SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended JUNE 30, 1999 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from __________ to
__________ Commission file number: 0-18613
TRIMARK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4272695
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4553 GLENCOE AVE., SUITE 200
MARINA DEL REY, CALIFORNIA 90292
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(310) 314-2000
Securities registered pursuant to Section 12(b) of the Act:
(NONE)
Name of each exchange on which registered:
(NONE)
Securities registered pursuant to Section 12(g) of the Act:
Title of Class:
COMMON STOCK, $.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
As of September 1, 1999, the aggregate market value of Common Stock held by
non-affiliates of the registrant was approximately $8,880,000. All officers,
directors and more than ten percent (10%) shareholders of the registrant are
deemed "affiliates" of the registrant solely for the purpose of calculating such
aggregate market value.
The number of shares of Common Stock of the registrant outstanding as of
September 1, 1999 was 4,604,677, excluding shares held by the registrant as
treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement (the "1999 Proxy
Statement") to be filed pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year (June 30, 1999) are incorporated by reference in Part
III.
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PART I
ITEM 1. BUSINESS
GENERAL
Trimark Holdings, Inc., a Delaware corporation (the "Company"), through its
wholly-owned subsidiary, Trimark Pictures, Inc., a California corporation
("Trimark"), is a worldwide distributor of entertainment software, primarily
engaged in the distribution of feature films in the domestic home video and
theatrical markets and in the licensing of distribution rights to motion
pictures for international markets. Trimark Television, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company, licenses television
rights to feature films, television series, music and children specials, and
documentaries in both the international and domestic markets.
As an independent distribution company, the Company acquires the rights to
motion pictures from a variety of sources, including studios, production
companies and independent producers. Generally, the Company acquires the rights
to completed motion pictures. However, in order to secure rights to motion
pictures which might not otherwise be available to the Company and to acquire a
wider array of distribution rights on more favorable terms, the Company also
secures the rights to motion pictures prior to or during production. The Company
distinguishes itself from the major motion picture studios and certain other
independent video distribution companies by acquiring rights to motion pictures
which may not be cost effective for many of its larger competitors to
distribute.
Distribution rights which the Company may acquire include: (a) DOMESTIC - home
video, - free television, - pay television (including cable and pay-per-view), -
theatrical and - electronic publishing (b) INTERNATIONAL - all media.
The Company was formed in August 1984 and began operations as a domestic home
video distributor in early calendar year 1985 by acquiring exclusive home video
distribution rights to motion pictures and other audio-visual entertainment
programs which it packaged, advertised, promoted, sold, had duplicated, and
shipped to home video wholesalers for resale to retailers throughout the
country. The Company generally sells videocassettes to wholesale distributors
for resale to the approximately 25,000 video rental stores in the United States.
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ITEM 1. (CONTINUED)
In 1987, the Company began distributing and sublicensing motion pictures for
distribution in the international market. The Company considered this an
opportunity to grow in an area closely related to its video business, while
offering new opportunities to acquire broader distribution rights to motion
pictures in all media.
On May 15, 1990, the Company was re-incorporated in Delaware. The principal
assets of the Company are the capital stock of Trimark Pictures and Trimark
Television; the material business of the Company is conducted through these
companies. Unless noted otherwise, all references to the Company in this filing
include its subsidiaries.
On June 29, 1990, the Company effected an initial public offering of 1,300,000
shares of Common Stock and an additional 200,000 shares of Common Stock were
sold by selling stockholders.
On December 31, 1991, the Company acquired Trimark Television (which at the time
was named International Broadcast Systems, Ltd.) a publicly traded company, for
$1.6 million in cash. Trimark Television specializes in the distribution of
television programming, and licenses television productions to broadcasters
throughout the world.
On June 1, 1992, the Company changed its name from Vidmark, Inc. to Trimark
Holdings, Inc. On June 24, 1992, Trimark changed its name from Vidmark, Inc. to
Trimark Pictures, Inc. The name changes reflect the Company's diversification of
its distribution streams.
In March of 1993, the Company formed Trimark Interactive to expand the core
business of film production and video distribution into the emerging market
for interactive entertainment software and multimedia. In March 1997, the
Company sold substantially all assets (primarily intellectual properties and
inventory) of Trimark Interactive to an unrelated independent entertainment
and interactive music publisher. The Company is no longer engaged in the
market for interactive entertainment software and multimedia.
On May 28, 1999, the Company formed a majority owned subsidiary CinemaNow, Inc.
to engage in the business of streaming films over the internet using Trimark
Pictures library as well as acquiring the internet rights of other films or film
libraries.
THE UNITED STATES MOTION PICTURE INDUSTRY
The United States motion picture industry encompasses the production and
theatrical exhibition of feature-length motion pictures and the subsequent
distribution of such pictures in home video, television and other ancillary
markets. The industry is dominated by the major studios -- some of which have
divisions which are promoted as "independent" distributors of motion pictures --
including Universal Pictures, Warner Brothers
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ITEM 1. (CONTINUED)
(including Turner Pictures, New Line Cinema and Castle Rock Entertainment),
Twentieth Century Fox, Sony Pictures Entertainment (including Columbia Pictures
and Tristar Pictures), Paramount Pictures, The Walt Disney Company (including
Buena Vista, Touchstone and Miramax) and MGM (including Metro Goldwyn Mayer
Pictures, United Artists Pictures, Orion Pictures and Goldwyn Entertainment
Company), which historically have produced and distributed the majority of
theatrical motion pictures released annually in the United States. In recent
years, however, "independent" motion picture production companies have played an
important role in the production of motion pictures for the worldwide feature
film market. There are also a large number of smaller production companies such
as the Company and other entities that produce theatrical motion pictures.
The "majors" generally own their production studios and have national or
worldwide distribution organizations. Major studios typically release films with
direct production costs generally ranging from approximately $25 million to $100
million or more, and provide a continual source of motion pictures to the
nation's theatrical exhibitors. The independents do not own production studios
and, with certain exceptions, have more limited distribution capabilities than
the major studios. Independents typically produce fewer motion pictures at
substantially lower average production costs than major studios.
MOTION PICTURE PRODUCTION AND FINANCING. The production of a motion picture
begins with the screenplay adaptation of a popular novel or other literary work
acquired by the producer or the development of an original screenplay having its
genesis in a story line or scenario conceived of or acquired by the producer. In
the development phase, the producer typically seeks production financing and
tentative commitments from a director, the principal cast members and other
creative personnel. A proposed production schedule and budget also are prepared
during this phase.
Upon completing the screenplay and arranging financing commitments,
pre-production of the motion picture begins. In this phase, the producer engages
creative personnel to the extent not previously committed; finalizes the filming
schedule and production budget; obtains insurance and secures completion
guarantees, if necessary or available; establishes filming locations and secures
any necessary studio facilities and stages; and prepares for the start of
principal photography.
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ITEM 1. (CONTINUED)
Principal photography, the actual filming of the screenplay, may extend from
four to sixteen weeks or longer, depending upon such factors as budget,
location, weather and complications inherent in the screenplay. Following
completion of principal photography, the motion picture is edited, opticals,
dialogue, music and any special effects are added, and voice, effects and music
sound tracks and picture are synchronized during post-production. This results
in the production of the negative from which the release prints of the motion
picture are made.
The cost of a motion picture produced by an independent production company for
limited distribution ranges from approximately $1 million to $12 million as
compared with $25 million to $100 million or more for commercial films produced
by major studios for wide release. Production costs consist of acquiring or
developing the screenplay, film studio rental, cinematography, post-production
costs and the compensation of creative and other production personnel.
Distribution expenses, which consist primarily of the costs of advertising and
release prints, are not included in direct production costs.
The major studios generally fund production costs from cash flow from their
motion picture and related activities, licensing fees generated from film
library holdings, and, in some cases, from unrelated businesses. Substantial
overhead costs, consisting largely of salaries and related costs of the
development, production, distribution and marketing staff and physical
facilities maintained by the major studios, also must be funded.
Independent production companies generally avoid incurring substantial overhead
costs by hiring creative and other production personnel and retaining the other
elements required for pre-production, principal photography and post-production
activities on a project-by-project basis. Unlike the major studios, the
independents also typically finance their production activities from bank loans,
"pre-sales" agreements, equity offerings and joint ventures. Independents
generally attempt to complete their financing of a motion picture production
prior to commencement of principal photography, at which point substantial
production costs begin to be incurred and require payment.
"Pre-sales" are often used by independent film companies to finance all or a
portion of the direct production costs of a motion picture. Pre-sales consist of
license fees paid to the producer by third parties in return for the right to
exhibit the completed motion picture in theaters or to distribute it in home
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ITEM 1. (CONTINUED)
video, television, international or other ancillary markets. Producers with
distribution capabilities may retain the right to distribute the completed
motion picture either domestically or in one or more foreign markets. Producers
may separately license theatrical, home video, television, foreign and all other
distribution rights among several licensees. The producer may also at times be
able to acquire additional production funds through "gap financing," whereby a
lender loans a portion of the production funds based on a distributor's estimate
of the value of distribution rights. Although "gap financing" is currently
available through a variety of lenders, there can be no assurance such lenders
will continue to make funds available on this basis in the future.
Both major studios and independent film companies often acquire motion pictures
for distribution through a customary industry arrangement known as a "negative
pickup," under which the studio or independent film company agrees to acquire
from an independent production company all rights to a film upon completion of
production. The independent production company normally finances production of
the motion picture pursuant to financing arrangements with banks or other
lenders in which the lender is granted a security interest in the film and the
independent production company's rights under its arrangement with the studio or
independent. When the studio or independent "picks up" the completed motion
picture, it assumes or pays the production financing indebtedness incurred by
the production company in connection with the film. In addition, the independent
production company is paid a production fee and generally is granted a
participation in the net profits of the motion picture.
Both major studios and independent film companies generally incur various
third-party participations in connection with the production and distribution of
a motion picture. These participations are contractual rights of actors,
directors, screenwriters, owners of rights and other creative and financial
contributors entitling them to share in revenues or net profits (as defined in
the respective agreements) from a particular motion picture. Except for the most
sought-after talent, participations are generally payable after all distribution
and marketing fees and expenses, direct production costs and financing costs are
paid in full.
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ITEM 1. (CONTINUED)
MOTION PICTURE DISTRIBUTION.
Motion picture distribution encompasses the distribution of motion pictures in
theaters and in ancillary markets such as home video, pay-per-view, pay
television, broadcast television, foreign and other markets. The distributor
typically acquires rights from the producer to distribute a motion picture in
one or more markets. For its distribution rights, the distributor typically
agrees to advance the producer a certain minimum royalty or guarantee, which is
to be recouped by the distributor out of revenues generated from the
distribution of the motion picture and is generally nonrefundable. The producer
also is entitled to receive a royalty equal to an agreed-upon percentage of all
revenues received from distribution of the motion picture over and above the
royalty advance.
THEATRICAL DISTRIBUTION. The theatrical distribution of a motion picture
involves the manufacture and transportation of release prints, the promotion of
the picture through advertising and publicity campaigns and the licensing of the
motion picture to theatrical exhibitors. The size and success of the promotional
advertising campaign can materially affect the revenues realized from the
theatrical release of a motion picture. The major studios can spend in excess of
$50 million to promote motion pictures, and have average combined print and
advertising costs in excess of $20 million. The costs incurred in connection
with the distribution of a motion picture can vary significantly, depending on
the number of screens on which the motion picture is to be exhibited and the
competition among distributors for theaters during certain seasons. Similarly,
the ability to exhibit motion pictures in the most popular theaters can affect
theatrical revenues.
The distributor and theatrical exhibitor generally enter into an arrangement
providing for the exhibitor's payment to the distributor of a percentage of the
box office receipts for the exhibition period, in some cases after deduction of
the theater's overhead, or a flat negotiated weekly amount. The distributor's
percentage of box office receipts varies widely, depending upon the success of
the motion picture at the box office and other factors. Distributors carefully
monitor the theaters which have licensed the picture for exhibition to ensure
that the exhibitor promptly pays all amounts due the distributor. Substantial
delays in collection are not unusual.
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ITEM 1. (CONTINUED)
Successful motion pictures may continue to play in theaters for up to four (4)
months or longer following their initial release. Concurrently with their
release in the United States, motion pictures generally are released in Canada
and may also be released in one or more other foreign markets. Motion pictures
are generally made available for distribution in markets subsequent to
theatrical as follows:
Months After Approximate
Initial Release Release Period
--------------- --------------
Domestic home video 4-6 months ---
Domestic pay-per-view 6-9 months 3 months
Domestic pay television 10-18 months 12-21 months
Domestic network or basic cable 30-36 months 18-36 months
Domestic syndication 30-36 months 3-15 years
Foreign home video 6-12 months ---
Foreign television 18-24 months 3-12 years
HOME VIDEO. The home video distribution business involves the promotion and sale
of videocassettes and videodiscs to local, regional and national video retailers
(e.g., video specialty stores, convenience stores, record stores and other
outlets), which then rent or sell such videocassettes and videodiscs to
consumers primarily for private viewing.
Certain films are not initially released theatrically but may instead be
initially released to home video. Given the increasing preference of retail
video stores for successful theatrical releases, it has become increasingly
difficult to secure the initial release of a film directly to home video, and
the economic opportunity for such films where such a release is obtained has
greatly diminished. To address the change in preference in the domestic home
video market, the Company has focused its resources on distributing an increased
number of specialized films theatrically as well as films premiering on pay
television, and decreasing the releases of straight-to-video films. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Major feature films are usually scheduled for release in the home video market
within four to six months after theatrical release to capitalize on the
theatrical advertising and publicity for the film. Promotion of new releases is
generally undertaken during the nine to twelve weeks before the release date.
Videocassettes of feature films are generally sold to domestic wholesalers at
approximately $40 to $60 per unit and generally are rented by
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ITEM 1. (CONTINUED)
consumers for fees ranging from $1 to $5 per day. Wholesalers who meet certain
sales and performance objectives may earn rebates, return credits and
cooperative advertising allowances. Selected titles, including certain
made-for-video programs, are priced significantly lower to encourage direct
purchase by consumers. Direct sale to consumers is referred to as the
"priced-for-sale" or "sell through" market. Typically, owners of films do not
share in video rental income; however, video distributors are beginning to enter
into revenue sharing arrangements with major video retail stores. Under such
arrangements, videocassettes are sold at a reduced price to video rental stores
(usually $8 to $15 per video cassette) and a percentage of the video rental
revenue is then shared with the owners (or licensors) of the films. Home video
arrangements in international territories are similar to those in domestic
territories except that the wholesale prices may differ.
Overall growth in the domestic home video market has slowed as growth in the
number of new outlets and new VCR homes has moderated. The growth in outlets
designed to specifically serve the rental market has decreased over the past
year, while the number of outlets which offer videocassettes and digital video
discs (DVD) for sale has increased. The sell through market continues to grow
with strong sales in the traditional family entertainment market and a growing
number of hit feature films initially released at prices generally below $30.
Furthermore, technological developments which internet companies, regional
telephone companies and others are developing could make competing delivery
systems economically viable and could affect the home video marketplace.
PAY-PER-VIEW. Pay-per-view television allows cable and satellite television
subscribers to purchase individual programs, including recently released motion
pictures and live sporting, music or other events, on a "per use" basis. The
subscriber fees are typically divided among the program distributor, the
pay-per-view operator and the cable system operator.
PAY TELEVISION. Pay television allows subscribers to view premium channels such
as HBO/Cinemax, Showtime/The Movie Channel and other pay television networks
offered by cable and satellite system operators for a monthly subscription fee.
The pay television networks acquire a substantial portion of their programming
from motion picture distributors. New markets may develop with the maturation of
newly emerging direct broadcast satellite (DBS) systems and other digital
television systems.
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ITEM 1. (CONTINUED)
BROADCAST AND BASIC CABLE TELEVISION. Broadcast television allows viewers to
receive, without charge, programming broadcast over the air by affiliates of the
major networks (ABC, CBS, NBC and Fox), recently formed networks (UPN and WB
Network), independent television stations and cable and satellite networks and
stations. In certain areas, viewers may receive the same programming via cable
transmission for which subscribers pay a basic cable television fee.
Broadcasters or cable systems operators pay fees to distributors for the right
to air programming a specified number of times.
FOREIGN MARKETS. In addition to their domestic distribution activities, some
motion picture distributors generate revenues from distribution of motion
pictures in foreign theaters, home video, television and other foreign markets.
There has been a dramatic increase in recent years in the worldwide demand for
filmed entertainment. This growth is largely due to the privatization of
television stations, introduction of direct broadcast satellite services, and
increased home video and cable penetration.
OTHER MARKETS. Revenues also may be derived from the distribution of motion
pictures to airlines, schools, libraries, hospitals and the military, licensing
of rights to perform musical works and sound recordings embodied in a motion
picture, and licensing rights to manufacture and distribute merchandise,
clothing and similar commercial articles derived from characters or other
elements of a motion picture.
NEW TECHNOLOGIES. New means of delivery of entertainment product are constantly
being developed and offered to the consumer. The impact of emerging technologies
such as direct broadcast satellites and the internet, on the Company's
operations cannot be determined at this time. However, as a holder of
entertainment copyrights, the Company monitors these new media possibilities.
ACQUISITION OF MOTION PICTURE DISTRIBUTION RIGHTS BY THE COMPANY
GENERAL. Distribution rights to motion pictures can encompass various media
(e.g., theatrical, home video, free or pay television, electronic publishing)
and various markets or territories (e.g., the United States and Canada, Great
Britain, Japan). The Company prefers to acquire worldwide distribution rights to
a motion picture in all media wherever feasible.
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ITEM 1. (CONTINUED)
The Company uses a similar decision making process in analyzing the acquisition
of a completed or an uncompleted movie. The Company collects information
concerning new motion pictures being contemplated or entering the production
cycle. This information is obtained from trade sources and from personal
relationships and contacts. The acquisition process focuses on productions which
seem most likely to fit the Company's requirements. Before the Company acquires
distribution rights for any motion picture, the Company analyzes not only the
picture's projected costs, revenues, and scheduling but also the effect of these
assumptions on overall Company performance. Management bases its acquisition
decisions on the results of this evaluation process and will not make offers
with risks that, in management's opinion, could materially adversely affect the
Company's profitability. The Company's credit facility imposes limitations on
the size of minimum guarantees or production or acquisition costs the Company
can incur without the lender's approval. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
When the Company acquires distribution rights to a motion picture prior to its
production, it makes only limited commitments to advance funds before
completion. After acquisition of the rights of a motion picture prior to its
production, the Company typically has approval rights over key production
elements and maintains a production supervisory staff to monitor the production
process. The Company's current policy is to acquire distribution rights for
motion pictures which will not be subject to material restrictions on release
and exhibition.
DOMESTIC HOME VIDEO DISTRIBUTION RIGHTS. The Company generally acquires domestic
(United States and Canadian) home video rights under exclusive licenses, for
terms ranging from five years to perpetuity, in return for a minimum guarantee
against future royalties based on a percentage of a videocassette's wholesale
net revenues. The value of a motion picture's domestic home video rights
generally increases as its domestic theatrical print and advertising budget
increases. Some of the Company's licenses require the licensor or theatrical
distributor to make minimum print and advertising expenditures. In other
instances, the Company has agreed to release and or pay print and advertising
expenses for a motion picture's theatrical distribution.
Domestic home video sales are promoted through regional direct sales personnel
who contact home video wholesale distributors and
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ITEM 1. (CONTINUED)
large retail video stores. Substantially all of the Company's home video rental
sales have been made to ten (10) wholesale video distributors and two (2) retail
video stores.
In February 1994, the Company formed a sell through unit to maximize the
profit potential of its 600+ title library and acquire new products for the
growing video sell through and DVD market. Currently the Company distributes
or sells directly to mass merchandisers such as Wal-Mart, Costco, Target and
Best Buy and others who buy large volumes of the Company's videos and DVDs to
be sold directly to the consumer.
DOMESTIC THEATRICAL DISTRIBUTION RIGHTS. The Company acquires theatrical
distribution rights on a selective basis and distributes motion pictures for
exhibition by both major theater chains and numerous independent theaters
throughout the United States.
Management of the Company considers the theatrical distribution of film
important as a marketing tool which enhances video and international sales.
Accordingly, the Company seeks to acquire theatrical distribution rights as part
of an acquisition where possible, even if a film ultimately will not be released
theatrically. The Company released six films during fiscal 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company currently targets motion pictures for distribution to
various demographic audiences on a specialized basis, and such pictures can be
distributed less expensively on a limited or more regional basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Specialized motion pictures are characterized by underlying
literary and artistic elements intended to appeal primarily to sophisticated or
niche audiences and are generally substantially less expensive to produce and
distribute than films produced for wide release. It is not uncommon for films to
suffer theatrical losses primarily due to increased advertising expenditures,
but to have increased performance in video and other ancillary media that may
partially or totally offset such losses. The management of the Company believes
that the theatrical market has significant upside potential should any
particular film perform well. However, no assurance can be made as to results
with respect to any particular release.
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ITEM 1. (CONTINUED)
The Company is in various stages of post production, production, development and
pre-production on a number of projects, and intends to release theatrically six
(6) to eight (8) films in fiscal 2000. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
DOMESTIC TELEVISION DISTRIBUTION RIGHTS. The Company acquires television
distribution rights as part of the overall acquisition whenever possible. In
addition, television distribution rights are acquired specifically for
distribution by Trimark Television.
The Company hired additional personnel in fiscal 1998 to develop and oversee
the production and sales of long-form programming for initial release on
broadcast or major cable networks. The Company intends to sell four (4) to
six (6) films and "movies of the week" which will premier on major cable
networks or broadcast stations.
Television networks, independent television networks, television stations and
cable system operators generally license television series, films and film
packages (consisting of theatrically released feature films and
made-for-television movies) pursuant to agreements with distributors or
syndicators that allow a fixed number of telecasts over a prescribed period of
time for a specified cash license fee or for barter of advertising time.
Pay/Cable television services usually license pictures for initial exhibition
commencing approximately 10 to 18 months after initial domestic theatrical
release or six months after domestic home video release. Licensing of such
properties is generally accomplished pursuant to agreements which allow a fixed
number of telecasts over a prescribed period of time for a specified license
fee.
INTERNATIONAL DISTRIBUTION RIGHTS. International distribution rights include
rights in various media (e.g., television, theatrical and home video) and to
various territories (e.g., Germany, Italy, Japan and the United Kingdom). To
acquire these rights, the Company is usually required to pay a minimum
guarantee. The minimum guarantee, along with specific recoupable marketing and
other expenses, is recovered from the motion picture's gross revenues before the
producer begins to participate in the net revenues. The Company maintains a
sales force to manage international sales and to promote its motion pictures at
film markets, including the Cannes Film Festival in
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ITEM 1. (CONTINUED)
France, the American Film Market (AFM) in Los Angeles and The Milan Film
Festival (MIFED) in Italy.
MARKETING AND SELLING
The Company's marketing operations are focused on domestic home video,
international licensing, theatrical distribution and television distribution.
The Company designs its own promotional campaigns for each motion picture;
commissions the art work for advertising, trade show displays and packaging; and
arranges for the printing, production and distribution of all promotional
materials.
Domestic home video sales are promoted through regional direct sales
personnel who contact home video wholesale distributors and large retail
video stores. The Company's largest wholesale video customer is Ingram
Entertainment which represents approximately eleven percent (11%) of net
revenues for the fiscal year ended June 30, 1999.
The Company, when appropriate, test markets its motion pictures in the domestic
theatrical market. If the response is satisfactory, the Company will proceed to
distribute the picture. The Company handles the sales, marketing and servicing
of its theatrical releases.
International sales operations consist of promoting and sublicensing the
Company's motion pictures to independent territorial distributors for release on
specified media within designated territories.
The Company maintains a sales force to manage international sales and to promote
its motion pictures at foreign film markets. The Company continues to expand its
worldwide television distribution in order to maximize the unexploited
television rights which it holds. The Company distributes product directly to
broadcasters in both the international and domestic markets and licenses product
for other companies and producers.
COMPETITION
The motion picture distribution business and other related entertainment
businesses are highly competitive. The Company's competitors in domestic home
video distribution have included the home video divisions of the major studios,
such as Warner Bros., The Walt Disney Company, Universal, Paramount, Fox and
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ITEM 1. (CONTINUED)
Sony/Columbia; and independent distributors, including Artisan Entertainment.
Many of these competitors have greater access to feature films and significantly
greater resources than the Company.
In the international distribution market, the Company competes with a wide range
of companies from small independents exclusively focused upon certain classes of
motion pictures like J & M Entertainment and Mark Damon Productions, to the
major studios which have expanded distribution in international territories,
such as Disney's Buena Vista International.
INTELLECTUAL PROPERTY RIGHTS
Copyright protection is a serious problem in the video cassette distribution
industry because of the ease with which cassettes may be duplicated. In the
past, certain countries permitted video pirating to such an extent that the
Company did not consider these markets viable for distribution. Video
distributors, including the Company, have initiated legal actions to enforce
copyright protection and management believes the problem to be less critical at
the present time.
The Company is currently using the trademark "TRIMARK HOME VIDEO" in connection
with its domestic home video distribution, "TRIMARK PICTURES" in connection with
films distributed domestically and licensed internationally and uses "TRIMARK
TELEVISION" in connection with licenses to free, pay and cable television. The
trademark "TRIMARK PICTURES" has been registered with the Commissioner of
Patents and Trademarks. The Company regards its trademarks as valuable assets
and believes that its trademarks are an important factor in marketing its
products.
REGULATION AFFECTING THE COMPANY
Distribution rights to motion pictures are granted legal protection under the
copyright law of the United States and most foreign countries, which provide
substantial civil and criminal sanctions for unauthorized duplication and
exhibition of motion pictures. The Company endeavors to maintain copyright
protection for all its films under the laws of all applicable jurisdictions.
The Code and Ratings Administration of the Motion Picture Association of
America, an industry trade association, assigns ratings for age group
suitability for theatrical distribution of motion pictures. The Company submits
most of its films for such
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ITEM 1. (CONTINUED)
ratings. A substantial number of the Company's films are rated "R;" under
rules enforced by theatrical exhibitors, children under certain ages may
attend the applicable motion picture only if accompanied by an adult.
In addition, United States television stations and networks as well as foreign
governments impose additional restrictions on the content of motion pictures
which may restrict in whole or in part exhibition on television or in a
particular territory. There can be no assurance, therefore, that current or
future restrictions on the content of Company films, may not limit or affect the
Company's ability to exhibit certain of such motion pictures in such media or
markets.
EMPLOYEES
As of June 30, 1999, the Company had 97 full-time employees, 40 of whom were
engaged in sales and marketing. None of the Company's employees are covered by a
collective bargaining agreement, although some of the Company's subsidiaries are
subject to guild agreements. Management believes that its employee relations are
good.
ITEM 2. PROPERTIES
The Company began leasing new corporate office space in Marina del Rey,
California in September 1999 for a term of ten years expiring on September 3,
2009. These premises contain approximately 23,000 square feet of office space.
Previously the Company had leased 26,000 Square feet of corporate office space
in Santa Monica, CA under a lease of seven years.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and suits arising from disputes over
copyrights, clear title and contractual matters arising from its distribution
contracts. Such proceedings are not considered material to the Company's
business.
-17-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable. No matters were submitted to a vote by the Company's security
holders during the fourth quarter of its fiscal year.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and all positions with the
Company currently held by each person who may be deemed an executive officer of
the Company. Executive officers serve at the discretion of the Board of
Directors. Except as otherwise indicated, each of the executive officers serves
in similar positions for both the Company and Trimark. Unless otherwise noted,
all references to the Company include Trimark.
Name Age Position
---- --- --------
Mark Amin 49 Chairman of the Board and Chief Executive Officer
Cami Winikoff 36 Executive Vice President and Chief Administrative Officer
of Trimark
Peter Block 36 Executive Vice President of Trimark
Sergei Yershov 33 Senior Vice President of Trimark
Jeff Gonzalez 31 Chief Financial Officer, Treasurer and Secretary
Andrew Reimer 42 Senior Vice President of Trimark
MARK AMIN is a founder of the Company and has served as its Chairman of the
Board since November 1988 and Chief Executive Officer since January 1994. Mr.
Amin served as a Director, President and Chief Executive Officer of the Company
from its incorporation in 1984 until December 1989. In 1981, Mr. Amin co-founded
20/20 Video, a video specialty store in Los Angeles, California, and served as a
director of 20/20 Video from 1981 until 1988. Mr. Amin sold his entire stock
interest in 20/20 Video in 1987. Mr. Amin graduated from the Graduate School of
Management at the University of California, Los Angeles with an MBA in marketing
in 1975, and was previously awarded a BA degree in economics by the University
of Kansas.
-18-
ITEM 4A. (CONTINUED)
CAMI WINIKOFF joined Trimark in August 1990, in November 1991 was appointed
Director of Production, in January 1995 was appointed Vice President of
Production, in January 1997 was appointed Senior Vice President and has served
as Executive Vice President, Chief Administrative Officer since September 1997.
Before joining Trimark Ms. Winikoff was an independent producer.
PETER BLOCK joined Trimark in September 1993 and was recently appointed
Executive Vice President of Acquisitions, Distribution and New Media for
Trimark. Prior to Trimark, Mr. Block represented writers and producers,
worked for the WGA, and in the marketing and studio operations departments at
the Walt Disney Company. Mr. Block received his J.D. from USC, MBA from the
University of California, Los Angeles and B.A. from Duke University.
SERGEI YERSHOV joined Trimark in January 1995 as Director of International
Sales, in January 1996 was appointed Vice President of International
Distribution and has served as Senior Vice President, International since
August 1998. From November 1991 to June 1992 Mr. Yershov was Director of
International Sales for West Side Studios located in Los Angeles, California,
and from July 1992 to December 1994 served as Vice President of International
Distribution for the same organization. Mr. Yershov graduated in 1988 from
Military Aerospace Academy, St. Petersburg with a major in Computer Science
and Telecommunications.
JEFF GONZALEZ joined the Company in September 1998 as Chief Financial Officer
and Secretary. From 1994 until 1998, Mr. Gonzalez was Controller of Morgan Creek
Productions, Inc., a motion picture production company based in Burbank,
California. From 1991 until 1994, Mr. Gonzalez was a Senior Auditor at
PricewaterhouseCoopers LLP, a worldwide public accounting firm. Mr. Gonzalez
graduated in 1990 from the University of California, Los Angeles with a BA in
economics and is a certified public accountant (non-active).
ANDREW REIMER joined Trimark in April 1995 as the Vice President of Domestic
Television. In July 1997 he was appointed Senior Vice President of Worldwide
Television. Prior to joining Trimark, Mr. Reimer was one of the founders of, as
well as the senior programming executive at, Action Pay-Per-View. Mr. Reimer
also spent 6 1/2 years at Warner Bros. in various capacities, including Business
Affairs, Film Acquisition, and Strategic Planning. Mr. Reimer graduated from the
Graduate School of Management at the University of California, Los Angeles with
an
-19-
ITEM 4A. (CONTINUED)
MBA in marketing, and was previously awarded a BA degree in Music from the
State University of New York at Binghamton.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock began trading on the over-the-counter market on June
29, 1990 following the effectiveness of the Company's Registration Statement on
Form S-1. Prior to that date, there was no public market for the Common Stock.
The Common Stock is listed and reported on the National Association of
Securities Dealers Automated Quotation SmallCap Market ("NASDAQ") under the
symbol "TMRK." As of September 1, 1999, there were 4,604,677 shares of Common
Stock outstanding, excluding shares held by the Company as treasury stock, held
by approximately 45 shareholders of record. Until November 1998, the Common
Stock had been listed on the NASDAQ National Market, but was moved to the
SmallCap when the NASD panel determined the Common Stock did not meet applicable
public float requirements.
The following table sets forth the high and low last sales prices as reported on
NASDAQ for fiscal 1998 and fiscal 1999.
Sales Prices for Common Stock
-------------------------------
Quarter Ending High Low
-------------- ---- ---
September 30, 1997 6 7/8 4 1/4
December 31, 1997 5 7/8 4 1/8
March 31, 1998 5 1/2 4
June 30, 1998 4 5/8 3 1/8
September 30, 1998 4 1/4 1 5/8
December 31, 1998 4 5/8 1 5/8
March 31, 1999 11 5/8 2 1/8
June 30, 1999 8 3/8 4 1/8
The Company has not paid any cash dividends since its organization and has no
present intention to pay cash dividends in the foreseeable future. The present
policy of the Company is to retain its earnings, if any, to provide funds for
the operation of its business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
-20-
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the selected financial data for the Company and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and with Management's Discussion and Analysis of Financial
Condition and Results of Operations which appear elsewhere in this report.
TRIMARK HOLDINGS, INC.
SELECTED FINANCIAL DATA
June 30,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except per share data)
Earnings Statement Data:
Net revenues:
Domestic:
Home video $ 58,242 $ 48,053 $ 38,823 $ 34,615 $ 52,103
Theatrical 1,123 8,297 5,380 286 1,746
Television 14,446 11,622 4,824 5,063 7,861
International:
All media 18,332 12,178 12,791 17,668 21,812
Interactive:
All Media -- -- 1,347 2,200 1,472
-------- -------- -------- -------- --------
Net revenues 92,143 80,150 63,165 59,832 84,994
Film costs and
Distribution expenses 81,188 67,089 53,421 57,495 70,721
-------- -------- -------- -------- --------
Gross profit 10,955 13,061 9,744 2,337 14,273
Operating expenses:
Selling 7,209 7,461 6,857 6,352 5,715
General and
Administrative 5,465 5,100 4,239 5,447 5,873
Bad debt (288) 1,109 321 31 276
-------- -------- -------- -------- --------
12,386 13,670 11,417 11,830 11,864
-------- -------- -------- -------- --------
Operating (loss)
Earnings (1,431) (609) (1,673) (9,493) 2,409
Other (income) expenses:
Interest expense 3,849 4,443 1,934 847 1,230
Interest and
Investment income (79) (172) (84) (95) (38)
Minority interest -- -- -- (38) (422)
-------- -------- -------- -------- --------
(Loss) earnings before
income taxes (5,201) (4,880) (3,523) (10,207) 1,639
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Income taxes (40) 299 -- (2,380) 656
-------- -------- -------- -------- --------
Net (loss) earnings ($ 5,161) ($ 5,179) ($ 3,523) ($ 7,827) $ 983
-------- -------- -------- -------- --------
Other Comprehensive
Income, net of tax $ 3,101 -- -- -- --
-------- -------- -------- -------- --------
Comprehensive (loss)
Income ($ 2,060) ($ 5,179) ($ 3,523) ($ 7,827) $ 983
-------- -------- -------- -------- --------
Net (loss) earnings per common share:
Net (loss)earnings
per common share ($ 1.19) ($ 1.24) ($ 0.84) ($ 1.83) $ 0.22
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Total assets $ 83,278 $ 89,220 $ 90,223 $ 48,401 $ 64,385
Total liabilities 67,197 74,076 70,014 24,051 31,775
Retained earnings (1,180) 3,981 9,160 12,683 20,510
Stockholders' equity 16,081 15,144 20,209 24,350 32,572
-22-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NET REVENUES: Net revenues for the year ended June 30, 1999 increased $12
million or 15% compared with the prior fiscal year. The increase was
primarily attributable to increases in most revenue segments, including
domestic home video, television and international distribution, partially
offset by decreases in revenues generated from theatrical exhibition. Net
revenues increased $17 million, or 27%, in fiscal 1998 compared to fiscal
1997. The increase was primarily attributable to increases in revenues
generated from domestic theatrical, home video, and television partially
offset by decreases in revenues generated from international and interactive
distribution.
To address the continuing competition in the domestic home video rental market,
in the periods presented, the Company has focused its resources on distributing
an increased number of films in the specialized theatrical market, the made for
television market and home video sell through market and decreasing the releases
of straight-to-video rental films. See "Liquidity and Capital Resources." The
production and distribution of theatrical motion pictures requires capital
commitments which may not be recouped, if at all, until the picture is released
in home video, international and ancillary markets.
DOMESTIC HOME VIDEO: Net revenues from domestic home video increased $10.2
million or 21% for the year ended June 30, 1999 compared with the prior fiscal
year. In fiscal 1999, the Company released 36 motion pictures for the domestic
home video rental market compared to 35 motion pictures released in fiscal 1998
and 27 motion pictures released in fiscal 1997. The increase in fiscal 1999
revenues was primarily due to the $6 million increase in DVD sales and $4
million increase in video sell through sales. Fifty-five (55) DVD titles were
released in fiscal 1999 as compared to only 5 in the prior fiscal year.
Furthermore, the increased emphasis on the exploitation of Trimark's 600+ title
library contributed to the increase in video sell through sales. Net revenues
from domestic home video increased $9.2 million or 24% for the year ended June
30, 1998 compared with fiscal year 1997. The increase in fiscal 1998 revenues
was primarily due to the initial home video distribution in fiscal 1998 of three
wide theatrically released films: "Sprung" (October 1997), "Eve's Bayou" (March
1998, the rental title with the largest shipments
-23-
in Company history) and "Star Kid" (aka "Warrior of Waverly Street") (May 1998),
compared to the release on home video of only one comparable title "Meet Wally
Sparks" in fiscal 1997. The overall increase in the number of titles released to
the domestic home video rental market in fiscal 1998 as compared to fiscal 1997
also contributed to the increased revenue. The increase in releases was
primarily due to the availability of additional titles which have had prior
theatrical releases. The Company plans to release approximately thirty-six (36)
titles to the domestic home video rental market in fiscal 2000.
The Company anticipates that the domestic home video rental market will continue
to be extremely competitive.
DOMESTIC THEATRICAL DISTRIBUTION: Net revenues from domestic theatrical
distribution decreased $7.2 million or 86% for the year ended June 30, 1999
compared with the prior year. The decrease was primarily attributable to the
performance of the wide release theatrical film in the prior year period, "Eve's
Bayou" (the title with the largest box office receipts in Company history) with
no comparable theatrical release in fiscal 1999. In fiscal 1999 the Company
released six (6) motion pictures in the specialized theatrical market compared
to fiscal 1998 in which the Company released six (6) motion pictures
theatrically, two mainstream - "Eve's Bayou" and "Star Kid," three (3)
specialized - "Box of Moonlight," "Chinese Box" and "The Ugly" and one limited -
"Chairman of the Board". The Company anticipates releasing six (6) to eight (8)
titles in the specialized and limited theatrical market in fiscal 2000 (see
Liquidity and Capital Resources).
Theatrical revenues increased $2.9 million or 54% for the year ended June 30,
1998, compared with the prior year. The increase was primarily attributable to
the performance of Eve's Bayou in fiscal 1998 with no comparable release in
fiscal 1997.
TELEVISION DISTRIBUTION: Net revenues from television distribution which
includes such media as network, basic cable, pay television, pay-per-view and
syndication increased $2.8 million or 24% for the year ended June 30, 1999
compared with the prior year. The increase was primarily due to the Company's
first network movie-of-the-week film, "The Simple Life of Noah Dearborn." The
Company had no network film releases in the prior fiscal year. The Company
anticipates distributing four (4) to six (6) pictures for the made for
television market in fiscal 2000 (see Liquidity and Capital Resources). In
fiscal 1998 television
-24-
revenue increased $6.8 million or 140% compared with fiscal 1997. The increase
was primarily due to the fiscal 1998 releases of the made for cable television
movies "Trucks" and "The Colony" as well as the cable debut of "Meet Wally
Sparks" and "Sprung" and the HBO premiere of "Phoenix." In contrast, in fiscal
1997, the Company released only two HBO premieres "The Dentist" and
"Crossworlds."
INTERNATIONAL DISTRIBUTION: Net revenues from international distribution
increased $6.2 million or 51% for the year ended June 30, 1999 compared with
the prior year. Trimark's new business plan emphasizes the production and
acquisition of films with strong international commercial appeal. Thus, the
fiscal 1999 international releases of "Cube," "Diplomatic Siege," and "King
Cobra" were highly successful in this market without any comparable
commercially successful releases in fiscal 1998. During fiscal 2000 the
Company plans to release approximately eight (8) to ten (10) motion pictures
initially into international distribution.
Net revenues from international distribution decreased $613,000 or 5% for the
year ended June 30, 1998 compared with the prior year. The decrease in revenues
in fiscal 1998 as compared to fiscal 1997 was primarily due to the release in
the fiscal 1997 period of the wide theatrical release film "Star Kid" without
any comparable film in the fiscal 1998 period.
TRIMARK INTERACTIVE DISTRIBUTION: The Company had no net revenues from
interactive distribution in fiscal 1999 and 1998 as the Company decided to exit
the interactive entertainment software and multimedia business and to sell
substantially all assets (primarily intellectual properties and inventory) of
Trimark Interactive to an unrelated independent entertainment and interactive
music publisher in March 1997. Interactive revenues for fiscal 1997 primarily
reflect the initial release of the Sony PlayStation version of "The Hive."
GROSS PROFIT: The Company's gross profit for the year ended June 30, 1999
decreased $2.1 million or 16.1% compared with the prior year. The decrease in
gross profit was primarily the result of approximately $9.7 million in write
downs to net realizable value coupled with the reduction in estimated future
revenue on older films which was largely offset by the $12.0 million increase in
gross sales. Estimated total revenues and costs are reviewed on a quarterly
basis and revisions to amortization rates are made as
-25-
necessary including write downs to net realizable value. These write downs were
primarily associated with the lower than anticipated video performances of the
theatrically released films "Star Kid" and "Chairman of the Board."
In fiscal 1998 gross profit increased $3.3 million or 34% compared with the
prior year. Gross profit as a percentage of net revenues increased to 16% for
fiscal 1998 as compared to 15% for fiscal 1997. The increase in gross profit was
primarily due to the $17 million increase in gross revenue from the prior fiscal
year partially offset by $4.5 million in write downs to net realizable value of
film inventory. These write downs primarily related to a charge associated with
the lower than anticipated performance of the January 1998 domestic theatrical
release of "Star Kid" and a write down associated with management's decision not
to release "Chairman of the Board" with a wide theatrical release, but rather to
have a selected market theatrical release. Fiscal 1997 results were negatively
impacted by a $3.0 million write down of film costs to estimated net realizable
value associated with the January 1997 theatrical release of "Meet Wally
Sparks."
SELLING EXPENSES: The Company's selling expenses decreased $252,000 or 3% in
fiscal 1999 as compared to the prior year primarily due to the reduction in
theatrical operations. The Company disbanded its regional theatrical sales
operations during the fourth quarter of fiscal 1998.
The Company's selling expenses increased $604,000 or 9% for the year ended June
30, 1998 compared with the prior year. The increase was primarily due to an
increase in theatrical operations partially offset by a decrease in interactive
operations. In the quarter ended March 31, 1997, the Company sold substantially
all assets of Trimark Interactive.
Selling expenses as a percentage of net revenues for fiscal 1999, fiscal 1998
and fiscal 1997 were 8%, 9% and 11%, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
increased $365,000 or 7% for the year ended June 30, 1999 compared with the
prior year. The increase was primarily due to increases in medical benefits,
consulting and accounting fees.
-26-
General and administrative expenses increased $861,000 or 20% for the year ended
June 30, 1998 compared with the prior year. The increase was primarily due to
the costs associated with establishing three regional theatrical sales offices
in the beginning of the fiscal year to support mainstream national theatrical
releases and costs associated with closing the three regional theatrical sales
offices in the fourth quarter of fiscal 1998.
BAD DEBT EXPENSE: Bad debt expense for the year ended June 30, 1999 decreased
$1.4 million or 126% compared with the same period in fiscal 1998 and increased
$788,000 or 245% for the year ended June 30, 1998 compared with fiscal 1997. Bad
debt expenses for the periods primarily represent reserves taken against
domestic video and foreign sales. The decrease was partially due to $388,000 in
collections on past due video sales as the Company has strived to bring all
video customers current on their outstanding receivables. The Company also took
$852,000 in reserves during fiscal 1998 due to the Asian currency crisis. No
comparable reserves were taken during fiscal 1999 because of the recovering
Asian economy.
INTEREST EXPENSE: Interest expense decreased $594,000 or 13% for the year ended
June 30, 1999 compared with the prior year and increased $2.5 million or 130%
for the year ended June 30, 1998 compared with the year ended June 30, 1997. The
decrease in interest expense during fiscal 1999 was primarily due to lower
average borrowing levels as compared to fiscal 1998. The Company did not incur
the costs associated with the distribution of wide theatrical releases as it did
in fiscal 1998 which was also responsible for the 130% increase for the year
ended June 1998 as compared to the year ended June 1997. The Company expects to
continue to use excess cash flow generated by theatrical and library product to
decrease current borrowing levels under its revolving credit line. See
"Liquidity and Capital Resources."
INTEREST AND INVESTMENT INCOME: Interest and investment income decreased $93,000
for the year ended June 30,1999 compared with the prior year as all excess cash
was used to reduce the Company's debt.
Interest and investment income increased $88,000 for the year ended June 30,
1998 compared with the prior year. The increase
-27-
was primarily due to interest income from loans to officers in the fiscal 1998
period without any similar income in the fiscal 1997 period.
NET LOSS: The Company's net loss for fiscal 1999 was $5.2 million. The fiscal
1999 loss was primarily due to approximately $9.7 million in write downs to net
realizable value of film inventory. These write downs primarily related to
charges associated with the lower than anticipated video performances of the
theatrically released films "Star Kid" and "Chairman of the Board". The write
downs were partially offset by increased sales, lower bad debt expense and
interest charges.
The Company's net loss for fiscal 1998 was $5.2 million. The fiscal 1998 loss
was primarily due to approximately $4.5 million in write downs to net realizable
value of film inventory. These write downs primarily related to charges
associated with the theatrical release of "Star Kid" and "Chairman of the
Board." Earnings were also negatively impacted by higher interest expenses
resulting from the Company's release of theatrical motion pictures as compared
to release of direct-to-video motion pictures. Theatrical releases have a
greater length of time from initial investment in film costs to recoupment in
home video and other ancillary markets. See "Liquidity and Capital Resources."
OTHER COMPREHENSIVE INCOME: Pursuant to an agreement reached on February 22,
1999, the Company exchanged 412,363 of its shares or 9% of its outstanding
shares, for 45,858 shares of broadcast.com on March 29, 1999. The $3.1 million
other comprehensive income reported in fiscal year 1999 represents the
unrealized gain, net of taxes, on the broadcast.com shares based on the market
price of the shares on June 30, 1999 (Subsequent to June 30, 1999, Yahoo! Inc.
acquired broadcast.com, changed broadcast.com's name to Yahoo! Broadcast
Services, and in connection with such acquisition the 45,858 shares held by the
Company were converted to 35,111 shares of Yahoo! Inc.) As a result of this new
business venture, the Company and Yahoo! Broadcast Services will work together
to distribute movies on the internet under a variety of new revenue models
including pay-per-view, electronic commerce, integrated advertising,
personalized marketing and user interactive content. Under this agreement, which
terminates on January 31, 2001 unless extended, the Company will use its best
efforts on future titles to give Yahoo! Broadcast Services
-28-
streaming rights or in certain circumstances rights of first refusal in
connection therewith.
INFLATION:
Generally, costs in connection with the acquisition and distribution of motion
pictures for release have increased in recent years. Such cost increases may
affect results of operations in the future; however, the Company believes that
the effect of such factors has not been material to date.
LIQUIDITY AND CAPITAL RESOURCES:
The Company relies on cash generated by operations and borrowings under its
credit facility to finance its operations. The Company's cash flows from
operating, investing and financing activities for the years ended June 30, 1999,
1998 and 1997 were as follows:
Year Ended June 30,
----------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
(in thousands)
Net cash provided(used)by
Operating activities 10,083 (1,854) ($38,257)
Net cash used by investing
Activities (263) (316) (504)
Net cash (used) provided by
Financing activities (8,858) (336) 42,082
Cash provided by operations increased by $11.9 million for the fiscal year ended
June 30, 1999 compared to the same period in fiscal 1998. The most significant
change from the prior period was the decrease in additions to film costs of
$15.9 million. The decrease was primarily due to the prints and advertising
costs associated with the wide theatrical release of "Star Kid", and "Eve's
Bayou" in fiscal year 1998. There were no comparable prints and advertising
expenditures associated with wide theatrical releases in the fiscal year ended
June 30, 1999. In accordance with Trimark's new business plan, the Company
endeavors to limit prints and advertising costs associated with wide theatrical
releases which are capitalized as film costs. The $36.9 million addition to film
costs in fiscal 1999 was primarily used for the production and acquisition of
new product with approximately $4.7 million used for prints and advertising
-29-
costs on the specialized theatrical releases of "Billy's Hollywood Screen Kiss,"
"Cube," "Slam," and "Another Day in Paradise."
Investing activities for the year ended June 30, 1999, primarily consisted of
expenditures on production equipment improvement and computer hardware and
software. Investing activities for 1998 and 1997 have primarily consisted of
expenditures on equipment and leasehold improvements related to the expansion of
theatrical operations.
Financing activities, consisting primarily of activity under the Company's
credit facility, decreased $8.5 million in fiscal year 1999 as compared to
fiscal year 1998. The decrease was primarily the result in the increase in
operating cash flows. The combination of the increase in sales along with the
decrease in prints and advertising costs associated with wide theatrical
releases allowed the Company to reduce its outstanding debt balance by $8.9
million or 16% from the June 30, 1998 year end balance.
Borrowings under the credit facility in fiscal 1998 and 1997 were primarily the
result of motion picture production, acquisition and distribution expenditures
exceeding operating cash inflows due primarily to the Company's focus on
theatrical distribution which began in fiscal 1997. The Company's cash
requirements varied in part with the size and timing of production advances and
minimum guarantee payments along with the timing of its theatrical, home video,
television and international releases.
The Company's principal operating subsidiaries, Trimark Pictures, Inc. and
Trimark Television, Inc., on December 20, 1996 entered into a $75 million
revolving credit facility with a consortium of banks agented and arranged by The
Chase Manhattan Bank which replaced a $25 million revolving credit facility with
Bank of America NT & SA and Westdeustche Landesbank. The credit facility expires
December 20, 2000. Under the credit agreement, the Company may borrow for
various corporate purposes provided that the aggregate borrowings do not exceed
the borrowing base, as defined in the Credit Agreement, which is derived from
specified percentages of approved accounts receivable and film library. The
credit agreement is guaranteed by the Company and certain of its subsidiaries
and is secured by substantially all of the assets of the Company and its
significant subsidiaries. Loans outstanding under the credit facility bear
interest at the rate of 1.5% above Chase Manhattan's prime rate or 2.5% above
the London Interbank
-30-
Offered Rate for Eurodollars for the loan term specified. An unused commitment
fee is payable on the average unused availability under the credit facility, at
the rate of 0.3725% per annum. As of June 30, 1999 there was $48.3 million
outstanding under the credit facility. The Company expects to use excess cash
flow generated by theatrical and library product to decrease current borrowing
levels. The credit agreement contains various financial and other covenants to
which the Company must adhere. These covenants, among other things, require the
maintenance of minimum net worth and various financial ratios which are reported
to the bank on a quarterly basis and include limitations on additional
indebtedness, liens, investments, disposition of assets, guarantees, affiliate
transactions and the use of proceeds. In relation to management's strategic
review and release schedule described below, the Company amended the current
credit agreement as of December 31, 1998 and June 30, 1999. The amended
agreement provides for less stringent minimum net worth ratios and minimum
equity requirement. In consideration for the adjustment of these ratios and
minimum equity requirement, the amended credit facility reduces the borrowing
limits over the remaining life of the credit facility. For the year ended June
30, 1999, the borrowing limit was $60 million. By January 31, 2000, the
borrowing limit is reduced to $50 million and by June 30, 2000 is reduced to $40
million. The amendments to the debt covenants and borrowing limits were
structured to incorporate the Company's overall strategy and presently planned
productions, acquisitions, distribution, and overhead expenditures. The Company
is in compliance with all debt covenants as of June 30, 1999.
The Company's ability to maintain availability under its Credit Facility is
primarily dependent upon the timing of collections on existing sales during the
next twelve months and the amount and timing of collection on anticipated sales
of the Company's current library and films which the Company plans to release or
make available over the next twelve months. Management believes that existing
capital, cash flow from operations and availability under the Company's amended
Credit Facility will be sufficient to enable the Company to fund its planned
productions, acquisitions, distribution and overhead expenditures for the next
twelve months.
Management of the Company conducted a strategic review of the Company's
theatrical operations in fiscal 1998. This strategic review focused on the
increase in the theatrical exhibition of specialized films, with which the
Company has demonstrated past
-31-
successes including "Eve's Bayou" and "Kama Sutra: A Tale of Love," and a
reduction in the distribution of wide mainstream features. Partially as a result
of this review, the Company closed its regional theatrical offices in the fourth
quarter of fiscal 1998.
In the domestic specialized theatrical market the Company plans to release
six (6) to eight (8) motion pictures during fiscal 2000. Furthermore, the
Company plans to release approximately thirty-six (36) motion pictures into
the domestic home video rental market and to continue to expand distribution
in the sell through market. The Company intends to sell four (4) to six (6)
films and "movies of the week" which will premier on major cable networks or
broadcast stations. Also in fiscal 2000 the Company plans to release
approximately eight (8) to ten (10) motion pictures initially into the
international distribution market.
Technicolor Videocassette, Inc. currently serves as the Company's video cassette
duplicator and fulfillment contractor. Technicolor Videocassette, Inc. has a
general lien on all of the Company's materials and products in its possession.
The Company was authorized to spend up to $150,000 in fiscal 1999 to purchase
shares of its outstanding common stock in the open market or otherwise. The
amended debt covenant at December 31, 1998 limits the purchase of outstanding
common stock to $50,000 per fiscal year. During fiscal year 1999, the Company
purchased 13,215 shares at an average price of $2.39 per share.
IMPACT OF YEAR 2000. The Company is currently working to resolve the potential
impact of the year 2000 on the processing of time-sensitive information by its
computerized information systems. Year 2000 issues may arise if computer
programs have been written using two digits (rather than four) to define the
applicable year. In such case, programs that have time-sensitive logic may
recognize a date using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system failures. Management completed a
review of all significant software and equipment used in the Company's
operations and, to the extent practicable, in the operations of its key business
partners, in order to determine if any year 2000 risks exist that may be
material to the Company as a whole. The Company estimates that repairing all
time sensitive hardware and software will cost the Company approximately
$250,000. As of the year ended June 30, 1999, the Company has purchased
approximately $210,000 in new computer hardware and software through its normal
upgrading of old
-32-
computer hardware and software as well as a direct result of year 2000 issues.
The Company also entered into a licensing agreement on February 6, 1999 for the
implementation of a new general ledger software system. The new G/L system
became operational on July 1, 1999. If customers or vendors of the Company are
unable to resolve year 2000 processing issues in a timely manner, it could
result in a material financial risk.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business", and "Market for the Registrants Common Equity and
Related Stockholder Matters" are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievement of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: Changes in public
tastes, industry trends and demographic changes, which may influence the
distribution and exhibition of films in certain areas; public reaction to and
acceptance of the Company's video, theatrical and television product, which will
impact the Company's revenues; competition, including competition from major
motion picture studios, which may affect the Company's ability to generate
revenues; reliance on management and key personnel; consolidation in the retail
video industry; whether the Company's current strategy which includes theatrical
releases of only specialized films and production and acquisition of made for
television product is successful; new methods of distributing motion pictures;
the costs and risks associated with the Year 2000 issue; and other factors
referenced in this Form 10-K and the Company's other filings with the Securities
and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not consider the potential loss of future earnings caused by
interest rate volatility to have a material impact on its financial position.
-33-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF TRIMARK HOLDINGS, INC.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) on page 55 present fairly, in all material
respects, the financial position of Trimark Holdings, Inc. and its
subsidiaries at June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a) on page 54 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which, require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Century City, California
September 27, 1999
-34-
TRIMARK HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)
June 30, June 30,
ASSETS 1999 1998
------ --------------------- ------------
Cash and cash equivalents $ 2,121 $ 1,159
Accounts receivable, less allowances of
$5,352 and $6,005, respectively (Note 2) 20,231 16,568
Film costs, net (Note 2) 49,230 65,064
Deferred marketing costs 1,518 1,963
Inventories, net (Note 2) 1,552 1,190
Investments (Note 2) 6,036 --
Property and equipment at cost, less accumulated
Depreciation of $2,872 and $2,433 respectively (Note 2) 565 741
Due from officers (Note 13) 792 780
Other assets 1,233 1,755
--------------------- ------------
$ 83,278 $ 89,220
===================== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving line of credit (Note 5) 48,330 $ 57,250
Accounts payable and accrued expenses (Note 4) 5,710 8,060
Minimum guarantees and royalties payable 12,204 7,623
Deferred income 889 1,100
Income taxes payable (Note 6) 64 43
--------------------- ------------
Total liabilities 67,197 74,076
--------------------- ------------
Stockholders' equity:
Common stock, $.001 par value. Authorized
20,000,000 shares; 5,570,092 shares issued
at June 30, 1999 and 5,134,827 6 5
shares issued at June 30, 1998
Additional paid in capital 18,617 15,588
Preferred stock, $.01 par value. Authorized
2,000,000 shares; no shares issued and
Outstanding -- --
Retained earnings (1,180) 3,981
Accumulated comprehensive income 3,101 --
Less treasury shares, at cost - 965,415 shares
and 952,200 shares (Note 8) (4,463) (4,430)
--------------------- ------------
Stockholders' equity 16,081 15,144
--------------------- ------------
$ 83,278 $ 89,220
===================== ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-35-
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Loss Per Share)
Year Ended June 30,
---------------------------
1999 1998 1997
--------- --------- ---------
Net revenues (Note 2) $ 92,143 $ 80,150 $ 63,165
Film costs and distribution expenses (Note 2) 81,188 67,089 53,421
------------ ----------- -----------
Gross Profit 10,955 13,061 9,744
------------ ----------- -----------
Operating expenses:
Selling 7,209 7,461 6,857
General and administrative 5,465 5,100 4,239
Bad debt (288) 1,109 321
------------ ----------- -----------
12,386 13,670 11,417
------------ ----------- -----------
Operating loss (1,431) (609) (1,673)
Other (income) expenses:
Interest expense 3,849 4,443 1,934
Interest and investment income (79) (172) (84)
------------ ----------- -----------
3,770 4,271 1,850
------------ ----------- -----------
Loss before income taxes (5,201) (4,880) (3,523)
Income taxes (Note 6) (40) 299 --
------------ ----------- -----------
Net loss $ (5,161) $ (5,179) $ (3,523)
------------ ----------- -----------
Other comprehensive income, net of tax (Note 2) 3,101 -- --
------------ ----------- -----------
Comprehensive Loss (2,060) (5,179) (3,523)
============ =========== ===========
Weighted average number of common shares
basic and fully diluted (Note 7) 4,341 4,183 4,217
============ =========== ===========
Net loss per common share
Basic and fully diluted (Note 7) $ (1.19) $ (1.24) $ (0.84)
============ =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-36-
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
Common Stock
------------------------
Additional Accumulated Total
paid in Comprehensive Retained Treasury stockholders'
Shares Amount capital Income earnings stock equity
------------- --------- -------------- ------------ ----------- ---------- ------------
Balance, June 30, 1996 4,274,731 5 15,385 12,683 (3,723) 24,350
Purchase of treasury stock
(Note 8) (162,350) (707) (707)
Exercise of stock options 34,500 89 89
Net loss (3,523) (3,523)
------------- --------- -------------- ------------ ----------- ---------- ------------
Balance, June 30, 1997 4,146,881 5 15,474 9,160 (4,430) 20,209
------------- --------- -------------- ------------ ----------- ---------- ------------
Exercise of stock options 35,746 114 114
Net loss (5,179) (5,179)
------------- --------- -------------- ------------ ----------- ---------- ------------
Balance, June 30, 1998 4,182,627 5 15,588 0 3,981 (4,430) 15,144
------------- --------- -------------- ------------ ----------- ---------- ------------
Purchase of treasury stock
(Note 8) (13,215) (33) (33)
Exercise of stock options 22,902 95 95
Issuance of stock on
equity investment 412,363 1 2,934 2,935
Net loss (5,161) (5,161)
Other Comprehensive
Income, Net of
tax 3,101 3,101
------------- --------- -------------- ------------ ----------- ---------- ------------
Balance, June 30, 1999 4,604,677 $ 6 $ 18,617 $ 3,101 $ (1,180) $ (4,463) $ 16,081
------------- --------- -------------- ------------ ----------- ---------- ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-37-
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Year Ended June 30,
-------------------------------------------------
1999 1998 1997
----------- ------------ ------------
Operating activities:
Net loss $ (5,161) $ (5,179) $ (3,523)
Adjustments to reconcile net loss to
Net cash used by operating activities:
Film amortization 52,704 44,976 39,514
Depreciation and other amortization 439 384 300
Provision for returns and bad debt (653) 1,995 (259)
Provision for inventory obsolescence (268) (11) (494)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,010) 4,561 (10,408)
Additions to film costs (36,870) (52,747) (66,954)
Decrease (increase) in deferred marketing costs 445 (267) (172)
(Increase) decrease in inventories (94) (529) 468
Increase in notes receivable from officers (12) (118) (662)
Decrease in other assets 522 570 670
(Decrease) increase in accounts payable and
accrued expenses (2,350) 485 5,384
Increase (decrease) in minimum guarantees and
royalties payable 4,581 4,231 (1,248)
Increase (decrease) in income taxes payable 21 (22) (12)
Decrease in deferred income (211) (183) (861)
------------ ------------ -------------
Net cash provided (used) by operating activities 10,083 (1,854) (38,257)
------------ ------------ -------------
Investing activities:
Acquisition of property and equipment (263) (316) (504)
------------ ------------ -------------
Net cash used by investing activities (263) (316) (504)
------------ ------------ -------------
Financing activities:
Net (decrease) increase in revolving line of credit (8,920) (450) 42,700
Exercise of stock options 95 114 89
Purchase of treasury stock (33) -- (707)
------------ ------------ -------------
Net cash (used) provided by financing activities (8,858) (336) 42,082
------------ ------------ -------------
Increase (decrease) in cash and cash equivalents 962 (2,506) 3,321
Cash and cash equivalents at beginning of period 1,159 3,665 344
------------ ------------ -------------
Cash and cash equivalents at end of period $ 2,121 $ 1,159 $ 3,665
============ ============ =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-38-
TRIMARK HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY:
Trimark Holdings, Inc., a Delaware corporation (the "Company"), is a broad-based
entertainment company which distributes and licenses motion pictures in the
international and domestic arena through its wholly owned subsidiaries Trimark
Pictures, Inc. and Trimark Television, Inc. The significant business activities
of the Company constitute one business segment, filmed entertainment. The
Company is primarily engaged in the distribution of feature films for the
domestic home video market, domestic theatrical and television markets, and in
the licensing of distribution rights to motion pictures for foreign markets. As
an independent distribution company, the Company acquires distribution rights
from a wide variety of studios, production companies and independent producers.
In March of 1993, the Company formed Trimark Interactive to expand the core
business of film production and video distribution into the emerging market for
interactive entertainment software and multimedia. The results of operations of
Trimark Interactive have been included in the Company's consolidated financial
statements since April 1, 1993. Trimark Holdings, Inc. increased its ownership
of Trimark Interactive from 80% to 90% in fiscal 1995. In March 1997, the
Company sold substantially all assets (primarily intellectual properties and
inventory) of Trimark Interactive to an unrelated independent entertainment and
interactive music publisher. In consideration for the assets sold the Company
received 237,037 shares of non-registered convertible preferred stock in the
acquiring company. The convertible preferred shares can be converted into
237,037 shares of common stock of the acquiring company and carry a mandatory
three year redemption value of $800,000 if not converted prior to three years.
The consideration received was determined by arms length negotiation and advice
from an investment banking firm retained by the Company. Due to the uncertainty
of realizing any value from the convertible preferred stock the Company is
carrying the stock at a zero value. No gain or loss was recognized from the sale
of the assets. The Company is no longer engaged in the market for interactive
entertainment software and multimedia.
-39-
NOTE 1 - (CONTINUED)
On June 1, 1992, the Company changed its name from Vidmark, Inc. to Trimark
Holdings, Inc. Certificates that previously represented shares of Vidmark common
stock now represent an equal number of shares of Trimark Holdings, Inc. common
stock.
Purple Tree Productions, Inc., Cheap Date, Inc., Loving Gun Productions, Inc.
and Writers on the Wave are wholly-owned subsidiaries of the Company, which were
formed for the sole purpose of producing motion pictures. Trimark Music, a
wholly-owned subsidiary of the Company, was formed for the purpose of exploiting
revenues from music rights owned by the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
UNCLASSIFIED CONSOLIDATED BALANCE SHEET
In accordance with the provisions of Statement of Financial Accounting Standards
No. 53 ("SFAS 53"), the Company has elected to present an unclassified
consolidated balance sheet.
ACCOUNTING 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 reported period. Actual
results could differ from these estimates.
NET REVENUES
Home video revenues are recognized, net of allowances for estimated returns, as
products are shipped to customers. Revenues from licenses of films to foreign
territories and domestic television are recognized when the films are made
-40-
NOTE 2 - (CONTINUED)
available to sub-distributors and other terms of the license agreements are
satisfied. Revenues from theatrical distribution of films are recognized when
films are exhibited.
FILM COSTS
Film costs primarily represent capitalized theatrical print and advertising
expenditures and the acquisition of film rights from producers for a guaranteed
minimum payment, with the producer retaining a participation in the profits of
the property. The producer's share of the profits is retained by the Company
until it equals the amount of the guarantee, after which the excess is paid to
the producer. In these instances, the Company records as participation expense
an amount equal to the producer's share of the profits. The print and
advertising expenditures and guaranteed minimum payments are capitalized and
amortized using the individual-film-forecast-computation method in accordance
with SFAS 53.
CASH
Cash includes cash equivalents. The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents. The carrying value of the company's cash equivalents approximate
fair value due to their short nature.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts was reduced by $293,000 for fiscal 1999, and
increased by $1.1 Million for 1998, and $321,000 for 1997.
INVENTORIES
Inventories, net of an allowance for excess quantities and obsolescence, are
stated at the lower of cost or market using a first-in/first-out (FIFO) method
of accounting.
INVESTMENTS
Investments represent equity shares which are available for sale and reported at
the market price as of June 30, 1999.
-41-
NOTE 2 - (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost net of depreciation. Depreciation of
property and equipment is computed using the straight-line method, based on
estimated useful lives of three to seven years.
ROYALTIES PAYABLE
Payable to producers represents an accrual on a film-by-film basis of the
producers' share of revenues recognized by the Company net of the recoupable
costs incurred by the Company. The producers' share of revenue is expensed in
conjunction with the amortization of film costs.
INTEREST
Costs associated with the maintenance of debt are charged to expense and or
capitalized to the extent debt is used for productions.
NET LOSS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share," ("SFAS 128") which
is effective for periods ended after December 15, 1997. The Company adopted SFAS
128 in fiscal year 1997. SFAS 128 replaces the presentation of primary and fully
diluted earnings per share with basic and diluted earnings per share.
Basic loss per common share amounts are based on the weighted average number of
common shares outstanding during the respective periods. Dilutive loss per
common share amounts are based on the weighted average common shares outstanding
during the period and shares assumed issued upon conversion of stock options
when the effect of such conversions would have been dilutive to net loss. There
is no assumed conversion of stock options for fiscal 1999, fiscal 1998 and
fiscal 1997 as the effect would be anti-dilutive.
The table below presents a reconciliation of weighted average shares used in the
calculation of basic and diluted net loss per common share:
-42-
NOTE 2 - (CONTINUED)
Year ended June 30,
1999 1998 1997
------------------- --------------------- --------------------
(in thousands)
Basic shares - weighted average of
common shares outstanding 4,341 4,183 4,217
Additional shares assuming
conversions of stock options -- -- --
------------------- --------------------- --------------------
4,341 4,183 4,217
------------------- --------------------- --------------------
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income"
("SFAS 130") effective for fiscal years beginning after December 15, 1997.
The new rules establish standards for the reporting of comprehensive income
and its components in financial statements. Comprehensive income consists of
net income and other gains and losses affecting stockholder's equity that,
under generally accepted accounting principles, are excluded from net income,
such as unrealized gains and losses on investments available for sale,
foreign currency translation gains and losses and minimum pension liability.
The Company adopted SFAS 130 in fiscal 1999. The $3.1 million other
comprehensive income reported in fiscal year 1999 represents the unrealized
gain, net of taxes of $63,000, on broadcast.com shares based on the market
price of the shares on June 30, 1999.
-43-
NOTE 3 - FILM COSTS:
Film costs, net of amortization, consist of the following:
June 30,
------------------------------------------
1999 1998
------------------ -----------------
(in thousands)
Released 36,352 50,541
Completed not released 3,938 3,419
In process and development 8,940 11,104
------------------ -----------------
49,230 $ 65,064
------------------ -----------------
Based on the Company's estimate of future revenues as of June 30, 1999,
approximately 95% of unamortized released film costs will be amortized during
the next three years.
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
June 30,
---------------------------------
1999 1998
-------- --------
(in thousands)
Accounts payable $3,953 $6,777
Accrued marketing costs 1,562 1,035
Accrued other expenses 195 248
------- ------
$5,710 $8,060
------- ------
NOTE 5 - DEBT:
The Company's principal operating subsidiaries, Trimark Pictures, Inc. and
Trimark Television, Inc., have a $75 million revolving credit facility with a
consortium of banks agented and arranged by The Chase Manhattan Bank expiring on
December 20, 2000. Under the credit agreement, the Company may borrow for
various corporate purposes provided that the aggregate borrowings do not exceed
the borrowing base, as defined in the Credit Agreement, which is derived from
specified percentages of approved accounts receivable and film library. The
credit agreement is guaranteed by the Company and secured by substantially all
of the assets of the Company and its significant subsidiaries. Loans outstanding
under the credit facility bear interest at the rate of 1.5% above Chase
Manhattan's prime rate (8% at June 30, 1999) or 2.5% above the London Interbank
offered rate for the loan term specified. An unused commitment fee is payable on
the average unused availability under the credit facility, at the rate of
0.3725%
-44-
per annum. As of June 30, 1999 there was $48.3 million outstanding under the
bank facility.
The Credit Facility is collateralized by a security interest in substantially
all of the Company's assets and contains various covenants including, among
other provisions, the maintenance of a minimum consolidated tangible net worth
and certain financial ratios. For the quarter ended December 31, 1997 the
Company was in violation of certain of these covenants, however the Banks
granted a waiver of these violations and amended the net worth covenant for the
duration of the Credit Facility. The Company also amended the Credit Facility in
December 1998 and June 1999 which provided for less stringent minimum net worth
ratios and reduced the minimum equity requirement. In consideration for the
amendments, the borrowing limits were reduced to $60 million at March 31, 1999,
$50 million at January 31, 2000, and $40 million at June 30, 2000.
The Company's ability to maintain availability under its Credit Facility is
primarily dependent upon the timing of collections on existing sales during the
next twelve months and the amount and timing of collection on anticipated sales
of the Company's current library and films which the Company plans to release or
make available over the next twelve months. Management believes that existing
capital, cash flow from operations and availability under the Company's amended
Credit Facility will be sufficient to enable the Company to fund its planned
productions, acquisitions, distribution and overhead expenditures for the next
twelve months.
In connection with the credit facility, the Company has capitalized debt
issuance costs as other assets which are being amortized on a straight line
basis over the term of the agreement.
NOTE 6 - INCOME TAXES:
Consolidated loss before income taxes consists of the following:
Year ended
June 30,
1999 1998 1997
------------------- --------------------- --------------------
(in thousands)
Domestic ($3,772) (4,291) (5,372)
Foreign (1,429) (589) 1,849
------------------- --------------------- --------------------
($5,201) (4,880) (3,523)
------------------- --------------------- --------------------
-45-
The provision for income taxes is summarized as follows:
Year ended
June 30,
1999 1998 1997
------- ------- ------
(in thousands)
Current
Federal $ (240) $ -- $ --
State 15 15 16
Foreign 185 284 433
------- ------- -------
(40) 299 449
------- -------
Deferred
Federal -- -- (684)
State -- -- 235
------- ------- -------
-- -- (449)
------- ------- -------
$ (40) $ 299 $ --
------- ------- -------
The components of the deferred tax assets and liabilities are summarized as
follows:
Year ended June 30,
---------------------
1999 1998
------ ----
Deferred Tax Assets:
Net operating loss carryforward $ 9,403 $ 7,620
Foreign tax credit carryforward 433 2,095
Reserves and allowances 1,249 1,297
Bad debts 1,009 1,041
Deferred income 399 489
State income taxes 8 8
Other 256 205
------- -------
12,757 12,755
Deferred Tax Liabilities:
Film cost amortization (5,214) (5,331)
State taxes --
------- -------
Net deferred tax asset before
valuation allowance 7,543 7,424
Valuation allowance (7,543) (7,478)
------- -------
Net deferred tax (liability)
Asset $ 0 ($ 54)
------- -------
-46-
A reconciliation of the federal statutory tax rate to the Company's effective
tax rate is as follows:
Year ended June 30,
-----------------------------------------------------------
1999 1998 1997
----------------- ----------------- ----------------
Federal income tax rate (34.0%) (34.0%) (34.0%)
State taxes, net of
federal income tax benefit 0.2% (0.2%) 4.7%
Foreign taxes, net of
federal income tax benefit 3.6% 5.8% 8.1%
Meals and entertainment
Disallowance 1.0% 1.0% 1.2%
Utilization of loss
Carryforward (4.6%) -- --
Valuation Allowance 32.7% 29.4% 19.5%
Other 0.3% 3.8% 0.5%
---------------- ---------------- ----------------
(0.8%) 6.1% 0.0%
---------------- ---------------- ----------------
The net increase of approximately $1.4 million in the valuation allowance is
primarily attributable to the establishment of reserves against the current year
net operating loss ("NOL"). For federal income tax purposes, NOLs may be carried
forward 15 years, or until such time as they are fully utilized. For California
purposes NOLs may be carried forward for 5 years or until such time as they are
fully utilized. The valuation allowance was established as a result of the
uncertainty of the utilization of the current year NOLs.
As a result of the acquisition of Trimark Television (formerly IBS) by the
Company, approximately $5.5 million in federal income tax NOLs were acquired.
The NOLs expire in the years 2004-2006. The Internal Revenue Code of 1986, as
amended, imposes substantial limitations on the use of NOL carryforwards
acquired in such an acquisition. Accordingly, a valuation allowance has been
established related to the Federal income tax NOL's acquired from Trimark
Television in prior years and the related balance at June 30, 1998 is
approximately $2.6 million.
-47-
NOTE 7 - STOCK OPTIONS:
Under the Company's stock option plans, employees and directors may be
granted nonqualified stock options ("options"). Generally, options are
exercisable contingent upon the grantee's continued employment with the
Company and generally have been granted with an exercise price equal to the
fair market value of the underlying Common Stock on the date of grant. Each
option is granted subject to various terms and conditions established on the
date of grant, including vesting periods and expiration dates. The options
typically become exercisable at the rate of 33.3% annually, beginning one
year after the date of grant. Options generally expire 10 years after the
date of grant. As of June 30, 1999 and 1998, a total of 979,369 options had
been approved for issue under employee option plans and other arrangements.
As of June 30, 1999 and 1998, a total of 40,000 options had been approved for
issue under the director option plan. Stock option data follows:
1999 1998 1997
---------------------------- ---------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------- ------------- ------------- ------------- ------------- -----------
Outstanding at July 1 582,959 $5.20 691,809 $5.20 715,476 $5.30
-------------------------------
Granted 175,000 $5.49 13,500 $5.22 83,500 $5.73
-------------------------------
Exercised (22,902) $4.44 (35,746) $3.20 (34,500) $2.59
-------------------------------
Purchased -- -- (20,000) $4.09 -- --
-------------------------------
Terminated (171,334) $5.72 (66,604) $5.95 (72,667) $8.05
------------- ------------- -------------
Outstanding at June 30 563,723 $4.36 582,959 $5.28 691,809 $5.20
============= ============= =============
Exercisable at June 30 414,243 $4.24 441,408 $5.25 438,559 $5.11
============= ============= =============
Available for grant at
June 30 268,599 272,265 199,161
============= ============= =============
During fiscal 1998, the Board authorized the purchase of 20,000 shares from a
former employee at a negotiated price.
The following table summarizes information concerning outstanding and
exercisable stock options at June 30, 1999:
-48-
NOTE 7 - (CONTINUED)
Options Outstanding Options Exercisable
-------------------------------------------------------- -------------------------------------
Weighted Average
Remaining
Contractual Life Weighted Average Weighted Average
Range of Exercise in Years Exercise Price Exercise Price
Prices Number Number
of Shares of Shares
- ------------------------ ----------------- ------------------ ------------------ ----------------- ------------------
$3.00 - $5.50 557,723 7.11 $4.34 408,243 $4.21
$6.25 - $11.50 6,000 5.69 $6.25 6,000 $6.25
================= ================== ================== ================= ==================
$3.00 - $11.50 563,723 7.09 $4.36 414,243 $4.24
================= ================== ================== ================= ==================
The Company has adopted SFAS No. 123, "Accounting of Stock-Based Compensation,"
which establishes a fair value based method of accounting for compensation cost
related to stock option plans and other forms of stock-based compensation plans,
by providing the pro forma disclosures as if the fair value based method had
been applied for the current period and prior comparable period. In accordance
with SFAS No. 123, the Company applies the intrinsic value based method of
accounting defined under Accounting Principles Board Opinion No. 25 and
accordingly, does not recognize compensation expense for its plans.
Had compensation cost for the plans been determined based on the fair value at
the grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's pretax and after tax income would decrease by
$548,000 or $0.12 per share, $440,000 or $0.10 per share and $136,000 or $0.03
per share in fiscal 1999, fiscal 1998 and fiscal 1997, respectively. These pro
forma amounts may not be representative of future disclosures since the
estimated fair value of stock options is amortized to expense over the vesting
period, and additional options may be granted in future years.
The weighted average fair value of each option as of the grant date was $2.31,
$2.97 and $3.41 for fiscal 1999, fiscal 1998 and fiscal 1997, respectively. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
-49-
Fiscal 1999 fiscal 1998 fiscal 1997
-------------------- -------------------- --------------------
Expected dividend yield (a) -- -- --
Expected stock price volatility 167.56% 78.45% 81.42%
Risk-free interest rate 5.82% 5.37% 6.40%
Expected life of options (years) 6.20 5.48 5.94
(a) During fiscal 1999, 1998 and 1997, the Company did not declare any cash
dividends on its common stock. The Company does not have any present
intention to declare a dividend on its common stock in the foreseeable
future.
NOTE 8 - TREASURY STOCK:
On February 21, 1997, the Company announced a stock repurchase program pursuant
to which it could spend up to $1,500,000, $750,000 per fiscal year, to purchase
shares of its outstanding common stock in the open market through June 30, 1998.
The Company was authorized to spend $150,000 in fiscal 1999 which was reduced to
$50,000 under the amended debt agreement. During fiscal 1999 the company spent
$33,000 to purchase 13,215 shares under the repurchase program. During fiscal
1998, the Company did not purchase any shares under the repurchase program.
During fiscal 1997, the Company spent approximately $707,000 to purchase 162,350
shares under the repurchase program.
At June 30, 1999, the Company held 965,415 shares of treasury stock.
-50-
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
The Company has entered into certain agreements which provide for guaranteed
royalty advances and promotional and advertising payments totaling $6.5 million.
If the provisions of these agreements are not met by the licensors, the Company
may withdraw from the arrangements. These commitments extend to June 2000.
As of June 30, 1999, the Company had an operating lease for its corporate office
space on a month to month basis. As of September 3, 1999 the Company entered
into a 10 year operating lease. Rent expense was $479,000 for the year ended
June 30, 1999 and $433,000 and $368,000 for the years ended June 30, 1998 and
1997, respectively.
The future minimum rental commitments as of June 30, 1999 are as follows (in
thousands):
Year Ended
June 30,
----------------------------------
2000 $474,000
2001 $474,000
2002 $474,000
2003 $474,000
Thereafter $3,335,000
----------------------
$5,231,000
----------------------
NOTE 10 - MAJOR CUSTOMERS:
For the years ended June 30, 1999, 1998 and 1997, Ingram, the Company's major
customer, accounted for 11%, 15% and 12% of net revenues, respectively. With
regard to foreign distribution net revenues, there are no individual geographic
areas that account for more than 10% of total net revenues.
In carrying out its film distribution activities, the Company grants credit to
customers, primarily all of whom are in the film distribution segment of the
entertainment industry. This customer base is sufficiently diversified by number
of customers, channels of distribution (theatrical exhibition, video
distribution, pay television, cable television and other) and geographic
location to prevent any undue risk related to concentration of credit.
-51-
NOTE 11 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Year ended June 30,
1999 1998 1997
-------------------------------------------- ---------------- ---------------- -----------------
(in thousands)
Interest $4,387 $4,931 $2,593
Income Taxes 179 323 433
Interest costs capitalized as film costs in fiscal 1999, fiscal 1998 and fiscal
1997 were $1,203,224, $1,031,000 and $935,000, respectively.
NOTE 12 - DUE FROM OFFICERS:
Notes receivable from officers are secured by Trimark Holdings stock which
equaled at least 200% of the outstanding loan amounts at the time the original
notes were executed. The loans bear interest at the Company's weighted average
cost of capital and interest is due quarterly. One loan was outstanding as of
June 30, 1999, which is due on June 30, 2000.
SCHEDULE II
TRIMARK HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Balance Additions Additions Balance
at Beginning Charged to Charged to at End
Description of Period Expense Net Revenues Deductions of Period
----------- ------------- ------------- ------------- ------------- -------------
Provision for returns
and bad debts (1):
Year Ended June 30, 1997 $4,269 $321 $72 $625 (2) $4,010
Year Ended June 30, 1998 4,010 1,109 1,092 206 (2) 6,005
Year Ended June 30, 1999 6,005 (288) 1,568 1,933 (2) 5,352
Provision for inventory
obsolescence:
Year Ended June 30, 1997 620 -- -- (494) 326
Year Ended June 30, 1998 326 -- -- (28) 298
Year Ended June 30, 1999 298 265 -- -- 563
- ---------------------------
(1) Returns are reflected in net revenues and bad debt expense is recorded
separately in the statement of operations.
(2) Doubtful receivables written-off, net of recoveries.
-52-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers is incorporated herein
by reference from the sections entitled "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" in the Registrant's 1999 Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference from the sections entitled "Executive Compensation and Related
Matters," "Compensation Committee Interlocks and Insider Participation,"
"Compensation Committee and Stock Option and Stock Appreciation Rights Plan
Committee Report on Executive Compensation" and "Stock Performance" in the
Registrant's 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the section entitled
"Security Ownership of Certain Beneficial Owners and Management" in the
Registrant's 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED MATTERS
Information concerning certain relationships and related transactions is
incorporated herein by reference from the section entitled "Executive
Compensation and Related Matters" in the Registrant's 1999 Proxy Statement.
-53-
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements included in Part II of this report:
Page
--------
Report of Independent Accountants 34
Consolidated Balance Sheets at June 30, 1999 and 1998 35
For the years ended June 30, 1999, 1998 and 1997:
Consolidated Statements of Operations 36
Consolidated Statements of Stockholders' Equity 37
Consolidated Statements of Cash Flows 38
Notes to Consolidated Financial Statements 40-52
Financial Statement Schedules:
II. Valuation and Qualifying Accounts 52
All other schedules have been omitted either as inapplicable or not required
under the instructions contained in Regulation S-X or because the information is
included in the financial statements or the notes thereto.
(b) Reports on Form 8-K:
On April 16, 1999 the Company filed a Current Report on Form 8-K, under Item 5,
announcing it had completed its exchange of stock with broadcast.com.
(c) Exhibits:
(i) Except as noted, all Exhibits, numbered as they were numbered for
filing as Exhibits to the Company's Form S-1 Registration Statement,
No. 33-35053, effective June 26, 1990, are incorporated herein by this
reference to such Registration Statements. All filings were made at
the Commission's office in Washington D.C. The registrant's SEC file
number is 0-18613:
-54-
ITEM 14. (CONTINUED)
Exhibit
Number Description
- -------- -----------------------------------------------------------------
2.1 Asset Purchase Agreement between the Registrant, Trimark
Interactive, and Graphix Zone, Inc. dated February 26, 1997. 15
3.1 Certificate of Incorporation of the Registrant, as amended to
date. 4
3.2 By-laws of the Registrant, as amended. 8
4.2 Form of Common Stock Certificate. 4
10.2 Stock Purchase and Option Agreement, dated as of September 1,
1987, as amended, by and between Vidmark, Inc., a California
corporation and Said (Sam) Pirnazar. +
10.4 Stock Purchase and Option Agreement, dated as of September 1,
1989, by and between Vidmark, Inc., a California corporation and
Said (Sam) Pirnazar. +
10.13 1990 Stock Option and Stock Appreciation Rights Plan of the
Registrant, as amended. 13+
10.15 Amendment to Stock Option Agreements, dated as of May 17, 1990, by
and among the Registrant, Vidmark, Inc., a California corporation
and Said (Sam) Pirnazar. +
10.22 Standard Office Lease - Gross, dated as of March 9, 1992, and
amendments thereto, by and between Vidmark, Inc., a California
corporation and 2644 SM Partners, a California limited
partnership. 4
10.25 Non-Qualified Stock Option Agreement dated December 5, 1991, by
and between the Registrant and Gordon Stulberg. 4+
10.29 Non-Qualified Stock Option Agreement dated December 2, 1992, by
and between the Registrant and Gordon Stulberg. 5+
10.32 Directors' Stock Option Plan of the Registrant. 13+
-55-
ITEM 14. (CONTINUED)
Exhibit
Number Description
- -------- -----------------------------------------------------------------
10.35 Technicolor Videocassette, Inc. Fulfillment Agreement with Trimark
Pictures, Inc. dated as of March 1, 1994, by and between Trimark
Pictures, Inc., a California corporation and Technicolor
Videocassette, Inc. 7
10.41 Non-Qualified Stock Option Agreement dated March 31, 1994, by and
between the Registrant and Timothy Swain. 8+
10.43 Non-Qualified Stock Option Certificate dated January 14, 1994, by
and between the Registrant and Gordon Stulberg. 8+
10.45 Non-Qualified Stock Option Certificate dated January 14, 1995, by
and between the Registrant and Gordon Stulberg. 10+
10.46 Non-Qualified Stock Option Certificate dated January 14, 1995, by
and between the Registrant and Matthew Saver. 10+
10.47 Non-Qualified Stock Option Certificate dated January 14, 1995, by
and between the Registrant and Tofigh Shirazi. 10+
10.50 Letter amendment to Stock Option Agreements dated August 10, 1995
by and between the Registrant and Said (Sam) Pirnazar. 10+
10.53 Non-Qualified Stock Option Agreement, dated January 30, 1996 by
and between the Registrant and Mark Amin. 11+
10.54 Amendment to Non-Qualified Stock Option Agreement, dated January
30, 1996 by and between the Registrant and Timothy Swain. 11+
10.56 Amendment to Non-Qualified Stock Option Agreement dated March 31,
1994, by and between the Registrant and Sergio Aguero. 12+
-56-
ITEM 14. (CONTINUED)
Exhibit
Number Description
- -------- -----------------------------------------------------------------
10.57 Non-Qualified Stock Option Agreement dated August 10, 1995, by and
between the Registrant and Sergio Aguero. 12+
10.58 Non-Qualified Stock Option Certificate dated January 14, 1996. by
and between the Registrant and Matthew Saver. 12+
10.59 Non-Qualified Stock Option Certificate dated January 14, 1996, by
and between the Registrant and Tofigh Shirazi. 12+
10.60 Non-Qualified Stock Option Certificate dated January 14, 1996, by
and between the Registrant and Gordon Stulberg. 12+
10.62 Non-Qualified Stock Option Agreement dated July 2, 1996, by and
between the Registrant and Timothy Swain. 13+
10.63 Employment Agreement, dated August 30, 1995, by and between
Trimark Pictures, Inc., a California corporation and Sergio
Aguero, as amended to date. 14+
10.65 Credit, Security, Guaranty and Pledge Agreement, dated December
20, 1996, by and between the Registrant's principal operating
subsidiaries, Trimark Pictures, Inc. and Trimark Television, Inc.,
and The Chase Manhattan Bank, as Administrative Agent and Fronting
Bank. 14
10.68 Letter waiver and amendment to Credit, Security, Guaranty and
Pledge Agreement, dated February 20, 1997, by and between the
Registrant's principal operating subsidiaries, Trimark Pictures,
Inc. and Trimark Television, Inc., and The Chase Manhattan Bank,
as Administrative Agent and Fronting Bank. 16
10.69 Non-Qualified Stock Option Certificate dated January 14, 1997, by
and between the Registrant and Matthew Saver. 16+
-57-
ITEM 14. (CONTINUED)
Exhibit
Number Description
- -------- -----------------------------------------------------------------
10.70 Non-Qualified Stock Option Certificate dated January 14, 1997, by
and between the Registrant and Tofigh Shirazi. 16+
10.71 Non-Qualified Stock Option Certificate dated January 14, 1997, by
and between the Registrant and Gordon Stulberg. 16+
10.72 Pledge Agreement, dated May 1, 1997, by and between Trimark
Pictures, Inc. and Mark Amin and Susan Amin. 17+
10.73 Secured Promissory Note, dated May 1, 1997, by and between Trimark
Pictures, Inc. and Mark Amin. 17+
10.76 Letter amendment to Stock Purchase and Option Agreement, dated
July 25, 1997, by and between the Registrant and Sam Pirnazar. 17+
10.77 Letter waiver and amendment to Credit, Security, Guaranty and
Pledge Agreement, dated June 9, 1997, by and between the
Registrant and The Chase Manhattan Bank, as Administrative Agent
and Fronting Bank. 17
10.79 Amendment no. 1 to the Credit, Security, Guaranty and Pledge
Agreement, dated June 30, 1997, by and between the Registrant's
principal operating subsidiaries, Trimark Pictures, Inc. and
Trimark Television, Inc., and The Chase Manhattan Bank, as
Administrative Agent and Fronting Bank. 17
10.80 Non-Qualified Stock Option Certificate dated January 14, 1998, by
and between the Registrant and Gordon Stulberg. 18+
10.81 Non-Qualified Stock Option Certificate dated January 14, 1998, by
and between the Registrant and Matthew H. Saver. 18+
-58-
ITEM 14. (CONTINUED)
Exhibit
Number Description
- -------- -----------------------------------------------------------------
10.82 Non-Qualified Stock Option Certificate dated January 14, 1998, by
and between the Registrant and Tofigh Shirazi. 18+
10.83 Amendment no. 2 to the Credit, Security, Guaranty and Pledge
Agreement, dated March 31, 1998, by and between the Registrant's
principal operating subsidiaries, Trimark Pictures, Inc. and
Trimark Television, Inc., and The Chase Manhattan Bank, as
Administrative Agent and Fronting Bank. 19
10.84 Consulting Agreement, dated April 2, 1998, by and between Trimark
Pictures, Inc. and Burlage\Edell Productions, Inc. f/s/o Roger
Burlage. 18+
10.85 Letter Agreement, dated April 2, 1998, by and between Trimark
Holdings, Inc. and Roger Burlage. 18+
10.86 Employment Agreement, dated January 30, 1997 between Trimark
Pictures, Inc., and Cami Winikoff. 20+
10.87 Amendment dated November 20, 1998 to August 8, 1992
Non-Qualified Stock Option Agreement between the Company and
Tim Swain. 21+
10.88 Amendment dated November 20, 1998 to January 14, 1992
Non-Qualified Stock Option Agreement between the Company and
Tim Swain. 21+
10.89 Amendment dated November 20, 1998 to March 31, 1994
Non-Qualified Stock Option Agreement between the Company and
Tim Swain. 21+
10.90 Amendment dated November 20, 1998 to July 2, 1996 Non-Qualified
Stock Option Agreement between the Company and Tim Swain. 21+
10.91 Amendment dated November 20, 1998 to July 2, 1996 Non-Qualified
Stock Option Agreement between the Company and Tim Swain. 21+
10.92 Amendment dated November 20, 1998 to January 20, 1993
Non-Qualified Stock Option Agreement between the Company and
Cami Winikoff. 21+
10.93 Amendment dated November 20, 1998 to January 30, 1996
Non-Qualified Stock Option Agreement between the Company and
Cami Winikoff. 21+
10.94 Amendment dated November 20, 1998 to January 30, 1996
Non-Qualified Stock Option Agreement between the Company and
Cami Winikoff. 21+
10.95 Amendment dated November 20, 1998 to February 27, 1997
Non-Qualified Stock Option Agreement between the Company and
Cami Winikoff. 21+
10.96 Letter Amendment dated August 14, 1998 and November 27, 1998
between the Company and Sam Pirnazar. 21+
10.97 Amendment dated December 31, 1998 to the Credit, Security,
Guaranty and Pledge Agreement between the Company and The Chase
Manhattan Bank, as Administrative Agent and Fronting Bank. 21
10.98 Non-Qualified Stock Option Agreement dated February 2, 1999
between the Company and Cami Winikoff. 22+
10.99 Employment Agreement dated February 1, 1999 between Trimark
Pictures, Inc. and Cami Winikoff. 22+
10.100 Trimark Holdings, Inc. 1999 Directors' Option Plan. 22+
10.101 Non-Qualified Stock Option Certificate dated January 8, 1999
between the Company and Gordon Stulberg. 22+
10.102 Non-Qualified Stock Option Certificate dated January 8, 1999
between the Company and Matthew H. Saver. 22+
10.103 Non-Qualified Stock Option Certificate dated January 8, 1999
between the Company and Tofigh Shirazi. 22+
10.104 Non-Qualified Stock Option Certificate dated January 8, 1999
between the Company and Roger Burlage. 22+
10.105 Agreement dated February 22, 1999 among broadcast.com inc., the
Company, Trimark Pictures, Inc., Trimark Television, Inc. and
Trimark Music, and amendment thereto dated March 15, 1999 (as
indicated by asterisk, portions of the February 22, 1999
agreement have been redacted pursuant to a confidentiality
order). 22
10.106 Waiver letter dated as of March 15, 1999 regarding the Credit,
Security, Guaranty and Pledge Agreement dated as of
December 20, 1996, as amended, among Trimark Pictures, Inc.,
Trimark Television, Inc., the Guarantors referred to therein,
the Lenders referred to therein, and The Chase Manhattan Bank,
as Administrative Agent and Fronting Bank. 22
10.107 Employment Agreement dated August 6, 1998 between Trimark
Pictures, Inc., and Andrew Reimer. 1
21.1 Subsidiaries of Registrant. 12
23.1 Consent of PricewaterhouseCoopers LLP. 1
27 Financial Data Schedule. 1
- -------------------------------
-59-
1 Filed herewith.
2 Incorporated by reference to the identical exhibit number in
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1991.
3 Intentionally omitted.
4 Incorporated by reference to the identical exhibit number in
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1992.
5 Incorporated by reference to the identical exhibit number in
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1993.
6 Incorporated by reference to the identical exhibit number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993.
7 Incorporated by reference to the identical exhibit number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994.
8 Incorporated by reference to the identical exhibit number in
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994.
9 Incorporated by reference to the identical exhibit number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
10 Incorporated by reference to the identical exhibit number in
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995
11 Incorporated by reference to the identical exhibit number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
12 Incorporated by reference to the identical exhibit number in
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996
13 Incorporated by reference to the identical exhibit number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
14 Incorporated by reference to the identical exhibit number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996.
15 Incorporated by reference to the identical exhibit number in
Registrant's Current Report on Form 8-K dated February 21, 1997.
16 Incorporated by reference to the identical exhibit number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
17 Incorporated by reference to the identical exhibit number in
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1997
-60-
18 Incorporated by reference to the identical exhibit number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
19 Incorporated by reference to the identical exhibit number in
Registrant's Current Report on Form 8-K dated May 15, 1998 (filed
May 26, 1998).
20 Incorporated by reference to the identical exhibit number in
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
21 Incorporated by reference to the identical exhibit number in
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998.
22 Incorporated by reference to the identical exhibit number in
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999.
+ This is a management contract or compensatory plan or arrangement.
-61-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRIMARK HOLDINGS, INC.
By: /s/ Mohammed Mark Amin
----------------------
Mohammed Mark Amin
Chairman of the Board
Date: SEPTEMBER 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Mohammed Mark Amin Chairman of the Board 09/28/99
- ---------------------- and Chief Executive Officer --------
Mohammed Mark Amin [Principal Executive Officer]
/s/ Peter Dekom Director 09/28/99
- ---------------------- --------
Peter Dekom
/s/ Gordon Stulberg Director 09/28/99
- ---------------------- --------
Gordon Stulberg
/s/ Tofigh Shirazi Director 09/28/99
- ---------------------- --------
Tofigh Shirazi
/s/ Matthew Saver Director 09/28/99
- ---------------------- --------
Matthew Saver
/s/ Jeff Gonzalez Chief Financial 09/28/99
- ---------------------- Officer, and Secretary --------
Jeff Gonzalez [Principal Financial
and Accounting Officer]
-62-
INDEX TO EXHIBITS
Exhibit Method
Number Description of Filing
------- -------------------------------------------------- ---------
2.1 Asset Purchase Agreement between the Registrant, Trimark
Interactive, and Graphix Zone, Inc. dated February 26,
1997. 15
3.1 Certificate of Incorporation of the Registrant, as
amended to date. 4
3.2 By-laws of the Registrant, as amended. 8
4.2 Form of Common Stock Certificate. 4
10.2 Stock Purchase and Option Agreement, dated as of
September 1, 1987, as amended, by and between Vidmark,
Inc., a California corporation and Said (Sam) Pirnazar.
3+
10.4 Stock Purchase and Option Agreement, dated as of
September 1, 1989, by and between Vidmark, Inc., a
California corporation and Said (Sam) Pirnazar. 3+
10.13 1990 Stock Option and Stock Appreciation Rights Plan of
the Registrant, as amended. 13+
10.15 Amendment to Stock Option Agreements, dated as of May
17, 1990, by and among the Registrant, Vidmark, Inc., a
California corporation and Said (Sam) Pirnazar. 3+
10.22 Standard Office Lease - Gross, dated as of March 9,
1992, and amendments thereto, by and between Vidmark,
Inc., a California corporation and 2644 SM Partners, a
California limited partnership. 4
10.25 Non-Qualified Stock Option Agreement dated December 5,
1991, by and between the Registrant and Gordon Stulberg.
4+
10.29 Non-Qualified Stock Option Agreement dated December 2,
1992, by and between the Registrant and Gordon Stulberg.
5+
-63-
Exhibit Method
Number Description of Filing
------- -------------------------------------------------- ---------
10.32 Directors' Stock Option Plan of the Registrant. 13+
10.35 Technicolor Videocassette, Inc. Fulfillment Agreement
with Trimark Pictures, Inc. dated as of March 1, 1994,
by and between Trimark Pictures, Inc., a California
corporation and Technicolor Videocassette, Inc. 7
10.41 Non-Qualified Stock Option Agreement dated March 31,
1994, by and between the Registrant and Timothy Swain.
8+
10.43 Non-Qualified Stock Option Certificate dated January 14,
1994, by and between the Registrant and Gordon Stulberg.
8+
10.45 Non-Qualified Stock Option Certificate dated January 14,
1995, by and between the Registrant and Gordon Stulberg.
10+
10.46 Non-Qualified Stock Option Certificate dated January 14,
1995, by and between the Registrant and Matthew Saver.
10+
10.47 Non-Qualified Stock Option Certificate dated January 14,
1995, by and between the Registrant and Tofigh Shirazi.
10+
-64-
Exhibit Method
Number Description of Filing
------- -------------------------------------------------- ---------
10.50 Letter amendment to stock options agreements dated
August 10, 1995 by and between the Registrant and Said
(Sam) Pirnazar. 10+
10.53 Non-Qualified Stock Option Agreement, dated January 30,
1996 by and between the Registrant and Mark Amin. 11+
10.54 Amendment to Non-Qualified Stock Option Agreement, dated
January 30, 1996 by and between the Registrant and
Timothy Swain. 11+
10.56 Amendment to Non-Qualified Stock Option Agreement, dated
March 31, 1994, by and between the Registrant and Sergio
Aguero. 12+
10.57 Non-Qualified Stock Option Agreement dated August 10,
1995, by and between the Registrant and Sergio Aguero.
12+
10.58 Non-Qualified Stock Option Certificate dated January 14,
1996. by and between the Registrant and Matthew Saver.
12+
10.59 Non-Qualified Stock Option Certificate dated January 14,
1996, by and between the Registrant and Tofigh Shirazi.
12+
10.60 Non-Qualified Stock Option Certificate dated January 14,
1996, by and between the Registrant and Gordon Stulberg.
12+
10.62 Non-Qualified Stock Option Agreement dated July 2, 1996,
by and between the Registrant and Timothy Swain. 13+
-65-
Exhibit Method
Number Description of Filing
------- -------------------------------------------------- ---------
10.63 Employment Agreement, dated August 30, 1995, by and
between Trimark Pictures, Inc., a California corporation
and Sergio Aguero, as amended to date. 14+
10.65 Credit, Security, Guaranty and Pledge Agreement, dated
December 20, 1996, by and between the Registrant's
principal operating subsidiaries, Trimark Pictures, Inc.
and Trimark Television, Inc., and The Chase Manhattan
Bank, as Administrative Agent and Fronting Bank. 14
10.68 Letter waiver and amendment to Credit, Security,
Guaranty and Pledge Agreement, dated February 20, 1997,
by and between the Registrant's principal operating
subsidiaries, Trimark Pictures, Inc. and Trimark
Television, Inc., and The Chase Manhattan Bank, as
Administrative Agent and Fronting Bank. 16
10.69 Non-Qualified Stock Option Certificate dated January 14,
1997, by and between the Registrant and Matthew Saver.
16+
10.70 Non-Qualified Stock Option Certificate dated January 14,
1997, by and between the Registrant and Tofigh Shirazi.
16+
10.71 Non-Qualified Stock Option Certificate dated January 14,
1997, by and between the Registrant and Gordon Stulberg.
16+
10.72 Pledge Agreement, dated May 1, 1997, by and between
Trimark Pictures, Inc. and Mark Amin and Susan Amin. 17+
-66-
Exhibit Method
Number Description of Filing
------- -------------------------------------------------- ---------
10.73 Secured Promissory Note, dated May 1, 1997, by and
between Trimark Pictures, Inc. and Mark Amin. 17+
10.76 Letter amendment to Stock Purchase and Option Agreement,
dated July 25, 1997, by and between the Registrant and
Sam Pirnazar. 17+
10.77 Letter waiver and amendment to Credit, Security,
Guaranty and Pledge Agreement, dated June 9, 1997, by
and between the Registrant and The Chase Manhattan Bank,
as Administrative Agent and Fronting Bank. 17
10.79 Amendment no. 1 to the Credit, Security, Guaranty and
Pledge Agreement, dated June 30, 1997, by and between
the Registrant's principal operating subsidiaries,
Trimark Pictures, Inc. and Trimark Television, Inc., and
The Chase Manhattan Bank, as Administrative Agent and
Fronting Bank. 17
10.80 Non-Qualified Stock Option Certificate dated January 14,
1998, by and between the Registrant and Gordon Stulberg.
18+
10.81 Non-Qualified Stock Option Certificate dated January 14,
1998, by and between the Registrant and Matthew H.
Saver. 18+
10.82 Non-Qualified Stock Option Certificate dated January 14,
1998, by and between the Registrant and Tofigh Shirazi.
18+
-67-
Exhibit Method
Number Description of Filing
------- -------------------------------------------------- ---------
10.83 Amendment no. 2 to the Credit, Security, Guaranty and
Pledge Agreement, dated March 31, 1998, by and between
the Registrant's principal operating subsidiaries,
Trimark Pictures, Inc. and Trimark Television, Inc., and
The Chase Manhattan Bank, as Administrative Agent and
Fronting Bank. 19
10.84 Consulting Agreement, dated April 2, 1998, by and
between Trimark Pictures, Inc. and Burlage\Edell
Productions, Inc. f/s/o Roger Burlage. 18+
10.85 Letter Agreement, dated April 2, 1998, by and between
Trimark Holdings, Inc. and Roger Burlage. 18+
10.86 Employment Agreement, dated January 30, 1997 between
Trimark Pictures, Inc., and Cami Winikoff. 20+
10.87 Amendment dated November 20, 1998 to August 8, 1992
Non-Qualified Stock Option Agreement between the Company
and Tim Swain. 21+
10.88 Amendment dated November 20, 1998 to January 14, 1992
Non-Qualified Stock Option Agreement between the Company
and Tim Swain. 21+
10.89 Amendment dated November 20, 1998 to March 31, 1994
Non-Qualified Stock Option Agreement between the Company
and Tim Swain. 21+
10.90 Amendment dated November 20, 1998 to July 2, 1996
Non-Qualified Stock Option Agreement between the Company
and Tim Swain. 21+
10.91 Amendment dated November 20, 1998 to July 2, 1996
Non-Qualified Stock Option Agreement between the Company
and Tim Swain. 21+
10.92 Amendment dated November 20, 1998 to January 20, 1993
Non-Qualified Stock Option Agreement between the Company
and Cami Winikoff. 21+
-68-
Exhibit Method
Number Description of Filing
------- -------------------------------------------------- ---------
10.93 Amendment dated November 20, 1998 to January 30, 1996
Non-Qualified Stock Option Agreement between the Company
and Cami Winikoff. 21+
10.94 Amendment dated November 20, 1998 to January 30, 1996
Non-Qualified Stock Option Agreement between the Company
and Cami Winikoff. 21+
10.95 Amendment dated November 20, 1998 to February 27, 1997
Non-Qualified Stock Option Agreement between the Company
and Cami Winikoff. 21+
10.96 Letter Amendment dated August 14, 1998 and November 27,
1998 between the Company and Sam Pirnazar. 21+
10.97 Amendment dated December 31, 1998 to the Credit,
Security, Guaranty and Pledge Agreement between the
Company and The Chase Manhattan Bank, as Administrative
Agent and Fronting Bank. 21
10.98 Non-Qualified Stock Option Agreement dated February 2,
1999 between the Company and Cami Winikoff. 22+
10.99 Employment Agreement dated February 1, 1999 between
Trimark Pictures, Inc. and Cami Winikoff. 22+
10.100 Trimark Holdings, Inc. 1999 Directors' Option Plan. 22+
10.101 Non-Qualified Stock Option Certificate dated January 8,
1999 between the Company and Gordon Stulberg. 22+
10.102 Non-Qualified Stock Option Certificate dated January 8,
1999 between the Company and Matthew H. Saver. 22+
10.103 Non-Qualified Stock Option Certificate dated January 8,
1999 between the Company and Tofigh Shirazi. 22+
-69-
Exhibit Method
Number Description of Filing
------- -------------------------------------------------- ---------
10.104 Non-Qualified Stock Option Certificate dated January 8,
1999 between the Company and Roger Burlage. 22+
10.105 Agreement dated February 22, 1999 among broadcast.com
inc., the Company, Trimark Pictures, Inc., Trimark
Television, Inc. and Trimark Music, and amendment
thereto dated March 15, 1999 (as indicated by asterisk,
portions of the February 22, 1999 agreement have been
redacted pursuant to a confidentiality order). 22
10.106 Waiver letter dated as of March 15, 1999 regarding the
Credit, Security, Guaranty and Pledge Agreement dated as
of December 20, 1996, as amended, among Trimark
Pictures, Inc., Trimark Television, Inc., the Guarantors
referred to therein, the Lenders referred to therein, and
The Chase Manhattan Bank, as Administrative Agent and
Fronting Bank. 22
10.107 Employment Agreement dated August 6, 1998 between
Trimark Pictures, Inc., and Andrew Reimer. 1filed
herewith electronically
21.1 Subsidiaries of Registrant. 12
23.1 Consent of PricewaterhouseCoopers LLP. 1filed herewith
electronically
27 Financial Data Schedule. 1filed herewith electronically
-70-