<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM --------- TO ---------
</TABLE>
COMMISSION FILE NUMBER 000-21917
------------------------
VDI MULTIMEDIA
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 95-4272619
(State of or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7083 HOLLYWOOD BOULEVARD, HOLLYWOOD, 90028
CALIFORNIA (Zip Code)
(Address of principal executive
offices)
</TABLE>
Registrant's telephone number, including area code (323) 957-7990
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, no par value.
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately $54,065,214 based upon the closing price of such
stock on March 29, 2000. As of March 29, 2000, there were 9,235,995 shares of
Common Stock outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
Directors and Executive Officers of the Company as of March 29, 2000.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE POSITION
- ---- -------- -------------- -----------------------------------------------
<S> <C> <C> <C>
R. Luke Stefanko....... 39 1990 Chairman of the Board, Chief Executive Officer
Donald R. Stine*....... 38 1996 President, Secretary and Director
Thomas J. Ennis........ 41 1997 Director, Vice President of Sales
Fred S. Teng*+......... 45 1999 Director
Robert S. Feuerman*+... 35 1999 Director
Clarke W. Brewer....... 32 -- Chief Financial Officer
Robert C. Semmer....... 39 -- Senior Vice President of Operations
</TABLE>
- ------------------------
* Member of the Audit Committee
+ Member of the Compensation Committee
R. LUKE STEFANKO has been Chief Executive Officer and a Director since he
co-founded the Company in 1990. Mr. Stefanko was elected to the newly-created
position of Chairman of the Board in May 1996, and was President of the Company
from April 1996 to April 1999. Mr. Stefanko has more than 18 years of experience
in the videotape duplication and distribution industry, including serving as a
Director and Vice President/Operations of A.M.E., Inc. ("AME"), a video
duplication company, from 1979 to January 4, 1990. Mr. Stefanko is Mr. Stine's
brother-in-law.
DONALD R. STINE is the President and Secretary of VDI. From 1994 to 1999, he
was VDI's Chief Financial Officer; Mr. Stine became a director in May 1996.
Mr. Stine was a Director of Finance for The Walt Disney Company from 1989 to
1994. Mr. Stine is a director of Sight Effects, Inc., a special effects and
computer animation company based in Santa Monica, California. Mr. Stine is a
general partner and managing director of Cahill Venture Capital, LLC, a venture
capital fund company and is chairman of the board of directors of Industry
Aspect, LLC, an internet logistics software company based in San Francisco,
California.
THOMAS J. ENNIS joined the Company as a consultant in August 1995 and has
been Vice President of Sales and Marketing since March 1996 and a Director since
May 1996. Prior to joining the Company, Mr. Ennis served as Vice President of
Sales and Infomercial Services at Starcom Television Services from 1990 to 1995.
FRED S. TENG is President & CEO of Noble Communications Group, Inc., an
internet applications service provider, specializing in streaming Asian language
audio and video content. Before starting Noble Communications Group, Mr. Teng
worked at AT&T from 1993-1999, first as the national director of public
relations for its Asian markets, then as the head of AT&T's Asian Markets
marketing communications department. Prior to joining AT&T, Mr. Teng was a
financial advisor at Merrill Lynch and Oppenheimer & Company. Currently he is a
member of the National Committee on US-China Relations, and he is on the
advisory board of Sino Television Corp. and Maximum Style Inc..
ROBERT S. FEUERMAN is the President of Industry Aspects, LLC, a technology
consulting firm in San Francisco, California, which he joined in January of
1999. Mr. Feuerman was Vice President of Cambridge Tech Partners, a management
and technology consulting company from 1995 to January 1999. He was also Vice
President of Reverse Logic Corp., also a management and technology consulting
company from 1994 to 1995. Prior to 1994, Mr. Feuerman worked at the Walt Disney
Company.
1
<PAGE>
CLARKE W. BREWER joined the Company in August 1997 as the Corporate
Controller. He was promoted to Chief Financial Officer in April 1999. Prior to
joining the Company, Mr. Brewer worked at The Walt Disney Company from 1993 to
1997 in various finance and accounting positions, most recently as a senior
business planning executive. From 1990 to 1993, Mr. Brewer worked at KPMG Peat
Marwick as a Certified Public Accountant.
ROBERT C. SEMMER has worked in various positions at the Company since 1994
and is currently Senior vice President of Operations. Prior to joing the
Company, Mr. Semmer was Senior Vice President of Sales and Customer Service at
Mediatech from 1987 to 1994.
DIRECTORS' REMUNERATION
Each Director who is not an employee of the Company is paid a fee of $1,000
for each meeting of the Board attended. Members of the Board who are not
employees of the Company receive options to purchase 15,000 shares of Common
Stock upon election or re-election. These options vest in 33% increments over
the three year period following the date of grant, with certain exceptions.
Directors are reimbursed for travel and other reasonable expenses relating to
meetings of the Board.
COMMITTEES OF THE BOARD OF DIRECTORS; ATTENDANCE
During the year ended December 31, 1999, the Board held 10 meetings.
The Board has two standing committees, the Audit Committee and the
Compensation Committee.
The Audit Committee, which did not meet during the year ended December 31,
1999, consisted of Messrs. Teng, Feuerman and Stine. The Audit Committee's
responsibilities include reviewing (i) the scope and findings of the annual
audit, (ii) accounting policies and procedures of the Company's financial
reporting and (iii) the internal controls employed by the Company.
The Compensation Committee, which held 2 meetings during the year ended
December 31, 1999, consisted of Messrs. Teng and Feuerman. The Compensation
Committee's responsibilities include (i) making recommendations to the Board on
salaries, bonuses and other forms of compensation for the Company's officers and
other key management and executive employees, (ii) administering the Company's
1996 Incentive Stock Option Plan and (iii) reviewing management recommendations
for grants of stock options and any proposed plans or practices of the Company
relating to compensation of its employees and directors.
Each director attended at all meetings of the Board and any committees of
the Board to which he was assigned that were held during the year ended
December 31, 1999.
ITEM 11.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation, including bonuses and
deferred compensation, paid for the years ended December 31, 1999, 1998 and 1997
by the Company to (i) its Chief Executive Officer and (ii) each of the Company's
four other most highly compensated individuals who were serving as officers on
December 31, 1999 and whose salary plus bonus exceeded $100,000 for such year
(the persons described in (i) and (ii) above, the "Named Executives").
2
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SALARY OTHER
NAME AND PRINCIPAL POSITION YEAR ($) COMPENSATION
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
R. Luke Stefanko, Chief Executive Officer................... 1999 $273,000 $ --
1998 222,000 --
1997 273,000 1,170,000(1)
Donald R. Stine, President.................................. 1999 $147,500 $ 45,000(2)
1998 79,000 --
1997 120,000 151,615(3)
Clarke W. Brewer, Chief Financial Officer................... 1999 $107,600 $ --
1998 62,000 2,000(4)
1997 13,800 --
Robert C. Semmer, Executive Vice President of Operations.... 1999 $138,800 $ 55,262(5)
1998 162,000 --
1997 200,000 --
Thomas J. Ennis, Vice President of Sales and Marketing...... 1999 $100,000 $ 35,000(6)
1998 98,000 25,000(6)
1997 100,000 25,000(6)
</TABLE>
- ------------------------
(1) Represents payments by the Company to federal and state taxing authorities
in 1997, on behalf of Mr. Stefanko in such year to satisfy federal and state
taxes owed by Mr. Stefanko by virtue of the Company's status as a Subchapter
S Corporation (prior to February 1997) for federal and state tax purposes.
Also includes $1,404 in premiums paid by the Company on a life insurance
policy for the benefit of Mr. Stefanko.
(2) Represents quarterly bonuses for meeting certain earnings goals as provided
for in his employment agreement.
(3) Represents payments by the Company to federal and state taxing authorities
on behalf of Mr. Stine to satisfy federal and state taxes owed by Mr. Stine
by virtue of the Company's status as a Subchapter S Corporation (prior to
February 1997) for federal and state tax purposes.
(4) Represents annual discretionary bonus.
(5) Represents bonuses for meeting certain operating goals as provided for in
his employment agreement.
(6) Represents an annual bonus of $25,000 paid by the Company to Mr. Ennis as
provided for in his employment agreement, and an annual disecretionary bonus
of $10,000 in 1999.
3
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------ VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
TOTAL OPTIONS MARKET PRICE OF APPRECIATION
GRANTED TO EXERCISE COMMON STOCK FOR OPTION TERM
EMPLOYEES IN PRICE ON DATE OF EXPIRATION ---------------------------
NAME OPTIONS FISCAL YEAR ($/SH) GRANT DATE 5% 10%
- ---- -------- ------------- ------------ --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
R. Luke Stefanko...... 179,000 13.8% $ 4.56 $ 4.56 2009 $ 513,329 $1,300,876
Donald R. Stine....... 679,000 52.4% $4.56-$15.00 $4.56-$8.31 2009 $3,863,765 $9,791,539
Clarke W. Brewer...... 55,000 4.2% $ 4.56-$8.31 $4.56-$8.31 2009 $ 216,686 $ 549,124
Robert C. Semmer...... 65,000 5.0% $ 4.56-$8.31 $4.56-$8.31 2009 $ 245,363 $ 621,799
Thomas J. Ennis....... 35,000 2.7% $ 4.56-$8.31 $4.56-$8.31 2009 $ 147,539 $ 373,892
</TABLE>
The following table sets forth the number and value of stock options
outstanding as of December 31, 1999 for the Named Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
SHARES ACQUIRED ON AT FISCAL YEAR END (#) END ($)(1)
NAME EXERCISE EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------ ------------------------- -------------------------
<S> <C> <C> <C>
R. Luke Stefanko...................... 0 55,000/179,000 $371,250/1,645,010
Donald R. Stine....................... 0 0/679,000 0/3,380,010
Clarke Brewer......................... 0 10,000/55,000 28,750/411,700
Robert C. Semmer...................... 0 10,424/65,000 70,362/503,600
Thomas J. Ennis....................... 0 2,500/35,000 16,875/246,650
</TABLE>
- --------------------------
(1) Assumes a market price equal to $13.75 per share, the closing price on the
Nasdaq National Market on December 31, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Company established a Compensation Committee whose
members currently are Fred S. Teng and Robert S. Feuerman. For information
concerning certain transactions between the Company and certain directors, see
"Certain Relationships and Related Transactions."
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report on executive
compensation:
The base salary to which each of the Company's executive officers is
entitled is specified in such person's employment agreement (see "Employment
Agreements" below) and was established pursuant to arm's-length negotiations
with each executive officer, in part based on the subjective assessment of the
Company, which included a number of factors, including experience, tenure and
responsibility, and external factors, including similarly situated executives,
geographic and economic conditions, based on information drawn from a variety of
sources, including published survey data, information obtained from the media,
and the Company's own experience in recruiting and retaining executives,
although complete information is not easily obtainable.
Arrangements for bonus compensation for the Company's executive officers are
also negotiated individually with each executive officer and are generally fixed
by contract. See "Employment Agreements" below.
4
<PAGE>
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code (the "Code"), enacted in 1993,
generally limits tax deductions to public companies for compensation over
$1,000,000 paid to the corporation's chief executive officer and four other most
highly compensated executive officers. Qualifying performance based compensation
will not be subject to the deduction limit if certain requirements are met. The
Company intends to consider the provisions of Section 162(m) in connection with
the performance based portion of the compensation of its executives (which
currently consists of stock option grants described above). However, the Board
of Directors does not necessarily intend to structure compensation to its
executives to avoid disallowance of any tax deductions in the future in light of
available tax deductions to the Company and the requirements imposed by Section
162(m) and the proposed regulations thereunder for compensation to be fully
deductible for income tax purposes.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with each of R. Luke
Stefanko, Thomas J. Ennis, and Donald R. Stine commencing June 27, 1996,
March 19, 1996 and April 1, 1999, respectively. Mr. Stefanko's agreement has a
term of five years ending in June 2001. The term of Mr. Ennis' agreement expired
in March 1999. The Company exercised its option to extend Mr. Ennis' agreement
for one year in March 1999. Mr. Stine's agreement has a term of three years
ending in May, 2002. Under these agreements, the current annual salaries of
Messrs. Stefanko, Ennis and Stine are $273,000, $100,000 and $150,000,
respectively. Mr. Stefanko's base salary increases each year in accordance with
increases in the Consumer Price Index. Mr. Ennis and Mr. Stine's base salaries
do not change during the term of the agreement. These base salaries are subject
to further annual increase if approved by the Compensation Committee.
Mr. Stefanko and Mr. Stine are provided with an automobile expense reimbursement
allowance and an annual allowance to cover premiums for life, health and
disability insurance. Mr. Stefanko and Mr. Stine's employment agreements entitle
them to receive quarterly bonus payments to the extent the Company achieves
quarterly earnings per share results ratified by the Board of the Directors at
the beginning of each year ("Targeted Earnings"). If the Company attains the
Targeted Earnings with respect to a particular quarter, Mr. Stefanko and
Mr. Stine shall receive bonus payments of $6,250 and $15,000, respectively. If
the Company's actual earnings per share are less than 75% of the Targeted
Earnings, Mr. Stefanko is not entitled to a bonus. If the Company's actual
earnings per share equal 125% or more of the Targeted Earnings, Mr. Stefanko
shall receive an increased bonus payment (subject to a maximum payment in any
quarter of $12,500). To the extent the Company's earnings per share equal
between 75% and 125% of the Targeted Earnings, Mr. Stefanko shall be entitled to
receive a pro-rated bonus payment in accordance with the range set forth above.
Mr. Ennis is guaranteed an annual bonus payment in the amount of $25,000 under
his employment agreement.
KEY EXECUTIVE SEVERANCE AGREEMENT
Mr. Stefanko is party to a key executive severance agreement with the
Company as part of his employment agreement. The key executive severance
agreement provides that if Mr. Stefanko's employment is terminated without cause
(as defined in the agreement), except in the event of disability or retirement,
he shall be entitled to receive the following: (i) if he is terminated within
two years following a change in control of the Company, then he shall be
entitled to receive payment of his full base salary for a period of two years,
plus payment of the amount of any bonus for a past fiscal year which has not yet
been awarded or paid, and continuation of benefits for a period of two years, or
(ii) if his employment is terminated other than within two years following a
change in control of the Company, then Mr. Stefanko shall be entitled to receive
payment of his full base salary for the remainder of the term of his agreement,
payment of the amount of bonuses, and continuation of benefits. A change in
control of the Company is defined to mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities and Exchange Act of 1934,
5
<PAGE>
as amended (the "Exchange Act"). Such a change in control is deemed conclusively
to have occurred in the event of certain tender offers, mergers or
consolidations, the sale, lease, exchange or transfer of substantially all of
the assets of the Company, the acquisition by a person or group (other than
Mr. Stefanko) of 25% or more of the outstanding voting securities of the
Company, the approval by the shareholders of a plan of liquidation or
dissolution of the Company, or certain changes in the members of the Board. In
the event of a decrease in Mr. Stefanko's then current base salary, a removal
from eligibility to participate in the Company's bonus plan and other events as
described in the agreement, then Mr. Stefanko shall have the right to treat such
event as a termination of his employment by the Company without cause and to
receive the payments and benefits described above.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of March 29, 2000 concerning
the beneficial ownership of the Common Stock by (i) each person who is known by
the Company to be a beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each of the Company's current directors,
(iii) each of the Chief Executive officer and the four other most highly
compensated officers of the Company who served in such capacities during 1999
(the "Named Executives") and (iv) and all current directors and executive
officers as a group. The address of each beneficial owner listed below is 7083
Hollywood Boulevard, Hollywood, California, 90028.
<TABLE>
<CAPTION>
APPROXIMATE NUMBER
OF SHARES BENEFICIALLY
OWNED OWNED(1) PERCENTAGE OWNED
- ----- ---------------------- ----------------
<S> <C> <C>
R. Luke Stefanko........................................... 5,436,066 58.9%
Donald R. Stine............................................ 187,044 2.0%
Thomas J. Ennis............................................ 7,500 *
Clarke W. Brewer........................................... 23,000 *
Robert C. Semmer........................................... 25,507 *
Robert S. Feuerman......................................... 4,000 *
Fred S. Teng............................................... 0 *
All current directors and executive officers as a group
(seven persons).......................................... 5,683,118 61.5%
</TABLE>
- ------------------------
Less than 1%
(1) Includes shares of Common Stock that can be acquired by exercise of vested
and exercisable stock options within 60 days of March 29, 2000, as follows:
Mr. Stefanko--114,666 shares; Mr. Stine--143,000 shares; Mr. Ennis--7,500
shares; Mr. Brewer--20,000 shares; Mr. Semmer--23,757 shares. In computing
the number of shares beneficially owned by a person and the percentage
ownership of that person, options held by that person that are currently
exercisable or exercisable within 60 days of the record date are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of each other person.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon its formation in 1990 the Company elected to be treated as an S
Corporation for federal income tax purposes which resulted in the taxable income
of the Company being taxed directly to its shareholders rather than to the
Company. Prior to the closing of the Company's initial public offering in
February 1997, the Company's shareholders terminated the Company's S Corporation
status. Shortly after the change in tax status, all the persons that were
shareholders of the Company between January 1, 1997, through and
6
<PAGE>
including the date of such termination consented to allocate all of the
Company's items of income, gain, loss, deduction, or credit for the 1997 taxable
year between the short year for which the Company was treated as an S
Corporation and the short year for which the Company is treated as a C
Corporation, on the basis of the Company's normal accounting method rather than
on a pro rata basis. The Company maintains an accumulated adjustments account
(the "AAA account") which currently holds its taxed but undistributed earnings.
In connection with the consummation of the Company's initial public offering,
the Company distributed the balance of the amount in the AAA account
(approximately $5.6 million) to the Company's pre-initial public offering
shareholders in respect of previously undistributed earnings of the Company. The
Company made the final S Corporation distribution of approximately $300,000 in
September 1998.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires executive officers and directors
and persons who beneficially own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission (the "SEC").
Executive officers, directors and greater than 10% beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms filed by them.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, directors and greater than 10% beneficial owners were
complied with.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
VDI MULTIMEDIA
By: /s/ CLARKE W. BREWER
-----------------------------------------
Clarke W. Brewer
</TABLE>
Dated: April 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ R. LUKE STEFANKO
------------------------------------------- Chairman of the Board and Chief April 28, 2000
R. Luke Stefanko Executive Officer
/s/ DONALD R. STINE
------------------------------------------- Director and President April 28, 2000
Donald R. Stine (principal executive officer)
Chief Financial Officer and
/s/ CLARKE W. BREWER Treasurer (principal
------------------------------------------- financial and accounting April 28, 2000
Clarke W. Brewer officer)
/s/ THOMAS J. ENNIS
------------------------------------------- Director April 28, 2000
Thomas J. Ennis
/s/ FRED S. TENG
------------------------------------------- Director April 28, 2000
Fred S. Teng
/s/ ROBERT S. FEUERMAN
------------------------------------------- Director April 28, 2000
Robert S. Feuerman
</TABLE>
8
