<PAGE>
SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, D.C. 20549
---------------
SCHEDULE 13E-3
(RULE 13e-100)
TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 13e-3 THEREUNDER
RULE 13E-3 TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 1)
VDI MultiMedia
-----------------------------------------------------------------------
(Name of Issuer)
VDI MultiMedia
VDI MultiMedia, Inc.
VMM Merger Corp.
Bain Capital, Inc.
Donald R. Stine
Robert C. Semmer
-----------------------------------------------------------------------
Name of Person(s) Filing Statement)
Common Stock, no par value
-----------------------------------------------------------------------
(Title of Class of Securities)
91791610
-----------------------------------------------------------------------
(CUSIP Number of Class of Securities)
R. Luke Stefanko
Chief Executive Officer and Chairman of the Board
7083 Hollywood Boulevard, 2nd Floor
Hollywood, California 90028
(323) 957-7990
-----------------------------------------------------------------------
(Name, Address, and Telephone Numbers of Persons Authorized to Receive Notices)
<PAGE>
and Communications on Behalf of the Person(s) Filing Statement)
Copies to:
Barry Dastin, Esq. Dennis Myers, Esq.
Kaye, Scholer, Fierman, Hays & Handler, LLP Kirkland & Ellis
1999 Avenue of the Stars, Suite 1600 200 E. Randolph Drive
Los Angeles, California 90067 Chicago, Illinois 60601
(310) 788-1000 (312) 861-2000
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act
of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [ ]
Check the following box if the filing is a final amendment reporting the
results of the transaction: [ ]
Calculation of Filing Fee
- -------------------------------------------------------------------------------
Transaction Valuation* Amount of Filing Fee
142,064.118 $28,414
- -------------------------------------------------------------------------------
*For purposes of calculation of the filing fee only. The "Transaction
Valuation" amount referred to above is the sum of (i) the product of 9,166,653,
the number of outstanding shares of common stock, excluding 44,044 shares that
the will rollover into shares of the corporation that survives the mergers (as
defined herein) (the "Shares"), of VDI MultiMedia as of December 31, 1999 and
$15.00, the cash price per Share to be paid in the mergers plus, (ii) cash
consideration of up to $5,224,983 to be paid for options being surrendered in
connection with the mergers. In accordance with Rule 0-11 under the Securities
Exchange Act of 1934, the filing fee is determined by multiplying the amount
calculated pursuant to the preceding sentence by 1/50th of the one percent.
-2-
<PAGE>
[X] Check the box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing with which the offering fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $28,414 Filing Party: VDI MultiMedia
------------------ -----------------
Form or Registration No.: Preliminary Date Filed: January 26, 2000
Proxy Statement -------------------
Schedule 14A
----------------
-3-
<PAGE>
This Rule 13e-3 Transaction Statement (the "Statement") of VDI MultiMedia,
a California corporation ("VDI"), VDI MultiMedia, Inc., a Delaware corporation
and direct wholly owned subsidiary of VDI ("VDI Delaware"), VMM Merger Corp.,
Inc. a Delaware corporation ("Merger Sub"), and Bain Capital, Inc., a Delaware
corporation ("Bain Capital"), and Donald R. Stine and Robert C. Semmer, relates
to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of
December 24, 1999, between VDI, VDI Delaware and Merger Sub, pursuant to which
(a) VDI will merge with and into VDI Delaware with VDI Delaware as the surviving
corporation (the "Reorganization Merger"), and (b) Merger Sub will merge with
and into VDI Delaware, with VDI Delaware as the surviving corporation (the
"Acquisition Merger" and, together with the Reorganization Merger, the
"Mergers"). The Merger Agreement and the Mergers have already been approved by
the Boards of Directors and the stockholders of all the parties to the Merger
Agreement, other than the shareholders of VDI. The Statement is intended to
satisfy the reporting requirements of Section 13(e) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
This Statement is filed in connection with the filing by VDI of a
preliminary proxy statement (the "Proxy Statement") under Regulation 14A of the
Exchange Act relating to the Mergers. The information in the Proxy Statement,
including all appendices thereto, is hereby expressly incorporated herein by
reference in response to the items of Schedule 13E-3, except as otherwise set
forth below.
Item 3. Identity and Background of Filing Person.
(d) Tender Offer. Not applicable.
Item 4. Terms of the Transaction.
(a) Material Terms.
(1) Tender Offers. Not applicable.
Item 6. Purposes of the Transaction and Plans or Proposals.
(d) Subject Company Negotiations. Not Applicable.
Item 11. Interest in Securities of the Subject Company.
(b) Securities Transactions. None.
-4-
<PAGE>
Item 12. The Solicitation or Recommendation.
(a) Solicitation Recommendation. Not applicable.
(b) Reasons. Not applicable.
(c) Intent to Tender. Not applicable.
Item 13. Financial Statements.
(b) Pro Forma Information. Not applicable.
Item 16. Exhibits.
The following documents are filed as exhibits to this Statement:
Exhibit Number Exhibit
- -------------- -------
(a) Proxy Statement (incorporated herein by reference to the
Proxy Statement of VDI filed with the Securities and
Exchange Commission on January 26, 2000).
*(b)(1) Senior Secured Credit Facilities and Senior Subordinated
Facility Commitment Letter, dated December 23, 1999 by
and between Credit Suisse First Boston and Bain Capital,
Inc.
*(b)(2) Put Agreement, dated December 28, 1999 by and between
Sankaty High Yield Asset Partners, L.P. and Bain Capital,
Inc.
*(b)(3) Commitment Letter from Bain Capital Fund VI, L.P. to VMM
Merger Corp., dated December 24, 1999.
*(b)(4) Commitment Letter from Bain Capital Fund VI, L.P. to VMM
Merger Corp., dated December 30, 1999.
(c)(1) Fairness Opinion of Morgan Stanley & Co. Incorporated
(incorporated herein by reference to Appendix B to the
Proxy Statement).
(c)(2) Presentation of Morgan Stanley & Co. Incorporated to the
Board of Directors, dated December, 1999.
(d)(1) Agreement and Plan of Merger, dated as of December 24,
1999, among VDI, VDI Delaware and Merger Sub
(incorporated herein by reference to Appendix A to the
Proxy Statement).
* Filed previously
-5-
<PAGE>
*(d)(2) Shareholders Agreement, dated as of December 24, 1999, among
Merger Sub, R. Luke Stefanko and Julia Stefanko.
*(d)(3) Employment Agreement, dated as of December 24, 1999,
between Merger Corp. and Donald R. Stine.
(e) Not applicable.
(f) Summary of Appraisal Rights (incorporated herein by
reference to Appendix C to the Proxy Statement).
(g) None.
(h) Not Applicable
-6-
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
March 15, 2000 VDI MultiMedia
By: /s/ Donald R. Stine
--------------------------------
Name: Donald R. Stine
Title: President
VDI MultiMedia, Inc.
By: /s/ Donald R. Stine
--------------------------------
Name: Donald R. Stine
Title: President
VMM Merger Corp.
By: /s/ Joseph Pretlow
--------------------------------
Name: Joseph Pretlow
Title: President
Bain Capital, Inc.
By: /s/ Joseph Pretlow
--------------------------------
Its: Managing Director
/s/ Donald R. Stine
--------------------------------
Donald R. Stine
/s/ Robert C. Semmer
--------------------------------
Robert C. Semmer
<PAGE>
EXHIBIT INDEX
Exhibit Number Exhibit
- -------------- -------
(a) Proxy Statement (incorporated herein by reference to the
Proxy Statement of VDI filed with the Securities and
Exchange Commission on January 26, 2000).
*(b)(1) Senior Secured Credit Facilities and Senior Subordinated
Facility Commitment Letter, dated December 23, 1999 by and
between Credit Suisse First Boston and Bain Capital, Inc.
*(b)(2) Put Agreement, dated December 28, 1999 by and between
Sankaty High Yield Asset Partners, L.P. and Bain Capital,
Inc.
*(b)(3) Commitment Letter from Bain Capital Fund VI, L.P. to VMM
Merger Corp., dated December 24, 1999.
*(b)(4) Commitment Letter from Bain Capital Fund VI, L.P. to VMM
Merger Corp., dated December 30, 1999.
(c)(1) Fairness Opinion of Morgan Stanley & Co. Incorporated
(incorporated herein by reference to Appendix B to the Proxy
Statement).
(c)(2) Presentation of Morgan Stanley & Co. Incorporated to the
Board of Directors, dated December, 1999.
(d)(1) Agreement and Plan of Merger, dated as of December 24, 1999,
among VDI, VDI Delaware and Merger Sub (incorporated herein
by reference to Appendix A to the Proxy Statement).
*(d)(2) Shareholders Agreement, dated as of December 24, 1999, among
Merger Sub, R. Luke Stefanko and Julia Stefanko.
*(d)(3) Employment Agreement, dated as of December 24, 1999, between
Merger Corp. and Donald R. Stine.
(e) Not applicable.
(f) Summary of Appraisal Rights (incorporated herein by
reference to Appendix C to the Proxy Statement).
(g) None.
(h) Not applicable.
* Filed previously
-8-
<PAGE>
EXHIBIT (C)(2)
Project Hollywood
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Presentation to the Board of Directors
- --------------------------------------------------------------------------------
December, 1999
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Section 1 Transaction Overview
- --------------------------------------------------------------------------------
Section 2 Industry Overview
- --------------------------------------------------------------------------------
Section 3 Company Overview
- --------------------------------------------------------------------------------
Section 4 Public Market Performance
- --------------------------------------------------------------------------------
Section 5 Preliminary Valuation Overview
- --------------------------------------------------------------------------------
Tab A Summary
- --------------------------------------------------------------------------------
Tab B Comparable Company Trading Analysis
- --------------------------------------------------------------------------------
Tab C Precedent Transaction Analysis
- --------------------------------------------------------------------------------
Tab D Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Tab E Leverage Buyout Analysis
- --------------------------------------------------------------------------------
Appendix A Comparable Companies
- --------------------------------------------------------------------------------
Appendix B Precedent Transactions
- --------------------------------------------------------------------------------
Appendix C Weighted Average Cost of Capital
- --------------------------------------------------------------------------------
Appendix D Draft Fairness Opinion Letter
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- -------------------------------------------------------------------------------
Section 1
- -------------------------------------------------------------------------------
Transaction Overview
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Transaction Overview
- --------------------------------------------------------------------------------
Summary of Key Terms
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Transaction: Acquisition of VDI MultiMedia by Bain Capital
Consideration: $15.00/share in cash (82% premium to
unaffected)/(1)/
Management and possibly unaffiliated shareholder up
to 10-12% to rollover for recap purposes
Equity Value: $145.6MM
Aggregate Value: $174.9MM
Structure: Proxy merger; recap accounting expected (not a
condition)
Purchase Price Multiples: 1999E P/E 19.0x
2000E P/E 14.9x
AV/LTM EBITDA 9.8x
Financing: Senior Secured Term Loan (CSFB) $65MM
Senior Secured Revolving Facility (CSFB) $17.5MM
Senior Subordinated Facility (CSFB) $40MM
Equity (Bain Capital)
Equity (Rollover)
Closing: Anticipated February-March 2000
Reps and Warranties: No Survival
Standard for public company
Covenants: Conduct of business
Notes
1. Based on unaffected prices of $8.25 as of 7/23/99
2
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Transaction Overview
- --------------------------------------------------------------------------------
Summary of Key Terms (continued)
- --------------------------------------------------------------------------------
Conditions: No material adverse change
Financing "out" - limited to senior debt and senior
subordinated debt; relatively tight commitment letters
from CSFB (no due diligence out)
Hart-Scott-Rodino
Key Management
VDI shareholder approval - controlling shareholders
have entered into a voting agreement
No shop provisions: Precludes solicitation or response unless Board
believes "superior offer" has been received
Termination Provisions: Termination fee of $4.5 million (one-half payable
within 20 business days of termination and one-half
payable in the event of closing a "competing" proposal
or entering into a definitive agreement within a
certain time frame)
Expenses capped at $1.0 million (if termination within
45 days) or $1.5 million (if termination thereafter)
Other: No per-share adjustments for existing earn-out, VDI
expenses or amount of VDI debt
Continued indemnification, D&O insurance for former
directors
Non-compete from controlling shareholder; no rollover
of his shares
Employment agreements for key management
Non-compete from Donald Stine
MORGAN STANLEY DEAN WITTER
3
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Transaction Overview
- --------------------------------------------------------------------------------
Transaction Timeline
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
. July 26 VDI announced that it had hired MSDW to explore
strategic alternatives
. August - September 10 MSDW contacted over 50 potential buyers. 22
potential buyers signed a confidentiality
agreement and received an offering memorandum
. September 13 Six first-round bids were submitted; six potential
buyers were invited to meet management and
participate in due diligence (data room and site
visit)
. October 29 Bain Capital submitted a second-round bid of
approximately $14.00 per share
. November 3 - November 9 Bain Capital completed due diligence
. November 10 Bain Capital indicated a revised bid of $14.25 -
$14.50 per share
. November 11 MSDW, KS, Bain Capital and KE met to discuss
outstanding issues
. November 15 Don Stine attended a Bain Capital partner's
meeting in Boston; Bain Capital revised bid upward
to $15.00 per share and identified remaining deal
issues
. November 22 - November 23 MSDW, KS, Bain Capital and KE met to continue
discussing outstanding issues
. December 2 - December 3 MSDW, KS, Bain Capital and KE met to continue
discussing outstanding issues
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
4
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Transaction Overview
- --------------------------------------------------------------------------------
Auction Participants
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contacted OM Sent Preliminary Bid Final Bid
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Buyers: 37 Financial Buyers: 19 Financial Buyers: 6 Financial Buyers: 1
- ----------------------------------------------------------------------------------------------
Strategic Buyers: 21 Strategic Buyers: 3
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Total: 58 Total: 22 Total: 6 Total: 1
- ----------------------------------------------------------------------------------------------
</TABLE>
MORGAN STANLEY DEAN WITTER
5
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Transaction Overview
- --------------------------------------------------------------------------------
Offer History
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Price Per Share
$
- --------------------------------------------------------------------------------
[GRAPH OF OFFER HISTORY]
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER 6
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Section 2
- --------------------------------------------------------------------------------
Industry Overview
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Industry Overview
- --------------------------------------------------------------------------------
Market Overview
- --------------------------------------------------------------------------------
. VDI provides services to all market segments
- --------------------------------------------------------------------------------
Total Worldwide Post-Production Revenue by Market Segment
(Estimated $8Bn)
- --------------------------------------------------------------------------------
[CHART OF TOTAL WORLDWIDE POST-PRODUCTION REVENUE BY MARKET SEGMENT]
- --------------------------------------------------------------------------------
Source: MPAA, U.S. Dept. of Commerce, Radio Advertising Bureau, Television
Bureau of Advertising, Jupiter Communication and management estimates.
MORGAN STANLEY DEAN WITTER 8
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Industry Overview
- --------------------------------------------------------------------------------
Market Overview
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total US Post-Production Industry
(Estimated $4Bn)
- --------------------------------------------------------------------------------
[CHART OF TOTAL US POST-PRODUCTION INDUSTRY]
- --------------------------------------------------------------------------------
Source: Management estimates
- --------------------------------------------------------------------------------
Share of Domestic Outsourced Business
(Estimated $1.6Bn)
- --------------------------------------------------------------------------------
[CHART OF SHARE OF DOMESTIC OUTSOURCED BUSINESS]
- --------------------------------------------------------------------------------
Source: Company financial disclosures
9
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Industry Overview
- --------------------------------------------------------------------------------
Industry Consolidation Overview
- --------------------------------------------------------------------------------
. Content producers are increasingly consolidating their outsourcing to
companies such as VDI
. Customers have a strong preference for companies that meet all post-production
and distribution needs
. Small companies are increasingly unable to compete on a global scale and
cannot afford emerging technologies
- --------------------------------------------------------------------------------
Major Content ===========> Full Service
Producers ===========> Post-Production
Outsourcing
===========> Specialty
Post-Production
- --------------------------------------------------------------------------------
10
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Industry Overview
- --------------------------------------------------------------------------------
Competition Overview
- --------------------------------------------------------------------------------
[CHART OF COMPETITION OVERVIEW]
MORGAN STANLEY DEAN WITTER
11
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Industry Overview
- --------------------------------------------------------------------------------
Competition Overview
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Aggregate Value (market value plus net debt) LTM EBITDA Margin
($MM) %
- --------------------------------------------------------------------------------
[GRAPH OF COMPETITION OVERVIEW]
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
12
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Section 3
- --------------------------------------------------------------------------------
Company Overview
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Company Overview
- --------------------------------------------------------------------------------
Business Overview
- --------------------------------------------------------------------------------
. VDI provides asset management for the motion picture, television and
advertising industries
. VDI provides "one-stop" shopping for post-production services
- --------------------------------------------------------------------------------
---------------- -------------- --------------
| Motion Picture | | Television | | Ad Agencies/ |
| Studios | | Producers/ | | Corporations |
| | | Distributors | | |
---------------- -------------- --------------
| | |
| | |
\|/ \|/ \|/
------------------------------------------------------------------------------
| |
| --------- ----------- ------------- ----------- |
| | Editing | | Mastering | | Duplication | | Archiving | |
| --------- ----------- ------------- ----------- |
| |
| ----------------------- --------------- ------------------------- |
| | Physical Distribution | | [LOGO OF VDI] | | Electronic Distribution | |
| | | | VDI | | | |
| ----------------------- | MULTIMEDIA | ------------------------- |
| | --------------- | |
| | | |
- ---------------+------------------------------------------------+---------------
| |
| ---------------------|
| | |
\|/ \|/ \|/
-------------------- ----------------- -----------------
| Broadcast Stations | | Cable Providers | | Other End Users |
| | | | | |
-------------------- ----------------- -----------------
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
14
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Company Overview
- --------------------------------------------------------------------------------
Facility Overview
- --------------------------------------------------------------------------------
. Nine facilities nationwide
. Five major markets
- Los Angeles, New York,
Chicago, San Francisco,
Dallas
[MAP OF FACILITY OVERVIEW]
. Approximately 2MM original
content masters archived in
vaults
. Approximately 700 orders
and 10,000 clones processed
daily
MORGAN STANLEY DEAN WITTER
15
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Company Overview
- --------------------------------------------------------------------------------
Business Mix
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Revenue by Services
- --------------------------------------------------------------------------------
[CHART OF REVENUE BY SERVICES]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Gross Margin by Services
% Estimated Gross Margin
[GRAPH OF GROSS MARGIN BY SERVICES]
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
16
<PAGE>
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Project Hollywood
- --------------------------------------------------------------------------------
Company Overview
- --------------------------------------------------------------------------------
Customer Mix
- --------------------------------------------------------------------------------
- --------------------------------------------
Revenue by Customer Type
- --------------------------------------------
[CHART OF REVENUE BY CUSTOMER TYPE]
- --------------------------------------------
- --------------------------------------------
Major Studio Customers
- --------------------------------------------
. Disney
. Warner Brothers
. Sony*
. 20th Century Fox*
. Universal*
. MGM
. Paramount
- --------------------------------------------
* Indicates preferred vendor relationship
- --------------------------------------------
Major Advertising Customers
- --------------------------------------------
. Leo Burnett
. Ogilvy & Mather
. Saatchi & Saatchi
. TBWA/Chiat Day
. Young & Rubicam
- --------------------------------------------
MORGAN STANLEY DEAN WITTER
17
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Company Overview
- --------------------------------------------------------------------------------
Historical and Projected Financials
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Revenue Annual Growth
$MM %
- --------------------------------------------------------------------------------
[GRAPH OF REVENUE AND ANNUAL GROWTH]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Income Margin
$MM %
- --------------------------------------------------------------------------------
[GRAPH OF NET INCOME AND MARGIN]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EBITDA Margin
$MM %
- --------------------------------------------------------------------------------
[GRAPH OF EBITDA AND MARGIN]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EPS
$
- --------------------------------------------------------------------------------
[GRAPH OF EPS]
- --------------------------------------------------------------------------------
Notes
1. Projections provided by management. All figures exclude future acquisitions,
restructuring, merger and one-time charges, and extraordinary charges.
MORGAN STANLEY DEAN WITTER
18
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Section 4
- --------------------------------------------------------------------------------
Public Market Performance
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Public Market Performance
- --------------------------------------------------------------------------------
Stock Market View of VDI
- --------------------------------------------------------------------------------
. Positive reaction to recent financial performance
. Recovering from disappointing 1998 financial performance
. Integration problems related to 1998 acquisitions have delayed expected
synergies
. Changing technology may threaten existing duplication business
. Recent transactions significantly strengthen competitors
. Awaiting results from review of strategic alternatives
MORGAN STANLEY DEAN WITTER
20
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Public Market Performance
- --------------------------------------------------------------------------------
Stock Price and Volume Analysis Since IPO
February 1997 - Present
- --------------------------------------------------------------------------------
. Before missing its earnings expectations, VDI reached values close to
$20/share; however, during the past 52 weeks, the stock has traded below
$5/share
. An offer price of $15.00/share represents a 82% premium to the unaffected
stock price of $8.25 on 7/23/1999
- --------------------------------------------------------------------------------
Price Volume
$
- --------------------------------------------------------------------------------
[GRAPH OF PRICE AND VOLUME]
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
21
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Public Market Performance
- --------------------------------------------------------------------------------
Annotated Stock Price and Volume Analysis
January 1999 - Present
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Price Volume
$
- --------------------------------------------------------------------------------
[GRAPH OF PRICE AND VOLUME]
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
22
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Public Market Performance
- --------------------------------------------------------------------------------
Indexed Stock Price Performance Analysis
January 1999 - Present
- --------------------------------------------------------------------------------
. Four Media and Todd AO
have announced deals with
Liberty Media
- --------------------------------------------------------------------------------
Stock Price Performance
Indexed to 100
- --------------------------------------------------------------------------------
[GRAPH OF STOCK PRICE PERFORMANCE]
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
23
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Public Market Performance
- --------------------------------------------------------------------------------
Indexed Stock Price Performance Analysis
January 1999 - Present
- --------------------------------------------------------------------------------
. While significantly under-
performing the S&P 500
Index for the first half of
1999, VDI has regained much
of the lost ground in the
second half of the year
- --------------------------------------------------------------------------------
Stock Price Performance
Indexed to 100
- --------------------------------------------------------------------------------
[GRAPH OF STOCK PRICE PERFORMANCE]
- --------------------------------------------------------------------------------
Notes
1. Comparable post-production companies include Four Media, Todd AO, Applied
Graphics and DG Systems.
MORGAN STANLEY DEAN WITTER
24
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Public Market Performance
- --------------------------------------------------------------------------------
EPS Results vs. Analyst Expectations
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EPS
- --------------------------------------------------------------------------------
[GRAPH OF EPS]
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
25
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Public Market Performance
- --------------------------------------------------------------------------------
Forward P/E Analysis
April 1997 - Present
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
One Year Forward P/E
x
- --------------------------------------------------------------------------------
[GRAPH OF ONE YEAR FORWARD P/E]
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
26
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Public Market Performance
- --------------------------------------------------------------------------------
Summary of Analyst Commentary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EPS
--------------------------------
1999 2000
Firm Date Rating $ $
- --------------------------------------------------------------------------------
I/B/E/S 12/21/99 - 0.79 1.01
- --------------------------------------------------------------------------------
Prudential 11/1/99 Accumulate 0.79 1.01
- --------------------------------------------------------------------------------
Oppeheimer 5/5/99 Strong Buy 0.75 0.92
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Summary of Commentary from 11/1/99 Prudential Report
- --------------------------------------------------------------------------------
. We have remained on the sidelines with these shares due in part to low
visibility and lack of consistency. Acquisition integration issues have been a
chronic issue at VDI
. If VDI can produce consistency and hit the next couple of quarters, we expect
these share to respond. At this point, however, we believe it's premature to
extrapolate two quarters of performance into our forecast especially given the
current outlook of 3Q.
. The Company's lack of consistency and lower visibility has been an issue.
Another quarter of demonstrated performance would go a long way to ease our
concerns about the sustainability of VDI's business and help indicate that the
Company is back on track.
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
27
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Public Market Performance
- --------------------------------------------------------------------------------
Price/Volume Analysis
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Price
$
- --------------------------------------------------------------------------------
[GRAPH OF PRICE/VOLUME ANALYSIS]
- --------------------------------------------------------------------------------
Notes
1. 1999 YTD through December 21, 1999
MORGAN STANLEY DEAN WITTER
28
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Public Market Performance
- --------------------------------------------------------------------------------
Overview of Shareholders
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Value
---------------------------------------
Institution/Individual Shares Unaffected Price (1) Offer Price (2) % of Total Shares
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Luke Stefanko 5,311,400 $43,819,050 $79,671,000 57.7%
Donald Stine 49,044 404,613 735,660 0.5%
Clarke Brewer 8,000 66,000 120,000 0.1%
Edward Philip 5,000 41,250 75,000 0.1%
Steven Schoch 5,000 41,250 75,000 0.1%
Robert Feureman 4,000 33,000 60,000 0.0%
Thomas Ennis 2,500 20,625 37,500 0.0%
Robert Semmer 1,750 14,438 26,250 0.0%
Insiders 5,386,694 $44,440,226 $80,800,410 58.5%
- ------------------------------------------------------------------------------------------------------------------------
MFS Investment Management 711,333 5,868,495 10,669,991 7.7%
Brandywine Asset Management, Inc. 134,300 1,107,975 2,014,500 1.5%
First Capital Group 130,800 1,079,100 1,962,000 1.4%
Dimensional Fund Advisors, Inc. 98,500 812,625 1,477,500 1.1%
New Jersey Division of Investment 80,000 660,000 1,200,000 0.9%
Barclays Global Investors, N.A. 72,844 600,963 1,092,660 0.8%
CIBC World Markets Corp. 65,515 540,499 982,725 0.7%
Fuller & Thaler Asset Management, Inc. 19,600 161,700 294,000 0.2%
Mellon Private Asset Management 13,900 114,675 208,500 0.2%
Weiss, Peck & Greer, L.L.C. 9,500 78,375 142,500 0.1%
Denver Investment Advisors LLC 4,500 37,125 67,500 0.0%
Lord, Abbett & Company 3,500 28,875 52,500 0.0%
Total Institutional 1,344,292 $11,090,407 $20,164,376 14.6%
- ------------------------------------------------------------------------------------------------------------------------
Public 2,472,408 $20,397,368 $37,086,125 26.9%
- ------------------------------------------------------------------------------------------------------------------------
Total 9,203,394 $75,928,001 $138,050,910 100.0%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes
1. Based on closing price of $8.25 as of 7/23/99, the day before the strategic
alternatives announcement.
2. Based on $15.00 offer price.
MORGAN STANLEY DEAN WITTER
29
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Section 5
- --------------------------------------------------------------------------------
Preliminary Valuation Overview
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Preliminary Valuation Overview
- --------------------------------------------------------------------------------
Preliminary Valuation Summary
- --------------------------------------------------------------------------------
Valuation Assumptions:
. Comparable Company Analysis:
- 1999E P/E: 10x - 14x
- 2000E P/E: 8x - 12x
- LTM EBITDA: 6x - 8x
. Precedent Transaction Analysis:
- One year forward P/E: 16x - 20x
- LTM EBITDA: 8.6x - 9.1x
. Discounted Cash Flow Analysis:
- Discount Rates: 11.5% - 13.5%
- EBITDA Exit Multiple: 5.5x - 7.5x
. Leverage Buyout Analysis:
- Required rate of return of 25% - 30%
- --------------------------------------------------------------------------------
Price Per Share
$
- --------------------------------------------------------------------------------
[GRAPH OF PRELIMINARY VALUATION SUMMARY]
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
31
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Preliminary Valuation Overview
- --------------------------------------------------------------------------------
Preliminary Valuation Summary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Public Valuation Share Value with
Metric Range Share Value 30% Control Premium
Valuation ------------- ---------------- -------------------
Methodology Metric Low High Low High Low High
- ----------- ------ --- ---- ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------
Comparable Company Analysis
- ------------------------------
1999E P/E $0.79 10.0 x 14.0 x $7.90 $11.06 $10.27 $14.38
2000E P/E 1.01 8.0 12.0 8.08 12.12 10.50 15.76
LTM EBITDA 17.9 6.0 8.0 8.49 12.38 11.03 16.09
--------------------------------------------------
Mean $8.16 $11.85 $10.60 $15.41
Median 8.08 12.12 10.50 15.76
--------------------------------------------------
- -----------------------------------------------------------------------------------------------
- ------------------------------
Precedent Transaction Analysis
- ------------------------------
One Year Forward P/E $0.99 16.0 x 20.0 x $15.87 $19.83
LTM EBITDA 17.9 8.6 9.1 13.54 14.52
--------------------------
Mean $14.70 $17.17
--------------------------
- -----------------------------------------------------------------------------------------------
- ------------------------------
Discounted Cash Flow Analysis ------ ------ -------
(without synergies) Discount Rate 11.5% 12.5% 13.5%
- ------------------------------ ------ ------ -------
Terminal 5.5 x $11.90 $11.01 $10.19
EBITDA 6.5 13.35 12.34 11.42
Multiple 7.5 14.79 13.68 12.65
--------------------------
Range $10.19 $14.79
--------------------------
- -----------------------------------------------------------------------------------------------
- ------------------------------
LBO Analysis IRR
- ------------------------------ --------------------
25% 30%
--------------------------
Range $15.35 $11.85
--------------------------
</TABLE>
MORGAN STANLEY DEAN WITTER
32
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Preliminary Valuation Overview
- --------------------------------------------------------------------------------
Valuation Matrix
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Price/Earnings Aggregate Value/EBITDA
Premium to Premium Equity Aggregate -------------------- ----------------------------------
Price Unaffected(1) to Current(1) Value(2) Value(3) 1999E(4) 2000(5) LTM(5) 1999E(6) PF 1999E(7)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$8.25 $12.38 $0.79 $1.01 $17.9 $22.0 $26.3
$8.00 -3.0% -35.4% $75.5 $104.8 10.1 x 7.9 x 5.9 x 4.8 x 4.0 x
8.25 0.0% -33.3% 78.0 107.3 10.4 8.2 6.0 4.9 4.1
8.50 3.0% -31.3% 80.5 109.8 10.8 8.4 6.1 5.0 4.2
9.00 9.1% -27.3% 85.5 114.8 11.4 8.9 6.4 5.2 4.4
9.50 15.2% -23.2% 90.5 119.8 12.0 9.4 6.7 5.5 4.6
10.00 21.2% -19.2% 95.5 124.8 12.7 9.9 7.0 5.7 4.7
10.50 27.3% -15.2% 100.5 129.8 13.3 10.4 7.3 5.9 4.9
11.00 33.3% -11.1% 105.5 134.8 13.9 10.9 7.5 6.1 5.1
11.50 39.4% -7.1% 110.6 139.9 14.6 11.4 7.8 6.4 5.3
12.00 45.5% -3.0% 115.6 144.9 15.2 11.9 8.1 6.6 5.5
12.50 51.5% 1.0% 120.6 149.9 15.8 12.4 8.4 6.8 5.7
13.00 57.6% 5.1% 125.6 154.9 16.5 12.9 8.7 7.0 5.9
13.50 63.6% 9.1% 130.6 159.9 17.1 13.4 8.9 7.3 6.1
14.00 69.7% 13.1% 135.6 164.9 17.7 13.9 9.2 7.5 6.3
14.50 75.8% 17.2% 140.6 169.9 18.4 14.4 9.5 7.7 6.5
15.00 81.8% 21.2% 145.6 174.9 19.0 14.9 9.8 8.0 6.6
15.50 87.9% 25.3% 150.6 179.9 19.6 15.3 10.1 8.2 6.8
16.00 93.9% 29.3% 155.6 184.9 20.3 15.8 10.3 8.4 7.0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes
1. Based on unaffected price of $8.25 as of 7/23/99, the closing price the day
prior to the strategic alternatives announcement; current price as of
12/21/99.
2. Based on 9.2MM shares and 0.8MM options with an average exercise price of
$5.72.
3. Based on net debt of $29.3MM.
4. Based on I/B/E/S median estimates.
5. LTM figures are unaudited as of 9/30/99.
6. Based on actual results for the first three quarters of 1999 and management
estimates for the fourth quarter.
7. Based on pro forma adjustments of $4.5MM.
MORGAN STANLEY DEAN WITTER
33
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Preliminary Valuation Overview
- --------------------------------------------------------------------------------
Comparable Company Trading Analysis
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1999E P/E Mean = 13.3x
x
- --------------------------------------------------------------------------------
[GRAPH OF 1999E P/E]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2000E P/E Mean = 10.6x
x
- --------------------------------------------------------------------------------
[GRAPH OF 2000E P/E]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LTM EBITDA Mean = 7.4x
x
- --------------------------------------------------------------------------------
[GRAPH OF LTM EBITDA]
- --------------------------------------------------------------------------------
Notes
1. Based on unaffected price of $8.25 as of 7/23/99.
2. Based on current price.
3. Based on I/B/E/S median EPS estimates. LTM figures as of most recent public
financial statements.
4. Stock prices, EPS estimates and LTM statistic for Four Media and Todd AO are
based on their respective unaffected price dates (one month prior to
acquisition announcements).
MORGAN STANLEY DEAN WITTER
34
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Preliminary Valuation Overview
- --------------------------------------------------------------------------------
Multiples Paid in Selected Precedent Transactions
- --------------------------------------------------------------------------------
- --------------------------------------------------
Aggregate Value/LTM EBITDA
x
- --------------------------------------------------
[GRAPH OF AGGREGATE VALUE/LTM EBITDA]
- --------------------------------------------------
- --------------------------------------------------
One Year Forward P/E
x
- --------------------------------------------------
[GRAPH OF ONE YEAR FORWARD P/E]
- --------------------------------------------------
- --------------------------------------------------
Aggregate Value/Forward EBITDA
x
- --------------------------------------------------
[GRAPH OF AGGREGATE VALUE/FORWARD EBITDA]
- --------------------------------------------------
- --------------------------------------------------
Premium to Unaffected (Price 30 days prior to
announcement) %
- --------------------------------------------------
[GRAPH OF PREMIUM TO UNAFFECTED]
- --------------------------------------------------
MORGAN STANLEY DEAN WITTER
35
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Preliminary Valuation Overview
- --------------------------------------------------------------------------------
Discounted Cash Flow Model Assumptions
- --------------------------------------------------------------------------------
. Revenue growth of 10% in 2000, 9.5% in 2001, 9% in 2002, and 8.5% in 2003
. EBITDA margins expand from 25.2% in 1999 to 25.9% in 2000, 26.5% in 2001 and
2002 and level off around 26% thereafter
. SG&A as a % of revenues held constant at 21%
. Capital expenditures of $9.5MM in 2000, $11.0MM in 2001 and $6.0MM thereafter
. Discount rates of 11.5% to 13.5%
. Terminal EBITDA multiples of 5.5x to 7.5x
. $4.3MM of annual pre-tax synergies
MORGAN STANLEY DEAN WITTER
36
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Preliminary Valuation Overview
- --------------------------------------------------------------------------------
Discount Cash Flow Analysis
Valuation as of 11/30/99
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------- ------------------------- -------------------------
EBITDA Multiple (x) 5.5 6.5 7.5
------------------------- ------------------------- -------------------------
Discount Rate 11.5% 12.5% 13.5% 11.5% 12.5% 13.5% 11.5% 12.5% 13.5%
------- ------- ------- ------- ------- ------- ------- ------- -------
Present Value of
Cash Flows - Year 1 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3
Cash Flows - Years 2-10 64.0 61.3 58.8 64.0 61.3 58.8 64.0 61.3 58.8
Terminus 79.6 73.4 67.7 94.0 86.7 80.0 108.5 100.0 92.3
------- ------- ------- ------- ------- ------- ------- ------- -------
Aggregate Value $143.9 $135.0 $126.8 $158.4 $148.3 $139.1 $172.8 $161.7 $151.4
====== ====== ====== ====== ====== ====== ====== ====== ======
Cash $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5
Total Debt (29.8) (29.8) (29.8) (29.8) (29.8) (29.8) (29.8) (29.8) (29.8)
------- ------- ------- ------- ------- ------- ------- ------- -------
Equity Value $114.6 $105.7 $97.5 $129.1 $119.0 $109.8 $143.5 $132.4 $122.1
====== ====== ====== ====== ====== ====== ====== ====== ======
Price Per Share (1) $11.90 $11.01 $10.19 $13.35 $12.34 $11.42 $14.79 $13.68 $12.65
Premium/(Discount) to Unaffected (2) 44.3% 33.5% 23.6% 61.8% 49.6% 38.5% 79.3% 65.8% 53.3%
Terminal Value Analysis
% Value in Terminus 55.3% 54.4% 53.4% 59.4% 58.5% 57.5% 62.8% 61.9% 61.0%
% Value in Cash Flows 44.7% 45.6% 46.6% 40.6% 41.5% 42.5% 37.2% 38.1% 39.0%
Implied Terminal Multiples
Perpetual Growth Rate 2.3% 3.2% 4.1% 3.6% 4.5% 5.4% 4.6% 5.5% 6.4%
Sales Multiple 1.3x 1.3x 1.3x 1.6x 1.6x 1.6x 1.8x 1.8x 1.8x
EBITDA Multiple 5.5 5.5 5.5 6.5 6.5 6.5 7.5 7.5 7.5
EBIT Multiple 7.0 7.0 7.0 8.3 8.3 8.3 9.6 9.6 9.6
Net Income Multiple 10.5 10.5 10.5 12.4 12.4 12.4 14.3 14.3 14.3
------------------------- ------------------------- -------------------------
</TABLE>
Notes
1. Based on 9.2MM common shares outstanding on 05/12/99 and .8MM options at an
average exercise price of $5.72.
2. Based on closing share price of $8.25 as of 07/23/99.
MORGAN STANLEY DEAN WITTER
37
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Preliminary Valuation Overview
- --------------------------------------------------------------------------------
Discount Cash Flow Analysis (With Synergies)
Valuation as of 11/30/99
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------- ------------------------- ---------------------------
EBITDA Multiple (x) 5.5 6.5 7.5
-------------------------- ------------------------- ---------------------------
Discount Rate 11.5% 12.5% 13.5% 11.5% 12.5% 13.5% 11.5% 12.5% 13.5%
------- -------- ------- ------- ------- ------- ------- -------- --------
Present Value of
Cash Flows - Year 1 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5
Cash Flows - Years 2-10 78.4 75.2 72.2 78.4 75.2 72.2 78.4 75.2 72.2
Terminus 88.4 81.5 75.2 104.4 96.3 88.9 120.5 111.1 102.5
------- -------- ------- ------- ------- ------- ------- -------- --------
Aggregate Value $167.3 $157.2 $147.9 $183.4 $172.1 $161.6 $199.4 $186.9 $175.3
======= ======== ======= ======= ======= ======= ======= ======== ========
Cash $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5
Total Debt (29.8) (29.8) (29.8) (29.8) (29.8) (29.8) (29.8) (29.8) (29.8)
------- -------- ------- ------- ------- ------- ------- -------- --------
Equity Value $138.0 $127.9 $118.6 $154.1 $142.8 $132.3 $170.1 $157.6 $146.0
======= ======== ======= ======= ======= ======= ======= ======== ========
Price Per Share (1) $14.24 $13.23 $12.31 $15.84 $14.71 $13.67 $17.45 $16.19 $15.04
Premium/(Discount) to Unaffected (2) 72.6% 60.4% 49.2% 92.0% 78.3% 65.7% 111.5% 96.3% 82.3%
Terminal Value Analysis
% Value in Terminus 52.8% 51.8% 50.8% 56.9% 56.0% 55.0% 60.4% 59.5% 58.5%
% Value in Cash Flows 47.2% 48.2% 49.2% 43.1% 44.0% 45.0% 39.6% 40.5% 41.5%
Implied Terminal Multiples
Perpetual Growth Rate 2.1 % 3.0 % 3.8 % 3.4 % 4.3 % 5.2 % 4.4 % 5.3 % 6.3 %
Sales Multiple 1.5 x 1.5 x 1.5 x 1.7 x 1.7 x 1.7 x 2.0 x 2.0 x 2.0 x
EBITDA Multiple 5.5 5.5 5.5 6.5 6.5 6.5 7.5 7.5 7.5
EBIT Multiple 6.8 6.8 6.8 8.1 8.1 8.1 9.3 9.3 9.3
Net Income Multiple 10.0 10.0 10.0 11.8 11.8 11.8 13.6 13.6 13.6
-------------------------- ------------------------- ---------------------------
</TABLE>
Notes
1. Based on 9.2MM common shares outstanding on 05/12/99 and .8MM options at an
average exercise price of $5.72.
2. Based on closing share price of $8.25 as of 07/23/99.
MORGAN STANLEY DEAN WITTER
38
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Preliminary Valuation Overview
- --------------------------------------------------------------------------------
LBO Analysis (with synergies)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Consideration
- --------------------------------------------------------------------------------
Unaffected Price (As of 07/23/99) $8.25
Premium Paid 43.6%
Offer Price $11.85
-------
Total Shares Out (9.2+0.8)(MM) 10.0
-------
Purchase of Equity $118.7
=======
Opt. Proc. (Ex. Price=$5.72) (4.7)
Adjusted Equity Value 114.1
Net Debt 29.3
-------
Aggregate Value $143.4
=======
- --------------------------------------------------------------------------------
Transaction Summary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sources Uses
- ------------------------------------------ -------------------------------------
Sources Amount % Rate Uses Amount %
- ----------- ------ ------ ------ ------------------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Senior Debt 73.7 47.4% 9.50% Purchase of Equity $118.7 76.4%
Sub. Debt 24.6 15.8% 13.00% Option Proceeds (4.7) -3.0%
Common Eq. 57.1 36.8% Refinancing Debt 29.8 19.2%
------ ------ Advisory Fees 10.0 6.5%
Total $155.4 100.0% Financing Fees 1.5 0.9%
====== ====== ------ ------
- ------------------------------------------- Total $155.4 100.0%
Valuation ====== ======
- -------------------------------------------
AV/LTM EBITDA 8.0 X
</TABLE>
- --------------------------------------------------------------------------------
Pro Forma Financial Results and Credit Statistics
- --------------------------------------------------------------------------------
Paydown PF LTM PF 1999 2000 2001 2002
--------- ------ ------- ----- ----- -----
Total Debt 9.6 Yrs $98.2 $98.2 $98.1 $96.5 $94.3
Senior Debt 8.4 Yrs 73.7 73.7 73.5 71.9 69.7
Sub. Debt 9.6 Yrs 24.6 24.6 24.6 24.6 24.6
---------
EBITDA $17.9 $24.6 $27.2 $30.0 $31.8
Cash Interest Expense 10.2 10.2 10.2 10.1 9.9
Total Interest Expense 10.2 10.2 10.2 9.9 9.4
Total Debt/EBITDA 5.5 x 4.0 x 3.6 x 3.2 x 3.0 x
Senior Debt/EBITDA 4.1 3.0 2.7 2.4 2.2
EBITDA/Cash Interest 1.8 2.4 2.7 3.0 3.2
(EBITDA-CapEx)/Cash Interest 1.0 1.9 1.7 1.9 2.6
(EBITDA-CapEx-WC-Taxes)/Int. 0.3 1.0 1.2 1.2 1.2
- --------------------------------------------------------------------------------
IRR Analysis (Exit in 5 Years)
- --------------------------------------------------------------------------------
Trailing
EBITDA Equity Return to
Multiple Value Sponsor
-------- ------ ---------
7.0 x $176.4 25.3%
7.5 194.3 27.7%
8.0 212.2 30.0%
------------------------------------------
8.5 230.2 32.1%
------------------------------------------
9.0 248.1 34.1%
MORGAN STANLEY DEAN WITTER
39
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Preliminary Valuation Overview
- --------------------------------------------------------------------------------
LBO Analysis (with synergies)
- --------------------------------------------------------------------------------
- -------------------------------------------
Consideration
- -------------------------------------------
<TABLE>
<S> <C>
Unaffected Price (As of 07/23/99) $8.25
Premium Paid 86.1%
Offer Price $15.35
--------
Total Shares Out (9.2+0.8) (MM) 10.0
--------
Purchase of Equity $153.8
========
Opt. Proc. (Ex. Price=$5,72) (4.7)
Adjusted Equity Value 149.2
Net Debt 29.3
--------
Aggregate Value $178.5
========
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------
Transaction Summary
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sources Amount % Rate Uses Amount %
- ------------ -------- --------- ------- ------------------- -------- --------
Senior Debt 73.7 38.7% 9.50% Purchase of Equity $153.8 80.8%
Sub. Debt 24.6 12.9% 13.00% Option Proceeds (4.7) -2.5%
Common Eq. 92.2 48.4 Refinancing Debt 29.8 15.7%
-------- --------- Advisory Fees 10.0 5.3%
Total $190.5 100.0% Financing Fees 1.5 0.8%
======== ========= -------- --------
- -------------------------------------------------- Total $190.5 100.0%
Valuation ======== ========
- --------------------------------------------------
AV/LTM EBITDA 10.0x
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------
Pro Forma Financial Results and Credit Statistics
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paydown PF LTM PF 1999 2000 2001 2002
----------- -------------- -------------- ----------- ----------- -----------
Total Debt 9.7 Yrs $98.2 $98.2 $98.1 $96.5 $94.3
-----------
Senior Debt 8.4 Yrs 73.7 73.7 73.5 71.9 69.7
-----------
Sub. Debt 9.7 Yrs 24.6 24.6 24.6 24.6 24.6
-----------
EBITDA $17.9 $24.6 $27.2 $30.0 $31.8
Cash Interest Expense 10.2 10.2 10.2 10.1 9.9
Total Interest Expense 10.2 10.2 10.2 9.9 9.4
Total Debt/EBITDA 5.5x 4.0x 3.6x 3.2x 3.0x
Senior Debt/EBITDA 4.1 3.0 2.7 2.4 2.2
EBITDA/Cash Interest 1.8 2.4 2.7 3.0 3.2
(EBITDA-CapEx)/Cash Interest 1.0 1.9 1.7 1.9 2.6
(EBITDA-CapEx-WC-Taxes)/Int. 0.3 1.0 1.2 1.2 1.8
</TABLE>
<TABLE>
- --------------------------------------------------
IRR Analysis (Exit in 5 Years)
- --------------------------------------------------
<S> <C> <C>
Trailing
EBITDA Equity Return to
Multiple Value Sponsor
- ----------------- ------------ --------------
9.0x $245.9 21.7%
9.5 263.8 23.4%
- --------------------------------------------------
10.0 281.7 25.0%
- --------------------------------------------------
10.5 299.5 26.6%
11.0 317.4 28.0%
</TABLE>
MORGAN STANLEY DEAN WITTER
40
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Appendix A
- --------------------------------------------------------------------------------
Comparable Companies
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Comparable Companies
- --------------------------------------------------------------------------------
Comparable Company Analysis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price/Earnings(2) Aggregate Value(3)/LTM
Equity Aggregate ------------------ -------------------------------
Company Price(1) Value Value(3) 1999 2000 Revenues EBITDA EBIT
------- -------- ------ --------- ---- ---- -------- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VDI MultiMedia $12.38 $113.9 $143.7 15.7 x 12.3 x 1.9 x 8.0 x 11.8 x
Four Media Company 5.00 98.5 272.9 10.1 10.7 1.4 5.9 14.7
TODD-AO Corp. 11.00 106.6 148.3 13.8 11.7 1.3 7.3 18.5
Applied Graphics 9.28 208.6 572.8 16.0 9.3 1.1 8.9 16.9
DG Systems 5.91 157.3 165.0 NM NM 3.7 NM NM
---------------------------------------------------------------------------
Median(4) 13.8 x 10.7 x 1.3 x 7.3 x 16.9 x
Mean(4) 13.3 10.6 1.2 7.4 16.7
High(4) 16.0 x 11.7 x 1.4 x 8.9 x 18.5 x
Low(4) 10.1 9.3 1.1 5.9 14.7
---------------------------------------------------------------------------
</TABLE>
Notes
1. Stock prices as of 12/21/99; Four Media stock price and estimates as of
10/01/99; Todd AO stock price and estimates as of 06/30/99.
2. Aggregate value defined as market equity plus net debt.
3. Based on I/B/E/S median EPS estimates.
4. Median, mean, high and low statistics excludes DG Systems.
MORGAN STANLEY DEAN WITTER
42
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Appendix B
- --------------------------------------------------------------------------------
Precedent Transactions
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Precedent Transactions
- --------------------------------------------------------------------------------
Precedent Transaction Analysis
- --------------------------------------------------------------------------------
<TABLE>
Forward EPS
Equity Aggregate ---------------- Premium to
Announced Target/Acquiror Value Value LTM EBITDA 1999E EBITDA 1 Year 2 Year Unaffected
- --------- --------------- ------ --------- ---------- ------------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/19/1999 Four Media/Warburg Pincus $157.5 $360.1 8.6 x NA x 11.4 x 9.5 x 16.4%
7/30/1999 Todd AO/Liberty Media $143.5 $185.1 9.1 NA 18.5 15.7 41.9%
11/1/1999 Four Media/Liberty Media $246.6 $421.0 9.1 8.1 25.2 26.7 150.4%
</TABLE>
MORGAN STANLEY DEAN WITTER
44
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Appendix C
- --------------------------------------------------------------------------------
Weighted Average Cost of Capital
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
<PAGE>
- --------------------
Project Hollywood
- --------------------------------------------------------------------------------
Weighted Average Cost of Capital
- --------------------------------------------------------------------------------
WACC
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Predicted Unlevered
Equity Total Debt/ Total Debt/ Preferred/ (Asset)
Company Beta(1) Market Value(2) Market Cap(2) Market Value(2) Beta
- ------------------------- --------- --------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
TODD-AO Corp. 0.837 27.2% 21.4% 0.0% 0.72
Four Media Company 1.008 74.0% 42.5% 0.0% 0.70
Video Services Corporation 0.626 117.8% 54.1% 0.0% 0.37
VDI Media 1.124 25.2% 20.1% 0.0% 0.98
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Cost of Capital
---------------------------------------------------------------
Debt
Total Debt/ Total Preferred/ Relevered ---------------------------- Weighted
Market Value Market Value Beta (pre-tax) (after-tax)(3) Preferred Equity Average
- ------------ ---------------- --------- --------- -------------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
10.0% 0.0% 1.04 7.0% 4.1% 8.0% 13.9% 13.0%
15.0% 0.0% 1.07 7.0% 4.1% 8.0% 14.1% 12.8%
20.0% 0.0% 1.09 7.0% 4.1% 8.1% 14.3% 12.6%
25.0% 0.0% 1.12 7.0% 4.1% 8.1% 14.5% 12.4%
30.0% 0.0% 1.15 7.0% 4.1% 8.1% 14.7% 12.3%
35.0% 0.0% 1.18 7.0% 4.1% 8.1% 14.9% 12.1%
40.0% 0.0% 1.21 7.0% 4.1% 8.2% 15.2% 12.0%
45.0% 0.0% 1.24 7.0% 4.1% 8.2% 15.4% 11.9%
50.0% 0.0% 1.27 7.0% 4.1% 8.2% 15.6% 11.8%
55.0% 0.0% 1.30 7.0% 4.1% 8.2% 15.8% 11.7%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes
1. Source: Barra, U.S. Equity Betas as of 11/11/99.
2. Based on closing prices on 11/11/99.
3. Based on after-tax cost of debt assuming marginal tax rate of 41.0%.
4. Risk free rate based on current yield on a 10 year government bond as of
11/11/99.
MORGAN STANLEY DEAN WITTER
46
<PAGE>
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Project Hollywood
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Appendix D
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Draft Fairness Opinion Letter
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MORGAN STANLEY DEAN WITTER
<PAGE>
December 24, 1999
Board of Directors
VDI MultiMedia
7083 Hollywood Boulevard
Hollywood, California 90028
Members of the Board:
We understand that VDI MultiMedia (the "Company"), VDI MultiMedia, Inc., a
wholly owned subsidiary of the Company ("Company Sub"), and VMM Merger Corp.
("Merger Sub"), a wholly owned subsidiary of Bain Capital, Inc. ("Buyer"),
propose to enter into an Agreement and Plan of Merger, dated December 24, 1999
(the "Merger Agreement"), which provides, among other things, for the merger of
the Company into Company Sub, followed by the merger of Merger Sub with and into
Company Sub (together, the "Mergers"). Pursuant to the Mergers, the Company will
become a subsidiary of Buyer and each outstanding share of common stock, no par
value per share (the "Common Stock"), of the Company prior to the Mergers, other
than shares held in treasury or held by Merger Sub or any affiliate of Merger
Sub or as to which dissenters' rights have been perfected, will be converted
into the right to receive $15.00 per share in cash. We also note that shares of
the Common Stock held by certain holders (the "Rollover Shareholders") will be
exchanged for shares of the Surviving Corporation in the Mergers. The terms and
conditions of the Mergers are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be received in
the Mergers by the holders of shares of Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders (other than the
Rollover Shareholders).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) reviewed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
<PAGE>
(v) reviewed the reported prices and trading activity for the Common
Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with those of certain other
comparable publicly traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among representatives
of the Company, Merger Sub, Buyer and their financial and legal
advisors;
(ix) reviewed the execution form of the Merger Agreement and certain
related documents;
(x) reviewed the commitment letters provided to Buyer by Credit Suisse
First Boston; and
(xi) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company. In
addition, we have assumed that the Mergers will be consummated in accordance
with the terms set forth in the Merger Agreement. We have not made any
independent valuation or appraisal of the assets or liabilities of the Company,
nor have we been furnished with any such appraisals. Our opinion is necessarily
based on financial, economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to the Company in connection with this
transaction and will receive a fee for our services. In the past, Morgan Stanley
& Co. Incorporated and its affiliates have provided financial advisory and
financing services for Buyer and its affiliates and have received fees for the
rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this letter may be included in its entirety
in any filing with the Securities and Exchange Commission in connection with the
Mergers.
<PAGE>
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received in the Mergers by the holders of
shares of Common Stock pursuant to the Merger Agreement is fair from a financial
point of view to such holders (other than the Rollover Shareholders).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By:
-----------------------------
Neil B. Morganbesser
Principal
