served upon you within 20 days after service of this summons upon you, exclusive of the day of service. If you fail to do so, judgment by default will be taken against you for the relief demanded in the complaint. CLERK, U.S. DISTRICT COURT [SEAL] DATE: MAR - 9 2001 By R.L. BYER --------------------- ---------------------------------------- Deputy Clerk (SEAL OF THE COURT) - ------------------------------------------------------------------------------- SUMMONS UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA OPTICAL SCANNING PROGRAM The United States District Court for the Central District of California has developed an Optical Scanning Program which allows the Office of the Clerk to transmit copies of civil judgments, orders, and notices to attorneys of record, including notice of entry of these documents, by Internet e-mail or facsimile within 24 hours from the date the document is entered on the docket. HOW THE PROGRAM WORKS... o Attorneys who enroll in the program consent and agree to receive copies civil judgments, orders, notices, and notice of entry as required by Federal Rule of Civil Procedure 77(d) by Internet e-mail or facsimile. o Documents are transmitted by Internet e-mail in TIFF format or fax in lieu of mailing copies. It is recommended that a single e-mail address is used for the entire law firm, rather using an attorney's personal e-mail address. o Only attorneys who have been admitted to practice in the United States District Court, Central District of California who are counsel of record for named parties, and attorneys appearing pro hac vice are eligible to enroll. o A one-time enrollment is all that is required to receive documents on pending cases in this district, as well as for cases filed in the future. Attorneys are responsible for notifying the clerk's office if their fax number or e-mail address changes to ensure that documents are transmitted to the proper fax number or e-mail address. o There is no fee for the program. HOW TO GET ENROLLED... To enroll in this free program, please complete an enrollment form G-76 and return it to the address or fax it to the number indicated on the form. Forms may be obtained through the court's website at www.cacd.uscourts.gov, at the clerk's office, or by calling the Optical Scanning Department at (213) 894-5474. A list of frequently asked questions concerning the Optical Scanning Program is available on the court's website. If you have any other questions, please call the Optical Scanning Department at (213) 894-5474. We look forward to providing this service to you. Thank you. Sherri R. Carter District Court Executive and Clerk of Court -2- UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA ================================================================================ OPTICAL SCANNING ENROLLMENT/UPDATE FORM ================================================================================ Name (print): ------------------------------------------------------------------ Address: ------------------------------------------------------------------------ Phone No.: ( ) California State Bar No.: ---------------------- ---------------------- |_| Check this box if you're |_| Case Number: an out-of-state attorney ---------------------------- (required for out-of-state attorneys only) Area of practice: |_| Civil |_| Criminal ================================================================================ FIRST TIME ENROLLMENT: |_| I consent and agree to receive copies of judgments, orders and other documents by: (please check only one). |_| FAX ( ) ------------------------------------- -OR- |_| *email address ---------------------------- transmission, and that I understand that service through either of these means will constitute notice of entry as required by F.R.Civ.P. 77(d). I further understand that I must notify the Court within 24 hours when I have a change of name, firm association, address, facsimile number or e-mail address. ================================================================================ ================================================================================ UPDATE TO ENROLLMENT (complete this section if you previously enrolled in the Optical Scanning Program and wish to update that information ONLY) |_| Please update the following information: |_| FAX ( ) ------------------------------------------------------------- |_| e-mail address --------------------------------------------------- |_| Please change my enrollment from service of documents by (check one) |_| fax |_| e-mail to service by: |_| FAX ( ) ------------------------------------------------------------- |_| e-mail address --------------------------------------------------- ================================================================================ Signature: Date: ------------------------------------------- ------------------- or fax this completed form to: United States District Court Central District of California 312 N. Spring Street, Room G-8 Los Angeles, California 90012 Attn: Attorney Admission Clerk FAX:(213) 680-7872 [ILLEGIBLE]: - Electronic transmission (e-mail) may result in quicker receipt of judgments, orders and other documents than [ILLEGIBLE] transmission. However, the e-mail address should be to a computer that is accessed on a daily basis due to the [ILLEGIBLE] and timeliness of documents that are being transmitted from the court. Internet e-mail is recommended due to [ILLEGIBLE]; however, prior to signing up to receive documents by Internet e-mail, contact your Internet Service Provider [ILLEGIBLE] automation staff to determine whether there are limitations to the size of attachments that may be received. [ILLEGIBLE] are in TIFF format. [ILLEGIBLE] TIME ENROLLMENT WILL ENABLE YOU TO RECEIVE JUDGMENTS, ORDERS AND DOCUMENTS IN [ILLEGIBLE] IN WHICH YOU ARE ATTORNEY OF RECORD. - -------------------------------------------------------------------------------- OPTICAL SCANNING ENROLLMENT/UPDATE FORM -3- UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA [SEAL] CLERK'S OFFICE SERVICES FOR ATTORNEYS AND THE GENERAL PUBLIC The United States District Court, Central District of California is one of the largest federal courts in the nation. The clerk's office has put this brochure together to provide a quick reference for attorneys and the general public regarding the services that are currently available. Feedback and suggestions as to how we might improve our service are always appreciated. > Office Hours and Drop-Off box Hours The clerk's office hours are 8:30 A.M. until 4:00 PM., Monday - Friday, excluding court observed holidays. Documents placed in the drop-off box prior to the opening of the clerk's office at 8:30 a.m. will be deemed filed as of the previous business day. For after hour emergency filings, call the following telephone numbers: Western Division: (213) 894-2215, (213) 894-1426, or (213) 894-3651 Southern Division: (714) 836-2651, or (714) 836-2628 Eastern Division: (909) 276-6242 > Fax Service: A fax service is available that allows attorneys to request and receive copies of filed Western Division court documents, docket sheets, forms and other court related materials such as Federal Records Center retrieval information via facsimile transmittal. The clerk's office will set up a convenient billing system for firms and attorneys participating in this service. The federal fee schedule will apply for copies and research requested with no additional service charges. For further information call (213) 894-3649. This service will be expanded to the Southern Division in January 1999. > Document Imaging System The clerk's office is finalizing a district-wide document imaging system that will allow attorneys to quickly receive service of judgments, orders, and other documents by facsimile transmission instead of by mail. If, for any reason, facsimile transmission is not made within three attempts, the computer will automatically generate mailing labels and print a copy of the document ready for mailing. There is no charge for this service. To sign up, please call (213) 894-3649. > Web Site The district court is now on line. Gather information about attorney admissions and filing procedures; review master and daily calendars, requirements for court appearances, Local Rules, General Orders and published opinions; download court forms and keep apprised of recent innovations in the clerk's office. Visit the court's home page at www.cacd.uscourts.gov. > Records All pending criminal and civil cases, as well as closed cases filed within the last two years, may be viewed, at no charge, at the clerk's office. Case files and dockets may be obtained on the same day as requested unless the requested material is unavailable. To identify which clerk's office maintains the case file you wish to view, please refer to the prefix of the case number as follows: Western Division (Los Angeles) - -CV 97-0000 - civil - -CR 97-0000 - criminal Southern Division (Santa Ana) - -SACV 97-0000 - civil - -SACR 97-0000 - criminal Eastern Division (Riverside) - -EDCV 97-0000 - civil - -EDCR 97-0000 - criminal Viewing hours are from 8:30 A.M. - 4:00 P.M., Monday-Friday, excluding federal holidays. There is a charge for copies, certifications, and exemplifications. For more information, call the appropriate division or visit our website. The telephone numbers are listed on the back page of this brochure. > PACER The "Public Access to Court Electronic Records" (PACER) is an electronic retrieval system that provides criminal and civil summaries and docket information using a computer terminal. The docket information may be downloaded for printing or may be viewed on screen. The PACER service is available 24 hours a day, including weekends. For more information, call (800) 676-6856. > Interpreter Services The interpreter services section of the clerk's office provides interpreters for all criminal cases that require the use of a language other than English, including American Sign Language. The interpreter services section also makes interpreter referrals in response to inquiries from private law firms for civil cases or matters pending in state court. For further information call (213) 894-4370. For attorneys, a work room is located on the second floor of the Spring Street Courthouse and on the first floor of the Roybal Federal Building. The work rooms have pentium personal computers with access to Westlaw, WordPerfect, and PACER; laser printers, storage lockers, copy machines and individual conference rooms. An attorney work room will be available in the Southern Division in January, 1999. > Evidence Presenters The clerk's office has evidence presenters available for attorneys to use in trial. This technology connects an overhead projector to monitors which display pictures for the judge, attorneys and the jury. There is no charge for using the equipment. For more information or to reserve equipment, contact Mario Zavala (Western Division, Spring Street Courthouse) at (213) 894-7165 or (213) 894-6219; Bob Bolton (Western Division, Royba1 Federal Building) at (213) 894-1837; Janine Duffy or Dwayne Roberts (Southern Division) at (714) 836-2651; Kiry Gray (Eastern Division) at (909) 276-6170. > Criminal Justice Act (CJA) Voucher Inquiry CJA Panel Attorneys may obtain information, as to the payment status of their CJA vouchers through the CIA Inquiry Program. The CIA Inquiry Program is available through a computer terminal located at the 312 North Spring Street Courthouse in Los Angeles, Room 529. CJA Panel Attorneys may obtain information from the computer by use of their last name and/or voucher number. A variety of information is available; for example, when the voucher was paid, amount of payment, location of voucher and other payment status information. District court civil and criminal transcripts may be ordered by making financial arrangements with the individual court reporters. To identify which reporter to contact for a specific in-court matter, please refer to the appropriate docket entry on the civil or criminal docket sheet which is now electronically available on PACER. Transcript orders from magistrate judge courts should be placed with the magistrate judge courtroom deputy clerk. Please refer to the website for the necessary telephone numbers and applicable fees. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION Clerk's Office, Room G-8 312 North Spring Street Los Angeles, California 90012 (213) 894-3535 (213) 894-2215 (213) 894-3648 (213) 894-0958 (218) 894-2356 SOUTHERN DIVISION Clerk's Office, Room 101 751 W. Santa Ana Boulevard Santa Ana, California 92701 (714) 836-2467 (714) 836-2468 EASTERN DIVISION Presley Hall of Justice Clerk's Office, Room 137A 4100 Main Street Riverside, California 92501 (909) 276-6170 (909) 276-6171 -4- MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH (68581) DARREN J. ROBBINS (168593) 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax) CAULEY, GELLER, BOWMAN & COATES, LLP PAUL J. GELLER One Boca Place, Suite 421A 2255 Glades Road Boca Raton, FL 33431 Telephone: 561/750-3000 561/750-3364 (fax) SCHIFFRIN & BARROWAY, LLP MARC A. TOPAZ Three Bala Plaza East, Suite 400 Bala Cynwyd, PA 19004 Telephone: 610/667-7706 610/667-7056 (fax) Attorneys for Plaintiff UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA STEVEN McKINHON, On Behalf of ) No. 01-02312 FMC AIJx Himself and All Others Similarly ) Situated, ) CLASS ACTION ) ------------ ) Plaintiff,) COMPLAINT FOR VIOLATION OF THE ) FEDERAL SECURITIES LAWS vs. ) ) TEAM COMMUNICATIONS GROUP, INC., ) DREW S. LEVIN and TIMOTHY A. ) HILL, ) ) Defendants. ) DEMAND FOR JURY TRIAL - ---------------------------------- ) --------------------- -5- SUMMARY AND OVERVIEW 1. This is a securities class action on behalf of all purchasers of the publicly traded securities of TEAM Communications Group, Inc. ("TEAM Communications" or the "Company") between 5/18/00 and 2/12/01 (the "Class Period") , against TEAM Communications and certain of its officers and directors for violations of the Securities Exchange Act of 1934 (the "1934 Act"). 2. TEAM Communications currently owns and distributes over 4,000 hours of programming worldwide, in addition to producing a wide variety of programming for leading U.S. and international broadcasters. TEAM maintains offices in Los Angeles, Munich (through its TEAM Entertainment Germany (GmbH)) and London (through its TEAM Dandelion Ltd. Operations). Its shares trade on NASDAQ-NMS (TMTV) and on the German Neuer Market (TME). 3. During the Class Period, TEAM Communications reported favorable but false financial results causing its stock to trade at artificially inflated levels of as high as $12 per share. 4. Then, on 2/13/01, prior to the market opening, TEAM Communications shocked the investment community with a press release which revealed that the Company expected to record a Q4 00 charge equivalent to more than five times all the income it reported during the Class Period. It also acknowledged that certain of its acquisition and distribution activities may have "lacked economic substance." The press release went on to state, in relevant part: The Company also reported that it currently expects to take a charge of approximately $21,000,000 against its results of operations for the year 2000. The Company -6- stated that the amount of the expected charge is subject to adjustment, including possible increase, upon audit of the Company's year 2000 operations. It is also subject to completion of an internal examination of whether certain of the Company's film library acquisition and distribution transactions during the past year lacked economic substance. As a result of this charge, the Company anticipates that it will report a loss for the year 2000 of between $18,000,000 and $19,500,000 or a potentially larger amount. The Company also disclosed that it has short-term liquidity needs, which Mr. Solomon stated will receive his immediate attention. * * * The Company stated that the charges expected to be reflected in its year 2000 results will include the establishment of approximately $11,000,000 of reserves against long-term receivables and $10,000,000 of reserves relating to the valuation of its film programming inventory.... These adjustments include $9,000,000 related to the elimination of the Company's investment associated with its 1999 acquisition of Dandelion U.K. The Company stated that it intends to restructure its present U.K. operations, and that Noel Cronin, the Managing Director of Team Dandelion, has agreed to terminate his employment agreement with the Company. The Company further reported that it has instituted a strategic review of its acquired film libraries, with a view to increasing the rates at -7- which the Company amortizes its investments in those libraries. As a result of the anticipated adjustments and reserves, the Company expects that it will not be in compliance with the terms of its existing bank financing facilities, and is seeking appropriate waivers of these potential covenant defaults. The Company is also seeking to restructure its financing arrangements. 5. On this news, TEAM Communications' shares plummeted to as low as $1.375 - - or more than 88% lower than its Class Period high of $12. JURISDICTION AND VENUE 6. Jurisdiction is conferred by ss.27 of the 1934 Act. The claims asserted herein arise under ss.ss.10(b) and 20(a) of the 1934 Act and Rule 10b-5. 7. Venue is proper in this District pursuant to ss.27 of the 1934 Act. Many of the false and misleading statements were made in or issued from this District. 8. The Company's corporate headquarters are in Los Angeles, California, where the day-to-day operations of the Company are directed and managed. THE PARTIES 9. Plaintiff Steven McKinhon purchased TEAM Communications publicly traded securities as described in the attached certification and was damaged thereby. 10. Defendant TEAM Communications develops, produces and distributes a variety of television programming, including dramatic and reality-based series, specials and made-for-television movies -8- for exploitation in the domestic and international television markets. The Company is headquartered in Los Angeles, California, and trades in an efficient market on the Nasdaq National Market System, as well as on the German Neuer market. 11. (a) Defendant Drew S. Levin ("Levin") was Chairman of the Board and CEO of TEAM Communications and assisted in the preparation of TEAM Communications' Ql, Q2 and Q3 2000 press releases, SEC filings and financial reports. (b) Defendant Timothy A. Hill ("Hill") was Chief Financial Officer of the Company until his resignation in 10/00, and assisted in the preparation of TEAM Communications' Q1 and Q2 2000 press releases, SEC filings and financial reports. 12. The individuals named as defendants in (Para)11(a)-(b) are referred to herein as the "Individual Defendants." The Individual Defendants, because of their positions with the Company, possessed the power and authority to control the contents of TEAM Communications' quarterly reports, press releases and presentations to securities analysts, money and portfolio managers and institutional investors, i.e., the market. Each defendant was provided with copies of the Company's reports and press releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them but not to the public, each of these defendants knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the positive representations which were being made were then materially false and misleading. -9- The Individual Defendants are liable for the false statements pleaded herein at (Para)(Para)22-28, as those statements were each "group-published" information, the result of the collective actions of the Individual Defendants. SCIENTER 13. In addition to the above-described involvement, each Individual Defendant had knowledge of TEAM Communications' problems and was motivated to conceal such problems. Levin, as CEO, was responsible for the financial results and press releases issued by the Company. He signed each false and misleading Form 10-Q issued during the Class Period. Hill, until his resignation, as CFO, was responsible for financial reporting and communications with the market. As CFO, many of the internal reports showing TEAM Communications' forecasted and actual growth were prepared by the finance department under Hill's direction and thus Hill was aware of the significant downturn in TEAM Communications' actual and forecasted results. Each Individual Defendant sought to demonstrate that he could lead the Company successfully and generate the growth expected by the market. 14. The largest asset on TEAM Communications' balance sheet was its television program costs which, according to the Company's 1999 Form 10-K, were accounted for as follows: 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. -10- Amortization of television program costs is charged to expense and third-party participations are accrued using the individual film forecast method whereby expense is recognized in the proportion that current year revenues bear to an estimate of ultimate revenue. Such estimates of ultimate revenue are prepared and reviewed by management, and estimated losses, if any, are provided for in full. Development costs are reviewed by management and charged to expense when abandoned or, even if still being actively developed, if not set for principal photography within three years of initial development activity. During the year ended December 31, 1999, as the Company increased its activities related to film cost production, overhead was capitalized in accordance with SFAS No. 53 based upon estimates of production related activities as a percentage of anticipated film cost expenditures during 1999. Management reviews the overhead rate throughout the year and will adjust the overhead rate on a quarterly basis, if necessary. During the year ended December 31, 1999, overhead in the amount of approximately $1,740,700 was capitalized to film production costs. 15. TEAM Communications accounted for revenue based on licensing agreements. According to Form 10-Qs filed during the Class Period, these were accounted for as follows: The Company recognizes revenues from licensing agreements covering entertainment product when the -11- 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." 16. Because the accounting for these items was the most important factor in the presentation of TEAM Communications' financial statements, each Individual Defendant was aware of and involved in the accounting decisions being made. In fact, certain of the transactions lacked substance and the television costs were overstated by at lease 25%. Defendants were in a position to not only know of, but to cause the misaccounting alleged herein. 17. Defendants knew or recklessly disregarded that the misleading statements and omissions complained of herein would adversely affect the integrity of the market for the Company's securities and would cause the prices of the Company's publicly traded securities to become artificially inflated. Defendants acted knowingly or in such a reckless manner as to constitute a fraud and deceit upon plaintiff and other members of the Class. FRAUDULENT SCHEME AND COURSE OF BUSINESS 18. Each defendant is liable for (i) making false statements, or (ii) failing to disclose adverse facts known to him about TEAM Communications. Defendants' fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of TEAM Communications publicly traded securities was a success, as it: (i) deceived the investing public regarding TEAM Communications' prospects and business; (ii) artificially inflated the prices of -12- TEAM Communications' publicly traded securities; (iii) caused plaintiff and other members of the Class to purchase TEAM Communications publicly traded securities at inflated prices; and (iv) allowed defendants to secure financing for their cash-starved company just days prior to announcing huge charges which indicated that the Company's financial results were false. BACKGROUND 19. The Company develops, produces and distributes a variety of television programming, including dramatic and reality-based series, specials and made-for-television movies for exploitation in the domestic and international television markets. TEAM Communications derives substantially all of its revenues from the exploitation of originally produced programs and products acquired from others. 20. On 11/29/99, the Company completed the sale of 6,150,000 shares of its common stock, 150,000 shares of which were sold by and for the account of a selling shareholder, in an underwritten offering on the German Neuer Market (the "German Offering"). The German Offering was underwritten by Gontard & MetallBank AG and a group of associated underwriters. The offering price was approximately $6.21 per share. 21. As of 10/1/99, TEAM Communications completed the purchase of Dandelion Distribution Ltd., a 20-year-old United Kingdom ("UK") based television production and distribution company, for $5,000,000 in cash and common stock. Dandelion has over 2,000 hours of television programming in its library. As of the beginning of the Class Period, defendants were in discussions with -13- a number of distribution and production companies regarding possible business combinations. DEFENDANTS' FALSE AND MISLEADING STATEMENTS ISSUED DURING THE CLASS PERIOD 22. On 5/18/00, TEAM Communications announced strong results for the Q1 00 in a press release entitled, "Sales Increase by 87% to $6,566,000; Company Reports Net Income of $354,000," which stated in part: TEAM Communications Group, Inc., a leading multinational television production and distribution company with offices in Los Angeles, London and Munich, today announced results for the quarter ended March 31, 2000. TEAM reported a net income of approximately $354,000 on total revenues of approximately $6,566,000 compared to net income of approximately $348,900 on total revenues of approximately $3,502,000 for the same period ended March 31, 1999. "We are exceptionally pleased with the financial results from the first quarter as we continue to add increased revenue and net sales each reporting period," said Chairman and Chief Executive Officer Drew S. Levin. "Revenues have increased by a significant 87% over the same period last year. 'Call of the Wild' debuted on Discovery's Animal Planet as their first ever prime-time dramatic series to rave reviews, we began airing our sci-fi franchise 'Total Recall: 2070' in over 85% of the U.S. markets in syndication, and we have begun to see tremendous benefits from the acquisition of UK-based -14- Dandelion Distribution and the establishment of TEAM Dandelion, Ltd. Our pre-tax earnings of nearly $600,000 reflect a significant increase of 38% over the same period last year," added Levin. "We have continued to make investments in European and US programming libraries and new production while the depth of our senior management in all phases of the television and media sector continues to expand," Levin concluded. Revenues for the first quarter 2000 were generated from significant sales of approximately $3,764,000 from TEAM's recently formed UK subsidiary TEAM Dandelion, Ltd., approximately $1,200,000 by delivery of 6 episodes of TEAM's dramatic series "Call of the Wild" to Discovery's Animal Planet, and approximately $1,200,000 from the airing of 6 episodes of "Total Recall: 2070" in the United States syndication market. Approximately 57% of total revenue was derived from European sales. 23. Also, on or about 5/18/00, the Company filed its Form l0-Q which included the results issued in the press release. The Form l0-Q reported that TEAM Communications had net television programming costs of $37.6 million and trade receivables of $12.7 million. The Form 10-Q was signed by Levin and Hill. 24. On 8/22/00, TEAM Communications announced record results for Q2 00, and a sales increase by 96% to $12,897,300 over the Q1 results, in a press release entitled, "Company Reports Net Earnings of $1,292,800 for the 2Q, a Three-Fold Increase from 1Q." The press release went on to state, in part: -15- TEAM Communications Group, Inc., a leading multinational television production and distribution company with offices in Los Angeles, London and Munich, announced today results for the quarter ended June 30, 2000. TEAM reported a net income of approximately $1,292,800 on total revenues of approximately $12,897,300 compared to net income of approximately $455,500 on total revenues of approximately $3,517,900 for the same period ended June 30, 1999. "We are exceptionally pleased with the financial results from the second quarter as we continue to build our record success over the last year," said Chairman and Chief Executive Officer Drew S. Levin. "Revenues have increased by a significant 96% over results of our first quarter and more than two and a half times the revenue reported for the same period last year, more than exceeding financial forecast by analysts. Our sci-fi franchise 'Total Recall: 2070" continues to air in over 85% of the U.S. markets in syndication, and our newest dramatic production, the Emmy-nominated 'Call of the Wild,' debuted on Animal Planet in March 2000 to rave reviews. Additionally, we have continued to see tremendous benefits from the acquisition of UK-based Dandelion Distribution and the establishment of TEAM Dandelion, Ltd.," added Levin. "We continue to make investments in European and U.S. programming libraries and new production while the depth of our senior -16- management in all phases of the television and media sector continues to expand. We are also very enthusiastic about the newest member of the TEAM family, TEAM Entertainment Germany, headed by television veteran Erhart Puschnig," concluded Levin. Revenues of the first quarter 2000 were generated from significant sales of approximately $8,000,000 from TEAM's UK subsidiary TEAM Dandelion Ltd., and approximately $3,950,000 from "Total Recall: 2070" syndication in the United States market. 25. Also, on or about 8/22/00, the Company filed its Form l0-Q which included the results issued in the press release. The Form l0-Q reported that TEAM Communications had net television programming costs of $47.6 million and trade receivables of $15.2 million. The Form l0-Q was signed by Levin. 26. On 11/22/00, TEAM Communications announced record results for Q3 00, as sales increased by 144% to $15,259,000 over the same period in 1999, in a press release entitled, "Company Reports Net Income of $1,040,300 for the Quarter, Representing a 56% Increase Over the Corresponding Quarter in 1999." The press release went on to state in part: TEAM Communications Group, Inc., a leading multinational television production and distribution company with offices in Los Angeles, London and Munich, announced today results for the quarter ended September 20, 2000. TEAM reported net income for the current quarter of $1,040,300 on total revenues of $15,259,000 compared to -17- net income of $668,600 on total revenue of $6,253,400 for the corresponding period of last year. For the nine months ended September 30, 2000, TEAM reported net income of $2,687,000 and revenues of $34,722,600 as compared to $1,472,900 and $13,273,300, respectively, for the corresponding period of last year. "We are exceptionally pleased with the financial results for the third quarter and year to date as we continue to build our record success over the last year," said Chairman and Chief Executive Officer Drew S. Levin. "Revenues for the current quarter have increased by 144% over the corresponding quarter of last year and by 162% for the nine months ended September 30, 2000 over the corresponding period for 1999. Our strategy of creating a global content supplier is clearly working, not only in terms of significant increases in sales and earnings, but also in the proportion of revenues being generated by each of our three operating centers." 27. Also, on or about 11/22/00, the Company filed its Form l0-Q which included the results issued in the press release. The Form 10-Q reported that TEAM Communications had net television programming costs of $42.2 million and trade receivables of $27.2 million. The Form 10-Q was signed by Levin. 28. On 1/17/01, TEAM Communications announced it had successfully secured a $45 million credit commitment from Canadian Imperial Bank of Commerce. The release stated: TEAM Communications Group, Inc., a leading multinational television production and distribution company, announced -18- today that the Company has received a $45 million financing commitment for a special purpose fund from Canadian Imperial Bank of Commerce (CIBC). The commitment is subject to documentation and is expected to close during the first quarter. Given TEAM's current programming slate, TEAM TV Fund will be able to finance up to $125 million of total production costs. The announcement was made today by Drew s. Levin, TEAM Chairman and CEO. * * * "TEAM TV Fund will be the first securitization type of financing structure for television production," commented Mr. Levin. "This unique financing approach scales up quickly, is accretive to our shareholder equity and cost effective," added Levin. "The new TEAM TV Fund significantly augments our company's ability to meet the growing demand for original, dramatic programming from all of the key broadcast and cable network buyers around the world," concluded Levin. 29. Then on 2/13/01, TEAM Communications shocked the investment community with its press release entitled "TEAM Communications Group, Inc., Names Michael Jay Solomon Chairman and CEO; Expects to Report Loss for Full Year 2000." The press release went on to state in relevant part: The Company also reported that it currently expects to take a charge of approximately $21,000,000 against its results of operations for the year 2000. The Company -19- stated that the amount of the expected charge is subject to adjustment, including possible increase, upon audit of the Company's year 2000 operations. It is also subject to completion of an internal examination of whether certain of the Company's film library acquisition and distribution transactions during the past year lacked economic substance. As a result of this charge, the Company anticipates that it will report a loss for the year 2000 of between $18,000,000 and $19,500,000 or a potentially larger amount. The Company also disclosed that it has short-term liquidity needs, which Mr. Solomon stated will receive his immediate attention. * * * The Company stated that the charges expected to be reflected in its year 2000 results will include the establishment of approximately $11,000,000 of reserves against long-term receivables and $10,000,000 of reserves relating to the valuation of its film programming inventory. The Company also expects to record an adjustment of approximately $2,000,000 as a result of the early adoption of certain new accounting requirements for producers and distributors of film. These adjustments include $9,000,000 related to the elimination of the Company's investment associated with its 1999 acquisition of Dandelion U.K. The Company stated that it intends to restructure its present U.K. operations, and that Noel Cronin, the Managing Director of Team Dandelion, has agreed to terminate his employment -20- agreement with the Company. The Company further reported that it has instituted a strategic review of its acquired film libraries, with a view to increasing the rates at which the Company amortizes its investments in those libraries. As a result of the anticipated adjustments and reserves, the Company expects that it will not be in compliance with the terms of its existing bank financing facilities, and is seeking appropriate waivers of these potential covenant defaults. The Company is also seeking to restructure its financing arrangements. 30. On this disclosure, TEAM Communications' stock dropped to below $2 per share where it has remained since the end of the Class Period. TEAM COMMUNICATIONS' FALSE FINANCIAL REPORTING DURING THE CLASS PERIOD 31. In order to inflate the price of TEAM Communications' stock, defendants caused the Company to falsely report its results for at least the Q1, Q2 and Q3 00 through improper revenue recognition on television licensing agreements and by failing to properly report the value of television program costs, thereby materially overstating its revenue, net income and EPS in at least the Q1, Q2 and Q3 00. Ultimately, TEAM Communications reported a horrible Q4 00, which was due to millions of dollars worth of charges related to its prior improper accounting. 32. TEAM Communications reported the following amounts for the Q1, Q2 and Q3 00: -21- - -------------------------------------------------------------------------------- 3/31/00 6/30/00 9/30/00 ------- ------- ------- Revenue $6.6 M $12.9 M $15.3M - -------------------------------------------------------------------------------- Net Income (Loss) $354,000 $ 1.3 M $ 1.0M - -------------------------------------------------------------------------------- Television Programming costs $37.6M $47.6M $42.2M - -------------------------------------------------------------------------------- 33. TEAM Communications included these results in Form 10-Qs filed with the SEC. The Form 10-Qs, which were signed by Levin, represented that: The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements. Accordingly, they do not include all of the information and disclosures required for annual financial statements. These financial statements should be read in conjunction with the financial statements and related footnotes for the year ended December 31, 1999, included in the TEAM Communications Group, Inc. ("Company") financial report in the Company's 10-KSB. In the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of [Quarter end], and the results of operations and cash flows for the [period] ended [at quarter end] have been included. The results of operations for the [quarter and year to date], are not necessarily indicative of the results to be expected for the full fiscal year. For further information, refer to the financial statements and footnotes thereto included -22- in the Company's 10-KSB filed for the year ended December 31, 1999. 34. These representations were false and misleading when made, as TEAM Communications' financial statements for the Q1, Q2 and Q3 00 were not a fair presentation of TEAM Communications' results and were presented in violation of GAAP and SEC rules. 35. GAAP are those principles recognized by the accounting profession as the conventions, rules and procedures necessary to define accepted accounting practice at a particular time. SEC Regulation S-X (17 C.F.R. ss.210.4-01(a) (1)), states that financial statements filed with the SEC which are not prepared in compliance with GAAP are presumed to be misleading and inaccurate, despite footnote or other disclosure. Regulation S-X requires that interim financial statements must also comply with GAAP, with the exception that interim financial statements need not include disclosure which would be duplicative of disclosures accompanying annual financial statements. 17 C.F.R. ss.210.10-01(a). 36. The Individual Defendants caused TEAM Communications to falsify its reported financial results through its improper revenue recognition on licensing deals and failure to properly record the value of television programming costs. 37. GAAP, as set forth in FASB Statement of Accounting Standard ("SFAS") No. 53, Financial Reporting by Producers and Distributors of Motion Picture Films, states that: 5. Motion picture companies and independent producers and distributors (licensors) shall consider a license agreement for television program material as a sale of a right or a group of rights. -23- 6. A licensor shall recognize revenue from a license agreement for television program material when the license period begins and all of the following conditions have been met: a. The license fee for each film is known. b. The cost of each film is known or reasonably determinable. c. Collectability of the full license fee is reasonably assured. d. The film has been accepted by the licensee in accordance with the conditions of the license agreement. e. The film is available for its first showing or telecast. Unless a conflicting license prevents usage by the licensee, restrictions under the same license agreement or another license agreement with the same licensee on the timing of the subsequent showings shall not affect this condition. 38. Unfortunately for investors, TEAM Communications' results, and the representations concerning them, were false. On 2/13/01, TEAM Communications revealed that it was taking an enormous $21 million charge against earnings in the Q4 00 and that it had launched an internal examination as to whether certain of its film acquisition and distribution transactions lacked economic substance. These charges included $11 million to reserve for uncollectible long-term receivables and $10 million to write-down the value of film programming costs, and included $9 million to -24- write-down the investment in Dandelion U.K. The Company will also record a charge for $2 million to reflect a change in accounting due to the issuance of a new pronouncement on financial reporting by film producers. 39. Had the charges been properly recorded during the Class Period, TEAM Communications would have reported a large loss in each quarter as opposed to the profit it actually reported. 40. Due to these accounting improprieties, the Company presented its financial results and statements in a manner which violated GAAP, including the following fundamental accounting principles: (a) The principle that interim financial reporting should be based upon the same accounting principles and practices used to prepare annual financial statements was violated (APB No. 28, (Para)10); (b) The principle that financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions was violated (FASB Statement of Concepts No. 1, (Para)34); (c) The principle that financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and effects of transactions, events and circumstances that change resources and claims to those resources was violated (FASB Statement of Concepts No. 1, (Para)40); (d) The principle that financial reporting should provide information about how management of an enterprise has discharged its stewardship responsibility to owners (stockholders) -25- for the use of enterprise resources entrusted to it was violated. To the extent that management offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to prospective investors and to the public in general (FASB Statement of Concepts No. 1, (Para)50); (e) The principle that financial reporting should provide information about an enterprise's financial performance during a period was violated. Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors' expectations about future enterprise performance, those expectations are commonly based at least partly on evaluations of past enterprise performance (FASB Statement of Concepts No. 1, (Para)42); (f) The principle that financial reporting should be reliable in that it represents what it purports to represent was violated. That information should be reliable as well as relevant is a notion that is central to accounting (FASB Statement of Concepts No. 2, (Para) (Para)58-59); (g) The principle of completeness, which means that nothing is left out of the information that may be necessary to insure that it validly represents underlying events and conditions was violated (FASB Statement of Concepts No. 2, (Para)79); and (h) The principle that conservatism be used as a prudent reaction to uncertainty to try to ensure that uncertainties and risks inherent in business situations are adequately considered was violated. The best way to avoid injury to investors is to try to -26- ensure that what is reported represents what it purports to represent (FASB Statement of Concepts No. 2, (Para) (Para)95, 97). 41. Further, the undisclosed adverse information concealed by defendants during the Class Period is the type of information which, because of SEC regulations, regulations of the national stock exchanges and customary business practice, is expected by investors and securities analysts to be disclosed and is known by corporate officials and their legal and financial advisors to be the type of information which is expected to be and must be disclosed. FIRST CLAIM FOR RELIEF For Violation of ss.10(b) of the 1934 Act and Rule 10b-5 Against All Defendants 42. Plaintiff incorporates (Para) (Para)1-41 by reference. 43. During the Class Period, defendants disseminated or approved the false statements specified above, which they knew or recklessly disregarded were misleading in that they contained misrepresentations and failed to disclose material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. 44. Defendants violated ss.10(b) of the 1934 Act and Rule 10b-5 in that they: (a) Employed devices, schemes, and artifices to defraud; (b) Made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) Engaged in acts, practices, and a course of business that operated as a fraud or deceit upon plaintiff and others -27- similarly situated in connection with their purchases of TEAM Communications publicly traded securities during the Class Period. 45. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for TEAM Communications publicly traded securities. Plaintiff and the Class would not have purchased TEAM Communications publicly traded securities at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants' misleading statements. 46. As a direct and proximate result of these defendants' wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their purchases of TEAM Communications publicly traded securities during the Class Period. SECOND CLAIM FOR RELIEF For Violation of ss.20(a) of the 1934 Act Against All Defendants 47. Plaintiff incorporates (Para)(Para)1-46 by reference. 48. The Individual Defendants acted as controlling persons of TEAM Communications within the meaning of ss.20(a) of the 1934 Act. By reason of their positions as officers and/or directors of TEAM Communications, and their ownership of TEAM Communications stock, the Individual Defendants had the power and authority to cause TEAM Communications to engage in the wrongful conduct complained of herein. TEAM Communications controlled each of the Individual Defendants and all of its employees. By reason of such conduct, the Individual Defendants and TEAM Communications are liable pursuant to ss.20(a) of the 1934 Act. -28- CLASS ACTION ALLEGATIONS 49. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of all persons who purchased TEAM Communications publicly traded securities (the "Class") on the open market during the Class Period. Excluded from the Class are defendants. 50. The members of the Class are so numerous that joinder of all members is impracticable. The disposition of their claims in a class action will provide substantial benefits to the parties and the Court. TEAM Communications had more than 14 million shares of stock outstanding, owned by hundreds if not thousands of persons. 51. There is a well-defined community of interest in the questions of law and fact involved in this case. Questions of law and fact common to the members of the Class which predominate over questions which may affect individual Class members include: (a) Whether the 1934 Act was violated by defendants; (b) Whether defendants omitted and/or misrepresented material facts; (c) Whether defendants' statements omitted material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading; (d) Whether defendants knew or recklessly disregarded that their statements were false and misleading; (e) Whether the prices of TEAM Communications' publicly traded securities were artificially inflated; and (f) The extent of damage sustained by Class members and the appropriate measure of damages. -29- 52. Plaintiff's claims are typical of those of the Class because plaintiff and the Class sustained damages from defendants' wrongful conduct. 53. Plaintiff will adequately protect the interests of the Class and has retained counsel who are experienced in class action securities litigation. Plaintiff has no interests which conflict with those of the Class. 54. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. STATUTORY SAFE HARBOR 55. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false forward-looking statements pleaded in this Complaint. The safe harbor does not apply to TEAM Communications' allegedly false financial statements. None of the written forward-looking statements made were identified as forward-looking statements, nor was it stated that actual results "could differ materially from those projected." Nor did meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements accompany those forward-looking statements. Each of the forward-looking statements alleged herein to be false was authorized by an executive officer of TEAM Communications and was actually known by each of the Individual Defendants to be false when made. -30- PRAYER FOR RELIEF WHEREFORE, plaintiff prays for judgment as follows: A. Declaring this action to be a proper class action pursuant to Rule 23; B. Awarding plaintiff and the members of the Class damages, interest and costs; and C. Awarding such other relief as the Court may deem just and proper. JURY DEMAND Plaintiff demands a trial by jury. DATED: March 9, 2001 MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH DARREN J. ROBBINS /s/ Darren J. Robbins /By KTR ------------------------------------------ 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax) CAULEY, GELLER, BOWMAN & COATES, LLP PAUL J. GELLER One Boca Place, Suite 421A 2255 Glades Road Boca Raton, FL 33431 Telephone: 561/750-3000 561/750-3364 (fax) SCHIFFRIN & BARROWAY, LLP MARC A. TOPAZ Three Bala Plaza East, Suite 400 Bala Cynwyd, PA 19004 Telephone: 610/667-7706 610/667-7056 (fax) Attorneys for Plaintiff -31- CAULEY, GELLER, BOWMAN & COATES, LLP One Boca Place 2255 Glades Road, Suite 421A Boca Raton, FL 33431 (561) 750-3000 (561) 750-3364 Facsimile CERTIFICATE OF NAMED PLAINTIFF PURSUANT TO FEDERAL SECURITIES LAWS Steven McKinhon ("Plaintiff"), declares as to the claims asserted under the federal securities laws, that; 1. Plaintiff has reviewed the complaint alleging securities fraud against Team Communications Group, Inc. and authorized its filing. 2. Plaintiff did not purchase the security that is the subject of this action at the direction of Plaintiff's counsel or in order to participate in this private action. 3. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary. 4. Plaintiff has made no transaction(s) during the Class Period in the debt or equity securities that are the subject of this action except those set forth below: Security Bought or Sold # of Shares Date Price Per Share - -------- -------------- ----------- ---- --------------- TMTV Bought 120 7/11/2000 $8.68750 5. During the years prior to the date of this Certificate, Plaintiff has sought to serve or served as a representative party for a class in the following actions filed under federal securities laws: 6. Plaintiff will not accept any payment for serving as representative party on behalf of the class beyond Plaintiff's pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to the representation of the class as ordered or approved by the court. I declare under penalty of perjury that the foregoing is true and correct. Executed this 27th day of February, 2001. /s/ Steven McKinhon -------------------------------- SIGNATURE -----END PRIVACY-ENHANCED MESSAGE-----