ITEM 10.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
.
Directors and Executive Officers
Our directors and
executive officers
and the positions held by each of them
are as follows:
|
NAME
|
|
AGE
|
|
PRINCIPAL OCCUPATION
|
|
William
O’Dowd, IV
|
|
48
|
|
Chairman,
President and Chief Executive Officer
|
|
Michael
Espensen
|
|
67
|
|
Director
|
|
Nelson
Famadas
|
|
44
|
|
Director
|
|
Mirta A
Negrini
|
|
53
|
|
Director, Chief
Financial and Operating Officer
|
|
Nicholas Stanham,
Esq.
|
|
49
|
|
Director
|
|
NAME
|
|
AGE
|
|
PRINCIPAL
OCCUPATION
|
|
William
O’Dowd, IV
|
|
48
|
|
Chief Executive
Officer
|
|
Mirta A
Negrini
|
|
53
|
|
Chief Financial and
Operating Officer
|
Biographical Information of Directors and Executive
Officers
William
O’Dowd, IV
.
Mr. O’Dowd has served as our
Chief Executive Officer and Chairman of our Board of Directors (the
“Board”) since June 2008. Mr. O’Dowd
founded Dolphin Entertainment, Inc. (“Dolphin
Entertainment”) in 1996 and has served as its President since
that date. In 2016, we acquired Dolphin Films, Inc., a
content producer of motion pictures, from Dolphin Entertainment.
Past television series credits for Mr. O’Dowd include serving
as Executive Producer of Nickelodeon’s worldwide top-rated
series
Zoey101
(Primetime
Emmy-Award nominated) and
Ned’s Declassified School Survival
Guide
, as well as Nickelodeon’s first ever musical,
Spectacular!
In addition,
Mr. O’Dowd produced the first season of
Raising Expectations
, a 26-episode
family sitcom.
Raising
Expectations
won the 2017 KidScreen Award for Best New
Tween/Teen Series, the global children’s television
industry’s highest honor.
Qualifications
. The Board
nominated Mr. O’Dowd to serve as a director because of his
current and prior senior executive and management experience at the
Company and his significant industry experience, including having
founded Dolphin Entertainment, a leading entertainment company
specializing in children’s and young adult’s
live-action programming.
Michael
Espensen
.
Mr.
Espensen has served on our Board since June 2008. From
2009 to 2014, Mr. Espensen served as Chief Executive Officer of
Keraplast Technologies, LLC (“Keraplast”), a private
multi-million dollar commercial-stage biotechnology
company. From 2009 to present, Mr. Espensen has also
served as Chairman of the Board of Keraplast. While
serving as Chief Executive Officer, Mr. Espensen was responsible
for overseeing and approving Keraplast’s annual budgets and
financial statements. Mr. Espensen is also a
producer and investor in family entertainment for television and
feature films. Between 2006 and 2009, Mr. Espensen
was Executive or Co-Executive Producer of twelve
made-for-television movies targeting children and family
audiences. As Executive Producer, he approved production
budgets and then closely monitored actual spending to ensure that
productions were not over budget. Mr. Espensen has
also been a real estate developer and investor for over thirty
years
.
Qualifications
. The Board
nominated Mr. Espensen to serve as a director because of his
business management and financial oversight experience both as the
current Chairman and former Chief Executive Officer of a
multi-million dollar company and as a former Executive Producer in
the made-for-television movie industry, as well as his valuable
knowledge of our industry.
Nelson
Famadas
. Mr. Famadas has served on our Board
since December 2014. Since 2015, he has served as
President of Cien, a marketing firm that serves the Hispanic
market. Prior to Cien, Mr. Famadas served as Senior Vice
President of National Latino Broadcasting (“NLB”) from
July 2011 to May 2015. NLB is an independent Hispanic
media company that owns and operates two satellite radio channels
on SiriusXM. From July 2010 to March 2012,
Mr. Famadas served as our Chief Operating Officer, where he
was responsible for daily operations including public filings and
investor relations. Mr. Famadas began his career at
MTV Networks, specifically MTV Latin America, ultimately serving as
New Business Development Manager. From 1995 through
2001, he co-founded and managed Astracanada Productions, a
television production company that catered mostly to the Hispanic
audience, creating over 1,300 hours of programming. As
Executive Producer, he received a Suncoast EMMY in 1997 for
Entertainment Series for
A Oscuras
Pero Encendidos
. Mr. Famadas has over 20 years of
experience in television and radio production, programming,
operations, sales and marketing.
Qualifications
. The Board
nominated Mr. Famadas to serve as a director because of his
significant prior management experience as a co-founder and former
manager of a television production company and senior vice
president of a broadcasting firm, as well as his current management
experience with a marketing firm.
Mirta
A Negrini.
Ms. Negrini has served on our Board since
December 2014 and as our Chief Financial and Operating Officer
since October 2013. Ms. Negrini has over thirty years of experience
in both private and public accounting. Immediately prior to joining
the Company, she served since 1996 as a named partner in Gilman
& Negrini, P.A., an accounting firm of which the Company was a
client. Ms. Negrini is a Certified Public Accountant licensed in
the State of Florida.
Qualifications
. The Board
nominated Ms. Negrini to serve as a director because of her
significant accounting experience gained as a named partner at an
accounting firm.
Nicholas
Stanham, Esq.
Mr. Stanham
has served on our
Board since December 2014. Mr. Stanham is a founding partner of
R&S International Law Group, LLP in Miami, Florida, which was
founded in January 2008. His practice is focused primarily in real
estate and corporate structuring. Mr. Stanham has over 20 years of
experience in real estate purchases and sales of residential and
commercial properties. Since 2004, Mr. Stanham has been a member of
the Christopher Columbus High School board of directors. In
addition, he serves as a director of ReachingU, a foundation that
promotes initiatives and supports organizations that offer
educational opportunities to Uruguayans living in
poverty.
Qualifications
. The Board
nominated Mr. Stanham to serve as a director because of his
experience as a founding partner at a law firm as well as his
business management experience at that firm.
Corporate Governance
Compliance
with Section 16(a) of the Exchange Act
Section 16(a) of
the Exchange Act requires our directors and certain officers, and
persons who own more than 10% of our common stock, par value $0.015
(the “common stock”), to file with the SEC reports of
ownership and changes in ownership of our common stock and other
equity securities. Based solely on a review of such
reports that were filed with the SEC, all filings required of
directors and Section 16 officers and persons who own more than 10%
of our common stock in 2016 were made on a timely basis, with the
exception of William O’Dowd, IV, who reported two late
transactions on a Form 4 and Nelson Famadas who reported one late
transaction on a Form 4, in each case due to an administrative
oversight.
Code of Ethics
Our Board of
Directors has adopted our Code of Ethics for Senior Financial
Officers (“Code of Ethics”) which we plan to
periodically revise to reflect best corporate governance practices
and changes in applicable rules. Our Code of Ethics sets
forth standards of conduct applicable to our Chief Executive
Officer (“CEO”) and our Chief Financial and Operating
Officer to promote honest and ethical conduct, proper disclosure in
our periodic filings, and compliance with applicable laws, rules
and regulations. Our Code of Ethics is available to view at
our website, www.dolphindigitalmedia.com by clicking on Investor
Relations and then Code of Ethics. We intend to provide
disclosure of any amendments or waivers of our Code of Ethics on
our website within four business days following the date of the
amendment or waiver.
Audit Committee
and
Audit Committee Financial Expert
Our Board currently
has a standing Audit Committee consisting of two directors,
Nicholas Stanham and Michael Espensen, who serves as
Chairman. Our Audit Committee operates pursuant to an
Audit Committee Charter, which was adopted by our Board, setting
forth the responsibilities of the Audit Committee. The
Audit Committee Charter can be found at our website at
www.dolphindigitalmedia.com by clicking on Investor Relations and
then Audit Committee Charter.
The Audit
Committee’s responsibilities include, but are not limited to,
assisting the Board in overseeing the:
●
accounting and
financial reporting practices and policies and systems of internal
controls over financial reporting of the
Company;
●
integrity of the
Company’s consolidated financial statements and the
independent audit thereof;
●
compliance of the
Company with legal and regulatory requirements;
and
●
performance of the
independent registered public accounting firm and assessment of the
auditors’ qualifications and
independence.
The Audit Committee
Chairman reports on Audit Committee actions and recommendations at
Board meetings. The Audit Committee may, in its
discretion, delegate its duties and responsibilities to a
subcommittee of the Committee as it deems appropriate. Our Board
has determined that each member of the Audit Committee meets the
independence requirements under NASDAQ’s Marketplace Rules
and the enhanced independence standards for audit committee members
required by the SEC. In addition, our Board has
determined that Mr. Espensen meets the requirements of an audit
committee financial expert under the rules of the SEC.
In 2016, the Audit
Committee held four meetings, which were all attended by each
member.
Procedures for Recommending Nominees to the
Board
During 2016, no
material changes have been made to the procedures by which
shareholders may recommend nominees to our Board of
Directors.
ITEM 11.
EXECUTIVE
COMPENSATION
.
Summary Compensation Table
|
Name
and Principal Position
|
|
|
|
|
All
Other Compensation
($)
|
|
|
William
O’Dowd, IV,
(1)
|
|
2016
|
250,000
|
—
|
377,403
(2)
|
627,403
|
|
Chairman and
Chief
Executive
Officer
|
|
2015
|
250,000
|
—
|
574,947
|
824,947
|
|
|
|
|
|
|
|
|
Mirta A.
Negrini,
|
|
2016
|
200,000
|
—
|
—
|
200,000
|
|
Chief Financial
and
Operating
Officer
|
|
2015
|
150,000
|
50,000
|
—
|
200,000
|
____________________________
(1)
For
2016, we accrued the full amount of Mr. O’Dowd’s salary
of $250,000 but did not make any payments on this
amount.
(2) This amount
includes life insurance in the amount of $48,384, interest paid on
accrued and unpaid compensation in the amount of $212,066 and
interest paid on the Revolving Promissory Note (defined below) in
the amount of $116,953 for the fiscal year ended December 31,
2016. In March 2016, Dolphin Entertainment exchanged
$3,073,410 aggregate amount of principal and interest outstanding
under the Revolving Promissory Note for shares of our common stock.
For additional information on the Revolving Promissory Note, please
see “Certain Relationships and Related
Transactions”.
Outstanding Equity Awards at Fiscal Year-End
None
of the executive officers named in the table above had any
outstanding equity awards as of December 31, 2016 and
2015.
Mirta Negrini
Employment Arrangement
On October 21,
2013, the Company appointed Ms. Negrini as its Chief Financial and
Operating Officer, at an annual base salary of $150,000. In
2016, Ms. Negrini’s annual base salary was increased to
$200,000. The terms of Ms. Negrini’s employment arrangement
do not provide for any payments in connection with her resignation,
retirement or other termination, or a change in control, or a
change in her responsibilities following a change in
control.
Director Compensation
In 2016, we did not pay
compensation to any of our directors in connection with their
service on our Board.
ITEM 13.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Certain Relationships and Related
Transactions
William O’Dowd
On December 31,
2011, we issued an unsecured revolving promissory note (the
“Revolving Promissory Note”) to Dolphin Entertainment,
an entity wholly owned by our CEO, Mr. O’Dowd. The
Revolving Promissory Note accrued interest at a rate of 10% per
annum. Dolphin Entertainment had the right at any time to demand
that all outstanding principal and accrued interest be repaid with
a ten day notice to us. During the year ended December 31, 2015,
Dolphin Entertainment advanced $2,797,000 and was repaid $3,267,000
in principal. During the year ended December 31, 2016, Dolphin
Entertainment advanced $270,000. On March 4, 2016, we
entered into a subscription agreement with Dolphin Entertainment,
pursuant to which we and Dolphin Entertainment agreed to convert
$1,920,600 of principal balance and $1,152,809 of accrued interest
outstanding under the Revolving Promissory Note into 614,682 shares
of common stock. The shares were converted at a price of
$5.00 per share. During the years ended December 31,
2016 and 2015, $32,008 and $340,050, respectively, were expensed in
interest and we recorded accrued interest of $5,788 and $1,126,
related to the Revolving Promissory Note, on our consolidated
balance sheets as of December 31, 2016 and 2015,
respectively. As of December 31, 2016 and 2015, the
outstanding balances under the Revolving Promissory Note were $0
and $1,982,267. The largest aggregate balance that the Company owed
to Dolphin Entertainment during 2016 and 2015, was $3,073,410 and
$5,056,496, respectively.
Dolphin
Entertainment has previously advanced funds for working capital to
Dolphin Films, Inc. (“Dolphin Films”), its former
subsidiary which we acquired in March 2016. During the year ended
December 31, 2015, Dolphin Films agreed to enter into second loan
and security agreements with certain of Dolphin
Entertainment’s debtholders, pursuant to which the
debtholders exchanged their Dolphin Entertainment notes for notes
issued by Dolphin Films totaling $8,774,327. The amount of debt
assumed by Dolphin Films was applied against amounts owed to
Dolphin Entertainment by Dolphin Films. On October 1,
2016, Dolphin Films entered into a promissory note with Dolphin
Entertainment (the “DE Note”) in the principal amount
of $1,009,624. The DE Note is payable on demand and
bears interest at a rate of 10% per annum. As of December 31, 2016
and 2015, Dolphin Films owed Dolphin Entertainment $434,326 and
$1,612,357, respectively, of principal and $19,652 and
$1,305,166, respectively, of accrued interest, that was recorded on
the condensed consolidated balance sheets Dolphin Films recorded
interest expense of $83,551 and $148,805, respectively for the
years ended December 31, 2016 and 2015. The largest aggregate
balance Dolphin Films owed Dolphin Entertainment during 2016 and
2015, was $2,658,800 and $6,527,600,
respectively
On September 7, 2012, we entered
into an employment agreement with Mr. O’Dowd, which was
subsequently renewed for a period of two years, effective January
1, 2015. The agreement provided for an annual salary of
$250,000 and a one-time bonus of $1,000,000. Unpaid
compensation accrues interest at a rate of 10% per
annum. As of December 31, 2016 and 2015, we had a
balance of $735,211 and $523,145, respectively of accrued interest
and $2,250,000 and $2,000,000, of accrued compensation related to
this agreement. We recorded $212,066 and $186,513 of
interest expense for the years ended December 31, 2016 and
2015.
During 2015, we agreed to pay
Dolphin Entertainment $250,000 for a script that it had developed
for a web series that we produced during 2015.
As previously mentioned, on March
29, 2016, we acquired Dolphin Films from Dolphin
Entertainment. As consideration, we issued to Dolphin
Entertainment 2,300,000 shares of Series B Convertible Preferred
Stock, par value $0.10 per share (“Series B Preferred
Stock”) and 1,000,000 shares of Series C Convertible
Preferred Stock, par value $0.001 per share (“Series C
Preferred Stock”). On November 15, 2016, Dolphin
Entertainment converted the Series B Preferred Stock into 2,300,000
shares of our common stock. As Mr. O’Dowd is the
sole owner of Dolphin Entertainment, he is deemed the beneficial
owner of such shares of common stock.
Nicholas
Stanham
In March 2016, we entered into a
debt exchange agreement with our director, Mr. Stanham, pursuant to
which we exchanged a promissory note in the amount of $50,000 for
11,128 shares of our common stock, as payment in full of the
promissory note. The promissory note accrued interest at
a rate of 10% per annum. The shares of common stock were
converted at a price of $5.00 per share.
T Squared
Partners LP
In connection with the merger
whereby we acquired Dolphin Films, we entered into a preferred
stock exchange agreement with T Squared Partners LP
(previously T Squared Investments, LLC) (“T Squared”)
pursuant to which, on March 7, 2016, we issued 950,000 shares of
Series B Preferred Stock to T Squared in exchange for
1,042,753 shares of Series A Convertible Preferred Stock,
previously issued to T Squared. On November 16, 2016, T
Squared converted the Series B Preferred Stock into 950,000 shares
of our common stock.
On November 4, 2016, we issued
Class G, Class H and Class I Warrants (the “Warrants”)
to T Squared that entitles T Squared to purchase up to 2,500,000
shares of our common stock. The Warrants have a maximum
exercise provision that prohibit T Squared from exercising warrants
that would cause it to exceed 9.99% of our outstanding shares of
common stock, unless the restriction is waived or amended, by the
mutual consent of us and T Squared.
On March 31, 2017, T Squared
partially exercised Class E Warrants and acquired 325,770 shares of
our common stock pursuant to the cashless exercise provision in the
related warrant agreement. T Squared had previously paid
down $1,675,000 for these shares.
Justo Pozo
During 2016,
we entered into three separate debt exchange agreements with
entities under the control of Justo Pozo (“Pozo”) to
exchange promissory notes with an aggregate principal and interest
balance of $8,178,145 into 1,629,628 shares of our Common Stock at
$5.00 per share. The promissory notes accrued interest at
rates ranging from 11.25% to 12.5% per annum. Pozo was the
holder of a convertible note that mandatorily and automatically
converted into Common Stock, at the conversion price of $5.00 per
share, upon the average market price per share of Common Stock
being greater than or equal to the conversion price for twenty
trading days. During 2016, such triggering event occurred and
the convertible note was converted into 632,800 shares of our
Common Stock.
Stephen L.
Perrone
In December 2016, we and entities
affiliated with Stephen L. Perrone entered into: (i) a debt
exchange agreement to exchange promissory notes in the aggregate
amount of $6,470,990 for shares of our common stock and (ii) a
purchase agreement to acquire a 25% membership interest of Dolphin
Kids Clubs owned by the affiliated entity. The promissory notes
accrued interest at rates ranging from 11.25% to $13.25% per
annum. Pursuant to the agreements, we issued a Class J
Warrant that entitled Mr. Perrone to purchase up to 2,170,000
shares of our common stock at a price of $0.015 per share through
December 29, 2020. In addition, we issued to an entity
affiliated with Mr. Perrone a Class K Warrant as consideration to
terminate an equity finance agreement in the amount of
$564,000. The Class K Warrant entitled Mr. Perrone to
purchase up to 170,000 shares of our common stock at a price of
$0.015 per share prior to December 29, 2020. On March
31, 2017, Mr. Perrone’s affiliated entities exercised the
Class J and Class K Warrants at an aggregate purchase price of
$35,100 and acquired 2,340,000 shares of our Common
Stock.
Alvaro and Lileana De
Moya
Director Independence
We are not listed
on a national securities exchange; however, we have elected to use
the definition of independence under the NASDAQ listing
requirements in determining the independence of our directors and
nominees for director. In 2017, the Board undertook a
review of director independence, which included a review of each
director’s response to questionnaires inquiring about any
relationships with us. This review was designed to
identify and evaluate any transactions or relationships between a
director or any member of his immediate family and us, or members
of our senior management or other members of our Board of
Directors, and all relevant facts and circumstances regarding any
such transactions or relationships. Based on its review,
the Board determined that Messrs. Espensen, Famadas and Stanham are
independent. Mr. O’Dowd and Ms. Negrini are not
independent under NASDAQ’s compensation committee
independence standards or its nominations committee independence
standards.