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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 001-12391
PANAVISION INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3593063
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6219 DE SOTO AVENUE 91367
WOODLAND HILLS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (818) 316-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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. [ ]
The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant on March 17, 1999 was approximately $6
million.
As of March 17, 1999, there were 8,055,619 shares of Panavision Inc.
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Portions of the registrant's 1999 definitive proxy statement, issued in
connection with the annual meeting of stockholders, are incorporated by
reference in Part III of this Form 10-K.
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PANAVISION INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
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PART I
Item 1 Business ................................................................................. 3
Item 2 Properties ............................................................................... 14
Item 3 Legal Proceedings ........................................................................ 14
Item 4 Submission of Matters to a Vote of Security Holders ...................................... 14
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters .................... 15
Item 6 Selected Financial Data .................................................................. 16
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations .... 17
Item 8 Financial Statements and Supplementary Data .............................................. 28
Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure...... 28
PART III
Item 10 Directors and Executive Officers of the Registrant ....................................... *
Item 11 Executive Compensation ................................................................... *
Item 12 Security Ownership of Certain Beneficial Owners and Management ........................... *
Item 13 Certain Relationships and Related Transactions ........................................... *
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K .......................... 29
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* Incorporated by reference from Panavision Inc. 1999 Proxy Statement.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Panavision Inc. (the "Company" or "Panavision") is a leading designer,
manufacturer and supplier of high precision film camera systems, comprising
cameras, lenses and accessories, for the motion picture and television
industries. In 1998 in North America, Panavision equipment was utilized in over
71% of feature films produced by major motion picture studios and nearly 86% of
episodic or "series" television productions shot on film (such as ALLY MCBEAL
and THE PRACTICE). In addition, Panavision estimates that in 1998 it serviced
over 49% of the independent feature film market in North America. Panavision
also supplies camera systems to the television commercial market in North
America, the United Kingdom, Europe and the Asia Pacific region, which includes
Japan, Australia, New Zealand, Indonesia and Malaysia.
Unlike equipment manufactured by its competitors, Panavision camera
systems are not available for sale but instead are rented exclusively through
the Company's domestic and international owned-and-operated facilities as well
as its network of independent agents. The Company believes that its position as
an industry leader results from its control over the manufacturing and
distribution process, its broad range of technologically superior and
innovative products, its long-standing collaborative relationships with
filmmakers and studios, the breadth of its camera equipment inventory and its
dedication to customer service. Panavision is the only supplier of
cinematography equipment that manufactures a complete camera system
incorporating its own proprietary prime and zoom lenses, the most critical
components of a camera system.
Panavision is recognized in the motion picture and television industries
as the preeminent brand name for cinematography equipment. Since the Company's
inception in 1954, Panavision has continually introduced new camera systems,
lenses, and accessories that have become industry standards. The Company's
close relationship with producers, directors and cinematographers results in a
cooperative effort to design and produce unique systems and accessories that
meet filmmakers' creative needs. Panavision has received two OSCARS and 20
Awards for Scientific and Technical Achievement from the Academy of Motion
Picture Arts and Sciences. Since 1990, two-thirds of the Academy Award nominees
for Best Cinematography, and seven of the eight cinematographers, who have won
the OSCAR for Best Cinematography, used Panavision camera systems. Panavision
camera systems were used to film eight of the top ten box office movies shot on
film in 1998, including TITANIC, ARMAGEDDON, SAVING PRIVATE RYAN, GOOD WILL
HUNTING and GODZILLA and nine of the top ten box office movies shot on film in
1997, including MEN IN BLACK, THE LOST WORLD: JURASSIC PARK, LIAR, LIAR, JERRY
MAGUIRE, MY BEST FRIEND'S WEDDING and FACE/OFF. In addition to the Company's
involvement in the motion picture industry, a predominant number of U.S. prime
time episodic or "series" television programs that are shot on film use
Panavision camera systems, including FRIENDS and N.Y.P.D. BLUE.
Renting, rather than purchasing, equipment is more cost-effective for
feature film, television and commercial producers given the periods of
inactivity typically experienced between productions. In addition, renting
camera systems from Panavision ensures continual access to state-of-the-art
equipment as well as the availability of the proper equipment combinations for
each specific project. Since the average cost of camera rental represents less
than 1% of the average film budget, customers tend to place a higher priority
on quality of service and availability of a broad range of technologically
superior equipment than on price considerations, which enables Panavision to
receive a premium for its equipment.
Panavision dominates an otherwise fragmented rental market for
cinematographic equipment. Panavision is the only supplier of cinematographic
equipment that has a network of rental offices and maintenance facilities
throughout North America, Europe and the Asia Pacific region and is the only
major manufacturer located near Hollywood. As the only vertically integrated
provider of camera systems
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to the film and television industries, Panavision is better able to meet its
customers' needs effectively. In contrast, the Company's manufacturing
competitors are located in Europe and sell their products to rental companies,
which then rent the equipment to the ultimate user.
The demand for cinematographic equipment is driven by the number and
complexity of feature films, television programs and commercials being
produced. Demand for film-based entertainment has continued to grow steadily in
recent years as evidenced by the growth in the number of feature film starts in
North America from 350 in 1992 to 443 in 1998, an increase in domestic box
office receipts of 40.0% from 1992 to 1998, and an increase of approximately
8,700 exhibitor screens over the same period. Additionally, the number of
action films and special effects in feature film and television productions
have increased significantly, thereby increasing the equipment required and
lengthening the rental period. In addition, an increase in the number of
television networks and channels and in their demand for original programming
has also driven the increased use of camera systems.
In addition to manufacturing and renting camera systems, the Company also
rents lighting, lighting grip, power distribution, generation and related
transportation equipment through Lee Lighting, the largest lighting rental
company in the United Kingdom, as well as through its owned-and-operated
facilities in Chicago, Dallas, Orlando, Toronto and Australia. The Company also
manufacturers and sells lighting filters and other color-correction and
diffusion filters through Lee Filters.
THE PANAVISION RECAPITALIZATION
On June 4, 1998, as contemplated by (i) an Agreement of Recapitalization
and Merger, dated as of December 18, 1997 (the "Recapitalization Agreement"),
by and among PX Holding Corporation ("PX Holding"), PX Merger Corporation (the
"Merger Sub") and Panavision and (ii) an Amended and Restated Voting and
Stockholders Agreement, dated as of April 16, 1998 (the "Stockholders
Agreement"), by and among Warburg Pincus Capital Company, L.P., a Delaware
limited partnership ("Warburg"), the Company and Mafco Holdings Inc. ("Mafco"),
a Delaware corporation, the Company consummated a merger whereby Merger Sub was
merged with and into the Company (the "Merger"), with the Company remaining as
the surviving corporation.
Immediately prior to the consummation of the Merger, PX Holding purchased
5,784,199 shares of the Company's common stock, par value $.01 per share
("Panavision Common Stock"), from the Company at a purchase price of $26.69 per
share, or $154.4 million (the "PX Stock Purchase").
In connection with the Merger, holders of in excess of 88% of the shares
of Panavision Common Stock held by shareholders other than Warburg elected to
receive cash for their shares. As a result of the Merger, (i) 5,466,142 shares
of Panavision Common Stock were exchanged for $27.00 per share, or $147.6
million, and (ii) 745,380 shares of Panavision Common Stock were retained by
holders either through election or proration. In addition, as part of the
recapitalization of the Company, Warburg exchanged 88% or 11,190,960 shares, of
the shares of Panavision Common Stock it beneficially owned for Series A
redeemable preferred stock of the Company, which was redeemed immediately after
consummation of the Merger at a price equivalent to $26.50 per share of
Panavision Common Stock.
In addition, pursuant to the Stockholders Agreement, Warburg granted to
Mafco an option to purchase at $30.00 per share of Panavision Common Stock, and
Mafco granted to Warburg an option to sell at $25.00 per share of Panavision
Common Stock, the remaining 1,526,040 Warburg shares ("Warburg Shares") not
exchanged for redeemable preferred stock as described above. On February 1,
1999, PX Holding and Warburg entered into a Stock Purchase Agreement, pursuant
to which (i) the provisions of the Stockholders Agreement relating to the
options in favor of Mafco and Warburg, respectively, were terminated and (ii)
PX Holding agreed to purchase and Warburg agreed to sell the Warburg Shares at
a price of $23.34 per share for an aggregate price of approximately $35.6
million. The transaction closed on February 1, 1999. As of the close of this
transaction, Mafco beneficially owned approximately 91% of the shares of
Panavision Common Stock outstanding.
Concurrently with the Merger, (i) the certificate of incorporation of the
Company was amended and restated in accordance with the terms of the
Recapitalization Agreement and (ii) the bylaws of PX Merger as in effect at the
effective time of the Merger became the bylaws of the Company.
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In connection with the Merger, the Company entered into a new credit
agreement with The Chase Manhattan Bank for a maximum commitment amount of
$340.0 million (the "New Credit Agreement"). In addition, the Company assumed
the obligations of PX Escrow Corp. ("PX Escrow"), a wholly owned subsidiary of
PX Holding, under the 95/8% Senior Subordinated Discount Notes due 2006 (the
"Notes") issued by PX Escrow for gross proceeds of $150.0 million in an
offering which was exempt from registration under the Securities Act of 1933,
as amended. The Company has used the net proceeds from the PX Stock Purchase,
borrowings under the New Credit Agreement and the net proceeds from the
issuance of the Notes to retire existing indebtedness, fund the payment of the
cash consideration and the fees and expenses in connection with the Merger and
to provide working capital for the Company.
As a result of the Merger, PX Holding, a wholly owned subsidiary of Mafco,
the sole stockholder of which is Ronald O. Perelman, has acquired an
approximately 91% controlling interest in the Company. Other stockholders own
approximately 9% of Panavision Common Stock.
The Merger has been accounted for as a leveraged recapitalization as there
has been a significant continuation of stockholder ownership.
In the second quarter of 1998, in conjunction with the Panavision
Recapitalization transaction, the Company recorded a compensation charge of
$48.6 million of which $19.0 million related to the purchase of shares
exercised by management and $29.6 million related to the cash settlement of
options. The Company also recorded $10.1 million of transaction expense related
to the Panavision Recapitalization.
THE FILM SERVICES GROUP ACQUISITION
On June 5, 1997, the Company completed its acquisition (the "FSG
Acquisition") of Visual Action Holdings plc's Film Services Group ("Film
Services Group" or "FSG") for approximately $61.0 million. FSG includes camera
rental operations that rent primarily non-Panavision manufactured equipment in
the United Kingdom, France, Australia and two U.S. cities, Chicago and Dallas,
as well as smaller rental operations in New Zealand, Malaysia and Indonesia.
Management intends to augment the existing FSG equipment inventory base with
Panavision camera systems over time. Management believes that the FSG
Acquisition has substantially improved its competitive position internationally
as well as in the mid-western U.S. commercial market.
Panavision was incorporated in Delaware in 1990. Predecessors of
Panavision have been engaged in the design and manufacturing of cinematography
equipment since 1954. The Company's principal executive office is located at
6219 De Soto Avenue, Woodland Hills, California 91367 and its telephone number
is (818) 316-1000.
COMPETITIVE STRENGTHS
Panavision's leading market position is demonstrated by its premier brand
name recognition and its market share of over 75% of the major studio feature
films and episodic television programs produced in North America in 1998. The
Company's leading position results from the following competitive strengths,
which provide substantial barriers to entry for new competitors.
CONTROL OVER MANUFACTURING AND DISTRIBUTION PROCESS. Panavision is the
only vertically integrated renter of camera systems to the film and television
industry. The Company's control over both the manufacturing and distribution
processes enables it to (i) rapidly incorporate technological development and
filmmakers' suggestions into new products, (ii) maintain product exclusivity
and (iii) offer products with greater quality and higher performance at a
premium price.
REPUTATION FOR QUALITY AND TECHNOLOGICALLY ADVANCED PRODUCTS. Panavision
is recognized as the industry leader in the development of high quality,
technologically advanced camera systems and its products have become industry
standards. Panavision has received two OSCARS and 20 other Academy Awards
granted for Scientific and Technical Achievement, including a 1999 award for
the development of the PRIMO(Registered Trademark) lens series and a 1998
award for the Panavision/Frazier Lens System. In addition to the
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development of new products, Panavision is also better able to upgrade its
existing inventory to meet continually changing market demands, thereby
reducing obsolescence, achieving better control of inventory and product
availability, and providing its customers with access to the latest
technological advances.
CLOSE RELATIONS WITH FILMMAKERS. As a result of Panavision's significant
relationships with cinematographers, directors and producers and its leading
market position, Panavision gains early access to productions and is able to
influence the selection of camera systems. Additionally, Panavision offers
instruction and training in the handling of Panavision equipment to young
directors and cinematographers while they are still in film school and
thereafter, thereby developing loyalty to Panavision and providing a foundation
for Panavision to sustain its strong market position. Panavision is the only
major manufacturer of cameras and lenses located in the Hollywood area,
enabling the Company to develop close relationships with filmmakers as well as
enabling the Company to respond rapidly to its customers' needs.
RANGE AND BREADTH OF CAMERA EQUIPMENT. Panavision believes that it has the
world's largest inventory of camera systems, with over 1,000 cameras and 5,000
lenses. It also offers a broad range of choices, including equipment that is
exclusively available through Panavision and its agents. The Company believes
that the range and breadth of its camera inventory enable it to serve a greater
number of productions throughout the world and make it the only company in the
industry with the ability to serve multiple large-scale feature film
productions simultaneously.
DEDICATION TO CUSTOMER SERVICE. Panavision places special emphasis on
customer service. The Company's customer service, repair and maintenance
personnel are "on call" and available to assist customers 24 hours a day. In
order to provide filmmakers with a high level of support, the Company sends
marketing representatives and technicians to film production sets to provide
advice or immediate assistance with any equipment needs or questions. The
Company assigns to each production a sales representative who possesses skills
and experience appropriate to the needs of that production in an attempt to
foster a strong and lasting working relationship with the customer. In
addition, as part of its customer service, the Company often develops,
customizes or procures equipment for specific customers or projects.
GROWTH STRATEGY
The Company's growth strategy is to increase its market share in the
worldwide commercial and feature film markets by leveraging its strong
competitive position and brand name in the feature film and television
industries in North America. The Company's strategy involves the following
elements:
INCREASE INVENTORY OF AVAILABLE CAMERA EQUIPMENT. Until mid-1996, the
Company's growth had been inhibited by equipment shortages resulting from
limited manufacturing capacity and capital expenditure constraints imposed by
its prior credit facilities. The Company believes that its move to its current
manufacturing facility in 1996 as well as its enhanced access to capital will
enable the Company to continue to expand its equipment base in order to meet
expected market demand and to capture a larger market share, particularly in
the worldwide commercial and independent feature film markets.
EXPAND NEW PRODUCT DEVELOPMENT. The Company intends to continue developing
and manufacturing the next generation of technologically superior cameras,
lenses and accessories. The Company is currently rolling out its Millennium
camera system and focusing its development efforts on value-added accessories
that increase the overall size and rental price of a camera package. The
Company's move into a larger manufacturing facility enabled the Company to hire
additional personnel and significantly increase its research and development of
new products in an effort to extend its leadership in technology and product
development and to further facilitate collaborative efforts with filmmakers.
For example, the Company has recently introduced a new close focus macro-zoom
lens and in 1999, will introduce a new series of PRIMO PRIME (Registered
Trademark) lenses.
GEOGRAPHIC EXPANSION AND STRATEGIC ACQUISITIONS. From time to time the
Company has pursued strategic acquisitions, such as the FSG Acquisition, as a
means of expanding market share in existing markets and as a gateway to new
geographical markets. The Company will continue to evaluate such opportunities
as they arise, as well as other opportunities, such as strategic alliances or
the expansion of its agent network.
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CAMERA RENTAL MARKETS
Panavision supplies cinematographic equipment, such as cameras, lenses and
accessories to its customers on a project-by-project basis. The Company has a
rental inventory of over 1,000 cameras (including non-Panavision manufactured
equipment) and 5,000 lenses, as well as associated accessories. The Company
rents its equipment through 20 owned-and-operated rental facilities which are
strategically located in cities where the most feature films are produced,
including Los Angeles, Toronto, London and Paris. The Company also rents its
equipment through 13 independent agents, including agents located in New York,
Tokyo and Hong Kong. Panavision's network of owned-and-operated rental offices
and independent agents provides it with a competitive advantage as it is the
only rental company that offers clients equipment and service on a national and
worldwide basis.
FEATURE FILMS
The rental process for feature films takes about four to seven months from
the time the producer approves the project until filming is completed and the
equipment package is returned to Panavision for servicing. The decision-makers
for the various markets are the producers, directors and cinematographers. In
general, after production is approved, the decision-makers discuss the
requirements with their Panavision sales representative and then finalize the
equipment package. The equipment is subsequently prepped at the Panavision
rental facility and shipped to the studio or location to commence principal
photography. Once the equipment is returned, the Company services its equipment
in preparation for the next rental. The average feature film rental is for 10
to 12 weeks. Panavision rents camera packages that include cameras, lenses and
accessories. The average weekly rental package price for feature films has
increased since 1992 due to the addition of value-added proprietary lenses and
accessories as well as modest price increases on existing inventory.
The number of feature films produced in North America increased from
approximately 350 in 1992 to 443 in 1998. Major studio feature film productions
increased to approximately 133 in 1998 from approximately 104 in 1992.
Additionally, the number of independent feature films produced in North America
increased from approximately 246 in 1992 to approximately 332 in 1998. Major
studio feature films are typically large-budget productions with camera rental
budgets that require greater depth of product and experienced customer service
personnel. The Company expects that the production of large-budget action films
will continue due in part to their success in the international theater,
television and home video markets. In 1998, approximately 35% of the Company's
camera rental revenue was generated from feature films. In addition, the
Company estimates that its camera rental revenue from feature films has grown
80% since 1992. The Company believes the feature film market, particularly
independent productions, offers significant growth opportunities.
COMMERCIALS
Although commercial productions generally last for only one to seven days,
daily rental rates for camera systems are equivalent to feature film rental
rates and represent a significant part of the camera equipment rental market.
Many of the creative people involved in the filming of commercials seek to
distinguish their products by using innovative techniques requiring
technologically advanced equipment--the ability to achieve a unique "look,"
which the Company believes can, in many cases, be achieved best by using
Panavision products. By pursuing opportunities to expand its presence in the
television commercial market, the Company believes that it can develop brand
loyalty to Panavision products and beneficial long-term relationships with
directors and cinematographers, many of whom begin their careers filming
television commercials. In 1998, approximately 28% of the Company's camera
rental revenue was generated from commercials. The Company estimates that its
camera rental revenue from commercials has grown 272% since 1992. The Company
believes this market offers significant opportunities for growth.
EPISODIC TELEVISION
The episodic or "series" television market in North America is comprised
primarily of dramas, situation comedies and action programs produced on film
which are aired in both prime and non-prime
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time slots. These programs are broadcast on the four major television networks
as well as on the WB, UPN and cable networks. The number of worldwide episodic
shows produced on film has increased by approximately 189% since 1992,
resulting primarily from the advent of new broadcast networks and increased
original programming on cable networks. Over the same period, the Company
believes that the use of film rather than videotape in episodic television has
increased because of a number of factors. Film is an excellent storage or
archival medium and may be digitally transferred to other media, such as the
evolving high definition television technologies, with greater resolution than
videotape. The image quality that film offers is very important to television
programs that will be syndicated into many markets. In contrast, videotape may
not be fully compatible with high definition television and may deteriorate
more rapidly over time.
In 1998, approximately 24% of the Company's camera rental revenue was
generated from episodic television. The Company estimates that its camera
rental revenue for 1998 from episodic television has grown 315% since 1992. The
Company believes it will continue to make inroads in this market as a result of
new network programming requirements and innovative Panavision products such as
the 3-Perf (Registered Trademark) System, the Pedestal Camera System and a
2,000-foot film magazine.
MOVIES OF THE WEEK
In addition to episodic television, there are also movies of the week shot
specifically for network and cable television. The number of movies of the week
productions in North America has increased from approximately 185 in 1992 to
approximately 225 in 1998. However, due to the relatively low budgets
associated with these productions, overall cost is a major factor in the
selection of the camera equipment that is used and, accordingly, the dollar
size of this market is relatively small.
In 1998, approximately 4% of the Company's camera rental revenue was
generated from movies of the week. The Company estimates that its camera rental
revenue from movies of the week has grown 17% since 1992. While the Company
will continue to serve this market, given its size and price sensitivity, the
Company expects to focus on higher-budget productions.
PRODUCTS
RESEARCH AND PRODUCT DEVELOPMENT
The Company is in the process of expanding its research and development
group, which currently comprises approximately 40 mechanical, software,
electronic and optical engineers, draftsmen and machinists. Additionally, the
research and development group has a dedicated machine shop that manufactures
prototype equipment. These internal capabilities enable the Company to develop
proprietary technology in collaboration with filmmakers to address their unique
requirements. Panavision also operates another research and development
facility in Cambridge, Massachusetts.
The Company has long been a leader in the research and development of film
camera lenses. Since the first Panavision lens was introduced in 1957, the
Company has introduced many innovative spherical and anamorphic lenses,
including the PRIMO (Registered Trademark) series which won Academy Awards in
1990, 1991, 1994, 1995 and 1999. During 1997, the Company completed the
development of a new macro close-focus, wide-angle zoom lens. This addresses
the need within the commercial market for a compact lens with the ability to
operate in low light environments and maintain focus at extremely close ranges
(e.g., tabletop or other close-up work). In 1997, the Company introduced a new
sync-sound camera that is lighter and quieter than current Panavision cameras
and incorporates enhanced view finding and video monitoring capabilities. In
addition, the Company is in the process of developing a digital video assist
device that will enable the director and cinematographer to perform certain
immediate on-set digital editing functions. During 1999, the Company will
launch a new series of soft focus PRIMO PRIME (Registered Trademark) series
lenses and a new lightweight camera. In 1999, Panavision will add an advanced
digital imaging development group in order to deal with client requests in the
future related to digital technology.
Research and development expenses for the years ended 1998, 1997 and 1996
were $4.5 million, $4.5 million and $4.3 million, respectively.
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CAMERA SYSTEMS
The Company is the only provider of camera systems with an integrated
design that provides customers with compatible products that are available
worldwide. Each camera package rented for a project is comprised of a number of
camera systems, each of which includes a camera, lenses and accessories. A
cinematographer's needs may include a sync-sound camera, such as the Platinum
Panaflex (Registered Trademark) and a high-speed Panastar (Registered
Trademark) camera. Each camera's rental price includes a variety of
accessories such as eyepieces, viewfinders, cables, brackets and grips.
Cameras. There are two basic types of motion picture cameras--Synchronous,
or "sync-sound," and Mit Out Sound (MOS). Sync-sound cameras are used to shoot
pictures while recording dialogue. MOS cameras are used primarily to shoot
high-speed footage and special effects and may also be used as backup cameras
in situations where dialogue is not being recorded. The Company's camera
inventory consists of both sync-sound and MOS cameras with various features and
at a range of prices. While the majority of the Company's sync-sound cameras
are 35mm cameras, the Company also manufactures 16mm cameras, which are used
primarily on episodic television shows, and 65mm cameras, which are used
primarily for special effects and special venue presentations.
The Company's inventory also includes a number of non-Panavision cameras
that are used to supplement the Company's product line. Due to its ability to
purchase non-Panavision cameras if there is a business need to do so, the
Company is able to compete with independent renters of cinematography equipment
on the same level and with the same equipment. Its competitors, on the other
hand, do not have the corresponding ability to purchase Panavision equipment,
as Panavision equipment is not available to rental companies other than the
Company's agents.
Lenses. Panavision develops, designs and manufactures its own prime (fixed
focal length) and zoom lenses, the most critical component affecting picture
quality and an important consideration for the filmmaker. For many years, the
Company specialized in anamorphic lenses, which are used for the wide-screen
movie format. While the Company remains the world's leading supplier of these
lenses, in 1985 a strategic decision was made to design and develop a new
series of prime and zoom lenses specifically for cinematography applications.
Accordingly, the Company created a line of advanced spherical lenses for the
non-wide screen format, producing its proprietary PRIMO PRIME (Registered
Trademark) and PRIMO ZOOM (Registered Trademark) lenses. The PRIMO
(Registered Trademark) lenses have performance characteristics that exceed the
other lenses available in the marketplace.
Accessories. In order to provide its customers with a fully integrated
camera system, the Company frequently introduces new camera accessories and
currently offers an extensive range of products requested by and developed in
conjunction with filmmakers. Certain accessories may reduce overall production
costs by lowering the labor intensiveness of the production process and thereby
decreasing the shooting days. Moreover, an accessory product often achieves
such widespread acceptance among the Company's customers that the Company
incorporates it into the base camera package, thereby increasing the overall
package price.
MANUFACTURING AND ASSEMBLY
The Company manufactures cameras, lenses and accessories designed by the
Company's in-house research and development staff. The Company has over 300
non-union employees at its 150,000 square foot manufacturing facility in
Woodland Hills, California, located near Hollywood. While the breadth of the
Company's rental inventory has allowed it to adequately service certain
segments of the feature film and television industries, until mid-1996 capital
constraints precluded Panavision from investing in additional rental equipment
to expand its market share in other attractive markets, including both North
American and international independent feature films and commercials. In 1998
the Company continued to increase its camera manufacturing production to take
advantage of what it believes to be favorable rates of return as well as high
demand for its equipment, increasing the number of new camera systems
manufactured in 1998 to 62 from 35 in 1996. The Company expects to manufacture
a lesser number of
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<PAGE>
camera systems in 1999, as the Company believes that its current worldwide
inventory of cameras will be sufficient to manage projected demand. However,
the Company will continue to manufacture additional value added accessories in
order to grow revenue from the base of existing jobs.
The Company develops and designs all the critical components for its
camera systems, including the camera movement and lens. An entire camera system
consists of hundreds of parts, each carefully produced, assembled and tested.
The manufacturing process takes up to four months and primarily involves the
fabrication and assembly of camera and lens components by over 100 highly
skilled workers, each of whom generally has an area of specialization.
Following the assembly process, each camera system is rigorously tested to
achieve the high standard of performance that customers expect from Panavision.
While the Company manufactures most of the components internally, certain
components and subassembly work, including glass grinding, lens element
polishing and die casting, are outsourced to selected suppliers. The Company
has developed long-standing relationships with its significant suppliers and
believes that they will continue to supply high-quality products in quantities
sufficient to satisfy its requirements. Since certain components, particularly
the lens element, require long lead times, precise production schedules are
critical. Inventory levels are determined based on input from marketing,
operations and the agent network. The Company maintains a fairly constant
production schedule in order to utilize efficiently its resources and service
its customers' requirements.
MARKETING AND CUSTOMER SERVICE
The principal decision-makers in the selection of the camera packages are
cinematographers, directors and producers, who view their cameras and related
equipment as critical artistic tools. Camera packages typically comprise a very
small percentage of a production budget. Accordingly, absent budget
constraints, the selection of equipment is driven by its suitability,
technological capabilities and reliability, as well as by the degree to which
the manufacturer or renter is able to rapidly service the technical needs of
the filmmaker, both before and during film production.
The Company's skilled sales representatives have established close working
relationships with numerous filmmakers. To cultivate these relationships, the
Company assigns to each production a sales representative who possesses skills
and experience appropriate to the needs of that production. Based on
discussions with the filmmaker, the sales representative recommends a camera
package tailored to achieve the filmmaker's desired visual effect and meet the
production budget. In addition, sales representatives provide further advice
and support by visiting film production sites throughout the production. As a
result of providing high-quality customer service, many of the Company's
representatives have been working with the same filmmakers throughout their
careers and in many instances the collaborative effort with the filmmaker has
prompted the design of innovative camera systems and accessories.
After preliminary decisions have been made with respect to the proper
camera package, the camera equipment is delivered to a preparation room in one
of the Company's facilities reserved for that filmmaker. The filmmaker,
together with his own and Panavision's representatives, then inspects, tests
and experiments with the equipment at the facility's prep floor, sound stage,
film studio and screening room.
DISTRIBUTION
Camera packages are rented to the motion picture and television industries
through rental houses owned and operated by Panavision as well as by
independent agents. These rental houses serve as a single point of contact for
the cinematographers and often provide services including maintenance and
technical advice. Panavision is the only manufacturer to have a significant
portion of its revenue generated through owned-and-operated rental houses,
primarily because of the Company's choice not to sell its equipment. The
Company does not currently intend to begin selling its camera systems.
Panavision owns and operates camera rental facilities domestically in
Woodland Hills, Hollywood, Chicago, Dallas, Orlando and Wilmington, and
internationally in Toronto and Vancouver, Canada, Dublin, Ireland, London
(three) and Manchester, England, Paris, France (two), Sydney, Brisbane, and
Melbourne, Australia, Auckland and Wellington, New Zealand, Jakarta, Indonesia,
and Kuala Lumpur,
10
<PAGE>
Malaysia. The Chicago, Dallas, Orlando, Toronto and Australia facilities also
provide lighting, lighting grip and power distribution and generation
equipment.
In addition to its owned-and-operated facilities, the Company serves its
customers through a network of domestic and international third-party agents
who are responsible for the rental of the Company's equipment in locations that
are not serviced by the owned-and-operated facilities. Agents pay approximately
60% of their rental revenue to the Company and retain the balance, which is
charged as a commission expense in the Company's statement of operations. The
Company uses 13 third-party agents to facilitate the rental of its products,
accounting for approximately 6% of the Company's revenue in 1998 and 1997. All
of the Company's agents are well trained in the use of Panavision equipment and
are supported by the Company's technical staff.
The Company's domestic third-party agent network includes agents in New
York and San Francisco, and internationally, agents are located in Canada,
Mexico, Italy, Spain, Sweden, Hong Kong, Japan, South Africa, Brazil, Poland
and Germany. The Hong Kong agent has offices in mainland China.
For information as to the Company's operations in different business
segments and geographical areas, see Note 11 of Notes to the Consolidated
Financial Statements of the Company included elsewhere in this Form 10-K.
COMPETITION
The market for high-precision cinematography equipment is highly
competitive, primarily driven by technology, customer service and, to a lesser
extent, price. As a manufacturer of cinematography equipment, the Company has
two primary competitors, Arriflex, based in Munich, Germany, and Moviecam,
based in Vienna, Austria. Both of these companies manufacture only cameras and
certain accessories, primarily for sale to rental houses and individuals who
are not the end users. Because Panavision manufactures lenses, cameras, and a
full range of accessories, has close relationships with filmmakers and has
in-house design and manufacturing capabilities, the Company believes that it is
better able to develop the innovative camera systems demanded by its customers.
As a renter of cinematography equipment, the Company competes with
numerous rental facilities, which must purchase their equipment from other
manufacturers and then rent that equipment to their customers. While the
overall rental business is price competitive and subject to discounting, the
Company has chosen to compete on the basis of its large inventory base,
technologically advanced proprietary products, broad product line, extensive
sales and marketing force and commitment to customer service. The Company
believes that it, as both the manufacturer and rental house, is able to respond
to many user requests on shorter notice and more effectively than its rental
competitors. In addition to its existing competitors, the Company may encounter
competition from new competitors, as well as from new types of equipment.
LIGHTING RENTAL
In addition to manufacturing and renting camera systems, the Company rents
lighting, lighting grip, transportation and distribution equipment and mobile
generators used in the production of feature films, television programs and
commercials, outside broadcasts and other events from its owned-and-operated
facilities located in the United Kingdom, Chicago, Dallas, Orlando, Toronto and
Australia. In addition, the Company sells consumable products including
lighting filters, light bulbs and gaffer tape, which are used in all types of
production. Effective July 1, 1996, the Company acquired Lee Lighting, which
for 1998 and 1997 had lighting rental revenue of approximately $20.5 million
and $23.4 million, respectively. The Company's other lighting rental operations
had combined revenue of approximately $6.8 million and $7.2 million for 1998
and 1997, respectively.
LEE LIGHTING
Lee Lighting is the largest lighting rental operation in the United
Kingdom. Lee Lighting purchases lighting equipment, lighting grip equipment and
generators from independent manufacturers to maintain
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<PAGE>
and build its rental asset base. Lee Lighting currently has the largest
inventory of lampheads, the core element of lighting equipment used by
filmmakers in all areas of the industry, in the United Kingdom. This large
rental asset base and Lee Lighting's experienced management and electricians
allow it to service a number of films that may be shooting concurrently. Lee
Lighting operates lighting rental operations in London, Bristol, Manchester and
Glasgow, each of which has its own rental inventories. From these four
locations, Lee Lighting is able to service any production in England, Wales or
Scotland. In addition, Lee Lighting maintains a rental base at Shepperton
Studios, the second largest studio complex in the United Kingdom for the
production of feature films.
Lee Lighting also supplies equipment to any U.K.-based production crew for
shoots in Europe, South America or Africa. Typically, Lee Lighting does not
service productions based outside of the United Kingdom, except occasionally in
Ireland. Recently, Lee Lighting has supplied the entire lighting needs of such
major feature films as THE AVENGERS, LOST IN SPACE, SLEEPY HOLLOW, MISSION:
IMPOSSIBLE, 101 DALMATIONS, GLADIATORS and CINDERELLA.
COMPETITION. Lee Lighting services both the motion picture and television
industries, including studio programs, outside broadcasts, commercials and
made-for-television movies (equivalent to movies of the week). These markets
require a similar range of lighting productions and related support equipment;
however, feature films and episodic television programs generally require
larger equipment packages than commercials. The composition of equipment
packages is frequently determined by the producer, director or cinematographer,
who may desire a specific type of image or lighting effect. Although Lee
Lighting is the largest lighting rental company in the United Kingdom, the
lighting rental market is price competitive.
COMPETITIVE STRENGTHS. The Company believes Lee Lighting is well
positioned in the U.K. lighting rental industry because of the following
competitive strengths:
Reputation for Outstanding Service. Over the last two decades Lee
Lighting has developed a reputation among U.K. producers of feature films,
television programs and commercials for providing outstanding service. Lee
Lighting is the only lighting company in the United Kingdom that supplies
its own electricians in connection with the rental of its equipment. Many
major U.K. feature film producers regularly use Lee Lighting's equipment
and the services of its skilled gaffers and electricians. This service
force is on call 24 hours a day, seven days a week and is supplemented by
freelance labor when required. This affords Lee Lighting the competitive
advantage of providing customers with a higher quality and more consistent
service, which is critical to success in capturing feature film work. Many
of Lee Lighting's technicians are considered to be among the best in the
film industry and their services are requested by some of the world's
leading cinematographers.
Depth of Inventory. Lee Lighting maintains the largest rental asset base
of lighting equipment, transport, mobile generators and power distribution
equipment in the United Kingdom. This permits Lee Lighting to service as
many as 15 feature films at the same time. The Company believes that its
extensive inventory of equipment provides it with an important competitive
advantage. Its substantial inventory enables Lee Lighting to service
projects with large-scale equipment and personnel requirements, such as
feature films and outside broadcasts, while still maintaining sufficient
capacity to service other projects simultaneously. Lee Lighting believes
that its position as the inventory market leader makes it the only source
for certain large-scale projects. Lee Lighting intends to add to its rental
asset base while actively pursuing opportunities to increase its share in
the U.K. feature film market as well as the television market, including
commercials and television broadcasts.
Experienced Management. Lee Lighting currently employs senior management
who have developed relationships over many years with influential
individuals in the U.K. motion picture and television industries. Under
this management there is a sizable field force of gaffers and electricians
who work exclusively for Lee Lighting.
LEE FILTERS
Lee Filters is a manufacturer of light control media for the motion
picture, television and theater industries. Sales of filters or gels used by
lighting directors to control or correct lighting conditions during
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<PAGE>
productions comprise 80% of Lee Filters' business. The balance consists of the
sale of photographic filters and related products. Lee Filters' revenue was
approximately $12.6 million, $12.8 million and $12.3 million in 1998, 1997 and
1996, respectively.
Lee Filters' lighting filters are available in a wide range of colors and
applications. These lighting filters are made either from polyester or
polycarbonate film purchased from U.K. and European petrochemical companies.
Lee Filters' range of light control filters includes tungsten conversion,
daylight conversion, arc correction, fluorescent, diffusion and ultraviolet
grades. The film base is impervious to water, is totally transparent and has a
high melting point, making it ideal for the manufacture of filter systems.
Rolls of film are coated on both sides with specially prepared lacquers, which
give them exactly the color or light management properties demanded by the
user. The color formulas are proprietary to Lee Filters and are computer filed
to ensure exact reproduction from one batch to the next. Lee Filters also makes
stills photographic resin and polyester filters and a camera filter holder
system for amateur stills photographers, and produces bellows for stills camera
manufacturers.
Lighting filter distribution is handled primarily through a network of
third-party dealers who have been selected because of their specific knowledge
of the filters' market in their respective countries. For 1998, approximately
52% of Lee Filters' sales were in the United Kingdom and Europe. In the United
Kingdom, Lee Filters sells on a direct basis to end users and rental houses as
well as to distributors and dealers. In Europe, Lee Filters has distributors in
France, Germany, Italy, Spain, Benelux, Portugal, Scandinavia and Switzerland.
For 1998, approximately 38% of Lee Filters' sales were generated in North
America where it has established distribution operations in Los Angeles,
California and the New York metropolitan area to service U.S. dealers. A
third-party distributor has been established in Toronto to serve the Canadian
market. The remaining 10% of sales were generated primarily in Japan, Hong
Kong, Singapore and Australia.
COMPETITION
Lee Filters has one principal competitor and several smaller competitors.
Some of these competitors are contract processors or coaters who supply the end
user through other distributors, and some are sales companies, which usually
purchase and resell filters. Its principal competitor offers a full range of
filters, some of which are made in-house and some of which are purchased.
COMPETITIVE STRENGTHS
Wide Range of Filter Types and Colors. Lee Filters believes it
manufactures more types of filters and a wider range of colors than its
competitors and is the only company which does not sell on a private label
basis to others. Lee Filters does not resell filters made by other
manufacturers, thereby enabling it to maintain better quality control.
Large Inventory. Lee Filters maintains a sizable inventory of filters in
three locations in order to provide same-day service to production companies.
This is especially important in servicing feature films while on location.
Quality and availability of product are the principal reasons Lee Filters is a
preeminent supplier to the U.K., European and U.S. feature film industry.
Lee Filters intends to expand its position in lighting filters for the
film, television and theater markets by improving its distribution and dealer
network, particularly in North and South America and in the Far East. In
addition, it plans to increase its product offerings on a selective basis to
the stills photography market in the United Kingdom and the United States.
INTELLECTUAL PROPERTY
The Company relies on a combination of patents, licensing arrangements,
trade names, trademarks, service marks, trade secrets know-how and proprietary
technology to protect its intellectual property rights. The Company owns or has
been assigned or licensed under several domestic and foreign patents
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and patent applications relating to its cameras, lenses and accessories. The
Company also owns or has been assigned several domestic and foreign trademark
or service mark registrations including Panavision (Registered Trademark) ,
Panaflex (Registered Trademark) , Panahead (Registered Trademark) , Panalite
(Registered Trademark) , Panavid (Registered Trademark) , Panastar (Registered
Trademark) , Primo Zoom (Registered Trademark) , Primo-L (Registered
Trademark) and 3-Perf (Registered Trademark) which are material to its
business.
ENVIRONMENTAL MATTERS
The Company is subject to foreign, federal, state and local environmental
laws and regulations relating to the use, storage, handling, generation,
transportation, emission, discharge, disposal and remediation of hazardous and
non-hazardous substances, materials and wastes ("Environmental Laws"). The
Company also is subject to laws and regulations relating to worker health and
safety. The Company believes that its operations are in substantial compliance
with all applicable Environmental Laws. The Company expects to spend
approximately $1.0 million at its Lee Filters' Andover, England facility during
1999 and 2000 to comply with anticipated air emissions requirements in the
United Kingdom. Although no other material capital or operating expenditures
relating to environmental controls or other environmental matters are currently
anticipated, there can be no assurance that the Company will not incur costs in
the future relating to environmental matters that would have a material adverse
effect on the Company's business or financial condition.
EMPLOYEES
As of December 31, 1998, the Company had a total of approximately 1,193
full-time employees, consisting of 489 employees based in the United States, 67
employees based in Canada, 456 employees based in the United Kingdom, 66
employees based in France, 87 employees based in Australia and 28 employees
based in New Zealand. The Company is not a party to any collective bargaining
agreements. The Company believes that its relationships with its employees are
good.
ITEM 2. PROPERTIES
The Company's headquarters and principal manufacturing facility are
located at its 150,000 square-foot facility in Woodland Hills, California. The
Company also operates domestic rental facilities in Woodland Hills, Hollywood,
Chicago, Dallas, Orlando and Wilmington. To service its international markets,
Panavision operates rental facilities in Toronto and Vancouver, Canada, Dublin,
Ireland, London (three) and Manchester, England, Paris, France (two), Sydney,
Brisbane and Melbourne, Australia, Auckland and Wellington, New Zealand,
Jakarta, Indonesia, and Kuala Lumpur, Malaysia. Lee Lighting operates rental
facilities in London, Bristol and Manchester, England and Glasgow, Scotland.
Lee Filters has operations in Burbank, California and Teterboro, New Jersey as
well as a manufacturing facility located in Andover, England. All of the
Company's facilities are leased, with the exception of a small fabricating
facility in Sydney, Australia and its facility located in Glasgow, Scotland,
which are owned.
ITEM 3. LEGAL PROCEEDINGS
The Company is not engaged in any legal proceeding other than ordinary
routine litigation incidental to its business. Panavision does not believe that
any such proceedings currently pending will have a material adverse effect on
its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Panavision Common Stock is listed on the New York Stock Exchange ("NYSE")
under the symbol "PVI." As of March 17, 1999, there were approximately 682
holders of Panavision Common Stock comprised of 32 record holders and 650
beneficial holders.
<TABLE>
<CAPTION>
STOCK SALES PRICES
-----------------------------------
HIGH LOW CLOSING
--------- ---------- ----------
<S> <C> <C> <C>
1998
First Quarter .......... $ 26 3/4 $ 24 7/8 $ 26 5/16
Second Quarter ......... 28 25 11/16 26 1/4
Third Quarter .......... 26 1/4 16 11/16 17 1/4
Fourth Quarter ......... 17 5/16 11 7/8 12 3/8
1997
First Quarter .......... $ 21 3/8 $ 16 3/8 $ 17 3/8
Second Quarter ......... 20 1/2 16 19 15/16
Third Quarter .......... 22 1/4 18 20 7/8
Fourth Quarter ......... 28 1/4 20 7/8 25 13/16
</TABLE>
The Company has never paid a cash dividend on Panavision Common Stock and
does not anticipate paying any cash dividends on Panavision Common Stock in the
foreseeable future. The current policy of the Company's Board of Directors is
to retain earnings to finance the operations and expansion of the Company's
business. In addition, the Company's existing credit agreement restricts the
Company's ability to pay dividends to its stockholders (see Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 7 of Notes to the Consolidated Financial Statements of the
Company).
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from the
Consolidated Financial Statements that have been audited by Ernst & Young LLP,
independent auditors. The information set forth below is not necessarily
indicative of results of future operations, and should be read in conjunction
with Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and related
Notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1998 1997(1) 1996(2) 1995(3) 1994
------------- ----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ................................... $ 192,886 $176,863 $124,638 $ 95,328 $ 77,100
Cost of revenue ........................... 105,068 90,879 59,473 44,369 40,995
---------- -------- -------- -------- --------
Gross margin .............................. 87,818 85,984 65,165 50,959 36,105
Selling, general and administrative
expenses(4) .............................. 54,405 47,575 30,688 28,486 19,210
Research and development expenses ......... 4,539 4,494 4,310 2,986 2,442
Charges in connection with the
Panavision Recapitalization (5) .......... 58,726 -- -- -- --
---------- -------- -------- -------- --------
Operating income (loss) ................... (29,852) 33,915 30,167 19,487 14,453
Net interest expense (5) .................. (28,316) (6,385) (7,435) (5,616) (5,318)
Net other income (expense) (6) ............ 3,369 1,210 (1,425) 415 665
---------- -------- -------- -------- --------
Income (loss) before non-controlling
partners' interest in PILP and
income taxes ............................. (54,799) 28,740 21,307 14,286 9,800
Non-controlling partners' interest in
PILP(7) .................................. -- -- (4,500) (7,348) (879)
---------- -------- -------- -------- --------
Income (loss) before income taxes ......... (54,799) 28,740 16,807 6,938 8,921
Income tax provision ...................... (322) (9,252) (3,536) (1,375) (1,843)
---------- -------- -------- -------- --------
Net income (loss) ......................... $ (55,121) $ 19,488 $ 13,271 $ 5,563 $ 7,078
========== ======== ======== ======== ========
Basic earnings (loss) per share ........... $ (4.35) $ 1.07 $ .94 $ .41 $ .52
========== ======== ======== ======== ========
Diluted earnings (loss) per share ......... $ (4.35) $ 1.03 $ .84 $ .36 $ .46
========== ======== ======== ======== ========
Shares used in computation--Basic ......... 12,673 18,174 14,130 13,706 13,706
Shares used in computation--Diluted ....... 12,673 19,012 15,733 15,277 15,277
DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- -------- -------- -------- --------
BALANCE SHEET DATA:
Total assets .............................. $ 291,757 $281,937 $176,746 $165,751 $149,707
Total current liabilities ................. 33,078 44,334 27,214 25,162 18,230
Long-term debt (5) ........................ 463,605 119,999 55,000 124,678 127,000
Stockholders' equity/(deficiency) (5) ..... (213,765) 109,444 93,018 6,456 922
</TABLE>
- ----------
(1) Includes operating results of the Film Services Group since June 5, 1997,
the date of its acquisition.
(2) Includes operating results of Lee Lighting Limited since its acquisition
effective July 1, 1996.
(3) Includes operating results of Panavision Canada Corporation, a former
agent, since January 20, 1995, the date of its acquisition.
(4) The fourth quarter of 1997 includes approximately $300,000 of legal fees
related to the Panavision Recapitalization and approximately $279,000 for
a payroll tax charge related to the exercise of options.
(5) In connection with the Panavision Recapitalization transaction, the
Company recorded $10.1 million of transaction-related expense and a
compensation charge of $48.6 million, related to the purchase of shares
and retirement of options. Additionally, the Company increased long-term
borrowings outstanding and related interest expense as part of the
Panavision Recapitalization transaction. See Note 2 of Notes to the
Consolidated Financial Statements of the Company included elsewhere in
this Form 10-K.
(6) In the fourth quarter of 1996, deferred financing costs in the amount of
$1.8 million were written off.
(7) In the 1996 Recapitalization, the Company acquired the non-controlling
partners' interest in PILP effective May 8, 1996. Accordingly, there will
be no further allocation of PILP's income to non-controlling partners.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements of Panavision and the Notes thereto included elsewhere in
this Form 10-K.
INTRODUCTION
THE PANAVISION RECAPITALIZATION
On June 4, 1998, as contemplated by (i) an Agreement of Recapitalization
and Merger, dated as of December 18, 1997 (the "Recapitalization Agreement"),
by and among PX Holding Corporation ("PX Holding"), PX Merger Corporation (the
"Merger Sub") and Panavision Inc. (the "Company"), and (ii) an Amended and
Restated Voting and Stockholders Agreement, dated as of April 16, 1998 (the
"Stockholders Agreement"), by and among Warburg Pincus Capital Company, L.P., a
Delaware limited partnership ("Warburg"), the Company and Mafco Holdings Inc.
("Mafco"), a Delaware corporation, the Company consummated a merger whereby
Merger Sub was merged with and into the Company (the "Merger"), with the
Company remaining as the surviving corporation.
Immediately prior to the consummation of the Merger, PX Holding purchased
5,784,199 shares of the Company's common stock, par value $.01 per share
("Panavision Common Stock"), from the Company at a purchase price of $26.69 per
share, or $154.4 million (the "PX Stock Purchase").
In connection with the Merger, holders of in excess of 88% of the shares
of Panavision Common Stock held by shareholders other than Warburg elected to
receive cash for their shares. As a result of the Merger, (i) 5,466,142 shares
of Panavision Common Stock were exchanged for $27.00 per share, or $147.6
million, and (ii) 745,380 shares of Panavision Common Stock were retained by
holders either through election or proration. In addition, as part of the
recapitalization of the Company, Warburg exchanged 88% or 11,190,960 shares, of
the shares of Panavision Common Stock it beneficially owned for Series A
redeemable preferred stock of the Company, which was redeemed immediately after
consummation of the Merger at a price equivalent to $26.50 per share of
Panavision Common Stock.
In addition, pursuant to the Stockholders Agreement, Warburg granted to
Mafco an option to purchase at $30.00 per share of Panavision Common Stock, and
Mafco granted to Warburg an option to sell at $25.00 per share of Panavision
Common Stock, the remaining 1,526,040 Warburg shares ("Warburg Shares") not
exchanged for redeemable preferred stock as described above. On February 1,
1999, PX Holding and Warburg entered into a Stock Purchase Agreement, pursuant
to which (i) the provisions of the Stockholders Agreement relating to the
options in favor of Mafco and Warburg, respectively, were terminated and (ii)
PX Holding agreed to purchase and Warburg agreed to sell the Warburg Shares at
a price of $23.34 per share for an aggregate price of approximately $35.6
million. The transaction closed on February 1, 1999. As of the close of this
transaction, Mafco beneficially owned approximately 91% of the shares of
Panavision Common Stock outstanding.
Concurrently with the Merger, (i) the certificate of incorporation of the
Company was amended and restated in accordance with the terms of the
Recapitalization Agreement and (ii) the bylaws of PX Merger as in effect at the
effective time of the Merger became the bylaws of the Company.
In connection with the Merger, the Company entered into a new credit
agreement with The Chase Manhattan Bank for a maximum commitment amount of
$340.0 million (the "New Credit Agreement"). In addition, the Company assumed
the obligations of PX Escrow Corp. ("PX Escrow"), a wholly owned subsidiary of
PX Holding, under the 95/8% Senior Subordinated Discount Notes due 2006 (the
"Notes") issued by PX Escrow for gross proceeds of $150.0 million in an
offering which was exempt from registration under the Securities Act of 1933,
as amended. The Company has used the net proceeds from the PX Stock Purchase,
borrowings under the New Credit Agreement and the net proceeds from the
issuance of the Notes to retire existing indebtedness, fund the payment of the
cash consideration and the fees and expenses in connection with the Merger and
to provide working capital for the Company.
As a result of the Merger, PX Holding, a wholly owned subsidiary of Mafco,
the sole stockholder of which is Ronald O. Perelman, has acquired an
approximately 91% controlling interest in the Company. Other stockholders own
approximately 9% of Panavision Common Stock.
17
<PAGE>
The Merger has been accounted for as a leveraged recapitalization as there
has been a significant continuation of stockholder ownership.
In the second quarter of 1998, in conjunction with the Panavision
Recapitalization transaction, the Company recorded a compensation charge of
$48.6 million of which $19.0 million related to the purchase of shares
exercised by management and $29.6 million related to the cash settlement of
options. The Company also recorded $10.1 million of transaction expense related
to the Panavision Recapitalization.
Following the Merger pursuant to the Recapitalization Agreement, the
Company and PX Holding entered into a Registration Rights Agreement dated as of
June 5, 1998 (the "Registration Rights Agreement") pursuant to which PX Holding
and certain transferees of Panavision Common Stock held by PX Holding (the
"Holders") have the right to require the Company to register all or part of the
Panavision Common Stock owned by such Holders under the Securities Act of 1933
(a "Demand Registration"). The Company may postpone giving effect to a Demand
Registration for up to a period of 30 days if the Company believes such
registration might have a material adverse effect on any plan or proposal by
the Company with respect to any financing, acquisition, recapitalization,
reorganization or other material transaction, or the Company is in possession
of material non-public information that, if publicly disclosed, could result in
a material disruption of a major corporate development or transaction then
pending or in progress or in other material adverse consequences to the
Company. In addition, the Holders will have the right to participate in
registrations by the Company of its Panavision Common Stock (an "Incidental
Registration") subject, however, to certain rights in favor of the Company to
reduce, or eliminate entirely, the number of shares of Panavision Common Stock
the Holders may have registered in an Incidental Registration. The Company will
pay all out-of-pocket expenses incurred in connection with a Demand
Registration or an Incidental Registration, except for underwriting discounts,
commissions and related expenses attributable to the shares of Panavision
Common Stock sold by such Holders.
THE 1996 RECAPITALIZATION
Panavision is a holding company that owns 100% of the non-voting Class A
and voting Class B limited partnership units of Panavision International, L.P.
("PILP"). All business operations of the Company are conducted within PILP and
other subsidiaries of Panavision. In May 1996, the Company effected a
recapitalization (the "1996 Recapitalization"), pursuant to which, for a total
of $126.1 million in cash, the Company acquired all of the equity interests in
PILP it did not previously own and retired all of PILP's outstanding debt
securities. Prior to the 1996 Recapitalization, certain non-controlling
partners owned 70% of the non-voting Class A and 30% of the voting Class B
limited partnership units of PILP. The non-controlling partners consisted of
members of the bank group that provided PILP's prior credit facility and were
not otherwise affiliated with the Company, PILP or Warburg. The non-controlling
partners acquired their interest in PILP in connection with PILP's prior credit
facility. As a result of the 1996 Recapitalization, the Company owns 100% of
the outstanding interests of PILP and Warburg and management owned 90% and 10%,
respectively, of the common stock of the Company prior to the initial public
offering, described below.
The 1996 Recapitalization was financed by (i) borrowings of $110.0 million
under a new credit facility, (ii) funds from working capital and (iii) loans
from Warburg and management. The loans consisted of subordinated demand notes
of $11,608,000, $580,400, $165,829 and $82,914 issued to Warburg and Messrs.
Scott, Farrand and Marcketta, respectively. These notes were repaid subsequent
to the initial public offering. In addition, effective July 1, 1996, Warburg
contributed substantially all of the assets of Lee Lighting to the Company as a
capital contribution in the amount of $8.0 million and made an additional
capital contribution of $0.8 million in cash.
Prior to the 1996 Recapitalization, the non-controlling partners owned 70%
of the non-voting Class A and 30% of the voting Class B limited partnership
units. However, since the non-controlling partners had a deficit in their
capital accounts at the formation of PILP, such deficit was allocated entirely
to the Company as the general partner of PILP. In addition, PILP's losses for
1991 and 1992 and distributions made by PILP to various taxing authorities on
behalf of the non-controlling partners were charged to the Company's capital
account. In 1993, 1994 and 1995, as PILP generated earnings before the
non-controlling partners' interest, a portion of their interest in those
earnings was allocated to the Company's capital
18
<PAGE>
account to restore the proportionate amount of the non-controlling partners'
deficits and distributions for taxes previously charged to the Company's
capital account. The significant increase in the non-controlling partners'
interest in PILP from $0.9 million in 1994 to $7.3 million in 1995 reflects the
substantial completion of the restoration of the Company's capital account.
Since the 1996 Recapitalization, no additional provision for non-controlling
partners' interest in PILP has been made in the Company's statement of
operations.
INITIAL PUBLIC OFFERING
On November 20, 1996, the Company completed its initial public offering of
4,025,000 shares of Panavision Common Stock at a price of $17 per share which
raised net proceeds of $61.6 million. Of the net proceeds from the offering,
$47.0 million were used to repay bank debt and approximately $12.9 million were
used to repay subordinated notes and accrued interest payable to Warburg and
Messrs. Scott, Farrand and Marcketta. The balance of the net proceeds was
maintained as working capital for ongoing operations.
RECENT ACQUISITIONS
On June 5, 1997, the Company completed its acquisition of the Film
Services Group ("FSG") from Visual Action Holdings plc (the "FSG Acquisition").
FSG includes camera rental operations that rent primarily non-Panavision
manufactured equipment in the United Kingdom, France, Australia and two U.S.
cities, Chicago and Dallas, as well as smaller rental operations in New
Zealand, Malaysia and Indonesia. The majority of the equipment acquired as a
result of these transactions included film cameras, lenses and complementary
product accessories which rent to the film production community. The purchase
price was approximately $61.0 million and was reduced by the amount of certain
debt assumed by the Company.
The acquisition has been recorded under the purchase method of accounting
and the operating results of FSG have been included in the Company's
Consolidated Financial Statements since the acquisition date of June 5, 1997.
The purchase price and direct acquisition costs have been allocated to the
acquired assets and assumed liabilities based on their relative fair values.
The Company provided approximately $6.3 million primarily to cover the
estimated transaction costs, lease cancellations and severance pay related to
the FSG Acquisition. Goodwill of approximately $9.7 million was recognized as
part of the transaction and is being amortized over 30 years.
In July 1996, the Company acquired Lee Lighting, the largest lighting
rental company in the United Kingdom. The acquisition was accounted for using
the purchase method of accounting and therefore, the results of operations of
Lee Lighting since the acquisition date are included in the consolidated
results of operations of the Company.
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's consolidated
historical results of operations for 1998, 1997 and 1996.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Camera rental revenue increased $13.0 million, or 11.1%, to $130.0 million
for the year ended December 31, 1998 from $117.0 million for the year ended
December 31, 1997. The increase was primarily due to the FSG Acquisition in
June 1997, which resulted in increased camera rental revenue of $14.3 million
offset by reduced camera rental revenue at Panavision U.K. of $3.1 million.
Camera rental revenue also increased at Panavision Canada by $0.7 million and
at Panavision Australia by $1.1 million.
Lighting rental revenue decreased $3.3 million, or 10.8%, to $27.3 million
for the year ended December 31, 1998 from $30.6 million for the year ended
December 31, 1997. The decrease was primarily due to decreased lighting rental
revenue at Lee Lighting in the U.K. of $2.9 million, Panavision Canada of $0.4
million, Panavision Australia of $0.2 million and Panavision Florida of $0.6
million, offset by an increase in lighting rental revenue of $0.8 million which
resulted from the FSG Acquisition in June 1997.
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<PAGE>
Sales and other revenue increased $6.3 million, or 21.5%, to $35.6 million
for the year ended December 31, 1998 from $29.3 million for the year ended
December 31, 1997. This increase was primarily due to the FSG Acquisition in
June 1997, which resulted in increased sales and other revenue of $4.8 million,
and increased sales and other revenue at Panavision Australia of $0.9 million,
Lee Filters of $0.8 million and other small increases throughout the Company,
offset by a decrease in sales and other revenue at the Panavision Dallas,
Panavision Chicago and Panavision Florida operations of $0.6 million.
Cost of camera rental increased $10.8 million, or 21.1%, to $62.1 million
for the year ended December 31, 1998 from $51.3 million for the year ended
December 31, 1997. This increase was primarily due to the FSG Acquisition in
June 1997, which resulted in increased cost of camera rental of $6.6 million
and an increase in depreciation cost of $4.1 million related to the addition of
newly manufactured equipment.
Cost of lighting rental decreased $0.7 million, or 3.2 %, to $21.5 million
for the year ended December 31, 1998 from $22.2 million for the year ended
December 31, 1997. This decrease was due to decreased cost of lighting rental
at Lee Lighting in the U.K. of $1.0 million, Panavision Canada of $0.1 million
and other small decreases of $0.3 million, offset by an increase in cost of
lighting rental due to the FSG Acquisition in June 1997, which resulted in
increased cost of lighting rental of $0.7 million.
Cost of sales and other increased $4.0 million, or 23.0%, to $21.4 million
for the year ended December 31, 1998 from $17.4 million for the year ended
December 31, 1997. This increase was primarily due to the FSG Acquisition in
June 1997, which resulted in increased cost of sales and other of $3.1 million
and increased cost of sales and other of $0.7 million at the Lee Filters
operations, and by other slight increases throughout the Company.
Gross margin increased $1.8 million, or 2.1%, to $87.8 million for the
year ended December 31, 1998 from $86.0 million for the year ended December 31,
1997. The increase was primarily due to the factors discussed above. Total
gross margin percentage decreased to 46% in 1998 from 49% in 1997. Camera
rental gross margin percentage decreased to 52% in 1998 from 56% in 1997 due to
the inclusion of twelve months results of the FSG companies in 1998 as compared
to the inclusion of six months results of the FSG companies in 1997. The gross
margin percentage for camera rental revenue for the FSG companies is lower than
that of the Panavision companies. Lighting rental gross margin percentage
decreased to 21% in 1998 from 27% in 1997 due to reduced lighting rental
activity at Lee Lighting in the U.K. Sales and other gross margin percentage
remained constant at 40% for 1998 and 1997.
Selling, general and administrative expenses increased $6.8 million, or
14.3%, to $54.4 million for the year ended December 31, 1998 from $47.6 million
for the year ended December 31, 1997. This increase was primarily due to the
FSG Acquisition in June 1997, which resulted in increased selling, general and
administrative expenses of $6.7 million. The remaining increase was due to
small increases in operating and personnel costs throughout the Company.
Research and development expenses were $4.5 million for the years ended
December 31, 1998 and 1997.
Charges in connection with the Panavision Recapitalization of $58.7
million consist of a compensation charge of $48.6 million and a transaction
expense charge of $10.1 million recorded in the quarter ended June 30, 1998.
The compensation charge resulted from the retirement of options and purchase of
converted stock held by directors, officers and other key management upon
consummation of the Panavision Recapitalization.
Net interest expense increased $21.9 million to $28.3 million for the year
ended December 31, 1998 from $6.4 million for the year ended December 31, 1997.
The increase was due to additional borrowings under the New Credit Agreement
and the Notes in connection with the Panavision Recapitalization.
Net other income and foreign exchange gain (loss) increased $2.2 million
to $3.4 million for the year ended December 31, 1998 from $1.2 million for the
year ended December 31, 1997. The increase was primarily due to the net gain
from the sale of two buildings in the U.K. of $0.8 million, the disposal of
equipment in the ordinary course of business and foreign exchange gain of $0.5
million.
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<PAGE>
Due to the factors discussed above, the Company had a loss before income
taxes of $54.8 million for the year ended December 31, 1998 compared to income
before income taxes of $28.7 million for the year ended December 31, 1997.
The effective tax rates for the years ended December 31, 1998 and 1997
were 0.6% and 32.2%, respectively. The change in the effective tax rate for
December 31, 1998 was primarily due to the elimination of federal and state
income taxes (other than certain state minimum taxes) as a result of additional
interest expense and amortization of deferred charges related to the Panavision
Recapitalization. The Company has not reflected a federal tax benefit relating
to its losses as it is more likely than not that it will not be able to realize
benefit for such losses in the future. In 1997, the effective tax rate was
lower than the statutory rate principally due to the reduction in the valuation
allowance for deferred tax assets.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Camera rental revenue increased $27.2 million, or 30.3%, to $117.0 million
for the year ended December 31, 1997 from $89.8 million for the year ended
December 31, 1996. The increase resulted primarily from the FSG Acquisition,
which resulted in increased camera rental revenue of $23.4 million and from the
rental of newly manufactured camera systems, specialty lenses and accessories
to supply the increased demand in the North American independent feature film,
commercial and episodic television markets as well as the U.K. feature film and
commercial markets.
Lighting rental revenue increased $15.7 million to $30.6 million for the
year ended December 31, 1997 from $14.9 million for the year ended December 31,
1996. The increase was primarily due to improved lighting rental revenue at Lee
Lighting in the U.K. of $12.3 million, which was primarily related to the
comparison of twelve months of Lee Lighting results included in 1997 as
compared to six months results in 1996; and at Panavision Canada of $1.3
million, offset by a slight decrease in lighting rental revenue at Panavision
Florida. The remaining increase of $2.2 million resulted primarily from the FSG
Acquisition in June 1997.
Sales and other revenue increased $9.4 million, or 47.2%, to $29.3 million
for the year ended December 31, 1997 from $19.9 million for the year ended
December 31, 1996. The increase was primarily due to the FSG Acquisition in
June 1997, which resulted in increased sales and other revenue of $8.7 million,
and an increase in sales and other revenue at Lee Lighting in the U.K. of $0.7
million, which was primarily related to the comparison of twelve months of Lee
Lighting results included in 1997 as compared to six months results in 1996.
Cost of camera rental increased $14.0 million, or 37.5%, to $51.3 million
for the year ended December 31, 1997 from $37.3 million for the year ended
December 31, 1996. The increase was primarily due to the FSG Acquisition in
June 1997, which resulted in increased cost of camera rental of $12.7 million,
increased depreciation expense related to additional camera systems of $1.6
million and small decreases in the cost of camera rental at various operations.
Cost of lighting rental increased $12.4 million to $22.2 million for the
year ended December 31, 1997 from $9.8 million for the year ended December 31,
1996. The increase was primarily due to increased cost of lighting rental at
Lee Lighting of $9.9 million, which was primarily related to the comparison of
twelve months of Lee Lighting results included in 1997 as compared to six
months results in 1996, and due to the FSG Acquisition in June 1997, which
resulted in increased cost of lighting rental of $1.6 million. The remaining
increase was due to increased cost of lighting rental at Panavision Canada.
Cost of sales and other increased $5.0 million, or 40.3%, to $17.4 million
for the year ended December 31, 1997 from $12.4 million for the year ended
December 31, 1996. The increase was primarily due to the FSG Acquisition in
June 1997, which resulted in increased cost of sales and other of $4.8 million,
and due to a small increase in cost of sales and other at Lee Lighting.
Gross margin increased $20.8 million, or 31.9%, to $86.0 million for the
year ended December 31, 1997 from $65.2 million for the year ended December 31,
1996. The increase was primarily due to the factors discussed above. Total
gross margin percentage decreased to 49% in 1997 from 52% in 1996. Camera
rental gross margin percentage decreased to 56% in 1997 from 58% in 1996 due to
the acquisition
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<PAGE>
of FSG in June 1997. The gross margin percentage for camera rental revenue for
the FSG companies is lower than that of the Panavision companies. Lighting
rental gross margin percentage decreased to 27% in 1997 from 34% in 1996 due to
the acquisition of Lee Lighting in 1996. The inclusion of twelve months results
of Lee Lighting in 1997 as compared to the inclusion of six months results of
Lee Lighting in 1996 had the effect of lowering the gross margin percentage in
1997. Lee Lighting's gross margin percentage for lighting rental is lower than
for the operations in Canada and Florida, which were the only lighting rental
operations in the Company in 1996 prior to the acquisition of Lee Lighting in
July 1996. Sales and other gross margin percentage increased to 40% in 1997
from 38% in 1996 due to the higher gross margin percentage on sales and other
revenue generated by the FSG companies.
Selling, general and administrative expenses increased $16.9 million, or
55.0%, to $47.6 million for the year ended December 31, 1997 from $30.7 million
for the year ended December 31, 1996. This increase was primarily due to the
FSG Acquisition in June 1997, which resulted in increased selling, general and
administrative expenses of $12.7 million, and increased selling, general and
administrative expenses at Lee Lighting of $1.7 million, which was primarily
related to the comparison of twelve months of Lee Lighting results included in
1997 as compared to six months results in 1996. The remaining increase was also
due to small increases in operating and personnel costs throughout the Company
and the expensing of $0.3 million for a payroll tax charge related to the
exercise of options in December 1997 and the expensing of $0.3 million for
legal fees related to the Panavision Recapitalization.
Research and development expenses increased $0.2 million, or 4.7%, to $4.5
million for the year ended December 31, 1997 from $4.3 million for the year
ended December 31, 1996. The increase related to additional personnel costs
incurred in connection with the development of a new sync-sound camera system
and a digital video assist device. The Company expects research and development
costs to continue to increase as the Company hires additional personnel to
develop new specialty lenses and accessory products targeted primarily to
service the feature film and commercial markets.
Operating income increased $3.7 million, or 12.3%, to $33.9 million for
the year ended December 31, 1997 from $30.2 million for the year ended December
31, 1996. The increase was primarily due to the factors discussed above.
Net interest expense decreased $1.0 million, or 13.5%, to $6.4 million for
the year ended December 31, 1997 from $7.4 million for the year ended December
31, 1996. The decrease was primarily due to reduced borrowing during the first
six months of 1997 and the difference in rates during 1997 as compared to 1996.
The Company's interest expense will increase significantly as a result of the
additional debt to be incurred in connection with the successful completion of
the Panavision Recapitalization.
Net other income increased $2.6 million to $1.2 million for the year ended
December 31, 1997 from net other expense of $1.4 million for the year ended
December 31, 1996. The increase was primarily due to a one time charge of $1.8
million in 1996 to write off deferred financing costs and the recognition of
approximately $0.5 million in unused reserves in 1997, due to the favorable
settlement of termination benefit disputes related to the Company's former
French and Italian operations.
Income before income taxes increased $11.9 million, or 70.8%, to $28.7
million for the year ended December 31, 1997 from $16.8 million for the year
ended December 31, 1996. The increase was due primarily to the factors
discussed above and the elimination of the charge for the non-controlling
partners' interest in PILP which was $4.5 million in 1996.
The effective tax rates for years ended December 31, 1997 and 1996 were
32.2% and 21.0%, respectively. The increase in the effective tax rate for
December 31, 1997 was primarily due to a decrease in the amount of benefit
attributable to NOL and AMT credit carryforwards and a higher effective rate
relating to income from foreign operations. In both years the effective tax
rates were lower than the statutory rate principally due to the reduction in
the valuation allowance for deferred tax assets.
Net income increased $6.2 million, or 46.6%, to $19.5 million for the year
ended December 31, 1997 from $13.3 million for the year ended December 31,
1996. The increase was primarily due to the factors discussed above.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In connection with the Panavision Recapitalization, the Company entered
into a new credit agreement (the "New Credit Agreement"). Borrowings under the
New Credit Agreement were used to, among other things, repay existing
borrowings under the Old Credit Agreement and finance a portion of the
Panavision Recapitalization.
The New Credit Agreement is comprised of two facilities, the Term Facility
and the Revolving Facility. The Term Facility has two tranches: the Tranche A
Term Facility is a 6-year facility in an aggregate principal amount equal to
$90.0 million and the Tranche B Term Facility is a 7-year facility in an
aggregate principal amount of $150.0 million. The Revolving Facility is a
6-year facility in an aggregate principal amount of $100.0 million.
The Tranche A Term Facility is repayable in quarterly installments in an
aggregate principal amount for each year following the Closing Date (as defined
in the New Credit Agreement) (commencing with the second year following the
Closing Date) as follows: $5.0 million; $10.0 million; $20.0 million; $25.0
million; and $30.0 million. The Tranche B Term Facility is repayable in
quarterly installments in an aggregate principal amount for each year following
the Closing Date (commencing with the second year following the Closing Date)
as follows: $1.0 million for years 2 through 5; $21.0 million for year 6; and
$125.0 million for year 7.
Borrowings under the New Credit Agreement bear interest at a rate per
annum equal to the Alternate Base Rate (as defined in the New Credit Agreement)
or the Eurodollar Rate (as defined in the New Credit Agreement) plus, in each
case, a margin that will be based on the performance of the Company at agreed
upon levels. The initial margin on loans under the Revolving Facility and the
Tranche A Term Facility is 2.75% for Eurodollar Loans (as defined in the New
Credit Agreement) and 1.75% for ABR Loans (as defined in the New Credit
Agreement). The initial margin on loans under the Tranche B Term Facility is
3.00% for Eurodollar Loans and 2.00% for ABR Loans. The Company may select
interest periods of one, two, three or six months for Eurodollar Loans. At any
time when the Company is in default in the payment of any amount of principal
due under the New Credit Agreement, such amount will bear interest at 2.00%
above the rate otherwise applicable. Overdue interest, fees and other amounts
will bear interest at 2.00% above the rate applicable to ABR Loans.
At December 31, 1998, borrowings under the New Credit Agreement were
$240.0 million and $65.0 million for the term facilities and the revolving
facility, respectively. The Company's obligations under the New Credit
Agreement are secured by substantially all of the Company's assets. The New
Credit Agreement requires that the Company meet certain financial tests and
other restrictive covenants including maintaining certain total debt, fixed
charge and interest coverage ratio levels. As of December 31, 1998, the Company
was in compliance with all financial covenants of the New Credit Agreement. The
Company's ability to pay dividends to its stockholders is restricted by this
agreement.
In addition to the New Credit Agreement, the Company assumed the
obligations of PX Escrow Corp. ("PX Escrow"), a wholly owned subsidiary of PX
Holding, under the 95/8% Senior Subordinated Discount Notes due 2006 (the
"Notes") issued by PX Escrow for gross proceeds of $150.0 million in an
offering which was exempt from registration under the Securities Act of 1933,
as amended.
The Notes, which have a principal amount at maturity of $217.9 million,
were issued at a discount representing a yield to maturity of 95/8%. Except as
described below, there are no periodic payments or interest on the Notes
through February 1, 2002. Thereafter, the Notes will bear interest at a rate of
95/8% per annum, payable semi-annually on February 1 and August 1 of each year,
commencing August 1, 2002.
On October 8, 1998, the Company filed a registration statement under the
Securities Act of 1933, as amended, related to an offer to exchange (the
"Exchange Offer") the Notes for a like principal amount of notes (the "New
Notes") with substantially identical terms. The Exchange Offer was consummated
on November 13, 1998.
The Company has used the net proceeds from the PX Stock Purchase,
borrowings under the New Credit Agreement and the net proceeds from the
issuance of the Notes to retire existing indebtedness, fund the payment of the
cash consideration and the fees and expenses in connection with the Panavision
Recapitalization transaction and to provide working capital for the Company.
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In conjunction with the purchase of the Film Services Group of Visual
Action Holdings plc on June 5, 1997, the Company entered into a credit
agreement (the "Old Credit Agreement") with Chase Manhattan Bank for a maximum
aggregate amount of $150.0 million. The Credit Agreement provided for a term
loan in the amount of $60.0 million and a revolving credit commitment of up to
$90.0 million. Borrowings under this agreement were used to fund the FSG
Acquisition, refinance loans outstanding under the previous credit agreement
and provide funds for general corporate purposes. On June 4, 1998, all
outstanding debt under the Old Credit Agreement was repaid as part of the
Panavision Recapitalization. In conjunction with the repayment, the Company
recorded a non-cash charge of $1.7 million to write off unamortized deferred
financing costs related to the Old Credit Agreement.
The following table sets forth certain information from the Company's
Consolidated Statements of Cash Flows for the years indicated (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities .......... $ 40,705 $ 50,500 $ 26,432
Investing activities .......... (43,613) (107,506) (33,472)
Financing activities .......... 1,934 57,589 (14,296)
</TABLE>
For the year ended December 31, 1998, cash provided by operating
activities was $40.7 million. Net loss of $55.1 million, adjusted for
depreciation and amortization of $46.3 million, and adjusted for charges in
connection with the Panavision Recapitalization of $58.7 million, provided
$49.9 million, which was decreased by $9.2 million from the net change in
non-cash working capital and miscellaneous items. Total investing activities of
$43.6 million were comprised of capital expenditures of $50.0 million, offset
by $6.4 million of proceeds received from the disposition of fixed assets. The
majority of the capital expenditures were used to manufacture camera rental
systems. Cash provided by financing activities was $1.9 million. Borrowings of
$463.2 million and the contribution by Mafco of $154.4 million were used to
repay outstanding borrowings under the Old Credit Agreement of $129.2 million
in the second quarter and to redeem and retire stock options (net of the
proceeds from the exercise of options) of $481.5 million. In addition,
$3.9 million was used to re-pay a portion of borrowings under the Old Credit
Agreement during the first quarter of 1998.
For the year ended December 31, 1997, cash provided by operating
activities was $50.5 million. Net income of $19.5 million, adjusted for
depreciation and amortization of $26.6 million, provided $46.1 million, which
was partially offset by a use of $4.4 million from the net change in non-cash
working capital and miscellaneous items. Total cash used in investing
activities of $107.5 million was comprised of capital expenditures of $46.7
million, offset by $1.7 million of proceeds received from the disposition of
certain equipment. The majority of the capital expenditures were used to
manufacture camera rental systems and to purchase other rental equipment. The
net investing activities also reflect a use of $58.7 million for business
acquisitions, a use of $5.1 million due to changes in other long-term assets
and a source of $1.3 million from the disposition of the Company's investment
in Aaton, a French camera manufacturing company. Cash provided in financing
activities of $57.6 million was comprised of additional net borrowings of $63.8
million, primarily related to the FSG Acquisition, offset by loans due from
officers and key employees of $7.1 million, and proceeds from the exercise of
options of $0.9 million.
For the year ended December 31, 1996, cash provided by operating
activities was $26.4 million. Net income of $13.3 million, adjusted for
depreciation and amortization of $19.2 million and the non-controlling
partners' interest in PILP of $4.5 million, provided $37.0 million, which was
partially offset by a use of $10.6 million from the net change in non-cash
working capital and miscellaneous items. Total investing activities of $33.5
million were comprised of capital expenditures of $27.8 million, offset by $1.4
million of proceeds received from the disposition of certain equipment. The
majority of the capital expenditures were used to manufacture camera rental
systems and to purchase other rental equipment, with approximately $1.2 million
incurred to complete the leasehold improvements at the new facility in Woodland
Hills. The net investing activities also reflect a benefit of $1.0 million for
cash on the balance sheet of Lee Lighting, which was acquired in July 1996. In
addition, $8.1 million was used to acquire the
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<PAGE>
non-controlling partners' interest in PILP in connection with the 1996
Recapitalization. Cash used in financing activities of $14.3 million was
comprised of the reduction in outstanding borrowings in connection with the
1996 Recapitalization and $1.5 million of distributions to taxing authorities
on behalf of the partners in PILP.
The Company intends to use the cash provided by operating activities to
make additional capital expenditures to manufacture camera systems and purchase
other rental equipment. Additional cash flow provided by operating activities
will be used to repay debt outstanding under the New Credit Agreement. Although
there can be no assurance, the Company believes that its existing working
capital together with borrowings under the New Credit Agreement and anticipated
cash flow from operating activities will be sufficient to meet its expected
operating and capital spending requirements for the foreseeable future. The
Company will not be required to pay interest on the New Notes until August 1,
2002, which management believes will assist the Company in implementing its
growth strategy.
Panavision currently anticipates that in order to pay the principal amount
at maturity of the New Notes or upon the occurrence of an Event of Default (as
defined in the New Notes), to redeem the New Notes or to repurchase the New
Notes upon the occurrence of a Change of Control (as defined in the New Notes),
Panavision will be required to adopt one or more alternatives, such as seeking
capital contributions or loans from its affiliates, refinancing its
indebtedness or selling its equity securities. None of the affiliates of the
Company will be required to make any capital contributions or other payments to
the Company with respect to the Company's obligations on the New Notes, and the
obligations of the Company with respect to the New Notes will not be guaranteed
by any affiliate of the Company or any other person. There can be no assurance
that any of the foregoing actions could be effected on satisfactory terms, that
they would be sufficient to enable the Company to make any payments in respect
of the New Notes when required or that any of such actions would be permitted
by the terms of the Indenture or the debt instruments of Panavision then in
effect.
Panavision is a holding company whose only material asset is the capital
stock of and partnership interests in its subsidiaries. Panavision's principal
business operations are conducted by its subsidiaries, and Panavision has no
operations of its own. Accordingly, Panavision's only source of cash to pay its
obligations is expected to be distributions with respect to its ownership
interests in its subsidiaries. There can be no assurance that Panavision's
subsidiaries will generate sufficient cash flow to pay dividends or distribute
funds to Panavision or that applicable state law and contractual restrictions,
including negative covenants contained in the debt instruments of such
subsidiaries, will permit such dividends or distributions.
SEASONALITY
The Company's revenue and net income are subject to seasonal fluctuations
experienced primarily in the first and second calendar quarters. Feature film
and commercial production activity typically reaches its peak in the third and
fourth quarters. In North America, episodic television programs cease filming
in the second quarter for several months, and typically resume production in
August.
IMPACT OF INFLATION
The Company's results of operations and financial condition are presented
based upon historical cost. While it is difficult to measure accurately the
impact of inflation due to the imprecise nature of the estimates required, the
Company believes that the effects of inflation, if any, on its results of
operations and financial condition have been minor.
MARKET RISK
Panavision is exposed to market risk from changes in foreign currency
exchange rates and interest rates, which could impact its business, results of
operations and financial condition. The Company manages its exposure to these
market risks through its regular operating and financing activities.
As of December 31, 1998 and 1997, Panavision's primary net foreign
currency market exposures include the British pound, French franc, Canadian
dollar, Australian dollar and the New Zealand dollar.
25
<PAGE>
At the present time, the Company does not generally hedge against foreign
currency fluctuation. Management does not foresee nor expect any significant
changes in foreign currency exposure in the near future. However, with the
introduction of the Euro as a common currency for members of the European
Monetary Union scheduled to take place in the Company's fiscal year 1999, the
Company has been unable to determine what impact, if any, the Euro will have on
foreign exchange exposure.
The Company continues to monitor the effects of weakened financial
conditions in the Asia Pacific and other regions and the impact that such
conditions may have on revenue, operating expenses, the valuation of
intercompany balances and on the worldwide economy. Although the Company has
not experienced significant losses to date, such losses, if incurred, could
have a material adverse impact on the Company's business, operating results,
and financial position.
As of December 31, 1998 and 1997, a 10% appreciation in foreign currency
exchange rates from the prevailing market rates would increase the related net
unrealized gain by $1.6 million and $1.2 million, respectively. Conversely, a
10% depreciation in these currencies from the prevailing market rates would
decrease the related net unrealized gain by $1.7 million and $1.3 million, as
of December 31, 1998 and 1997, respectively.
The Company is exposed to changes in interest rates on its variable rate
debt. A hypothetical 10% increase in the interest rates applicable to 1998 and
1997 would have resulted in an increase to interest expense of approximately
$1.8 million and $0.7 million, respectively. Conversely, a hypothetical 10%
decrease in the interest rates applicable to 1998 and 1997 would have decreased
interest expense by approximately $1.8 million and $0.7 million, respectively.
At December 31, 1998, the Company believes that the carrying value of its
amounts payable under the New Credit Agreement approximate fair value based
upon current yields for debt issues of similar quality and terms.
The fair value of Panavision's fixed rate long-term debt is sensitive to
changes in interest rates. Based upon a hypothetical 10% increase in the
interest rate, the market value of the Company's fixed rate debt would be
impacted by a decrease of approximately $4.5 million at December 31, 1998.
Conversely, a 10% decrease in the interest rate would result in an increase in
market value of approximately $4.7 million. Management does not foresee nor
expect any significant changes in its exposure to interest rate fluctuations or
in how such exposure is managed in the future.
Panavision manages its fixed and floating rate debt with the objective of
achieving a mix that management believes is appropriate. To manage this mix in
a cost-effective manner, the Company, from time to time, enters into interest
rate swap agreements, in which it agrees to exchange various combinations of
fixed and/or variable interest rates based upon agreed upon notional amounts.
Panavision had no interest rate swap agreements in effect at December 31, 1998.
Management does not foresee nor expect any significant changes in its exposure
to interest rate fluctuations or in how such exposure is managed.
Under the Old Credit Agreement, the Company had an interest rate
protection agreement to protect the Company from LIBOR increases. The agreement
covered a notional amount of $50.0 million, which expired on June 10, 1998 and
protected the Company from LIBOR increases above 7.37%. Since the floor for
this agreement was 5.50%, in the event of a LIBOR reduction below this floor,
there would have been no benefit to the Company. At December 31, 1997, the
interest rate under the Old Credit Agreement was 7.25%. This interest rate
protection agreement was terminated when the related obligation was repaid on
June 4, 1998, as part of the Panavision Recapitalization.
26
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 problem is the result of computer programs that were written
using two digits rather than four to define the applicable year. Accordingly,
computer programs that have time-sensitive software may recognize a date using
'00' as the year 1900 rather than the year 2000. This could result in complete
system failure or improper operation of systems, such as miscalculations.
Potential problems of this nature could cause disruptions to operations
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar activities. To address the Year 2000
issues, the Company is using a multi-phased concurrent approach. The phases
include awareness, assessment, remediation, validation and implementation.
The Company has completed its awareness and assessment phases of the Year
2000 project at all owned-and-operated locations. These phases centered on the
collection of information worldwide relative to system hardware, software and
programming issues which would need modification or replacement to ensure Year
2000 compliance. The assessment phase of the project with respect to the
Company's major customers and vendors is viewed as an ongoing process. The
Company has received a majority of the responses to its original information
requests circulated in 1998. However, the Company continues to request and
review updated information from certain key vendors and customers regarding the
continuing progress of their Year 2000 projects. At this time, the Company does
not believe that the costs associated with the Year 2000 issues applicable to
our vendors and customers will be material.
The remediation and validation phases of the project are complete as they
relate to the main computer system and programs in operation at the Company's
headquarters in Woodland Hills, California. The main accounting software and
proprietary rental tracking software have been corrected to allow for the Year
2000 issues. At most other entities, the remediation phase is substantially
complete and we are well into the validation phase. Both of these phases are
expected to be complete prior to June 30, 1999. The Company also anticipates
completing the validation phase relative to its major vendors and customers
prior to June 30, 1999. At that time, if there are key vendors who are not Year
2000 compliant, the Company's contingency plan is to locate replacement vendors
whose operations are Year 2000 compliant.
The Company estimates that it will have completed the implementation phase
relative to its internal systems and computer programs prior to June 30, 1999.
The Company currently believes that it will be able to modify, replace or
mitigate its affected systems in time to avoid any material detrimental impact
on its operations.
The Company has incurred immaterial costs to date relative to Year 2000
issues. At this time, the Company does not believe that the upgrade costs
necessary for equipment and software will be material. The Company estimates
that future costs associated with Year 2000 issues may be approximately
$500,000.
While the Company is not presently aware of any significant exposure
relative to its systems not being properly remediated in a timely manner, there
can be no assurance that all Year 2000 remediation processes will be completed
and properly tested before the Year 2000, or that contingency plans will
sufficiently mitigate the risk of a Year 2000 readiness problem. If the Company
determines that it may be unable to remediate and properly test affected
systems in a timely manner, the Company intends to develop appropriate
contingency plans for any critical systems at the time such determination is
made. An interruption of the Company's ability to conduct its business, due to
a Year 2000 readiness problem, could have a material adverse effect on the
Company. However, the amount of potential liability and lost revenue, if any,
cannot be reasonably estimated at this time nor can the Company identify
specifically the most likely worst-case scenario.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K for the year ended December 31, 1998, as
well as certain of the Company's other public documents and statements and oral
statements, contain forward-looking statements that reflect management's
current assumptions and estimates of future performance and economic
conditions. Such statements are made in reliance upon safe harbor provisions of
Private
27
<PAGE>
Securities Litigation Reform Act of 1995. The Company cautions investors that
any forward-looking statements are subject to risks and uncertainties that may
cause actual results and future trends to differ materially from those
projected, stated, or implied by the forward-looking statements.
In addition to factors described in the Company's Securities and Exchange
Commission filings and others, the following factors could cause the Company's
actual results to differ materially from those expressed in any forward-looking
statements made by the Company: (i) fewer than anticipated film starts in North
America and Europe; (ii) more film starts using smaller, less expensive camera
packages; (iii) an inability to execute the Company's growth strategy of
increasing available equipment, developing technologically superior equipment
and expanding its market share; and (iv) difficulties, delays or unanticipated
costs in achieving Year 2000 compliance or unanticipated consequences from non-
compliance by the Company or one or more of its customers, suppliers or other
strategic business partners. The Company assumes no responsibility to update
the forward-looking statements contained in this release.
Panavision Inc. is a leading designer and manufacturer of high-precision
film camera systems, comprising cameras, lenses and accessories for the motion
picture and television industries. Panavision systems are rented through its
domestic and international owned-and-operated facilities and agent network.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
An index to financial statements and required financial statement
schedules is set forth in Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10, 11, 12 and 13 are included in the
Company's 1999 definitive proxy statement under the captions "Director
Nominees," "Executive Compensation," "Security Ownership of Certain Beneficial
Holders," and "Certain Relationships and Related Transactions." Such
information is incorporated herein by reference, pursuant to General
Instruction G (3).
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
(a)(1) & (2) The consolidated financial statements and consolidated financial statement schedule
filed as part of this Annual Report on Form 10-K can be found beginning on page F-1.
(a)(3) See below
(b) Reports on Form 8-K
During the fourth quarter of 1998, the Company did not file any Current Reports on
Form 8-K.
(c) Exhibits
3. CERTIFICATE OF INCORPORATION AND BY-LAWS
3.1* Restated Certificate of Incorporation of the Company.
3.2* Restated By-Laws of the Company.
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES.
4.1** Indenture, dated as of February 11, 1998, between PX Escrow and The Bank of New
York, as Trustee, relating to the Company's 95/8% Senior Subordinated Discount Notes
Due 2006 (the "Indenture").
4.2** First Supplemental Indenture dated June 4, 1998, among PX Escrow, the Company and
the Trustee, amending the Indenture.
4.3 Credit Agreement, dated June 4, 1998, among Panavision Inc., the several lenders
named therein, Chase Securities Inc., as Advisor and Arranger, and The Chase
Manhattan Bank, as Administrative Agent (incorporated herein by reference to the
identically numbered exhibit from the Company's Current Report on Form 8-K dated
June 4, 1998 and filed with the Securities and Exchange Commission on June 19, 1998).
4.4 Assumption Agreement, dated as of June 4, 1998, between PX Escrow Corporation
and Panavision Inc. (incorporated herein by reference to the identically numbered
exhibit from the Company's Current Report on Form 8-K dated June 4, 1998 and filed
with the Securities and Exchange Commission on June 19, 1998).
4.5 Registration Rights Agreement, dated as of June 5, 1998, between Panavision Inc. and
PX Holding Corporation.
4.6 First Amendment, dated as of September 30, 1998, to the Credit Agreement among
Panavision Inc., the several lenders named therein, Chase Securities Inc., as Advisor
and Arranger, and The Chase Manhattan Bank, as Administrative Agent.
10. MATERIAL CONTRACTS.
10.1 Panavision Inc. 1999 Stock Option Plan (incorporated herein by reference from the
Company's 1999 Definitive Proxy Statement).
10.2 Panavision Inc. 1999 Executive Incentive Compensation Plan (incorporated herein by
reference from the Company's 1999 Definitive Proxy Statement).
10.3 Employment Agreement, dated as of January 1, 1999, between Panavision Inc. and
John S. Farrand.
10.4* Lease, dated June 13, 1995, between the Company and Trizec Warner Inc.
10.5 Employment Agreement, dated as of January 1, 1999, between Panavision Inc. and
Joseph P. Page.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
10.7 Agreement, dated May 18, 1997, among Visual Action Holdings plc, Panavision Europe
Limited and the Company (incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K/A Amendment No. 1 to Form 8-K dated
June 5, 1997).
10.8 Agreement, dated May 18, 1997, between Visual Action Holdings plc and the Company
(incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on
Form 8-K/A Amendment No. 1 to Form 8-K dated June 5, 1997).
10.9 Stock Purchase Agreement, dated May 18, 1997, among Visual Action Holdings, Inc.,
Visual Action Holdings plc and the Company (incorporated herein by reference to
Exhibit 2.3 to the Company's Current Report on Form 8-K/A Amendment No. 1 to
Form 8-K dated June 5, 1997).
10.10 Credit Agreement, dated June 5, 1997, among Panavision International, L.P., the
subsidiary guarantors and the lenders listed therein, and The Chase Manhattan Bank,
as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
10.11 Agreement of Recapitalization and Merger, dated as of December 18, 1997, by and
among PX Holding Corporation, PX Merger Corporation and the Company
(incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K dated December 18, 1997).
10.12 Voting and Stockholders Agreement, dated as of December 18, 1997, by and among
Warburg Pincus Capital Company, L.P., the Company and Mafco Holdings Inc.
(incorporated by reference to Exhibit 10.2 to the Company's Current Report of Form
8-K dated December 18, 1997).
10.13** Registration Agreement dated as of February 11, 1998 by and among PX Escrow and
Credit Suisse First Boston Corporation and Schroder & Co. Inc.
10.14 Amended and Restated Voting and Stockholders Agreement dated as of April 16,
1998, by and among Warburg Pincus Capital Company, L.P., Panavision Inc., and Mafco
Holdings Inc. (incorporated herein by reference from the Company's Definitive Proxy
Statement filed with the Securities and Exchange Commission on May 6, 1998).
10.15 Stock Purchase Agreement, dated as of February 1, 1999, between PX Holding
Corporation and Warburg, Pincus Capital Company, L.P.
10.16 Tax Sharing Agreement, dated as of February 1, 1999, between Mafco Holdings Inc.
and Panavision Inc.
21. SUBSIDIARIES.
21.1 Subsidiaries of the Company.
23. CONSENTS
23.1 Consent of Ernst & Young LLP
24. POWERS OF ATTORNEY.
24.1 Power of Attorney executed by Ronald O. Perelman
24.2 Power of Attorney executed by William C. Scott
24.3 Power of Attorney executed by Martin D. Payson
24.4 Power of Attorney executed by Howard Gittis
24.5 Power of Attorney executed by James R. Maher
24.6 Power of Attorney executed by Kenneth Ziffren
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<S> <C>
27. Financial Data Schedule.
99. MISCELLANEOUS.
99.1* Press Release of Panavision Inc. dated June 4, 1998 (incorporated herein by reference
to the identically numbered exhibit from the Company's Current Report on Form 8-K
dated June 4, 1998 and filed with the Securities and Exchange Commission on June 19,
1998).
</TABLE>
- ----------
* Incorporated herein by reference to the identically numbered exhibit to
the Company's Registration Statement on Form S-1, Registration No.
333-12235.
** Incorporated herein by reference to the identically numbered exhibit to
the Company's Registration Statement on Form S-1, Registration No.
333-59363.
31
<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.
PANAVISION INC.
By: /S/ JOHN S. FARRAND
Date: March 19, 1999 --------------------------------
John S. Farrand
President and Chief Executive
Officer and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------- ------- ------
<S> <C> <C>
/s/ * Chairman of the Board and March 19, 1999
- ----------------------------- Director
Ronald O. Perelman
/s/ JOSEPH P. PAGE Vice Chairman, Director, Chief March 19, 1999
- ----------------------------- Administrative Officer and
Joseph P. Page acting Chief Financial Officer
/s/ CHRISTOPHER M.R. PHILLIPS Vice President -- Finance and March 19, 1999
- ----------------------------- Secretary and Principal
Christopher M.R. Phillips Accounting Officer
/s/ * Director March 19, 1999
- -----------------------------
William C. Scott
/s/ * Director March 19, 1999
- -----------------------------
Martin D. Payson
/s/ * Director March 19, 1999
- -----------------------------
Howard Gittis
/s/ * Director March 19, 1999
- -----------------------------
James R. Maher
/s/ * Director March 19, 1999
- -----------------------------
Kenneth Ziffren
</TABLE>
* Christopher M. R. Phillips, by signing his name hereto, does hereby execute
this Form 10-K on behalf of the directors of the Registrant indicated above
by asterisks, pursuant to powers of attorney duly executed by such directors
and filed as exhibits to the Form 10-K.
By: /S/ CHRISTOPHER M. R. PHILLIPS
-----------------------------------
Christopher M. R. Phillips
Attorney-in-fact
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors ........................................ F-2
Consolidated Statements of Operations--Years Ended December 31, 1998, 1997 and 1996 ...... F-3
Consolidated Balance Sheets--December 31, 1998 and 1997 .................................. F-4
Consolidated Statements of Stockholders' Equity/(Deficiency)--Years Ended December 31,
1998, 1997 and 1996 .................................................................... F-5
Consolidated Statements of Cash Flows--Years Ended December 31, 1998, 1997 and 1996 ...... F-6
Notes to Consolidated Financial Statements ............................................... F-7
Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts and Reserves ........................... S-1
</TABLE>
All other schedules are omitted because they are not required by the
regulations or related instructions or are not applicable.
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Panavision Inc.
We have audited the accompanying consolidated balance sheets of Panavision
Inc. as of December 31, 1998 and 1997, and the related consolidated statements
of operations, stockholders' equity/(deficiency), and cash flows for each of
the three years in the period ended December 31, 1998. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Panavision Inc. at December 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, California
February 16, 1999
F-2
<PAGE>
PANAVISION INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
-------------- ----------- ------------
<S> <C> <C> <C>
Camera rental ......................................................... $ 130,019 $117,028 $ 89,785
Lighting rental ....................................................... 27,270 30,562 14,917
Sales and other ....................................................... 35,597 29,273 19,936
---------- -------- --------
Total rental revenue and sales ........................................ 192,886 176,863 124,638
Cost of camera rental ................................................. 62,128 51,271 37,276
Cost of lighting rental ............................................... 21,505 22,169 9,847
Cost of sales and other ............................................... 21,435 17,439 12,350
---------- -------- --------
Gross margin .......................................................... 87,818 85,984 65,165
Selling, general and administrative expenses .......................... 54,405 47,575 30,688
Research and development expenses ..................................... 4,539 4,494 4,310
Charges in connection with the Panavision Recapitalization
(see Note 2) ......................................................... 58,726 -- --
---------- -------- --------
Operating income (loss) ............................................... (29,852) 33,915 30,167
Interest income ....................................................... 3,234 484 747
Interest expense ...................................................... (31,550) (6,869) (8,182)
Foreign exchange gain (loss) .......................................... 439 (105) 368
Other, net ............................................................ 2,930 1,315 (1,793)
---------- -------- --------
Income (loss) before non-controlling partners' interest in PILP and
income taxes ......................................................... (54,799) 28,740 21,307
Non-controlling partners' interest in PILP ............................ -- -- (4,500)
---------- -------- --------
Income (loss) before income taxes ..................................... (54,799) 28,740 16,807
Income tax provision .................................................. (322) (9,252) (3,536)
---------- -------- --------
Net income (loss) ..................................................... $ (55,121) $ 19,488 $ 13,271
========== ======== ========
Basic earnings (loss) per share ....................................... $ (4.35) $ 1.07 $ .94
========== ======== ========
Diluted earnings (loss) per share ..................................... $ (4.35) $ 1.03 $ .84
========== ======== ========
Shares used in computation--Basic ..................................... 12,673 18,174 14,130
Shares used in computation--Diluted ................................... 12,673 19,012 15,733
</TABLE>
See accompanying notes.
F-3
<PAGE>
PANAVISION INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 9,772 $ 11,020
Accounts receivable (net of allowance of $3,391 in 1998 and
$3,959 in 1997) ............................................... 28,716 25,645
Inventories ..................................................... 9,648 8,540
Prepaid expenses ................................................ 3,142 2,968
Notes receivable from officers and key employees ................ -- 7,115
Income tax receivable ........................................... 1,678 3,423
Other current assets ............................................ 415 2,566
---------- ---------
Total current assets ............................................. 53,371 61,277
Property, plant and equipment, net ............................... 213,306 199,038
Deferred tax assets .............................................. -- 2,329
Goodwill ......................................................... 9,858 9,859
Other ............................................................ 15,222 9,434
---------- ---------
Total assets ..................................................... $ 291,757 $ 281,937
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIENCY)
Current liabilities:
Accounts payable ................................................ $ 7,470 $ 9,819
Accrued liabilities ............................................. 20,794 23,745
Deferred tax liabilities ........................................ -- 5,387
Current maturities of long-term debt ............................ 4,814 5,383
---------- ---------
Total current liabilities ........................................ 33,078 44,334
Long-term debt ................................................... 463,605 119,999
Deferred tax liabilities ......................................... 6,862 6,217
Other liabilities ................................................ 1,977 1,943
Commitments and contingencies
Stockholders' equity/(deficiency):
Preferred stock, $.01 par value; 2,000 shares authorized; no
shares issued and outstanding ................................. -- --
Common stock, $.01 par value; 50,000 shares authorized; 8,056
shares issued and outstanding at December 31, 1998, and
18,929 shares issued and outstanding at December 31, 1997 ..... 81 189
Additional paid-in capital ...................................... 168,032 77,053
Retained earnings (accumulated deficit) ......................... (379,264) 34,463
Accumulated other comprehensive loss ............................ (2,614) (2,261)
---------- ---------
Total stockholders' equity/(deficiency) .......................... (213,765) 109,444
---------- ---------
Total liabilities and stockholders' equity/(deficiency) .......... $ 291,757 $ 281,937
========== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PANAVISION INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
RETAINED ACCUMULATED
SHARES ISSUED ADDITIONAL EARNINGS OTHER STOCKHOLDERS'
AND PAID-IN (ACCUMULATED COMPREHENSIVE EQUITY/
OUTSTANDING AMOUNT CAPITAL DEFICIT) INCOME (LOSS) (DEFICIENCY)
--------------- -------- ------------ -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 ........... 13,706 $ 137 $ 4,863 $ 1,704 $ (248) $ 6,456
Comprehensive income:
Net income ........................ -- -- -- 13,271 -- 13,271
Foreign currency translation
adjustment, net of tax ........... -- -- -- -- 2,001 2,001
----------
Comprehensive income ................ 15,272
==========
Compensation recorded in
connection with shares issued
to officers ....................... 424 4 891 -- -- 895
Net proceeds from initial public
offering .......................... 4,025 40 61,585 -- -- 61,625
Contribution of Lee Lighting
assets ............................ -- -- 8,000 -- -- 8,000
Contribution from Warburg ........... -- -- 770 -- -- 770
------ ------ --------- ---------- -------- ----------
Balance at December 31, 1996 ......... 18,155 181 76,109 14,975 1,753 93,018
Comprehensive income:
Net income ........................ -- -- -- 19,488 -- 19,488
Foreign currency translation
adjustment, net of tax ........... -- -- -- -- (4,014) (4,014)
----------
Comprehensive income ................ 15,474
==========
Exercise of options ................. 774 8 944 -- -- 952
------ ------ --------- ---------- -------- ----------
Balance at December 31, 1997 ......... 18,929 189 77,053 34,463 (2,261) 109,444
Comprehensive loss:
Net loss .......................... -- -- -- (55,121) -- (55,121)
Foreign currency translation
adjustment, net of tax ........... -- -- -- -- (353) (353)
----------
Comprehensive loss .................. (55,474)
==========
Contribution from Mafco ............. 5,784 58 154,319 -- -- 154,377
Contribution from Warburg ........... -- -- 3,041 -- -- 3,041
Purchase of shares and
retirement of options ............. (16,657) (166) (66,381) (358,606) -- (425,153)
------- ------ --------- ---------- -------- ----------
Balance at December 31, 1998 ......... 8,056 $ 81 $ 168,032 $ (379,264) $ (2,614) $ (213,765)
======= ====== ========= ========== ======== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PANAVISION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
OPERATING ACTIVITIES ------------- ------------ ------------
<S> <C> <C> <C>
Net income (loss) .................................................... $ (55,121) $ 19,488 $ 13,271
Adjustments to derive net cash provided by operating activities:
Depreciation and amortization ...................................... 33,161 26,573 19,203
Deferred income taxes .............................................. (903) 6,701 (2,031)
Amortization of discount on subordinated notes ..................... 13,105 -- --
Charges in connection with the Panavision Recapitalization ......... 58,726 -- --
Gain on sale of property and equipment ............................. (2,526) (947) (928)
Gain from disposition of investment ................................ -- (328) --
Non-controlling partners' interest in PILP ......................... -- -- 4,500
Stock compensation expense ......................................... -- -- 895
Changes in operating assets and liabilities, net of the effect of
acquisitions:
Accounts receivable ................................................ (3,071) 7,305 (6,644)
Inventories ........................................................ (1,108) (692) (147)
Prepaid expenses and other current assets .......................... 2,212 (1,832) (377)
Accounts payable ................................................... (2,349) (2,030) (4,004)
Accrued liabilities ................................................ (3,179) (4,539) 683
Other, net .......................................................... 1,758 801 2,011
---------- ---------- ----------
Net cash provided by operating activities ............................ 40,705 50,500 26,432
INVESTING ACTIVITIES
Acquisition of non-controlling partners' interest in PILP ........... -- -- (8,126)
Capital expenditures ................................................ (49,992) (46,732) (27,816)
Proceeds from dispositions of fixed assets .......................... 6,379 1,730 1,444
Proceeds from disposition of investment ............................. -- 1,253 --
Business acquisitions, net of cash acquired ......................... -- (58,684) 1,026
Change in other assets .............................................. -- (5,073) --
---------- ---------- ----------
Net cash used in investing activities ................................ (43,613) (107,506) (33,472)
FINANCING ACTIVITIES
Distributions to non-controlling partners in PILP ................... -- -- (1,523)
Borrowings under notes payable and credit agreement ................. 463,248 73,631 110,000
Repayments of notes payable and credit agreement .................... (133,141) (9,014) (176,166)
Net proceeds from initial public offering ........................... -- -- 61,625
Proceeds from exercise of options ................................... -- 952 --
Contribution from Mafco ............................................. 154,377 -- --
Contribution from Warburg ........................................... 3,041 -- 770
Redemption and retirement of stock and stock options. ............... (481,544) -- --
Deferred financing costs ............................................ (11,162) (865) (1,469)
Notes receivable from officers and key employees .................... 7,115 (7,115) --
Repayment of notes payable to affiliates ............................ -- -- (7,533)
---------- ---------- ----------
Net cash provided by (used in) financing activities .................. 1,934 57,589 (14,296)
Effect of exchange rate changes on cash .............................. (274) (192) 280
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ................. (1,248) 391 (21,056)
Cash and cash equivalents at beginning of period ..................... 11,020 10,629 31,685
---------- ---------- ----------
Cash and cash equivalents at end of period ........................... $ 9,772 $ 11,020 $ 10,629
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the period ..................................... $ 17,042 $ 6,417 $ 8,670
Income taxes paid during the period ................................. $ 2,369 $ 2,874 $ 4,267
</TABLE>
See accompanying notes
F-6
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
Panavision Inc. ("Panavision" or the "Company"), a majority owned
subsidiary of Mafco Holdings Inc. ("Mafco" or "Parent") commenced operations
effective June 1, 1991. Prior to the Panavision Recapitalization (See Note 2)
and the 1996 Recapitalization transaction described below, Panavision owned
100% of the general partnership interests, 30% of the non-voting Class A
limited partnership interests and 70% of the voting Class B limited partnership
interests in Panavision International, L.P. ("PILP"), a Delaware limited
partnership. PILP was formed effective June 1, 1991 to own and operate the
camera rental and lighting filters business previously owned by Lee
International Inc. ("LII"), an affiliated company. This transaction was
recorded on a historical cost basis. All of the Company's operations are
conducted through PILP and its subsidiaries.
The consolidated financial statements include the accounts of Panavision,
PILP and PILP's majority-owned subsidiaries. All significant intercompany
amounts and transactions have been eliminated.
Certain amounts in previously issued financial statements have been
reclassified to conform to the 1998 presentation.
Panavision is a leading designer, manufacturer and supplier of
high-precision film camera systems, comprising cameras, lenses and accessories,
for the motion picture and television industries. The Company rents its
products through its owned-and-operated facilities in North America, Europe,
and the Asia Pacific region, as well as through a worldwide agent network. In
addition to manufacturing and renting camera systems, the Company also rents
lighting, lighting grip, power distribution, generation and related
transportation equipment and sells lighting filters and other color correction
and diffusion filters.
The 1996 Recapitalization
In May 1996, the Company effected a recapitalization (the "1996
Recapitalization"), pursuant to which it acquired all of PILP's limited
partnership units it did not previously own and retired all of PILP's
outstanding debt securities, other than those owned by Warburg, Pincus, Capital
Company, L.P. ("Warburg"), for a total of $126.1 million in cash. As part of
the 1996 Recapitalization, Warburg, and senior management loaned the Company
$12.5 million in the form of subordinated debt, and the Company borrowed $110.0
million through a credit arrangement with a group of banks. The balance of the
funds required came from the Company's cash on hand. As a result of the 1996
Recapitalization, the Company owns all of the general and limited partnership
units in PILP. During November 1996, Panavision Inc. completed an initial
public offering of its common stock. A portion of the offering proceeds were
used to retire the loans from Warburg and senior management. The remainder was
contributed to PILP and used to pay down a portion of the Company's bank
borrowings.
Non-controlling Partners' Interest in PILP
The non-controlling partners' interest in PILP represents 70% of the
non-voting Class A limited partnership units and the 30% voting Class B limited
partnership units which Panavision did not own prior to the 1996
Recapitalization. The PILP partnership agreement included provisions for the
allocation of the partnership earnings and losses between Panavision and the
non-controlling partners. However, since the non-controlling partners had a
deficit in their partnership capital accounts as of the inception of PILP, such
deficit was allocated to Panavision, as were PILP's losses for 1991 and 1992.
Certain other distributions made by PILP, in each year for tax payments, have
all been charged against Panavision's interest in PILP and as a reduction of
income in the accompanying consolidated financial statements. Accordingly, as
required under generally accepted accounting principles, the non-controlling
partners'
F-7
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
share of PILP's income for 1993, 1994 and 1995 has been reduced to the extent
of such deficit, losses and distributions. As previously described, in
connection with the 1996 Recapitalization, Panavision has acquired the
non-controlling partners' equity in PILP.
Translation of Foreign Currencies
The functional currency for the Company's foreign subsidiaries is the
local currency. All assets and liabilities denominated in foreign functional
currencies are translated into U.S. dollars at rates of exchange in effect at
the balance sheet date. Statement of operations items are translated at the
average rate of exchange prevailing during the period. Translation gains and
losses are recorded as a component of accumulated other comprehensive
income/(loss) on the Company's statement of stockholders' equity/(deficiency).
Gains and losses resulting from transactions in other than functional
currencies are reflected in operating results.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
original maturity dates of three months or less and investments in money market
funds to be cash equivalents. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
Inventories
Inventories are valued at the lower of cost or market value and are
determined principally under the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment, including rental equipment, are stated at
cost. Maintenance and repairs are charged to expense as incurred. Additions,
improvements and replacements that extend asset life are capitalized.
Depreciation is provided on a straight-line basis over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
shorter of the useful life of the related asset or the remaining lease term.
Cost and accumulated depreciation applicable to assets retired or otherwise
disposed of are eliminated from the accounts, and any gain or loss on such
disposition is reflected in income.
Depreciation is provided principally over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements ......... 10--30 years
Rental assets ...................... 5--20 years
Machinery and equipment ............ 5--10 years
Furniture and fixtures ............. 5--10 years
</TABLE>
Goodwill and Other Intangibles
Goodwill recognized in business combinations accounted for as purchases is
being amortized primarily over 30 years. As of December 31, 1998 and 1997
goodwill is $9.9 million and $9.9 million net of accumulated amortization of
$0.5 million and $0.2 million, respectively. Goodwill amortization expense
amounted to $0.3 million and $0.2 million for 1998 and 1997, respectively.
Goodwill is primarily related to the FSG Acquisition on June 5, 1997.
F-8
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other intangibles such as patents and trademarks are included on the
balance sheet as a component of other assets and are being amortized on a
straight-line basis over their estimated useful lives ranging from 5 to 12
years. Amortization expense amounted to $0.1 million, $0.2 million and $0.3
million for 1998, 1997 and 1996, respectively. Accumulated amortization was
$5.6 million and $5.5 million at December 31, 1998 and 1997, respectively.
Accounting for Long-Lived Assets
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" ("SFAS 121"). Long-lived assets,
such as buildings, equipment and intangibles, are reviewed for impairment
whenever events or changes in circumstances indicate that the net book value of
these assets may not be recoverable.
Accounting for the Costs of Computer Software
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained For Internal Use"
("SOP 98-1"). SOP 98-1 requires capitalization of certain costs incurred in
connection with developing or obtaining internal use software. The Company
adopted the provisions of SOP 98-1 as of 1998. In the prior year, the Company
expensed such costs as incurred. The effect of this accounting change was to
increase income for the year ended December 31, 1998 by approximately $570,000,
or $0.04 per basic and diluted share.
Income Taxes
Income taxes are accounted for using the liability method in accordance
with Statement of Financial Accounting Standard No. 109 "Accounting for Income
Taxes" ("SAFS 109") (see Note 6). Under this method, deferred tax liabilities
and assets are recognized for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. It is the Company's policy not to provide U.S. federal income
taxes on undistributed earnings of foreign subsidiaries, as such earnings, if
any, are intended to be permanently reinvested in those operations. As of
December 31, 1998, the Company's accumulated foreign earnings were
approximately $18,676,000.
Concentration of Credit Risk
Most of the Company's customers are in the entertainment industry. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. The Company does not generally require
collateral. Actual losses and allowances have been within management's
expectations.
Revenue Recognition
Rental revenue is recognized over the related equipment rental period.
Sales revenue is recognized upon shipment. Returns and allowances, which have
not been significant, are provided for in the period of sale.
Comprehensive Income (Loss)
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS 130 had no impact
F-9
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on the Company's net loss or stockholders' deficiency. SFAS 130 requires the
Company's foreign currency translation adjustments, which prior to adoption
were reported separately in stockholders' equity/ (deficiency), to be included
in comprehensive income. Prior year financial statements have been reclassified
to conform to the requirements of SFAS 130.
For the year ended December 31, 1998, 1997 and 1996, comprehensive income
(loss) amounted to $(55,474,000), $15,474,000 and $15,272,000, respectively.
The difference between net income (loss) and comprehensive income (loss)
relates to the Company's change in foreign currency translation adjustments,
net of the related tax effect.
Segment Information
On December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). The new rules establish revised standards
for public companies relating to the reporting of financial and descriptive
information about their business segments in financial statements. The adoption
of SFAS 131 did not have a material effect on the Company's primary financial
statements, but did affect the disclosure of segment information contained in
Note 11 of the Notes to the Consolidated Financial Statements.
Accounting for Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is required to be adopted in fiscal years
beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management anticipates that the adoption of this new statement
will not have a significant effect on earnings or the financial position of the
Company.
Earnings Per Share
During the year ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128. "Earnings Per Share" ("SFAS 128") which
required a change in the method used to compute earnings per share. Under this
standard, primary and fully diluted earnings per share were replaced with
"Basic" and "Diluted" earnings per share. Basic earnings per share amounts
exclude the dilutive effect of potential common shares and are therefore higher
than the primary earnings per share amounts previously presented. For
Panavision, diluted earnings per share amounts under the standard are the same
as primary earnings per share amounts previously presented. As required by SFAS
128, all prior period amounts have been restated to conform to the new
presentation.
Basic earnings per share is based upon the weighted-average number of
common shares outstanding. Diluted earnings per share is based upon the
weighted-average number of common shares and dilutive potential common shares
outstanding. Potential common shares are outstanding options under the
Company's stock option plan, which are included under the treasury stock
method.
The following table sets forth the computation for basic and diluted
earnings per share (in thousands, except per share information):
F-10
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
-------------- ------------ ------------
<S> <C> <C> <C>
Numerator for basic and diluted earnings (loss) per share-net
income (loss) ................................................ $ (55,121) $ 19,488 $ 13,271
---------- -------- --------
Denominator:
Denominator for basic earnings (loss) per share-
weighted-average shares .................................... 12,673 18,174 14,130
Effect of dilutive securities-employee stock options ......... -- 838 1,603
---------- -------- --------
Denominator for diluted earnings (loss) per share-adjusted
weighted-average shares .................................... 12,673 19,012 15,733
Basic earnings (loss) per share ............................... $ (4.35) $ 1.07 $ .94
========== ======== ========
Diluted earnings (loss) per share ............................. $ (4.35) $ 1.03 $ .84
========== ======== ========
</TABLE>
In connection with the Panavision Recapitalization, all outstanding stock
options were settled for cash and therefore, there were no outstanding options
as of December 31, 1998. Options outstanding during the period January 1, 1998
to June 4, 1998 are not included in the 1998 denominator for diluted loss per
share, as they would have been antidilutive. For the years ended December 31,
1997 and 1996, outstanding options to purchase 529,875 shares were excluded
from the respective computations of diluted earnings per share. These options
were excluded from prior year computations as they only vested if the Company
achieved certain EBDIT targets (as defined) in future years.
Stock-Based Benefits
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), recommends that stock awards granted
subsequent to January 1, 1995 be recognized as compensation expense based on
their fair value at the date of grant. Alternatively, a company may use APB 25
"Accounting for Stock Issued to Employees," and disclose the pro forma income
amount which would have resulted from recognizing such awards at their fair
value. The Company will continue to account for stock-based compensation
expense under APB 25 and make the required pro forma disclosures for
compensation.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from such estimates.
2. THE PANAVISION RECAPITALIZATION
On June 4, 1998, as contemplated by (i) an Agreement of Recapitalization
and Merger, dated as of December 18, 1997 (the "Recapitalization Agreement"),
by and among PX Holding Corporation ("PX Holding"), PX Merger Corporation (the
"Merger Sub") and Panavision and (ii) an Amended and Restated Voting and
Stockholders Agreement, dated as of April 16, 1998 (the "Stockholders
Agreement"), by and among Warburg, a Delaware limited partnership, the Company
and Mafco Holdings Inc. ("Mafco"), a Delaware corporation, the Company
consummated a merger whereby Merger Sub was merged with and into the Company
(the "Merger"), with the Company remaining as the surviving corporation.
F-11
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
2. THE PANAVISION RECAPITALIZATION (CONTINUED)
Immediately prior to the consummation of the Merger, PX Holding purchased
5,784,199 shares of the Company's common stock, par value $.01 per share
("Panavision Common Stock"), from the Company at a purchase price of $26.69 per
share, or $154.4 million (the "PX Stock Purchase").
In connection with the Merger, holders of in excess of 88% of the shares
of Panavision Common Stock held by shareholders other than Warburg elected to
receive cash for their shares. As a result of the Merger, (i) 5,466,142 shares
of Panavision Common Stock were exchanged for $27.00 per share, or $147.6
million, and (ii) 745,380 shares of Panavision Common Stock were retained by
holders either through election or proration. In addition, as part of the
recapitalization of the Company, Warburg exchanged 88% or 11,190,960 shares, of
the shares of Panavision Common Stock it beneficially owned for Series A
redeemable preferred stock of the Company, which was redeemed immediately after
consummation of the Merger at a price equivalent to $26.50 per share of
Panavision Common Stock.
In addition, pursuant to the Stockholders Agreement, Warburg granted to
Mafco an option to purchase at $30.00 per share of Panavision Common Stock, and
Mafco granted to Warburg an option to sell at $25.00 per share of Panavision
Common Stock, the remaining 1,526,040 Warburg shares ("Warburg Shares") not
exchanged for redeemable preferred stock as described above. On February 1,
1999, PX Holding and Warburg entered into a Stock Purchase Agreement, pursuant
to which (i) the provisions of the Stockholders Agreement relating to the
options in favor of Mafco and Warburg, respectively, were terminated and (ii)
PX Holding agreed to purchase and Warburg agreed to sell the Warburg Shares at
a price of $23.34 per share for an aggregate price of approximately $35.6
million. The transaction closed on February 1, 1999. As of the close of this
transaction, Mafco beneficially owned approximately 91% of the shares of
Panavision Common Stock outstanding.
Concurrently with the Merger, (i) the certificate of incorporation of the
Company was amended and restated in accordance with the terms of the
Recapitalization Agreement and (ii) the bylaws of PX Merger as in effect at the
effective time of the Merger became the bylaws of the Company.
In connection with the Merger, the Company entered into a new credit
agreement with The Chase Manhattan Bank for a maximum commitment amount of
$340.0 million (the "New Credit Agreement"). In addition, the Company assumed
the obligations of PX Escrow Corp. ("PX Escrow"), a wholly owned subsidiary of
PX Holding, under the 95/8% Senior Subordinated Discount Notes due 2006 (the
"Notes") issued by PX Escrow for gross proceeds of $150.0 million in an
offering which was exempt from registration under the Securities Act of 1933,
as amended. The Company has used the net proceeds from the PX Stock Purchase,
borrowings under the New Credit Agreement and the net proceeds from the
issuance of the Notes to retire existing indebtedness, fund the payment of the
cash consideration and the fees and expenses in connection with the Merger and
to provide working capital for the Company.
As a result of the Merger, PX Holding, a wholly owned subsidiary of Mafco,
the sole stockholder of which is Ronald O. Perelman, has acquired an
approximately 91% controlling interest in the Company. Other stockholders own
approximately 9% of Panavision Common Stock.
The Merger has been accounted for as a leveraged recapitalization as there
has been a significant continuation of stockholder ownership.
In the second quarter of 1998, in conjunction with the Panavision
Recapitalization transaction, the Company recorded a compensation charge of
$48.6 million of which $19.0 million related to the purchase of shares
exercised by management and $29.6 million related to the cash settlement of
options. The Company also recorded $10.1 million of transaction expense related
to the Panavision Recapitalization.
Following the Merger pursuant to the Recapitalization Agreement, the
Company and PX Holding entered into a Registration Rights Agreement dated as of
June 5, 1998 (the "Registration Rights
F-12
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
2. THE PANAVISION RECAPITALIZATION (CONTINUED)
Agreement") pursuant to which PX Holding and certain transferees of Panavision
Common Stock held by PX Holding (the "Holders") have the right to require the
Company to register all or part of the Panavision Common Stock owned by such
Holders under the Securities Act of 1933 (a "Demand Registration"). The Company
may postpone giving effect to a Demand Registration for up to a period of 30
days if the Company believes such registration might have a material adverse
effect on any plan or proposal by the Company with respect to any financing,
acquisition, recapitalization, reorganization or other material transaction, or
the Company is in possession of material non-public information that, if
publicly disclosed, could result in a material disruption of a major corporate
development or transaction then pending or in progress or in other material
adverse consequences to the Company. In addition, the Holders will have the
right to participate in registrations by the Company of its Panavision Common
Stock (an "Incidental Registration") subject, however, to certain rights in
favor of the Company to reduce, or eliminate entirely, the number of shares of
Panavision Common Stock the Holders may have registered in an Incidental
Registration. The Company will pay all out-of-pocket expenses incurred in
connection with a Demand Registration or an Incidental Registration, except for
underwriting discounts, commissions and related expenses attributable to the
shares of Panavision Common Stock sold by such Holders.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Land ................................................... $ 49 $ 877
Buildings and improvements ............................. 15,694 11,771
Rental assets .......................................... 335,308 300,313
Machinery and equipment ................................ 13,252 10,921
Furniture and fixtures ................................. 6,186 4,500
Other .................................................. 1,475 1,294
-------- --------
371,964 329,676
Less accumulated depreciation and amortization ......... 158,658 130,638
-------- --------
$213,306 $199,038
======== ========
</TABLE>
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Finished goods .......... $4,608 $3,983
Work-in-process ......... 100 153
Component parts ......... 1,930 1,607
Supplies ................ 3,010 2,797
------ ------
$9,648 $8,540
====== ======
</TABLE>
F-13
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ----------
<S> <C> <C>
Interest payable .................................................. $ 1,846 $ 653
Professional fees ................................................. 1,784 1,754
Taxes other than income taxes ..................................... 674 2,199
Payroll and related costs ......................................... 5,406 6,425
Leases, severance and other FSG Acquisition related costs ......... 672 4,139
Accrued marketing and other ....................................... 10,412 8,575
------- -------
$20,794 $23,745
======= =======
</TABLE>
6. INCOME TAXES
The provision for income taxes includes the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1998 1997 1996
----------- -------- ----------
<S> <C> <C> <C>
Current provision:
Federal .................................. $ -- $ 76 $ 3,559
State .................................... 50 180 727
Foreign .................................. 1,175 2,295 1,281
-------- ------ --------
Total current provision .................... 1,225 2,551 5,567
-------- ------ --------
Deferred provision (benefit):
Federal .................................. (1,899) 5,039 (1,372)
State .................................... (1,159) 138 (730)
Foreign .................................. 2,155 1,524 71
-------- ------ --------
Total deferred provision (benefit) ......... (903) 6,701 (2,031)
-------- ------ --------
$ 322 $9,252 $ 3,536
======== ====== ========
</TABLE>
For financial statement purposes, income (loss) before income taxes
includes the following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997 1996
------------- ---------- -----------
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic ....................... $ (61,244) $16,546 $ 12,206
Foreign ........................ 6,445 12,194 4,601
--------- ------- --------
$ (54,799) $28,740 $ 16,807
========= ======= ========
</TABLE>
F-14
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
6. INCOME TAXES (CONTINUED)
A reconciliation from the provision for income taxes based on the federal
statutory rate of 35% to the actual rate follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1998 1997 1996
------------- ---------- ----------
<S> <C> <C> <C>
Statutory rate applied to income (loss) before income
taxes ................................................... (35.0)% 35.0% 35.0%
State income taxes, net of federal income tax benefit ..... 0.1 3.1 4.3
Increase (reduction) of valuation allowance ............... 30.0 (8.8) (27.0)
Non-deductible (non-taxable) differences in allocation
of earnings to non-controlling partners ................. -- -- 9.0
Non-deductible items ...................................... 5.2 -- --
Foreign income taxed at varying rates ..................... 2.0 .7 --
Other, net ................................................ ( 1.7) 2.2 ( .3)
----- ---- -----
0.6% 32.2% 21.0%
===== ==== =====
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ -------------
<S> <C> <C>
Deferred tax assets:
Domestic net operating loss carryforwards ............. $ 18,864 $ 4,470
Foreign net operating loss carryforwards .............. -- 1,219
Tax credit carryforwards (primarily alternative minimum
tax credits) ......................................... 10,159 10,387
Expense accruals ...................................... 3,680 4,847
State income taxes .................................... -- 425
Other ................................................. 7,266 172
--------- ---------
Total deferred tax assets ............................... 39,969 21,520
Valuation allowance ..................................... (20,412) (4,023)
--------- ---------
Net deferred tax assets ................................. 19,557 17,497
Deferred tax liabilities:
Fixed assets .......................................... (23,620) (16,990)
Stock based compensation .............................. -- (8,272)
State income taxes .................................... (456)
Other ................................................. (2,343) --
--------- ---------
Total deferred tax liabilities .......................... (26,419) (25,262)
--------- ---------
Net deferred tax liabilities ............................ $ (6,862) $ (7,765)
========= =========
Balance Sheet Classifications:
Current deferred tax assets (included in other current
assets) .............................................. $ -- $ 1,510
Non-current deferred tax assets ....................... -- 2,329
Non-current deferred tax liability .................... (6,862) (6,217)
Current deferred tax liability ........................ -- (5,387)
--------- ---------
$ (6,862) $ (7,765)
========= =========
</TABLE>
F-15
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
6. INCOME TAXES (CONTINUED)
SFAS 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes the Company's recent operating performance
and the reported cumulative net losses in the current and prior year, the
Company has provided a full valuation allowance against its net domestic
deferred tax assets.
The valuation allowance increased by $16,389,000 during the year ended
December 31, 1998. The net increase is a result of unbenefitted net operating
losses and tax credits. The valuation allowance decreased by $2,534,000 during
the year ended December 31, 1997.
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $50.7 million and $8.3 million,
respectively. The net operating loss carryforwards will expire at various dates
beginning in 2007 through 2018, if not utilized. The Company also had federal
alternative minimum tax credit carryforwards of approximately $6.1 million,
which may be used indefinitely, and foreign tax credit carryforwards of
approximately $2.1 million, which expire from 1999 to 2003.
Utilization of the net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation may result in the expiration of the net operating loss
and credit carryforwards before utilization.
7. LONG-TERM DEBT
Long-term debt, including current maturities, consists of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
----------- ----------
<S> <C> <C>
Old Credit Agreement:
Revolving Facility ....................................... $ -- $ 29,500
Term Facility ............................................ -- 60,000
New Credit Agreement:
Revolving Facility ....................................... 65,000 --
Term Facility ............................................ 240,000 --
9 5/8% Senior Subordinated Discount Notes Due 2006 ........ 163,105 --
Other ..................................................... 314 35,882
-------- --------
Total long-term debt, including current maturities .......... $468,419 $125,382
======== ========
</TABLE>
In connection with the Panavision Recapitalization, the Company entered
into a new credit agreement (the "New Credit Agreement"). Borrowings under the
New Credit Agreement were used to, among other things, repay existing
borrowings under the Old Credit Agreement and finance a portion of the
Panavision Recapitalization.
The New Credit Agreement is comprised of two facilities, the Term Facility
and the Revolving Facility. The Term Facility has two tranches: the Tranche A
Term Facility is a 6-year facility in an aggregate principal amount equal to
$90.0 million and the Tranche B Term Facility is a 7-year facility in an
aggregate principal amount of $150.0 million. The Revolving Facility is a
6-year facility in an aggregate principal amount of $100.0 million.
The Tranche A Term Facility is repayable in quarterly installments in an
aggregate principal amount for each year following the Closing Date (as defined
in the New Credit Agreement) (commencing with the second year following the
Closing Date) as follows: $5.0 million; $10.0 million; $20.0 million;
F-16
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
7. LONG-TERM DEBT (CONTINUED)
$25.0 million; and $30.0 million. The Tranche B Term Facility is repayable in
quarterly installments in an aggregate principal amount for each year following
the Closing Date (commencing with the second year following the Closing Date)
as follows: $1.0 million for years 2 through 5; $21.0 million for year 6; and
$125.0 million for year 7.
Borrowings under the New Credit Agreement bear interest at a rate per
annum equal to the Alternate Base Rate (as defined in the New Credit Agreement)
or the Eurodollar Rate (as defined in the New Credit Agreement) plus, in each
case, a margin that will be based on the performance of the Company at agreed
upon levels. The initial margin on loans under the Revolving Facility and the
Tranche A Term Facility is 2.75% for Eurodollar Loans (as defined in the New
Credit Agreement) and 1.75% for ABR Loans (as defined in the New Credit
Agreement). The initial margin on loans under the Tranche B Term Facility is
3.00% for Eurodollar Loans and 2.00% for ABR Loans. The Company may select
interest periods of one, two, three or six months for Eurodollar Loans. At any
time when the Company is in default in the payment of any amount of principal
due under the New Credit Agreement, such amount will bear interest at 2.00%
above the rate otherwise applicable. Overdue interest, fees and other amounts
will bear interest at 2.00% above the rate applicable to ABR Loans.
At December 31, 1998, borrowings under the New Credit Agreement were
$240.0 million and $65.0 million for the term facilities and the revolving
facility, respectively. The Company's obligations under the New Credit
Agreement are secured by substantially all of the Company's assets. The New
Credit Agreement requires that the Company meet certain financial tests and
other restrictive covenants including maintaining certain total debt, fixed
charge and interest coverage ratio levels. As of December 31, 1998, the Company
was in compliance with all financial covenants of the New Credit Agreement. The
Company's ability to pay dividends to its stockholders is restricted by this
agreement.
In addition to the New Credit Agreement, the Company assumed the
obligations of PX Escrow Corp. ("PX Escrow"), a wholly owned subsidiary of PX
Holding, under the 9 5/8% Senior Subordinated Discount Notes due 2006 (the
"Notes") issued by PX Escrow for gross proceeds of $150.0 million in an
offering which was exempt from registration under the Securities Act of 1933,
as amended.
The Notes, which have a principal amount at maturity of $217.9 million,
were issued at a discount representing a yield to maturity of 9 5/8%. Except as
described below, there are no periodic payments or interest on the Notes
through February 1, 2002. Thereafter, the Notes will bear interest at a rate of
9 5/8% per annum, payable semi-annually on February 1 and August 1 of each year,
commencing August 1, 2002.
On October 8, 1998, the Company filed a registration statement under the
Securities Act of 1933, as amended, related to an offer to exchange (the
"Exchange Offer") the Notes for a like principal amount of notes (the "New
Notes") with substantially identical terms. The Exchange Offer was consummated
on November 13, 1998.
The Company has used the net proceeds from the PX Stock Purchase,
borrowings under the New Credit Agreement and the net proceeds from the
issuance of the Notes to retire existing indebtedness, fund the payment of the
cash consideration and the fees and expenses in connection with the Panavision
Recapitalization transaction and to provide working capital for the Company.
The Company believes the carrying value of its amounts payable under the
New Credit Agreement approximate fair value based upon current yields for debt
issues of similar quality and terms. Based upon prevailing market rates in
effect at December 31, 1998, the fair market value of the 9 5/8% Senior
Subordinated Discount Notes would have been $120.0 million.
F-17
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
7. LONG-TERM DEBT (CONTINUED)
The following sets forth the aggregate principal maturities of the
Company's debt during the twelve-month periods ending December 31st (in
thousands):
<TABLE>
<S> <C>
1999 ................ $ 4,814
2000 ................ 9,750
2001 ................ 18,500
2002 ................ 24,750
2003 ................ 44,750
</TABLE>
In conjunction with the purchase of the Film Services Group of Visual
Action Holdings plc on June 5, 1997 (the "FSG Acquisition") (see Note 15), the
Company entered into a credit agreement (the "Old Credit Agreement") with Chase
Manhattan Bank for a maximum aggregate amount of $150.0 million. The Old Credit
Agreement provided for a term loan in the amount of $60.0 million and a
revolving credit commitment of up to $90.0 million. Borrowings under this
agreement were used to fund the FSG Acquisition, refinance loans outstanding
under the previous credit agreement and provide funds for general corporate
purposes. On June 4, 1998, all outstanding debt under the Old Credit Agreement
was repaid as part of the Panavision Recapitalization. In connection with the
repayment, the Company recorded a non-cash charge of $1.7 million to write off
unamortized deferred financing costs related to the Old Credit Agreement.
8. COMMON STOCK
The Board of Directors, in May and November of 1996, declared a 90:1 stock
split and a 1,413:1 stock split, respectively, of the Company's common stock.
All applicable share and per share amounts have been adjusted for the stock
splits.
9. STOCK OPTION PLAN
In connection with the 1996 Recapitalization, the Board of Directors
adopted a stock option plan (the "Plan") which is open to participation by
directors, officers, consultants, and other key employees of the Company or of
its subsidiaries and certain other key persons. The Plan provides for the
issuance of incentive and nonqualified stock options under the Code. An
aggregate of 3,000,000 shares of Panavision Common Stock are reserved for
issuance under the Plan. The options were granted for a term of ten years, five
years in the case of incentive options. If an incentive stock option is granted
to an individual owning more than 10% of the total combined voting power of all
stock, the exercise price of the option may not be less than 110% of the fair
market value of the underlying shares on the date of grant and the term of the
option may not exceed five years. The Plan also provides that the aggregate
fair market value (determined as of the time the option is granted) of
Panavision Common Stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year shall
not exceed $100,000.
In connection with the Panavision Recapitalization (see Note 2), the
Company recorded compensation expense in the amount of $48.6 million as of
December 31, 1998. The compensation charge resulted from the retirement of
options and purchase of converted stock held by directors, officers and other
key management required upon consummation of the Panavision Recapitalization.
Such options and converted stock were retired for $27.00 per share. As a
result, at December 31, 1998, there were no options outstanding or exercisable
under the Plan. Options for 865,950 shares of Panavision Common Stock were
available for grant at December 31, 1997.
In connection with the 1996 Recapitalization, certain members of
management were granted nonqualified options for an aggregate of 1,766,250
shares of Panavision Common Stock exercisable at
F-18
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
9. STOCK OPTION PLAN (CONTINUED)
$1.22 per share. For the year ended December 31, 1996, the exercise price of
these options was less than the deemed fair market value of the Company's
common stock on the date of grant and accordingly the Company recorded an
aggregate non-cash compensation charge of $280,000.
Option information with respect to the Company's stock option plan is as
follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
-------------------------------
WEIGHTED
SHARES RANGE AVG. PRICE
--------------- ----------------- -----------
<S> <C> <C> <C>
Options Outstanding at December 31, 1995 ......... -- -- --
Grants ......................................... 2,135,250 $ 1.22-$17.00 $ 3.95
Exercises ...................................... -- -- --
Cancellations .................................. -- -- --
--------- -------------- ------
Options Outstanding at December 31, 1996 ......... 2,135,250 1.22-17.00 3.95
Grants ......................................... 12,000 17.50 17.50
6,000 17.25 17.25
Exercises ...................................... (773,500) 1.22 1.22
Cancellations .................................. (19,200) 17.00 17.00
------------- --------------- ------
Options Outstanding at December 31, 1997 ......... 1,360,550 1.22-17.50 5.49
Grants ......................................... -- -- --
Exercises ...................................... -- -- --
Cancellations .................................. -- -- --
Retirements (1) ................................ (1,360,550) $ 1.22-$17.50 $ 5.49
------------- --------------- ------
Options Outstanding at December 31, 1998 ......... -- -- --
============= =============== ======
</TABLE>
- ----------
(1) In conjunction with the June 4, 1998 Merger and Panavision Recapitalization
(see Note 2), all outstanding options, which were held by directors,
officers and key employees, were retired for $27.00 per share.
Information regarding stock options exercisable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1998 1997 1996
------ ------------ ------------
<S> <C> <C> <C>
Options Exercisable:
Number .................................. -- 281,597 653,513
Weighted average exercise price ......... -- $ 5.36 $ 1.22
</TABLE>
If the Company recognized employee stock option-related compensation
expense in accordance with SFAS 123 and used the Black-Scholes option valuation
model for determining the weighted average fair value of options granted during
1998, its pro forma net loss and pro forma diluted loss per share would have
been $55,526,000 and $4.38, respectively. The pro forma effect for 1998 is due
to the recognition of the unamoritzed compensation expense related to the 1996
stock options which were retired as part of the Panavision Recapitalization.
During 1997, its pro forma net income and pro forma diluted earnings per share
would have been 19,419,000 and $1.02, respectively. During 1996, pro forma net
income and pro forma diluted earnings per share would have been $13,258,000 and
$.84, respectively. For purposes of the pro forma expense, the weighted average
fair value of the options is amortized over the vesting period. The pro forma
effect on net income (loss) for 1998, 1997 and 1996 may not be representative
of future years' impact. The weighted average fair value of $7.45 for 1997 and
$1.35 for 1996 for stock option grants
F-19
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
9. STOCK OPTION PLAN (CONTINUED)
was estimated at the date of grant using the following assumptions and the
Black-Scholes option valuation model:
<TABLE>
<CAPTION>
1998 1997 1996
------ ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate .......... N/A 6.00% 6.19%
Expected life .................... N/A 5 years 5 years
Expected volatility .............. N/A .38 .17
Expected dividend yield .......... N/A 0.00% 0.00%
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's stock options have
characteristics significantly different from those of traded options such as
vesting restrictions and non-transferability of options. In addition, the
assumptions used in option valuation models are subjective, particularly the
expected stock price volatility for the underlying stock. Because changes in
these subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing model does not provide a
reliable single measure of the fair value of its employee stock options.
In connection with the 1996 Recapitalization (see Note 1), the Company
issued 423,900 shares of Panavision Common Stock to certain members of
management. The Company recorded compensation expense in the amount of $615,000
during the twelve months ended December 31, 1996. The compensation expense
represents the Company's best estimate of the fair market value of the stock as
of the date of issuance, based in part on value attributed to the equity
securities of PILP which were acquired in the 1996 Recapitalization, in an
arms-length transaction.
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution 401(k) plan covering a
majority of its domestic employees. Eligible employees may contribute from 1%
to 16% of their base compensation. The Company makes matching contributions
equal to 75% of employee before-tax contributions from 1% to 6%. For the years
ended December 31, 1998, 1997 and 1996, the Company recorded expense of
$1,185,000, $820,000 and $590,000, respectively, related to the 401(k) plan.
In addition, the Company sponsors a defined contribution retirement plan,
which covers certain foreign employees. Participating employees contribute from
5% to 15% of their base compensation. The Company contributes 13.4% of base
compensation for participating employees regardless of their level of
contribution.
For the years ended December 31, 1998, 1997 and 1996, the Company expensed
$1,030,000, $824,000 and $440,000, respectively, representing the Company's
contributions.
11. GEOGRAPHICAL AND BUSINESS SEGMENT INFORMATION
The Company operates in three major business segments: North America,
Europe and Asia Pacific. These business segments are based upon the manner in
which management of the Company allocates resources and assesses performance of
its owned-and-operated facilities. North America consists of camera rental
facilities in Woodland Hills, Hollywood, Dallas, Chicago, Orlando, Wilmington
and Toronto and Vancouver Canada. In addition to camera rental, Dallas,
Chicago, Orlando and Toronto also provide lighting, lighting grip and power
distribution and generation equipment. The Company also has a Los Angeles
operation that is dedicated to Lee Filters U.S., the Company's domestic
manufacturer of light control media. Europe consists of camera rental
facilities in Dublin, Ireland, three in London and Manchester, England, and
Paris, France. In addition, Europe also includes the Lee Lighting and Lee
F-20
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
11. GEOGRAPHICAL AND BUSINESS SEGMENT INFORMATION (CONTINUED)
Filters operations in the United Kingdom and the lighting filter sales facility
in Paris, France. The Asia Pacific business segment consists of camera rental
facilities in Sydney, Brisbane, and Melbourne, Australia, Auckland and
Wellington, New Zealand, Jakarta, Indonesia and Kuala Lumpur, Malaysia. The
facilities in Australia also provide lighting, lighting grip and power
distribution and generation equipment.
The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes, depreciation and amortization, and
interest ("EBITDA"). Management believes that EBITDA serves as an important
financial analysis tool for measuring financial information such as operating
performance, liquidity and leverage.
The following table presents revenue and other financial information by
business segment (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------------------
NORTH ASIA
AMERICA EUROPE PACIFIC CORPORATE TOTAL
------------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenue from external customers ............. $98,401 $ 75,281 $19,204 -- $ 192,886
Intersegment revenue ........................ 10,286 3,264 -- -- 13,550
Panavision Recapitalization charges ......... -- (1,770) -- $ (56,956) (58,726)
Operating profit (loss) ..................... 20,782 4,663 3,788 (59,085) (29,852)
Interest expense ............................ (2) (112) (57) (31,379) (31,550)
Interest income ............................. 209 111 103 2,811 3,234
Depreciation and amortization ............... 21,271 8,676 2,125 14,194 46,266
Capital expenditures ........................ 35,976 11,616 2,392 8 49,992
Long-lived assets ........................... 163,016 48,703 11,981 -- 223,700
Total assets ................................ 184,173 76,290 16,417 14,877 291,757
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------------
NORTH ASIA
AMERICA EUROPE PACIFIC CORPORATE TOTAL
------------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue from external customers ......... $95,949 $71,496 $ 9,418 -- $176,863
Intersegment revenue .................... 8,977 3,051 -- -- 12,028
Operating profit (loss) ................. 23,100 12,984 802 $ (2,971) 33,915
Interest expense ........................ (5) (144) (38) (6,682) (6,869)
Interest income ......................... 203 171 48 62 484
Depreciation and amortization ........... 18,626 6,335 1,339 273 26,573
Capital expenditures .................... 39,478 6,212 869 173 46,732
Long-lived assets ....................... 148,849 48,871 12,768 160 210,648
Total assets ............................ 171,628 72,918 17,571 19,820 281,937
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------
NORTH ASIA
AMERICA EUROPE PACIFIC CORPORATE TOTAL
----------- ------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue from external customers ......... $ 87,440 $37,198 -- -- $124,638
Intersegment revenue .................... 6,113 3,149 -- -- 9,262
Operating profit (loss) ................. 26,192 6,675 -- $ (2,700) 30,167
Interest expense ........................ (146) (5) -- (8,031) (8,182)
Interest income ......................... 213 56 -- 478 747
Depreciation and amortization ........... 15,919 3,015 -- 269 19,203
Capital expenditures .................... 24,974 2,837 -- 5 27,816
Long-lived assets ....................... 113,021 17,851 -- 18 130,890
Total assets ............................ 132,257 32,558 -- 11,931 176,746
</TABLE>
F-21
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
11. GEOGRAPHICAL AND BUSINESS SEGMENT INFORMATION (CONTINUED)
The accounting policies of the business segments are the same as those
described in Note 1 of the Notes to the Consolidated Financial Statements of
the Company. The Company's income taxes are included in the consolidated
federal income tax return of the Company and its subsidiaries and is allocated
based upon the relative contribution to the Company's consolidated taxable
income/loss and changes in temporary differences. The allocation of taxes is
not evaluated at the segment level and, therefore, the Company does not believe
the information is material to these consolidated financial statements.
Intersegment sales and transfers are recorded at the Company's cost; there is
no intercompany profit or loss on intersegment sales or transfers.
Revenue and operating cost by product groups is presented on the
Consolidated Statements of Operations in the Consolidated Financial Statements
of the Company.
12. COMMITMENTS AND CONTINGENCIES
The Company leases real estate, equipment, and vehicles under
non-cancelable operating leases. Future minimum payments under non-cancelable
operating leases with initial or remaining terms of one year or more are
presented below (in thousands):
<TABLE>
<S> <C>
1999 ...................... $ 6,375
2000 ...................... 5,604
2001 ...................... 5,464
2002 ...................... 5,208
2003 ...................... 4,028
Thereafter ................ 23,409
-------
$50,088
=======
</TABLE>
During the years ended December 31, 1998, 1997 and 1996, rental expense
under operating leases was $6,637,000, $6,054,000 and $3,190,000, respectively.
The Company and its subsidiaries are defendants in actions for matters
arising out of normal business operations. The Company does not believe that
any such proceedings currently pending will have a materially adverse effect on
its consolidated financial position, results of operations, or cash flows.
13. RELATED PARTY TRANSACTIONS
In April 1998 and December 1997, in order to facilitate the payment of
taxes related to the exercise of options, which were issued pursuant to the
Panavision Inc. Stock Option Plan, the Company made advances to certain
officers and key employees in the form of notes. Notes were issued by Messrs.
Scott, Farrand and Marcketta, the Company's Chief Executive Officer, President
and Chief Financial Officer, respectively, in the amount of $400,000,
$1,450,000 and $426,093, respectively in April 1998 and $2,152,503, $3,698,800
and $924,700, respectively in December 1997. The balance of the notes were
issued to other key employees. Interest on the notes compounded semiannually at
the applicable federal rate in effect on the date the notes were issued. The
notes matured and were repaid in full immediately following consummation of the
Panavision Recapitalization. These amounts, issued in December 1997, are
reflected on the Company's consolidated balance sheet as notes receivable from
officers and key employees as of December 31, 1997.
Mr. Farrand, an executive officer of Panavision, was the obligor in
respect of a promissory demand note issued to the Company in January 1987. The
principal amount of and accrued interest on this note were $539,949 and
$55,132, respectively, as of June 4, 1998. The note accrued interest at a rate
of 7.04%
F-22
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
13. RELATED PARTY TRANSACTIONS (CONTINUED)
per annum. This note was originally issued in connection with Mr. Farrand's
purchase of a residence and all principal and interest were repaid at the time
of the Panavision Recapitalization.
Included in other assets at December 31, 1998, 1997 and 1996, is a loan
receivable of $450,000 due in 2003 from Pany Rental, Inc. (dba Panavision New
York), an agent in which the Company acquired a one-third interest during 1994.
In accordance with an agreement, certain administrative services have been
provided by the Company to LII. The amount received by the Company from LII was
$510,000 for the year ended December 31, 1996. The amount received has been
offset against selling, general and administrative expenses in the accompanying
consolidated statements of operations. The agreement with LII expired on
September 30, 1996.
14. QUARTERLY OPERATING DATA (UNAUDITED)
The following is a summary of unaudited quarterly results of operations
(in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------------
FIRST SECOND(1) THIRD FOURTH(2)
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Net sales ................................. $ 43,154 $ 45,955 $50,681 $53,096
Gross margin .............................. 19,061 19,709 24,278 24,770
Net income (loss) ......................... 2,472 (56,557) (731) (305)
Basic earnings (loss) per share ........... $ .13 $ (3.57) $ (.09) $ (.04)
======== ========= ======= =======
Diluted earnings (loss) per share ......... $ .13 $ (3.57) $ (.09) $ (.04)
======== ========= ======= =======
YEAR ENDED DECEMBER 31, 1997
Net sales ................................. $ 31,156 $ 37,688 $55,840 $52,179
Gross margin .............................. 15,327 17,079 28,547 25,031
Net income ................................ 3,518 2,866 7,577 5,527
Basic earnings per share(3) ............... $ .19 $ .16 $ .42 $ .30
======== ========= ======= =======
Diluted earnings per share(3) ............. $ .18 $ .15 $ .39 $ .29
======== ========= ======= =======
</TABLE>
- ----------
(1) The second quarter of 1998 includes the charges in connection with the
Panavision Recapitalization of $58.7 million reflecting a compensation
charge of $48.6 million and a transaction expense charge of $10.1 million
(see Note 2). The second quarter of 1997 includes the operating results
of the FSG companies since June 5, 1997, the date of acquisition.
(2) The fourth quarter of 1997 includes three unusual items totaling
approximately $1.1 million: a foreign exchange loss of approximately
$520,000 due to the decline in the Australia dollar; additional SG&A
costs of approximately $300,000 for legal fees related to the Panavision
Recapitalization; and approximately $279,000 in additional payroll tax
expenses associated with the exercise by management of certain stock
options.
(3) Earnings per share for the first three-quarters of 1997 were restated to
Basic and Diluted earnings per share reflecting the adoption of SFAS 128.
15. BUSINESS COMBINATIONS
On June 5, 1997, the Company completed its acquisition of the Film
Services Group ("FSG") from Visual Action Holdings plc (the "FSG Acquisition").
FSG includes camera rental operations that rent primarily non-Panavision
manufactured equipment in the United Kingdom, France, Australia and two U.S.
cities, Chicago and Dallas, as well as smaller rental operations in New
Zealand, Malaysia and Indonesia. The majority of the equipment acquired as a
result of these transactions included film cameras, lenses and complementary
product accessories which rent to the film production community. The purchase
price was approximately $61.0 million and was reduced by the amount of certain
debt assumed by the Company.
F-23
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
15. BUSINESS COMBINATIONS (CONTINUED)
The acquisition has been recorded under the purchase method of accounting
and FSG's operating results have been included in the Company's Consolidated
Financial Statements since the acquisition date of June 5, 1997. The purchase
price and direct acquisition costs have been allocated to the acquired assets
and assumed liabilities based on their relative fair values. The Company
provided approximately $6.3 million to cover the estimated transaction costs,
lease cancellations and severance pay related to the FSG Acquisition. Goodwill
of approximately $9.7 million was recognized as part of the transaction and is
being amortized over 30 years.
Unaudited pro forma revenue would have increased by $25.9 million for the
twelve months ended December 31, 1997 and by $59.1 million for the twelve
months ended December 31, 1996, and unaudited pro forma net income and diluted
earnings per share would have decreased by $0.3 million and $0.02,
respectively, for the twelve months ended December 31, 1997 and would have
increased by $1.7 million and $0.11, respectively, for the twelve months ended
December 31, 1996 had the acquisition occurred at the beginning of each
respective period.
Effective July 1, 1996, Warburg acquired substantially all of the assets
of Lee Lighting and contributed them to Panavision. The purchase price of $8.0
million approximated the net book value of the assets acquired. The acquisition
of Lee Lighting has been recorded under the purchase method of accounting and
its operating results have been included in the Company's Consolidated
Financial Statements since the acquisition date of July 1, 1996. Lee Lighting
rents lighting equipment, mobile generators and distribution and sells lighting
consumables for the production of feature films, television programs and other
filmed entertainment.
F-24
<PAGE>
PANAVISION INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
BEGINNING ALLOWANCES AMOUNTS BALANCES ENDING
BALANCE ACQUIRED* RESERVED WRITTEN OFF BALANCE
----------- ------------ ---------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
- --------------------------------
December 31, 1998 ............. $3,959 $ -- $1,230 $1,798 $3,391
December 31, 1997 ............. $2,500 $1,508 $ 456 $ 505 $3,959
December 31, 1996 ............. $2,043 $ -- $1,376 $ 919 $2,500
</TABLE>
- ----------
* Amount represents allowance for doubtful account balances acquired through
the FSG Acquisition.
S-1
<PAGE>
EXHIBIT INDEX
(a)(1) & (2) The consolidated financial statements and consolidated financial
statement schedule filed as part of this Annual Report on Form
10-K can be found beginning on page F-1.
(a)(3) See below
(b) Reports on Form 8-K
During the fourth quarter of 1998, the Company did not file any
Current Reports on Form 8-K.
(c) Exhibits
3. CERTIFICATE OF INCORPORATION AND BY-LAWS
3.1* Restated Certificate of Incorporation of the Company.
3.2* Restated By-Laws of the Company.
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
4.1** Indenture, dated as of February 11, 1998, between PX Escrow and
The Bank of New York, as Trustee, relating to the Company's 9 5/8%
Senior Subordinated Discount Notes Due 2006 (the "Indenture").
4.2** First Supplemental Indenture dated June 4, 1998, among PX Escrow,
the Company and the Trustee, amending the Indenture.
4.3 Credit Agreement, dated June 4, 1998, among Panavision Inc., the
several lenders named therein, Chase Securities Inc., as Advisor
and Arranger, and The Chase Manhattan Bank, as Administrative
Agent (incorporated herein by reference to the identically
numbered exhibit from the Company's Current Report on Form 8-K
dated June 4, 1998 and filed with the Securities and Exchange
Commission on June 19, 1998).
4.4 Assumption Agreement, dated as of June 4, 1998, between PX Escrow
Corporation and Panavision Inc. (incorporated herein by reference
to the identically numbered exhibit from the Company's Current
Report on Form 8-K dated June 4, 1998 and filed with the
Securities and Exchange Commission on June 19, 1998).
4.5 Registration Rights Agreement, dated as of June 5, 1998, between
Panavision Inc. and PX Holding Corporation.
4.6 First Amendment, dated as of September 30, 1998, to the Credit
Agreement among Panavision Inc., the several lenders named
therein, Chase Securities Inc., as Advisor and Arranger, and The
Chase Manhattan Bank, as Administrative Agent.
10. MATERIAL CONTRACTS.
10.1 Panavision Inc. 1999 Stock Option Plan (incorporated herein by
reference from the Company's 1999 Definitive Proxy Statement).
10.2 Panavision Inc. 1999 Executive Incentive Compensation Plan
(incorporated herein by reference from the Company's 1999
Definitive Proxy Statement).
10.3 Employment Agreement, dated as of January 1, 1999, between
Panavision Inc. and John S. Farrand.
10.4* Lease, dated June 13, 1995, between the Company and Trizec Warner
Inc.
10.5 Employment Agreement, dated as of January 1, 1999, between
Panavision Inc. and Joseph P. Page.
<PAGE>
10.7 Agreement, dated May 18, 1997, among Visual Action Holdings plc,
Panavision Europe Limited and the Company (incorporated herein by
reference to Exhibit 2.1 to the Company's Current Report on Form
8-K/A Amendment No. 1 to Form 8-K dated June 5, 1997).
10.8 Agreement, dated May 18, 1997, between Visual Action Holdings plc
and the Company (incorporated herein by reference to Exhibit 2.2
to the Company's Current Report on Form 8-K/A Amendment No. 1 to
Form 8-K dated June 5, 1997).
10.9 Stock Purchase Agreement, dated May 18, 1997, among Visual Action
Holdings, Inc., Visual Action Holdings plc and the Company
(incorporated herein by reference to Exhibit 2.3 to the Company's
Current Report on Form 8-K/A Amendment No. 1 to Form 8-K dated
June 5, 1997).
10.10 Credit Agreement, dated June 5, 1997, among Panavision
International, L.P., the subsidiary guarantors and the lenders
listed therein, and The Chase Manhattan Bank, as Administrative
Agent (incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997).
10.11 Agreement of Recapitalization and Merger, dated as of December
18, 1997, by and among PX Holding Corporation, PX Merger
Corporation and the Company (incorporated herein by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated
December 18, 1997).
10.12 Voting and Stockholders Agreement, dated as of December 18, 1997,
by and among Warburg Pincus Capital Company, L.P., the Company
and Mafco Holdings Inc. (incorporated by reference to Exhibit
10.2 to the Company's Current Report of Form 8-K dated December
18, 1997).
10.13** Registration Agreement dated as of February 11, 1998 by and among
PX Escrow and Credit Suisse First Boston Corporation and Schroder
& Co. Inc.
10.14 Amended and Restated Voting and Stockholders Agreement dated as
of April 16, 1998, by and among Warburg Pincus Capital Company,
L.P., Panavision Inc., and Mafco Holdings Inc. (incorporated
herein by reference from the Company's Definitive Proxy Statement
filed with the Securities and Exchange Commission on May 6,
1998).
10.15 Stock Purchase Agreement, dated as of February 1, 1999, between
PX Holding Corporation and Warburg Pincus, Capital Company, L.P.
10.16 Tax Sharing Agreement, dated as of February 1, 1999, between
Mafco Holdings Inc. and Panavision Inc.
21. SUBSIDIARIES.
21.1 Subsidiaries of the Company.
23. CONSENTS
23.1 Consent of Ernst & Young LLP
24. POWERS OF ATTORNEY.
24.1 Power of Attorney executed by Ronald O. Perelman
24.2 Power of Attorney executed by William C. Scott
24.3 Power of Attorney executed by Martin D. Payson
24.4 Power of Attorney executed by Howard Gittis
24.5 Power of Attorney executed by James R. Maher
24.6 Power of Attorney executed by Kenneth Ziffren
<PAGE>
27. Financial Data Schedule
99. MISCELLANEOUS.
99.1* Press Release of Panavision Inc. dated June 4, 1998 (incorporated
herein by reference to the identically numbered exhibit from the
Company's Current Report on Form 8-K dated June 4, 1998 and filed
with the Securities and Exchange Commission on June 19, 1998).
- --------------
* Incorporated herein by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-1, Registration No. 333-12235.
** Incorporated herein by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-1, Registration No. 333-59363.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of June 5, 1998, among
Panavision Inc., a Delaware corporation (the "Company"), and PX Holding
Corporation, a Delaware corporation ("PX Holding").
WHEREAS, the Company, PX Holding and PX Merger Corporation, a Delaware
corporation, a Delaware corporation, have entered into an Agreement of
Recapitalization and Merger, dated as of December 18, 1997 (the "Merger
Agreement"), pursuant to which, among other things, the Company will issue to
the PX Holding shares of its common stock, par value $0.01 per share (the
"Common Stock");
WHEREAS, the Board of Directors of the Company has authorized the
officers of the Company to execute and deliver this Agreement in the name and
on behalf of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties to this Agreement hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Holder" means PX Holding and any other person that owns
Registrable Securities, including their respective successors and assigns who
acquire Registrable Securities, directly or indirectly, from PX Holding or such
other person, respectively. For purposes of this Agreement, the Company may
deem and treat the registered holder of a Registrable Security as the Holder
and absolute owner thereof, and the Company shall not be affected by any notice
to the contrary.
"Registrable Securities" means (a) any shares of Common Stock
issued in accordance with Section 5.4 of the Merger Agreement upon consummation
of the Merger (b) any shares of Common Stock acquired by PX Holding the open
market at a time when such party is deemed to be an "affiliate" (as such term
is defined under Rule 144 under the Securities Act) of the Company and (c) any
securities issued or issuable in respect of the Common Stock referred to in
clauses (a)and (b) above, by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, reclassification,
merger or consolidation, and any other secu-
<PAGE>
rities issued pursuant to any other pro rata distribution with respect to such
Common Stock. For purposes of this Agreement, a Registrable Security ceases to
be a Registrable Security when (x) it has been effectively registered under
the Securities Act and sold or distributed to the public in accordance with an
effective registration statement covering it (and has not been reacquired in
the manner described in clause (c) above), or (y) it is sold or distributed to
the public pursuant to Rule 144 (or any successor or similar provision) under
the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
2. Demand Registration. (a) If at any time any Holder shall request
the Company in writing to register under the Securities Act all or a part of
the Registrable Securities held by such Holder (a "Demand Registration"), the
Company shall use all reasonable efforts to cause to be filed and declared
effective as soon as reasonably practicable (but in no event later than the
45th day after such Holder's request is made) a registration statement
providing for the sale of all such Registrable Securities by such Holder. The
Company agrees to use its reasonable efforts to keep any such registration
statement continuously effective and usable for resale of Registrable
Securities for so long as the Holder whose Registrable Securities are included
therein shall request. The Company shall be obligated to file registration
statements pursuant to this Section 2(a) until all Registrable Securities have
ceased to be Registrable Securities. Each registration statement filed pursuant
to this Section 2(a) is hereinafter referred to as a "Demand Registration
Statement." The Company may, if permitted by law, effect any registration
pursuant to this Section 2(a) by the filing of a registration statement on Form
S-3. However, if such registration involves an underwritten public offering and
the managing underwriter(s) at any time shall notify the Company in writing
that, in the sole judgment of such managing under writer(s), inclusion of some
or all of the information required in a more detailed form specified in such
notice is of material importance to the success of the public offering of such
Registrable Securities, the Company shall use all reasonable efforts to
supplement or amend the registration statement to include such information.
(b) The Company agrees (i) not to effect any public or
private sale, distribution or purchase of any of its securities which are the
same as or similar to the Registrable Securities, including a sale pursuant to
Regulation D under the Securities Act, during the 15-day period prior to, and
during the 45-day period beginning on, the closing date of each underwritten
offering under any Demand
2
<PAGE>
Registration Statement, and (ii) to use reasonable efforts to cause each holder
of its securities purchased from the Company, at any time on or after the date
of this Agreement (other than in a registered public offering) to agree not to
effect any public sale or distribution of any such securities during such
period, including a sale pursuant to Rule 144 under the Securities Act.
(c) The Company may postpone for a reasonable period of time,
not to exceed 30 days, the filing or the effectiveness of any Demand
Registration Statement if (i) the Board of Directors of the Company in good
faith determines that (A) such registration would have a material adverse
effect on any plan or proposal by the Company with respect to any financing,
acquisition, recapitalization, reorganization or other material transaction, or
(B) the Company is in possession of material non-public information that, if
publicly disclosed, would result in a material disruption of a major corporate
development or transaction then pending or in progress or in other material
adverse consequences to the Company, and (ii) the Company so notifies the
Holder(s) within five days after the Holder(s) requests such registration. The
Company's right to defer the filing of a registration statement pursuant to the
provisions of the preceding sentence may not be exercised more than once during
any 12 month period.
(d) If at any time any Holder of Registrable Securities to be
covered by a Demand Registration Statement desires to sell Registrable
Securities in an underwritten offering, such Holder shall have the right to
select any nationally recognized investment banking firm(s) to administer the
offering, subject to the approval of the Company, which approval shall not be
unreasonably withheld, and the Company shall enter into underwriting agreements
with the underwriter(s) of such offering, which agreements shall contain such
representations and warranties by the Company, and such other terms, conditions
and indemnities as are at the time customarily contained in underwriting
agreements for similar offerings and the Company shall take or cause to be
taken all such other actions as are reasonably requested by the managing
underwriter(s) in order to expedite or facilitate the regis tration and
disposition of the Registrable Securities, including, without limitation,
causing management to participate in "road show" presentations.
3. Incidental Registration. Subject to the terms and conditions set
forth in this Section 3, if the Company proposes at any time to register any
common equity securities (the "Initially Proposed Shares") under the Securities
Act for sale, whether or not for its own account, pursuant to an underwritten
offering, the Company will promptly give written notice to the Holders of its
intention to effect such registration (such notice to specify, among other
things, the proposed offering
3
<PAGE>
price, the kind and number of securities proposed to be registered and the
distribution arrangements, including identification of the underwriter(s)), and
the Holders shall be entitled to include in such registration statement, as a
part of such underwritten offering, such number of shares (the "Holder Shares")
to be sold for the account of the Holders (on the same terms and conditions as
the Initially Proposed Shares) as shall be specified in a request in writing
delivered to the Company within 15 days after the date upon which the Company
gave the aforementioned notice.
The Company's obligations to include Holder Shares in a
registration statement pursuant to this Section 3 is subject to each of the
following limitations, conditions and qualifications:
i) If, at any time after giving written notice of
its intention to effect a registration of any of its common equity
securities and prior to the effective date of any registration
statement filed in connection with such registration, the Company
shall determine for any reason not to register all of such shares, the
Company may, at its election, give written notice of such
determination to the Holders and thereupon it shall be relieved of its
obligation to use any efforts to register any Holder Shares in
connection with such aborted registration (but not from its obligation
to pay the Registration Expenses (as defined herein) in connection
therewith).
ii) If the managing underwriter(s) of such offering
shall notify in writing the Company and each Holder who shall have
requested the inclusion of Registrable Securities in such
underwritten offering that, in the good faith judgment of such
managing underwriter(s), the distribution of all or a specified
portion of the Holder Shares would materially interfere with the
registration and sale, in accordance with the intended method thereof,
of the Initially Proposed Shares, then the number of Holder Shares to
be included in such registration statement shall be reduced to such
number, if any, that, in the good faith judgment of such managing
underwriter(s), can be included without such interference. If, as a
result of the cutback provisions of the preceding sentence, the
Holders are not entitled to include all of the Holder Shares in such
registration, such Holders may elect to withdraw their request to
include Holder Shares in such registration.
If the Company shall so request in writing, each Holder
agrees not to effect any public or private sale or distribution of any
Registrable Securities (other than the Holder Shares) during the 15-day period
prior to and during the 45-day
4
<PAGE>
period beginning on, the closing date of any underwritten public offering of
shares of Common Stock made for the Company's own account.
4. Registration Procedures. (a) Whenever the Company is required to
use all reasonable efforts to effect the registration of any Registrable
Securities under the Securities Act pursuant to the terms and conditions of
Section 2(a) or 3 (such Registrable Securities being hereinafter referred to as
"Subject Shares"), the Company will use all reasonable efforts to effect the
registration and sale of the Subject Shares in accordance with the intended
method of disposition thereof. Without limiting the generality of the
foregoing, the Company will as soon as practicable:
i) furnish to each Holder of Subject Shares (a
"Participating Holder") and to each managing underwriter, if any, a
reasonable time in advance of their filing with the SEC, any
registration statement, amendment or supplement thereto, and any
prospectus used in connection therewith, and each Participating Holder
shall have the opportunity to object to any informa tion pertaining to
such Participating Holder and its plan of distribution that is
contained therein and the Company will make the corrections reasonably
re quested by such Participating Holder with respect to such
information prior to filing any such registration statement or any
amendment or supplement thereto; and furnish a copy of any and all
transmittal letters or other corre spondence with the SEC or any other
governmental agency or self-regulatory body or other body having
jurisdiction (including any domestic or foreign securities exchange)
relating to such offering of Registrable Securities;
ii) prepare and file with the SEC a registration
statement with respect to the Subject Shares in form and substance
satisfactory to the Participating Holders, and use all reasonable
efforts to cause such registration statement to become effective as
soon as possible;
iii) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective for the applicable period and to comply with the
provisions of the Securities Act with respect to the disposition of
all Subject Shares and other securities covered by such registration
statement;
iv) furnish each Participating Holder and each
managing underwriter, if any, without charge, such number of copies of
such registra-
5
<PAGE>
tion statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference
therein) and the prospectus included in such registration statement
(including each preliminary prospectus and prospectus supplement) and
any other prospectus filed under Rule 424 promulgated under the
Securities Act relating to the Registrable Securities and such other
documents as such Participating Holder or such underwriter may
reasonably request;
v) after the filing of the registration statement,
promptly notify each Participating Holder and each managing
underwriter, if any, of any stop order issued or, to the knowledge of
the Company, threatened to be issued by the SEC;
vi) use all reasonable efforts to register or
qualify the Subject Shares covered by such registration statement
under the securities or blue sky laws of such jurisdictions (including
any foreign country or any political subdivision thereof) as the
managing underwriter(s) shall reasonably recommend, and do any and
all other acts and things which may be reasonably necessary or
advisable to enable the Participating Holders to consummate the
disposition in such jurisdictions of the Subject Shares covered by
such registration statement, except that the Company shall not for any
such purpose be required to (A) qualify generally to do business as a
foreign corporation in any jurisdiction wherein it is not so
qualified, (B) subject itself to taxation in any jurisdiction wherein
it is not so subject, or (C) consent to general service of process in
any such jurisdiction or otherwise take any action that would subject
it to the general jurisdiction of the courts of any jurisdiction in
which it is not so subject;
vii) promptly inform each Participating Holder and
the managing underwriter(s), if any (x) in the case of any offering of
the Registrable Securities in respect of which a registration
statement is filed under the Securities Act, of the date on which a
registration statement or any post-effective amendment thereto has
been filed and when the same has become effective and, if applicable,
of the date of filing a Rule 430A prospectus, (y) of any written
comments from the SEC with respect to any filing referred to in clause
(x) and of any request by the SEC, any securities exchange, govern
ment agency, self-regulatory body or other body having jurisdiction
for any amendment of or supplement to any registration statement or
preliminary prospectus or prospectus included therein or any offering
memorandum or other offering document relating to such offering or (z)
of the receipt by the
6
<PAGE>
Company of any notification with respect to the suspension of the
qualification of any Registrable Securities for sale under the
applicable securities or blue sky laws of any jurisdiction;
viii) otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the SEC;
ix) provide a transfer agent and registrar for all
Registrable Securities covered by such registration statement not
later than the effective date of such registration statement;
x) furnish, at the Company's expense, unlegended
certificates representing ownership of the securities being sold in
such denominations as shall be requested and instruct the transfer
agent to release any stop transfer orders with respect to the Subject
Shares being sold;
xi) notify each Participating Holder at any time
when a prospectus relating to the Subject Shares is required to be
delivered under the Securities Act of the happening of any event as a
result of which the prospectus included in such registration statement
contains any untrue state ment of a material fact or omits to state a
material fact necessary to make the statements therein (in the case of
the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and the
Company will, as promptly as practicable thereafter, prepare and file
with the SEC and furnish a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of Subject Shares
such prospectus will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the
prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading;
xii) enter into customary agreements (including an
underwriting agreement in customary form in the case of an
underwritten offering) and make such representations and warranties to
the sellers and underwriter(s) as in form and substance and scope are
customarily made by issuers to underwriters in underwritten offerings
and take such other actions as the Holders or the managing
underwriter(s) or agent, if any, reasonably require in order to
expedite or facilitate the disposition of such Subject Shares. A
Participating Holder may, at its option, require that any or all of
7
<PAGE>
the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of such underwriter(s)
also be made to and for the benefit of the Participating Holder, and
that any or all of the conditions precedent to the obligations of such
underwriter(s) under such underwriting agreement also be conditions
precedent to the obligations of the Participating Holder;
xiii) make available for inspection by the
Participating Holders, any underwriter or agent participating in any
disposition pursuant to such registration statement, and any attorney,
accountant or other similar professional advisor retained by any such
Participating Holders or underwriter (collectively, the "Inspectors"),
all pertinent financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records"),
as shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's officers, directors
and employees to supply all information reasonably requested by any
such Inspector in connection with such registration statement;
xiv) make available senior management personnel of
the Company to participate in, and cause them to cooperate with the
underwriter(s) in connection with, "road show" and other customary
marketing activities, including "one-on-one" meetings with prospective
purchasers of the Subject Shares;
xv) obtain for delivery to the Company, the
underwriter(s) or their agent, with copies to the Participating
Holders, a "cold comfort" letter from the Company's independent public
accountants in customary form and covering such matters of the type
customarily covered by "cold comfort" letters as the Participating
Holders or the managing underwriter(s) reasonably request;
xvi) obtain for delivery to the Participating
Holders and the underwriter(s) or their agent an opinion or opinions
from counsel for the Company in customary form and reasonably
satisfactory to the Participating Holders, underwriters or agents and
their counsel;
xvii) make available to its security holders
earnings statements, which need not be audited, satisfying the
provisions of Section 11(a) of the Securities Act no later than
90 days after the end of the 12-month
8
<PAGE>
period beginning with the first month of the Company's first quarter
commencing after the effective date of the registration statement,
which earnings statements shall cover said 12-month period;
xviii) make every reasonable effort to prevent the
issuance of any stop order suspending the effectiveness of the
registration statement or of any order preventing or suspending the
effectiveness of such registration statement at the earliest possible
moment;
xix) cause the Subject Shares to be registered
with or approved by such other governmental agencies or authorities
(including foreign governmental agencies and authorities) as may be
necessary to enable the sellers thereof or the underwriters(s), if
any, to consummate the disposi tion of such Subject Shares;
xx) cooperate with the Holders and the managing
underwriter(s), if any, or any other interested party (including any
interested broker-dealer) in making any filings or submission required
to be made, and the furnishing of all appropriate information in
connection therewith, with the National Association of Securities
Dealers, Inc. ("NASD");
xxi) cause its subsidiaries to take action
necessary to effect the registration of the Subject Shares
contemplated hereby, including filing any required financial
information;
xxii) effect the listing of the Subject Shares on
the New York Stock Exchange or such other national securities exchange
or over-the-counter market on which shares of the Common Stock shall
then be listed; and
xxiii) take all other steps necessary to effect the
registration of the Subject Shares contemplated hereby.
(b) The Holders shall provide (in writing and signed by the Holders
and stated to be specifically for use in the related registration statement,
preliminary prospectus, prospectus or other document incident thereto) all such
information and materials and take all such action as may be required in order
to permit the Company to comply with all applicable requirements of the SEC and
any applicable state securities laws and to obtain any desired acceleration of
the effective date of any registration statement prepared and filed by the
Company pursuant to this
9
<PAGE>
Agreement.
(c) The Holders shall, if requested by the Company or the managing
underwriter(s) in connection with any proposed registration and distribution
pursuant to this Agreement, (i) agree to sell the Subject Shares on the basis
provided in any underwriting arrangements entered into in connection therewith
and (ii) complete and execute all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents customary in similar
offerings; provided, however, that in no event shall a Participating Holder be
required to make any representations or warranties to or agreements with the
Company or the underwriter(s) other than representations, warranties or
agreements regarding the Participating Holder and its ownership of the
securities being registered on its behalf and its intended method of
distribution and any other representation required by law.
(d) Upon receipt of any notice from the Company that the Company has
become aware that the prospectus (including any preliminary prospectus)
included in any registration statement filed pursuant to Section 2(a) or
Section 3, as then in effect, contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, the Holders shall forthwith
discontinue disposition of Subject Shares pursuant to the registration
statement covering the same until the Holders' receipt of copies of a
supplemented or amended prospectus and, if so directed by the Company, deliver
to the Company (at the Company's expense) all copies other than permanent file
copies then in the Holder's possession, of the prospectus covering the Subject
Shares that was in effect prior to such amendment or supplement.
(e) The Company shall pay all Registration Expenses. For purposes of
this Agreement, "Registration Expenses" shall mean all expenses incident to
the Company's performance of or compliance with its obligations under this
Agreement to effect the registration of Registrable Securities pursuant to
Section 2(a) or Section 3 of this Agreement, and the disposition of such
securities, including, without limitation, all registration, filing,
qualification and other fees and expenses of complying with securities or blue
sky laws, transfer agents and registrars' fees, all word processing,
duplicating and printing expenses, the fees and disbursements of counsel for
the Company and of its independent public accountants, including the expenses
of any special audits or "cold comfort" letters required by or incident to such
performance and compliance, but excluding underwriting discounts and com
missions in respect of Registrable Securities and the fees and disbursements of
any counsel retained by the Participating Holders (which underwriting discounts
and
10
<PAGE>
commissions and fees and disbursements of counsel shall be paid by the
Participating Holders).
(f) In connection with any sale of Subject Shares that are registered
pursuant to this Agreement, the Company and the Holders shall enter into an
agreement providing for indemnification of the Holders by the Company, and
indemnification of the Company by the Holders, on terms customary for such
agreements at that time (it being understood that any disputes arising as to
what is customary shall be resolved by counsel to the underwriter(s)).
5. Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telecopy or facsimile at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the third business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual service, fully prepaid, addressed to
such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to the Company, to:
Panavision Inc.
6219 De Soto Avenue
Woodland Hills, California 91367
Attention: Jeffrey J. Marcketta
Telecopier Number: (818) 316-1110
and
Panavision Inc.
885 Third Avenue, Suite 3020
New York, New York 10022
Attention: William C. Scott
Telecopier Number: (212) 688-4748
11
<PAGE>
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
New York, New York 10022-4669
Attention: Christopher E. Manno, Esq.
Telecopier Number: (212) 821-8111
If to PX Holding, to:
PX Holding Corporation
625 Madison Avenue
New York, New York, 10021
Attention: General Counsel
Telecopier Number: (212) 572-5056
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers, Esq.
Telecopier Number: (212) 735-2000
If to any other Holder,
to such name at such address as such Holder shall have
indicated in a written notice delivered to the other parties
to this Agreement.
Any party hereto may from time to time change its address for notices under
this Section 5 by giving at least 10 days' notice of such changes to the other
parties hereto.
6. Waivers. No waiver by any party of any default with respect to any
provision, condition or requirement hereof shall be deemed to be a continuing
waiver in the future thereof or a waiver of any other provision, condition or
requirement hereof; nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
7. Headings. The headings herein are for convenience only, do
12
<PAGE>
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
8. Successors and Assigns; Amendments. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns,
including without limitation and without the need for an express assignment
each subsequent Holder of any Registrable Securities. Except as provided in
this Section 8, neither the Company nor any Holder shall assign this Agreement
or any rights hereunder without the prior written consent of the other parties
hereto; provided, that in connection with a bona fide pledge by the Holder of
any Registrable Securities, the Holder may assign its rights under this
Agreement to the beneficiary of such pledge. The assignment by a party of this
Agreement or any rights hereunder shall not affect the obligations of such
party hereunder. This Agreement may not be amended except by a written
instrument executed by the parties hereto.
9. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
10. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware
without regard to the principles of conflicts of laws.
11. Entire Agreement. This Agreement contains the entire agreement of
the parties hereto in respect of the subject matter hereof and supersedes all
prior agreements and understandings between the parties with respect to the
subject matter hereof.
12. Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counter part.
13. Available Information. If at any time the Company is required to
file reports in compliance with either Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
will comply with all rules and regulations of the SEC applicable in connection
with the use of Rule 144 or Rule 144A promulgated under the Securities Act and
will, upon the re-
13
<PAGE>
quest of any Holder, take such other actions and furnish the Holder with
information as the Holder may reasonably request in order to avail itself of
such rule or any other rule or regulation of the SEC allowing the Holder to
sell any Registrable Securities without registration, and will, at its expense,
forthwith upon the request of the Holder, deliver to such party a certificate,
signed by the Company's principal financial officer, stating (a) the Company's
name, address and telephone number (includ ing area code), (b) the Company's
Internal Revenue Service identification number, (c) the Company's SEC file
number, (d) the number of shares of each class of stock outstanding as shown by
the most recent report or statement published by the Company, and (e) whether
the Company has filed the reports required to be filed under the Exchange Act
for a period of at least 90 days prior to the date of such certificate and in
addition has filed the most recent annual report required to be filed
thereunder or as to such matters as would then be required to establish
compliance with Rule 144 or any successor rule or rules under the Securities
Act. If at any time the Company is not required to file reports in compliance
with either Section 13 or Section 15(d) of the Exchange Act, the Company at its
expense will, forthwith upon the written request of the Holder, make available
adequate current public information with respect to the Company within the
meaning of paragraph (c)(2) of Rule 144.
14. Injunctions. Irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with its
specific terms or were otherwise breached. Therefore, the parties hereto shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court having jurisdiction, such remedy being in
addition to any other remedy to which they may be entitled at law or in equity.
15. Severability. If any term or provisions of this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms and provisions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term or provision.
16. Further Assurances. Subject to the specific terms of this
Agreement, each Holder and the Company shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
14
<PAGE>
17. No Other Registration Rights. The Company represents and warrants
to each Stockholder that there is not in effect on the date of this Agreement
any agreement by the Company (other than this Agreement) pursuant to which any
holders of securities of the Company have a right to cause the Company to
register or qualify such securities under the Securities Act or any securities
or blue sky laws of any jurisdiction.
18. Recapitalization, Exchanges, etc., Affecting the Company's Capital
Stock. The provisions of this Agreement shall apply to the full extent set
forth herein with respect to any and all shares of capital stock of the Company
or any successor or assign of the Company (whether by merger, consolidation,
sale of assets or otherwise), or at the election of a Holder, any person who
controls any of the fore going, which may be issued in respect of, in exchange
for or in substitution of, the Registrable Securities.
19. Defined Terms. All capitalized terms used herein but not defined
shall have the meanings ascribed to such terms in the Recapitalization
Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agree
ment to be duly executed by their respective authorized officers as of the date
hereof.
PANAVISION INC.
By:/s/ William C. Scott
--------------------------------------
Name: William C. Scott
Title: Chairman and Chief Executive
Officer
PX HOLDING CORPORATION
By:/s/ Joram C. Salig
--------------------------------------
Name: Joram C. Salig
Title: Vice President
16
<PAGE>
EXECUTION COPY
FIRST AMENDMENT
---------------
FIRST AMENDMENT, dated as of September 30,1998 (this "AMENDMENT"), to
the Credit Agreement, dated as of May 28. 1998 (the "Credit Agreement"), among
PANAVISION INC., a Delaware corporation (the "Borrower") the several banks and
other financial institutions or entities from time to time parties thereto (the
"LENDERS"), CHASE SECURITIES INC., as advisor and arranger, CREDIT SUISSE FIRST
BOSTON, as documentation agent, and THE CHASE MANHATTAN BANK, as administrative
agent (in such capacity, the "Administrative Agent").
W I T N E S S
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, the Borrower has requested, and, upon this Amendment becoming
effective, the Lenders have agreed, that certain provisions of the Credit
Agreement be amended in the manner provided for in this Amendment
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in consideration of the premises, the parties
hereto hereby agree as follows:
SECTION I. AMENDMENTS
1. 1. Defined Terms. Unless otherwise defined herein, capitalized terms
which are defined in the Credit Agreement are used herein as defined therein.
1.2. Amendment to Section 1.1 - Section 1.1 of the Credit Agreement is
hereby amended by deleting therefrom the definition of the following defined
term in its entirety and inserting in lieu thereof the following new definition
in proper alphabetical order:
"'Applicable Margin': for each Type of Loan, the rate per annum set
forth under the relevant column heading below:
Alternate Base Eurodollar
Rate Loans Loans
-------------- ----------
Revolving Credit Loans 1.25% 2.25%
Tranche A Term Loans 1.25% 2.25%
Tranche B Term Loans 1.50% 2.50%
<PAGE>
provided that on and after the first Adjustment Date (as defined below)
occurring after the Closing Date, the Applicable Margin with respect to
Revolving Credit Loans, Tranche A Term Loans and Tranche B Term Loans will
be determined as follows:
<TABLE>
<CAPTION>
Applicable Margin Applicable Margin
for Eurodollar Loans for ABR Loans
---------------------------------- -------------------------------------
Revolving Tranche A Tranche B Revolving Tranche A Tranche B
Consolidated Credit Term Term Credit Term Term
Total Leverage Ratio Loans Loans Loans Loans Loans Loans
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
> 6.50 to 1.00 2.75% 2.75% 3.OO% 1.75% 1.75% 2.00%
< 6 50 to 1.00
but (greater
than or equal to)
6.00 to 1.00 2.50% 2.50% 2.75% 1.50% 1.50% 1.75%
< 6.00 to 1.00 2.25% 2.25% 2.50% 1.25% 1.25% 1.50%
but (greater than
or equal to) 5.50
to 1.00
< 5-50 to 1.00 2.00% 2.00% 2.25% 1.00% 1.00% 1.25%
but (greater than
or equal to) 5.00
to 1,00
< 5.00 to 1.00 1.75% 1.75% 2.00% 0.75% 0.75% 1.00%
but (greater than
or equal to) 4.50
to 1.00
< 4.50 to 1.00 1.50% 1.50% 2.00% 0.50% 0.50% 1.00%
but (greater than
or equal to) 4.00
to 1.00
< 4.00 to 1.00 1.25% 1.25% 2 00% 0.25% 0.25% 1.00%
</TABLE>
Changes in the Applicable Margin with respect to Revolving Credit Loans,
Tranche A Term Loans and Tranche B Term Loans resulting from changes in the
Consolidated Total Leverage Ratio shall become effective on the date (the
"Adjustment Date") on which financial statements are delivered to the
Lenders pursuant to Section 6.1 (but in any event not later than the 50th
day after the end of each of the first three quarterly periods of each
fiscal year or the 105th day after the end of each fiscal year, as the case
may be) and shall remain in effect until the next change to be effected
pursuant to this paragraph. If any financial statements referred to above
are not delivered within the time periods specified above, then, until
such financial statements are delivered the Consolidated Total Leverage
Ratio as at the end of the fiscal period that would have been covered
thereby shall for the purposes of this definition be deemed to be greater
than 6.50 to 1.00. In addition, at all times while an Event of Default
shall have occurred and be continuing, the Consolidated Total Leverage
Ratio shall for the purposes of this definition be deemed to be greater
than 6.50 to 1.00. Each determination of the Consolidated Total Leverage
Ratio pursuant to this definition shall be made with respect to the period
of four consecutive fiscal quarters of the Borrower ending at the end of
the period covered by the relevant financial statements."
1.3. Amendment to Section 7. 1. The Credit Agreement is hereby amended by
deleting Section 7. 1 (a) in its entirety and substituting in lieu thereof the
following:
<PAGE>
"(a) Consolidated Total Leverage Ratio. Permit the
Consolidated Total Leverage Ratio as at the last day of any fiscal
quarter which day shall occur during the following
periods to exceed the following respective ratios:
Consolidated Total
PERIOD Leverage Ratio
------ ------------------
July 1, 1998 to September 30, 1998 7.50 to 1.00
October 1, 1998 to December 31, 1998 7.35 to 1.00
January 1, 1999 to March 31, 1999 7.25 to 1.00
April 1, 1999 to September 30, 1999 6.75 to 1.00
October 1, 1999 to September 30, 2000 6.50 to 1.00
October 1, 2000 to June 30, 2001 6.00 to 1.00
July 1, 2001 to June 30, 2002 5.50 to 1.00
July 1, 2002 and thereafter 5.00 to 1.00"
1,4. Amendment to Section 7.7. Section 7.7 of the Credit Agreement is
hereby amended by deleting from such section the following: "$50,000,000 per
fiscal year for the 1998-2000 fiscal years" and substituting in lieu thereof the
following: "$45,000,000 per fiscal year for the 1998-1999 fiscal years of the
Borrower, $50,000,000 per fiscal year for the 2000 fiscal year OF THE BORROWER"
SECTION II. MISCELLANEOUS
2.1. Conditions to Effectiveness Amendment. This Amendment shall become
effective as of the date first set forth above upon satisfaction of the
following conditions:
(a) The Administrative Agent shall have received counterparts of this
Amendment duly executed and delivered by the Borrower, the Administrative Agent
and the Required Lenders; and
(b) The Administrative Agent shall have received, for the account of each
Lender executing this Amendment, an amendment fee equal to .125% of each such
Lender's commitment.
2.2. Representations and warranties The Borrower represents and warrants
to each Lender that as of the effective date of this Amendment: (a) this
Amendment constitutes the legal, valid and binding obligation of the Borrower,
enforceable against it in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting creditors' rights generally, by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law) and an implied covenant of good faith and fair dealing; (b) the
representations and warranties made by the Loan Parties in the Loan Documents
are true and correct in all material respects on and as of the date hereof
(except to the extent that such representations and warranties are expressly
stated to relate to an earlier date, in which case such representations and
warranties shall have been true and correct in all material respects on and as
of such earlier date); and (c) no Default or Event of Default shall have
occurred and be continuing as of the date hereof
<PAGE>
2.3. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Amendment signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
2.4. Continuing Effect; No Other Amendments. Except to the extent the
Credit Agreement is expressly amended hereby, all of the terms and provisions of
the Credit Agreement and the other Loan Documents are and shall remain in full
force and effect. This Amendment shall constitute a Loan Document.
2.5. Payment of Expenses. The Borrower agrees to pay and reimburse the
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred to date in connection with this Amendment and the other Loan Documents,
including, without limitation, the reasonable fees and disbursements of legal
counsel to the Administrative Agent.
2.6. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duty executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
PANAVISION INC.
By: /s/ Joseph R. Page
----------------------------------
Name: Joseph R. Page
Title: Vice Chairman & Chief
Administrative Officer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By:
----------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON, as
Documentation Agent and as a Lender
BY:
----------------------------------
Name:
Title:
BY:
----------------------------------
Name:
Title:
<PAGE>
Employment Agreement
EMPLOYMENT AGREEMENT, dated as of January 1, 1999 between Panavision
Inc., a Delaware corporation (the "Company") and John S. Farrand (the
"Executive").
WHEREAS, the Company and the Executive are signatories to an Agreement
dated as of November 19, 1996 (with all Appendices and Amendments thereto, the
"Prior Agreement"); and
WHEREAS, the Company and the Executive desire to enter into a new
contractual arrangement whereby the Company will employ the Executive on the
terms and conditions set forth in this Agreement, such that the Prior Agreement
shall be superseded and of no further force and effect; and
WHEREAS, the Company wishes to employ the Executive, and the Executive
wishes to accept such employment, on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment, Duties. The Company hereby employs the Executive
for the Term (as defined in Section 2.1), to render exclusive and full-time
services to the Company as President and Chief Executive Officer or in such
other executive position as may be mutually agreed upon by the Company and the
Executive, and to perform such other duties consistent with such position as may
be assigned to the Executive by the Board of Directors or any officer of the
Company senior to the Executive.
1.2 Acceptance. The Executive hereby accepts such employment and
agrees to render the services described above. During the Term, the Executive
agrees to serve the Company faithfully and to the best of the Executive's
ability, to devote the Executive's entire business time, energy and skill to
such employment, and to use the Executive's best efforts, skill and ability to
promote the Company's interests. The Executive further agrees to accept
election, and to serve during all or any part of the Term, as an officer or
director of the Company and of any subsidiary or affiliate of the Company,
without any compensation therefor other than that specified in this Agreement,
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be. The
Executive hereby represents and warrants that the Executive is not
<PAGE>
subject to any other agreement, including without limitation any agreement not
to compete or confidentiality agreement, which would be violated by the
Executive's performance of services hereunder.
1.3 Location. The duties to be performed by the Executive
hereunder shall be performed primarily at the office of the Company in Woodland
Hills, California, subject to reasonable travel requirements on behalf of the
Company.
2. Term of Employment; Certain Post-Term Benefits.
2.1 The Term. The term of the Executive's employment under this
Agreement (the "Term") shall commence on January 1, 1999 and shall end on
December 31, 2001 or such later date to which the Term is extended pursuant to
Section 2.2.
2.2 End-of-Term Provisions. At any time on or after December 31,
1999 the Company shall have the right to give written notice of non-renewal of
the Term. In the event the Company gives such notice of non-renewal, the Term
automatically shall he extended so that it ends twenty-four months after the
last day of the month in which the Company gives such notice. From and after
December 31, 2001, unless and until the Company gives written notice of
non-renewal as provided in this Section 2.2, the Term automatically shall be
extended day-by-day; upon the giving of such notice by the Company, the Term
automatically shall be extended so that it ends twenty-four months after the
last day of the month in which the Company gives such notice.
2.3 Special Curtailment. The Term shall end earlier than the
original December 31, 2001 termination date provided in Section 2.1 or any
extended termination date provided in Section 2.2, in either case if sooner
terminated pursuant to Section 4. Non-extension of the Term shall not be deemed
to be a wrongful termination of the Term or this Agreement by the Company
pursuant to Section 4.4.
3. Compensation; Benefits.
3.1 Salary. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary, payable semi-monthly in arrears, at the annual rate of not
less than $800,000 in 1999, $900,000 in 2000 and $1,000,000 in 2001 and
thereafter, less such deductions or
2
<PAGE>
amounts to be withheld as required by applicable law and regulations (the "Base
Salary"). In the event that the Company in its sole discretion from time to time
determines to further increase the Base Salary, such increased amount shall,
from and after the effective date of the increase, constitute "Base Salary" for
purposes of this Agreement.
3.2 Incentive Compensation. In addition to the amounts to be paid
to the Executive pursuant to Section 3.1, the Executive will be eligible,
subject to adoption by the Compensation and Stock Option Committee (the
"Compensation Committee") of the Company's Board of Directors and approval by
the Company's stockholders, to participate in the Company's Executive Incentive
Compensation Plan (the "Incentive Plan"). The Incentive Plan shall establish a
financial performance target (the "Target") for the Company for each fiscal
year. The Executive's participation in the Incentive Plan shall permit the
Executive to earn an award of (i) 50% of Base Salary if the Company achieves
85% of the Target, (ii) 100% of Base Salary if the Company achieves 100% of the
Target and (iii) 200% of Base Salary if the Company achieves 110% of the
Target. The Executive shall earn an award which is prorated, as applicable, on a
linear basis should the Company's performance be between 85% and 100% of the
Target or between 100% and 110% of the Target.
3.3 Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable expenses actually incurred or paid by the Executive
during the Term in the performance of the Executive's services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as the Company customarily may require of its officers
provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Chairman of the Board of Directors or
the Executive Committee of the Board of Directors.
3.4 Vacation. The Executive shall be entitled to a vacation period
in accordance with the vacation policy of the Company during each year of the
Term.
3.5 Fringe Benefits. During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, group insurance or other so-called "fringe"
benefit plan which the Company provides to its employees and officers generally.
3
<PAGE>
3.6 Additional Benefits. During the Term, the Executive shall be
entitled to such other benefits as are specified in Appendix I to this
Agreement.
4. Termination.
4.1 Death. If the Executive shall die during the Term, the Term
shall terminate and no further amounts or benefits shall be payable hereunder,
except that the Executive's legal representatives shall be entitled to receive
continued payments in an amount equal to 60% of the Base Salary, in the manner
specified in Section 3.1, until the end of the Term (as in effect immediately
prior to the Executive's death) or, if the Company has not then given written
notice of non-renewal pursuant to Section 2.2, for a period of twenty-four
months after the last day of the month in which termination described in this
Section 4.1 occurred, whichever is longer.
4.2 Disability. If during the Term the Executive shall become
physically or mentally disabled, whether totally or partially, such that the
Executive is unable to perform the Executive's services hereunder for (i) a
period of six consecutive months or (ii) for shorter periods aggregating six
months during any twelve month period, the Company may at any time after the
last day of the six consecutive months of disability or the day on which the
shorter periods of disability shall have equalled an aggregate of six months, by
written notice to the Executive (but before the Executive has recovered from
such disability), terminate the Term and no further amounts or benefits shall be
payable hereunder, except that the Executive shall be entitled to receive
continued payments in an amount equal to 60% of the Base Salary, in the manner
specified in Section 3.1, until the end of the Term (as in effect immediately
prior to such termination) or, if the Company has not then given notice of
non-renewal pursuant to Section 2.2, for a period of twenty-four months after
the last day of the month in which termination described in this Section 4.2
occurred. If the Executive shall die before receiving all payments to be made by
the Company in accordance with the foregoing, such payments shall be made to a
beneficiary designated by the Executive on a form prescribed for such purpose
by the Company, or in the absence of such designation to the Executive's legal
representative.
4.3 Cause. In the event (i) of gross neglect by the Executive of
the Executive's duties hereunder, (ii) conviction of the Executive of any
felony, (iii) conviction of the Executive of any lesser crime or offense
involving the property of the Company or any of its subsid-
4
<PAGE>
iaries or affiliates, (iv) willful misconduct by the Executive in connection
with the performance of any material portion of the Executive's duties
hereunder, (v) breach by the Executive of any material provision of this
Agreement, (vi) breach by the Executive of the Company's official written Code
of Conduct as in effect from time to time or (vii) any other conduct on the part
of the Executive which would make the Executive's continued employment by the
Company materially prejudicial to the best interests of the Company, the Company
may at any time by written notice to the Executive terminate the Term, provided,
however, that in the case of any matter covered by clauses (i), (iv), (v) or
(vii), the Company shall first have given the Executive written notice of the
conduct (or lack thereof) at issue and 30 days within which to cure. Upon such
termination, this Agreement shall terminate and the Executive shall be entitled
to receive no further amounts or benefits hereunder, except any as shall have
been earned to the date of such termination. For the purposes of this Section
4.3, "amounts earned to the date of such termination" shall include incentive
compensation in the manner and amount specified in Section 3.2 prorated for that
portion of the year prior to the date of the Executive's termination.
4.4 Company Breach. In the event of the breach of any material
provision of this Agreement by the Company, the Executive shall be entitled to
terminate the Term upon 60 days' prior written notice to the Company. Upon such
termination, or in the event the Company terminates the Term or this Agreement
other than pursuant to the provisions of Sections 4.2 or 4.3, the Company shall
continue to provide the Executive (i) payments of (A) Base Salary, in the manner
and amount specified in Section 3.1, (B) incentive compensation in the manner
and amount specified in Section 3.2 prorated for that portion of the year prior
to the date of the Executive's termination and (C) thereafter, incentive
compensation at a rate equal to 50% of Base Salary and (ii) fringe benefits and
additional benefits in the manner and amounts specified in Sections 3.5 and 3.6
until the end of the Term (as in effect immediately prior to such termination)
or, if the Company has not then given written notice of non-renewal pursuant to
Section 2.2, for a period of twenty-four months after the last day of the month
in which termination described in this Section 4.4 occurred, whichever is longer
(the "Damage Period"). The Company's obligations pursuant to this Section 4.4
are subject to the Executive's duty to mitigate damages by seeking other
employment provided, however, that the Executive shall not be required to accept
a position of lesser importance or of substantially different character than the
position held with the Company immediately prior to the effective date of
termination or in a location
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outside of the Woodland Hills, California metropolitan area. The Company
acknowledges that the non-competition obligation imposed on the Executive
pursuant to Section 5.2 may reduce substantially the ability of the Executive to
mitigate damages pursuant to this Section 4.4 and, accordingly, agrees that the
Executive's failure to mitigate damages as a consequence of the restrictions
imposed on him by Section 5.2 will be deemed an excuse for such failure on the
Executive's part. To the extent that the Executive shall earn compensation
during the Damage Period (without regard to when such compensation is paid), the
Base Salary and incentive compensation payments to be made by the Company
pursuant to this Section 4.4 shall be correspondingly reduced. All payments and
benefits (including service credit for benefit plan purposes and stock option
vesting purposes) to be received by the Executive under this Section 4.4 will be
treated for the Executive's benefit in the same manner as that customarily
accorded full-time employees of the Company.
4.5 Litigation Expenses. Except as provided for in Section 5.7, if
the Company and the Executive become involved in any action, suit or proceeding
relating to the alleged breach of this Agreement by the Company or the
Executive, and if a judgment in such action, suit or proceeding is rendered in
favor of the Executive, the Company shall reimburse the Executive for all
expenses (including reasonable attorneys' fees) incurred by the Executive in
connection with such action, suit or proceeding.
5. Protection of Confidential Information; Non-Competition.
5.1 In view of the fact that the Executive's work for the Company
will bring the Executive into close contact with many confidential affairs of
the Company, its subsidiaries and affiliates not readily available to the
public, and plans for future developments, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, its subsidiaries and affiliates, including,
without limitation, "know how", trade secrets, customer lists, pricing policies,
operational methods, technical processes, formulae, inventions and research
projects, other business affairs of the Company, its subsidiaries and
affiliates, and any information whatsoever concerning any director, officer,
employee or agent of the Company, its subsidiaries and affiliates or their
respective family members learned by the Executive heretofore or hereafter, and
not to disclose
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them to anyone outside of the Company, either during or after the Executive's
employment with the Company, except in the course of performing the Executive's
duties hereunder or with the Company's express written consent. The foregoing
prohibitions shall include, without limitation, directly or indirectly
publishing (or causing, participating in, assisting or providing any statement,
opinion or information in connection with the publication of) any diary, memoir,
letter, story, photograph, interview, article, essay, account or description
(whether fictionalized or not) concerning any of the foregoing, publication
being deemed to include any presentation or reproduction of any written, verbal
or visual material in any communication medium, including any book, magazine,
newspaper, theatrical production or movie, or television or radio programming or
commercial; and
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof), including data stored in computer
memories or on other media used for electronic storage or retrieval, relating to
the Company's business, or the business of its subsidiaries or affiliates, and
all property associated therewith, which the Executive may then possess or have
under the Executive's control.
5.2 During the Term and for a period of twenty-four months
thereafter, the Executive shall not, directly or indirectly, enter the employ
of, or render any services to, any person, firm or corporation engaged in any
business competitive with the business of the Company or of any of its
subsidiaries or affiliates; the Executive shall not engage in such business on
the Executive's own account; and the Executive shall not become interested in
any such business, directly or indirectly, as an individual, partner,
shareholder, director, officer, principal, agent, employee, trustee, consultant,
or in any other relationship or capacity provided, however, that nothing
contained in this Section 5.2 shall be deemed to prohibit the Executive from
acquiring, solely as an investment, up to five percent (5%) of the outstanding
shares of capital stock of any public corporation. In addition, during the Term
and for a period of twenty-four months thereafter, the Executive shall not
solicit or encourage any person who, within six (6) months prior to the
expiration or earlier termination of the Term, was an employee of the Company or
any of its subsidiaries or affiliates to (i) terminate his or her employment
with the Company or any such subsidiary or affiliate or (ii) engage in any
activity prohibited to the
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Executive by the first sentence of this Section 5.2.
5.3 If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company
shall have the following rights and remedies:
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to account for
and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as the result of any transactions constituting a breach of any of
the provisions of Sections 5.1 or 5.2, and the Executive hereby agrees to
account for and pay over such Benefits to the Company.
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2, or
any part thereof, hereafter are construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in Sections 5.1 or 5.2, or
any part thereof, are held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision and, in its reduced form, said provision shall then be
enforceable.
5.6 The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in Sections 5.1 and 5.2 upon the courts of any
state within the geographical scope of such covenants. In the event that the
courts of any one or more of such states shall hold such covenants wholly
unenforceable by reason of the breadth of such covenants or otherwise, it is the
intention of the parties hereto that such determination not bar or in
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any way affect the Company's right to the relief provided above in the courts of
any other states within the geographical scope of such covenants as to breaches
of such covenants in such other respective jurisdictions, the above covenants as
they relate to each state being for this purpose severable into diverse and
independent covenants.
5.7 In the event that any action, suit or other proceeding in law
or in equity is brought to enforce the covenants contained in Sections 5.1 and
5.2 or to obtain money damages for the breach thereof, and such action results
in the award of a judgment for money damages or in the granting of any
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive in
such action, suit or other proceeding shall (on demand of the Executive) be paid
by the Company.
6. Inventions and Patents.
6.1 The Executive agrees that all processes, technologies and
inventions (collectively, "Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the Term shall belong to the Company,
provided that such Inventions grew out of the Executive's work with the Company
or any of its subsidiaries or affiliates, are related in any manner to the
business (commercial or experimental) of the Company or any of its subsidiaries
or affiliates or are conceived or made on the Company's time or with the use of
the Company's facilities or materials. The Executive shall further: (a) promptly
disclose such Inventions to the Company; (b) assign to the Company, without
additional compensation, all patent and other rights to such Inventions for the
United States and foreign countries; (c) sign all papers necessary to carry out
the foregoing; and (d) give testimony in support of the Executive's
inventorship.
6.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Executive within two
years after the termination of the Executive's employment by the Company, it is
to be presumed that the Invention was conceived or made during the Term.
6.3 The Executive agrees that the Executive will not assert any
rights to any Invention as having been
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made or acquired by the Executive prior to the date of this Agreement, except
for Inventions, if any, disclosed to the Company in writing prior to the date
hereof.
7. Intellectual Property.
The Company shall be the sole owner of all the products and proceeds of
the Executive's services hereunder, including, but not limited to, all
materials, ideas, concepts, formats, suggestions, developments, arrangements,
packages, programs and other intellectual properties that the Executive may
acquire, obtain, develop or create in connection with and during the Term, free
and clear of any claims by the Executive (or anyone claiming under the
Executive) of any kind or character whatsoever (other than the Executive's right
to receive payments hereunder). The Executive shall, at the request of the
Company, execute such assignments, certificates or other instruments as the
Company may from time to time deem necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend its right, title or
interest in or to any such properties.
8. Indemnification.
The Company will indemnify the Executive, to the maximum extent
permitted by applicable law, against all costs, charges and expenses incurred or
sustained by the Executive in connection with any action, suit or proceeding to
which the Executive may be made a party by reason of the Executive being an
officer, director or employee of the Company or of any subsidiary or affiliate
of the Company.
9. Notices.
All notices, requests, consents and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, sent by overnight courier or mailed
first class, postage prepaid, by registered or certified mail (notices mailed
shall be deemed to have been given on the date mailed), as follows (or to such
other address as either party shall designate by notice in writing to the other
in accordance herewith):
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If to the Company, to:
Panavision Inc.
6219 De Soto Avenue
Woodland Hills, California 91367
Attention: Joseph P. Page
Vice Chairman and Chief
Administrative Officer
If to the Executive, to:
John S. Farrand
2357 Kimbridge Road
Beverly Hills, California 90210
10. General.
10.1 This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New York.
10.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
10.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof, including, without limitation, the
Prior Agreement, which Prior Agreement is deemed terminated hereby and of no
further force or effect. Moreover, the parties agree that no further amounts are
due and owing to the Executive under the Prior Agreement as of the date hereof
(except amounts, if any, as have accrued to the Executive pursuant to the
Company's employee benefit plans and are unpaid as of the date hereof). No
representation, promise or inducement has been made by either party that is not
embodied in this Agreement, and neither party shall be bound by or liable for
any alleged representation, promise or inducement not so set forth.
10.4 This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive. The Company may assign its
rights, together with its obligations, hereunder (i) to any affiliate or (ii) to
third parties in connection with any sale, transfer or other disposition of all
or substantially all of its business or assets; in any event the obligations of
the
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Company hereunder shall he binding on its successors or assigns, whether by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
10.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by either
party of the breach of any term or covenant contained in this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
11. Subsidiaries and Affiliates.
11.1 As used herein, the term "subsidiary" shall mean any corporation
or other business entity controlled directly or indirectly by the corporation or
other business entity in question, and the term "affiliate" shall mean and
include any corporation or other business entity directly or indirectly
controlling, controlled by or under common control with the corporation or other
business entity in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PANAVISION INC.
By: /s/ Joseph P. Page
-----------------------------
Joseph P. Page
Vice Chairman and Chief
Administrative Officer
/s/ John S. Farrand
-----------------------------
John S. Farrand
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APPENDIX I
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Additional Benefits:
- --------------------
1. Medical Examination. The Executive shall be reimbursed by the
Company for the reasonable cost of one annual medical examination upon
presentation of an expense statement.
2. Automobile. The Company shall afford the Executive the right to use
an automobile on a continuing basis and shall provide garaging near the
Executive's residence, all on the following basis. The Company shall pay, upon
presentation of an expense statement, all reasonable expenses associated with
the operation of such automobile and the rental of such garage space in the same
manner as is, from time to time, in effect with respect to executive officers of
the Company generally, including, without limitation, all reasonable maintenance
and insurance expenses. The automobile furnished by the Company shall be a late
model top-of-the-line Jaguar, Mercedes Benz or like vehicle to be reasonably
selected by the Executive. Upon the expiration of the Term, the Executive
promptly shall return the automobile to the Company.
3. Insurance. The Company agrees to provide the Executive with
additional term life insurance coverage with a face amount of twice the then
current Base Salary, subject to the insurer's satisfaction with the results of
any required medical examination to which the Executive hereby agrees to submit,
on the following basis. The Executive may select a plan of his choice and may
designate the beneficiary of such plan. The Company shall pay, upon presentation
of an expense statement, the periodic premiums relating to such additional term
life insurance payable during the Term.
4. Tax Advisor. The Executive shall be reimbursed by the Company, upon
presentation of an expense statement, for the reasonable fees and disbursements
of a personal tax advisor to be selected by the Executive.
5. Club Membership. The Company shall reimburse the Executive, upon
presentation of an expense statement, for all reasonable initiation fees and
periodic dues for membership in a club of the Executive's choice.
6. Estate Planning. The Executive shall be reimbursed by the Company,
upon presentation of an expense statement, for the reasonable fees and
disbursements of an
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estate planning advisor to be selected by the Executive.
7. Stock Options. The Executive shall be eligible, subject to adoption
by the Compensation Committee of the Company's Board of Directors and approval
by the Company's stockholders, to receive an award under the Company's 1999
Stock Option Plan of non-qualified options to acquire 100,000 shares of the
Company's common stock at an exercise price of $13.00 per share and 100,000
shares of the Company's common stock at an exercise price of $15.00 per share
and, in each case, otherwise on such terms and conditions as are prescribed by
the Compensation Committee in accordance with the 1999 Stock Option Plan.
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JOSEPH P. PAGE
Executive Employment Agreement
TERM. January 1, 1999 - December 31, 2001
END-OF-TERM. After 12/31/1999, Company may give notice of non-renewal; term
extends for 24 months. After 12/31/01, term extends on one-day-at-a-time basis
until notice of non-renewal given; then, term extends for 24 months.
BASE SALARY. $700,000 per year in 1999; $800,000 in 2000; $900,000 per year in
2001 and thereafter.
BONUS. Formula based: if Company achieves 85% of perfor- mance target, Executive
earns 50% of Base Salary; if 100%, Executive earns 100% of Base Salary; if 110%,
Executive earns 200% of Base Salary; linear interpolation between target
amounts.
BENEFITS. Standard employee and officer benefits, annual medical exam,
automobile, life insurance, tax advisor, club membership, estate planning, stock
options.
DEATH. Estate gets 60% of Base Salary for longer of bal- ance of term or 24
months; if end-of-term provisions are in effect, for balance of 24 month period.
DISABILITY. After six months, Company can terminate; Executive gets 60% of Base
Salary for longer of balance of term or 24 months; if end-of-term provisions are
in effect, for balance of 24 month period.
CAUSE. Upon gross neglect, conviction of felony, conviction of any crime
relating to Company property, willful misconduct or material breach by Executive
or material prejudice to Company, Company can terminate without further
liability subject to notice and opportunity to cure in some manner.
COMPANY BREACH. Executive receives Base Salary, adjusted incentive compensation
and all benefits for longer of balance of term or 24 months; if end-of-term
provisions are in effect, for balance of 24 month period; Executive obligated to
mitigate subject to non-competition limitations.
<PAGE>
OTHER PROVISIONS. Protection of confidential information, non-compete during
term and for 24 months thereafter, assignment of inventions, legal fees to
Executive if he prevails in action for breach or injunction; legal fees to
Company if it prevails in action for injunction.
THIS SUMMARY PAGE IS FOR CONVENIENCE OF REFERENCE ONLY. IT SHALL NOT CONSTITUTE
A PART OF THE AGREEMENT
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Employment Agreement
EMPLOYMENT AGREEMENT, dated as of January 1, 1999 between
Panavision Inc., a Delaware corporation (the "Company") and Joseph P. Page (the
"Executive").
WHEREAS, the Company wishes to employ the Executive, and the
Executive wishes to accept such employment, on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, the Company and the Executive hereby agree as
follows:
1. Employment, Duties and Acceptance.
1.1 Employment, Duties. The Company hereby
employs the Executive for the Term (as defined in Section 2.1), to render
exclusive and full-time services to the Company as Vice Chairman and Chief
Administrative Officer or in such other executive position as may be mutually
agreed upon by the Company and the Executive, and to perform such other duties
consistent with such position as may be assigned to the Executive by the Board
of Directors or the Executive Committee thereof.
1.2 Acceptance. The Executive hereby
accepts such employment and agrees to render the services described above.
During the Term, the Executive agrees to serve the Company faithfully and to the
best of the Executive's ability, to devote the Executive's entire business time,
energy and skill to such employment, and to use the Executive's best efforts,
skill and ability to promote the Company's interests. The Executive further
agrees to accept election, and to serve during all or any part of the Term, as
an officer or director of the Company and of any subsidiary or affiliate of the
Company, without any compensation therefor other than that specified in this
Agreement, if elected to any such position by the shareholders or by the Board
of Directors of the Company or of any subsidiary or affiliate, as the case may
be. The Executive hereby represents and warrants that the Executive is not
subject to any other agreement, including without limitation any agreement not
to compete or confidentiality agreement, which would be violated by the
Executive's performance of services hereunder.
1.3 Location. The duties to be performed
by the Executive hereunder shall be performed primarily at the office of the
Company in Woodland Hills, California, subject to reasonable travel requirements
on behalf of the Company.
<PAGE>
2. Term of Employment; Certain Post-Term Bene-
fits.
2.1 The Term. The term of the Executive's
employment under this Agreement (the "Term") shall commence on January 1, 1999
and shall end on December 31, 2001 or such later date to which the Term is
extended pursuant to Section 2.2.
2.2 End-of-Term Provisions. At any time on
or after December 31, 1999 the Company shall have the right to give written
notice of non-renewal of the Term. In the event the Company gives such notice of
non-renewal, the Term automatically shall be extended so that it ends
twenty-four months after the last day of the month in which the Company gives
such notice. From and after December 31, 2001, unless and until the Company
gives written notice of non-renewal as provided in this Section 2.2, the Term
automatically shall be extended day-by-day; upon the giving of such notice by
the Company, the Term automatically shall be extended so that it ends
twenty-four months after the last day of the month in which the Company gives
such notice.
2.3 Special Curtailment. The Term shall
end earlier than the original December 31, 2001 termination date provided in
Section 2.1 or any extended termination date provided in Section 2.2, in either
case if sooner terminated pursuant to Section 4. Non-extension of the Term shall
not be deemed to be a wrongful termination of the Term or this Agreement by the
Company pursuant to Section 4.4.
3. Compensation; Benefits.
3.1 Salary. As compensation for all ser-
vices to be rendered pursuant to this Agreement, the Company agrees to pay the
Executive during the Term a base salary, payable semi-monthly in arrears, at the
annual rate of not less than $700,000 in 1999, $800,000 in 2000 and $900,000 in
2001 and thereafter, less such deductions or amounts to be withheld as required
by applicable law and regulations (the "Base Salary"). In the event that the
Company in its sole discretion from time to time determines to further increase
the Base Salary, such increased amount shall, from and after the effective date
of the increase, constitute "Base Salary" for purposes of this Agreement.
3.2 Incentive Compensation. In addition to
the amounts to be paid to the Executive pursuant to Section 3.1, the Executive
will be eligible, subject to adoption by the Compensation and Stock Option
Committee (the "Compensa-
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tion Committee") of the Company's Board of Directors and approval by the
Company's stockholders, to participate in the Company's Executive Incentive
Compensation Plan (the "Incentive Plan"). The Incentive Plan shall establish a
financial performance target (the "Target") for the Company for each fiscal
year. The Executive's participation in the Incentive Plan shall permit the
Executive to earn an award of (i) 50% of Base Salary if the Company achieves 85%
of the Target, (ii) 100% of Base Salary if the Company achieves 100% of the
Target and (iii) 200% of Base Salary if the Company achieves 110% of the Target.
The Executive shall earn an award which is prorated, as applicable, on a linear
basis should the Company's performance be between 85% and 100% of the Target or
between 100% and 110% of the Target.
3.3 Business Expenses. The Company shall
pay or reimburse the Executive for all reasonable expenses actually incurred or
paid by the Executive during the Term in the performance of the Executive's
services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as the Company customarily may
require of its officers provided, however, that the maximum amount available for
such expenses during any period may be fixed in advance by the Board of
Directors or the Executive Committee thereof.
3.4 Vacation. The Executive shall be
entitled to a vacation period in accordance with the vacation policy of the
Company during each year of the Term.
3.5 Fringe Benefits. During the Term, the
Executive shall be entitled to all benefits for which the Executive shall be
eligible under any qualified pension plan, 401(k) plan, group insurance or other
so-called "fringe" benefit plan which the Company provides to its employees and
officers generally.
3.6 Additional Benefits. During the Term,
the Executive shall be entitled to such other benefits as are specified in
Appendix I to this Agreement.
4. Termination.
4.1 Death. If the Executive shall die
during the Term, the Term shall terminate and no further amounts or benefits
shall be payable hereunder, except that the Executive's legal representatives
shall be entitled to receive continued payments in an amount equal to 60% of the
Base Salary, in the manner specified in Section 3.1, until the end of the Term
(as in effect immediately prior to the
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Executive's death) or, if the Company has not then given written notice of
non-renewal pursuant to Section 2.2, for a period of twenty-four months after
the last day of the month in which termination described in this Section 4.1
occurred, whichever is longer.
4.2 Disability. If during the Term the
Executive shall become physically or mentally disabled, whether totally or
partially, such that the Executive is unable to perform the Executive's services
hereunder for (i) a period of six consecutive months or (ii) for shorter periods
aggregating six months during any twelve month period, the Company may at any
time after the last day of the six consecutive months of disability or the day
on which the shorter periods of disability shall have equalled an aggregate of
six months, by written notice to the Executive (but before the Executive has
recovered from such disability), terminate the Term and no further amounts or
benefits shall be payable hereunder, except that the Executive shall be entitled
to receive continued payments in an amount equal to 60% of the Base Salary, in
the manner specified in Section 3.1, until the end of the Term (as in effect
immediately prior to such termination) or, if the Company has not then given
notice of non-renewal pursuant to Section 2.2, for a period of twenty-four
months after the last day of the month in which termination described in this
Section 4.2 occurred, whichever is longer. If the Executive shall die before
receiving all payments to be made by the Company in accordance with the
foregoing, such payments shall be made to a beneficiary designated by the
Executive on a form prescribed for such purpose by the Company, or in the
absence of such designation to the Executive's legal representative.
4.3 Cause. In the event (i) of gross ne-
glect by the Executive of the Executive's duties hereunder, (ii) conviction of
the Executive of any felony, (iii) conviction of the Executive of any lesser
crime or offense involving the property of the Company or any of its
subsidiaries or affiliates, (iv) willful misconduct by the Executive in
connection with the performance of any material portion of the Executive's
duties hereunder, (v) breach by the Executive of any material provision of this
Agreement, (vi) breach by the Executive of the Company's official written Code
of Conduct as in effect from time to time or (vii) any other conduct on the part
of the Executive which would make the Executive's continued employment by the
Company materially prejudicial to the best interests of the Company, the Company
may at any time by written notice to the Executive terminate the Term, provided,
however, that in the case of any matter covered by clauses (i), (iv), (v) or
(vii), the Company shall first have given the Executive
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written notice of the conduct (or lack thereof) at issue and 30 days within
which to cure. Upon such termination, this Agreement shall terminate and the
Executive shall be entitled to receive no further amounts or benefits hereunder,
except any as shall have been earned to the date of such termination. For the
purposes of this Section 4.3, "amounts earned to the date of such termination"
shall include incentive compensation in the manner and amount specified in
Section 3.2 prorated for that portion of the year prior to the date of the
Executive's termination.
4.4 Company Breach. In the event of the
breach of any material provision of this Agreement by the Company, the Executive
shall be entitled to terminate the Term upon 60 days' prior written notice to
the Company. Upon such termination, or in the event the Company terminates the
Term or this Agreement other than pursuant to the provisions of Sections 4.2 or
4.3, the Company shall continue to provide the Executive (i) payments of (A)
Base Salary, in the manner and amount specified in Section 3.1, (B) incentive
compensation in the manner and amount specified in Section 3.2 prorated for that
portion of the year prior to the date of the Executive's termination and (C)
thereafter, incentive compensation at a rate equal to 50% of Base Salary and
(ii) fringe benefits and additional benefits in the manner and amounts specified
in Sections 3.5 and 3.6 until the end of the Term (as in effect immediately
prior to such termination) or, if the Company has not then given written notice
of non-renewal pursuant to Section 2.2, for a period of twenty-four months after
the last day of the month in which termination described in this Section 4.4
occurred, whichever is longer (the "Damage Period"). The Company's obligations
pursuant to this Section 4.4 are subject to the Executive's duty to mitigate
damages by seeking other employment provided, however, that the Executive shall
not be required to accept a position of lesser importance or of substantially
different character than the position held with the Company immediately prior to
the effective date of termination or in a location outside of the Woodland
Hills, California metropolitan area. The Company acknowledges that the
non-competition obligation imposed on the Executive pursuant to Section 5.2 may
reduce substantially the ability of the Executive to mitigate damages pursuant
to this Section 4.4 and, accordingly, agrees that the Executive's failure to
mitigate damages as a consequence of the restrictions imposed on him by Section
5.2 will be deemed an excuse for such failure on the Executive's part. To the
extent that the Executive shall earn compensation during the Damage Period
(without regard to when such compensation is paid), the Base Salary and
incentive compensation payments to be made by the Company pursuant to this
Section 4.4 shall be correspondingly
5
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reduced. All payments and benefits (including service credit for benefit plan
purposes and stock option vesting purposes) to be received by the Executive
under this Section 4.4 will be treated for the Executive's benefit in the same
manner as that customarily accorded full-time employees of the Company.
4.5 Litigation Expenses. Except as provid-
ed for in Section 5.7, if the Company and the Executive become involved in any
action, suit or proceeding relating to the alleged breach of this Agreement by
the Company or the Executive, and if a judgment in such action, suit or
proceeding is rendered in favor of the Executive, the Company shall reimburse
the Executive for all expenses (including reasonable attorneys' fees) incurred
by the Executive in connection with such action, suit or proceeding.
5. Protection of Confidential Information;
Non-Competition.
5.1 In view of the fact that the
Executive's work for the Company will bring the Executive into close contact
with many confidential affairs of the Company, its subsidiaries and affiliates
not readily available to the public, and plans for future developments, the
Executive agrees:
5.1.1 To keep and retain in the strictest
confidence all confidential matters of the Company, its subsidiaries and
affiliates, including, without limitation, "know how", trade secrets, customer
lists, pricing policies, operational methods, technical processes, formulae,
inventions and research projects, other business affairs of the Company, its
subsidiaries and affiliates, and any information whatsoever concerning any
director, officer, employee or agent of the Company, its subsidiaries and
affiliates or their respective family members learned by the Executive
heretofore or hereafter, and not to disclose them to anyone outside of the
Company, either during or after the Executive's employment with the Company,
except in the course of performing the Executive's duties hereunder or with the
Company's express written consent. The foregoing prohibitions shall include,
without limitation, directly or indirectly publishing (or causing, participating
in, assisting or providing any statement, opinion or information in connection
with the publication of) any diary, memoir, letter, story, photograph,
interview, article, essay, account or description (whether fictionalized or not)
concerning any of the foregoing, publication being deemed to include any
presentation or reproduction of any written, verbal or visual material in any
communication
6
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medium, including any book, magazine, newspaper, theatrical production or movie,
or television or radio programming or commercial; and
5.1.2 To deliver promptly to the Company on
termination of the Executive's employment by the Company, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints and other documents (and all copies thereof), including
data stored in computer memories or on other media used for electronic storage
or retrieval, relating to the Company's business, or the business of its
subsidiaries or affiliates, and all property associated therewith, which the
Executive may then possess or have under the Executive's control.
5.2 During the Term and for a period of
twenty-four months thereafter, the Executive shall not, directly or indirectly,
enter the employ of, or render any services to, any person, firm or corporation
engaged in any business competitive with the business of the Company or of any
of its subsidiaries or affiliates; the Executive shall not engage in such
business on the Executive's own account; and the Executive shall not become
interested in any such business, directly or indirectly, as an individual,
partner, shareholder, director, officer, principal, agent, employee, trustee,
consultant, or in any other relationship or capacity provided, however, that
nothing contained in this Section 5.2 shall be deemed to prohibit the Executive
from acquiring, solely as an investment, up to five percent (5%) of the
outstanding shares of capital stock of any public corporation. In addition,
during the Term and for a period of twenty-four months thereafter, the Executive
shall not solicit or encourage any person who, within six (6) months prior to
the expiration or earlier termination of the Term, was an employee of the
Company or any of its subsidiaries or affiliates to (i) terminate his or her
employment with the Company or any such subsidiary or affiliate or (ii) engage
in any activity prohibited to the Executive by the first sentence of this
Section 5.2.
5.3 If the Executive commits a breach, or
threatens to commit a breach, of any of the provisions of Sections 5.1 or 5.2
hereof, the Company shall have the following rights and remedies:
5.3.1 The right and remedy to have the
provisions of this Agreement specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
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5.3.2 The right and remedy to require the
Executive to account for and pay over to the Company all compensation, profits,
monies, accruals, increments or other benefits (collectively "Benefits") derived
or received by the Executive as the result of any transactions constituting a
breach of any of the provisions of Sections 5.1 or 5.2, and the Executive hereby
agrees to account for and pay over such Benefits to the Company.
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity.
5.4 If any of the covenants contained in
Sections 5.1 or 5.2, or any part thereof, hereafter are construed to be invalid
or unenforceable, the same shall not affect the remainder of the covenant or
covenants, which shall be given full effect, without regard to the invalid
portions.
5.5 If any of the covenants contained in
Sections 5.1 or 5.2, or any part thereof, are held to be unenforceable because
of the duration of such provision or the area covered thereby, the parties agree
that the court making such determination shall have the power to reduce the
duration and/or area of such provision and, in its reduced form, said provision
shall then be enforceable.
5.6 The parties hereto intend to and hereby
confer jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2
upon the courts of any state within the geographical scope of such covenants. In
the event that the courts of any one or more of such states shall hold such
covenants wholly unenforceable by reason of the breadth of such covenants or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief provided above in the
courts of any other states within the geographical scope of such covenants as to
breaches of such covenants in such other respective jurisdictions, the above
covenants as they relate to each state being for this purpose severable into
diverse and independent covenants.
5.7 In the event that any action, suit or
other proceeding in law or in equity is brought to enforce the covenants
contained in Sections 5.1 and 5.2 or to obtain money damages for the breach
thereof, and such action results in the award of a judgment for money damages
or in the granting of any injunction in favor of the Company, all expenses
(including reasonable attorneys' fees) of
8
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the Company in such action, suit or other proceeding shall (on demand of the
Company) be paid by the Executive. In the event the Company fails to obtain a
judgment for money damages or an injunction in favor of the Company, all
expenses (including reasonable attorneys' fees) of the Executive in such action,
suit or other proceeding shall (on demand of the Executive) be paid by the
Company.
6. Inventions and Patents.
6.1 The Executive agrees that all process-
es, technologies and inventions (collectively, "Inventions"), including new
contributions, improvements, ideas and discoveries, whether patentable or not,
conceived, developed, invented or made by him during the Term shall belong to
the Company, provided that such Inventions grew out of the Executive's work with
the Company or any of its subsidiaries or affiliates, are related in any manner
to the business (commercial or experimental) of the Company or any of its
subsidiaries or affiliates or are conceived or made on the Company's time or
with the use of the Company's facilities or materials. The Executive shall
further: (a) promptly disclose such Inventions to the Company; (b) assign to the
Company, without additional compensation, all patent and other rights to such
Inventions for the United States and foreign countries; (c) sign all papers
necessary to carry out the foregoing; and (d) give testimony in support of the
Executive's inventorship.
6.2 If any Invention is described in a
patent application or is disclosed to third parties, directly or indirectly, by
the Executive within two years after the termination of the Executive's
employment by the Company, it is to be presumed that the Invention was conceived
or made during the Term.
6.3 The Executive agrees that the Executive
will not assert any rights to any Invention as having been made or acquired by
the Executive prior to the date of this Agreement, except for Inventions, if
any, disclosed to the Company in writing prior to the date hereof.
7. Intellectual Property.
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited to,
all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
the Term, free and clear of any claims by the Executive (or anyone claiming
under the Exec-
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utive) of any kind or character whatsoever (other than the Executive's right to
receive payments hereunder). The Executive shall, at the request of the Company,
execute such assignments, certificates or other instruments as the Company may
from time to time deem necessary or desirable to evidence, establish, maintain,
perfect, protect, enforce or defend its right, title or interest in or to any
such properties.
8. Indemnification.
The Company will indemnify the Executive, to the maximum
extent permitted by applicable law, against all costs, charges and expenses
incurred or sustained by the Executive in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the Executive
being an officer, director or employee of the Company or of any subsidiary or
affiliate of the Company.
9. Notices.
All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, sent by overnight
courier or mailed first class, postage prepaid, by registered or certified mail
(notices mailed shall be deemed to have been given on the date mailed), as
follows (or to such other address as either party shall designate by notice in
writing to the other in accordance herewith):
If to the Company, to:
Panavision Inc.
6219 De Soto Avenue
Woodland Hills, California 91367
Attention: John S. Farrand
President and Chief
Executive Officer
If to the Executive, to:
Joseph P. Page
2774 Forester Drive
Los Angeles, California 90064
10. General.
10.1 This Agreement shall be governed by and
construed and enforced in accordance with the laws of the
10
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State of New York applicable to agreements made and to be performed entirely in
New York.
10.2 The section headings contained herein
are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.
10.3 This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements and understandings,
written or oral, relating to the subject matter hereof. No representation,
promise or inducement has been made by either party that is not embodied in this
Agreement, and neither party shall be bound by or liable for any alleged
representation, promise or inducement not so set forth.
10.4 This Agreement, and the Executive's
rights and obligations hereunder, may not be assigned by the Executive. The
Company may assign its rights, together with its obligations, hereunder (i) to
any affiliate or (ii) to third parties in connection with any sale, transfer or
other disposition of all or substantially all of its business or assets; in any
event the obligations of the Company hereunder shall be binding on its
successors or assigns, whether by merger, consolidation or acquisition of all or
substantially all of its business or assets.
10.5 This Agreement may be amended, modi-
fied, superseded, canceled, renewed or extended and the terms or covenants
hereof may be waived, only by a written instrument executed by both of the
parties hereto, or in the case of a waiver, by the party waiving compliance. The
failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to enforce
the same. No waiver by either party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such breach, or a waiver of the breach of any other term or
covenant contained in this Agreement.
11. Subsidiaries and Affiliates.
11.1 As used herein, the term "subsidiary"
shall mean any corporation or other business entity controlled directly or
indirectly by the corporation or other business entity in question, and the term
"affiliate" shall mean and include any corporation or other business entity
directly or indirectly controlling, controlled by or under common control with
the corporation or other business entity in
11
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question.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
PANAVISION INC.
By: /s/ John S. Farrand
--------------------------------
John S. Farrand
President and Chief Executive
Officer
/s/ Joseph P. Page
-----------------------------------
Joseph P. Page
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APPENDIX I
Additional Benefits:
1. Medical Examination. The Executive shall be
reimbursed by the Company for the reasonable cost of one
annual medical examination upon presentation of an expense
statement.
2. Automobile. The Company shall afford the Executive the
right to use an automobile on a continuing basis and shall provide garaging near
the Executive's residence, all on the following basis. The Company shall pay,
upon presentation of an expense statement, all reasonable expenses associated
with the operation of such automobile and the rental of such garage space in the
same manner as is, from time to time, in effect with respect to executive
officers of the Company generally, including, without limitation, all reasonable
maintenance and insurance expenses. The automobile furnished by the Company
shall be a late model top-of-the-line BMW Series 700 or like vehicle to be
reasonably selected by the Executive. At the request of the Executive, the
Company shall replace the Executive's automobile with a new model at such time
as the automobile is three or more years old. Upon the expiration of the Term,
the Executive promptly shall return the automobile to the Company.
3. Insurance. In addition to any group insurance, the Company
agrees to provide the Executive with additional term life insurance coverage
with a face amount of twice the then current Base Salary, subject to the
insurer's satisfaction with the results of any required medical examination to
which the Executive hereby agrees to submit, on the following basis. The
Executive may select a plan of his choice and may designate the beneficiary of
such plan. The Company shall pay, upon presentation of an expense statement, the
periodic premiums relating to such additional term life insurance payable during
the Term.
4. Tax Advisor. The Executive shall be reimbursed by the
Company, upon presentation of an expense statement, for the reasonable fees and
disbursements of a personal tax advisor to be selected by the Executive.
5. Club Membership. The Company shall reimburse the Executive,
upon presentation of an expense statement, for all reasonable initiation fees
and periodic dues for membership in a club of the Executive's choice.
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6. Estate Planning. The Executive shall be reimbursed by the
Company, upon presentation of an expense statement, for the reasonable fees and
disbursements of an estate planning advisor to be selected by the Executive.
7. Stock Options. The Executive shall be eligible, subject to
adoption by the Compensation Committee of the Company's Board of Directors and
approval by the Company's stockholders, to receive an award under the Company's
1999 Stock Option Plan of non-qualified options to acquire 200,000 shares of the
Company's common stock at an exercise price of $15.00 per share and otherwise on
such terms and conditions as are prescribed by the Compensation Committee in
accordance with the 1999 Stock Option Plan.
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of February 1, 1999 ("Agreement"), by
and between PX Holding Corporation, a Delaware corporation ("Purchaser") and
Warburg, Pincus Capital Company, L.P., a Delaware limited partnership
("Seller").
WHEREAS, the Seller beneficially owns 1,526,040 shares of common stock, par
value $.01 per share ("Company Common Stock"), of Panavision, Inc., ("Company");
and
WHEREAS, the Seller wishes to sell to the Purchaser, and the Purchaser
wishes to purchase from the Seller, upon the terms and conditions hereinafter
set forth herein, all of the Company Common Stock beneficially owned by the
Seller.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, and agreements contained herein, the parties
hereto, intending to be legally bound hereby, agree as follows:
ARTICLE 1. PURCHASE AND SALE OF THE SHARES
Section 1. 1 Purchase and Sale of the Shares. Upon the terms and subject to
the conditions of this Agreement, at the Closing (as defined below in Section
1.3), the Seller shall sell, convey, assign, transfer and deliver to the
Purchaser and the Purchaser shall purchase, acquire and accept from the Seller
1,526,040 shares of Company Common Stock ("Shares").
Section 1.2 Purchase Price. The purchase price for the Shares is $23.34 per
share of Company Common Stock, or an aggregate purchase price of $35,617,773.60
("Purchase Price").
Section 1.3 Closing. Upon the terms and subject to the conditions of this
Agreement, the consummation of the transactions contemplated by this Agreement
("Closing") will take place on Monday, February 1, 1999, at 10:00 a.m., New York
City time, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third
Avenue, New York, New York, or at such other time or such other place as shall
be agreed upon by the parties. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
Section 1.4 Delivery by the Seller. At the Closing, the Seller shall
deliver or cause to be delivered to the Purchaser a stock certificate or
certificates representing the
<PAGE>
Shares purchased by the Purchaser pursuant to this Agreement, accompanied by a
stock power or powers duly executed in blank.
Section 1.5 Delivery by the Purchaser. At the Closing, the Purchaser shall
deliver or cause to be delivered to the Seller the Purchase Price payable by
wire transfer in immediately available funds to an account specified in writing
by the Seller.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER
Section 2.1 Ownership of Shares. The Seller is the beneficial owner, and
has sole power to vote and dispose, of the Shares. On the date hereof, the
Shares constitute all of the outstanding shares of Company Common Stock owned
of record or beneficially by the Seller.
Section 2.2 Authorization; Validity of Agreement; Necessary Action. The
Seller has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance by the Seller of this Agreement and the consummation by
the Seller of the transactions contemplated hereby have been duly and validly
authorized. This Agreement has been duly executed and delivered by the Seller,
and constitutes a valid and binding obligation of the Seller, enforceable
against it in accordance with its terms, except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
Section 2.3 No Violations. (a) (i) No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Seller and the
consummation by the Seller of the transactions contemplated hereby and (ii)
neither the execution and delivery of this Agreement by the Seller does, nor the
consummation by the Seller of the transactions contemplated hereby nor
compliance by the Seller with any of the provisions hereof will (x) conflict
with or result in any breach of any applicable partnership agreement or other
agreements or organizational documents applicable to the Seller, (y) result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Seller is a party or by which the Seller
or
2
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any of its properties or assets may be bound or (z) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to the
Seller or any of its properties or assets.
(b) The Shares and the certificates representing such Shares are held by
the Seller, or by a nominee or custodian for the benefit of the Seller, free and
clear of all liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances whatsoever.
Seller currently has, and on the Closing Date shall sell, assign, transfer and
deliver to the Purchaser at the Closing, and the Purchaser shall receive at the
Closing, good, valid and marketable title to the Company Common Stock.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 3.1 Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Section 3.2 Authorization; Validity of Agreement; Necessary Action. The
Purchaser has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance by the Purchaser of this Agreement and the consummation
by the Purchaser of the transactions contemplated hereby have been duly and
validly authorized. This Agreement has been duly executed and delivered by the
Purchaser, and constitutes a valid and binding obligation of the Purchaser,
enforceable against it in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency or other similar
laws, now or hereafter in effect, affecting creditors, rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 3.3 No Violations. (i) No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Purchaser and
the consummation by it of the transactions contemplated hereby; and (ii) neither
the execution and delivery of this Agreement by the Purchaser does, nor the
consummation by it of the transactions contemplated hereby nor compliance by it
with any of the provisions hereof will (x) conflict with or result in any breach
of any organizational documents of the Purchaser, (y) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which the Purchaser is a party or by which the
Purchaser or any of
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its properties or assets may be bound or (z) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to the
Purchaser or any of its properties or assets.
ARTICLE 4. CONDITIONS TO THE OBLIGATIONS OF BOTH PARTIES
The respective obligation of each party to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction or waiver,
at or prior to the Closing, of the following conditions:
Section 4.1 Accuracy of Representations and Warranties. The representations
and warranties of the Seller or the Purchaser, as the case may be, in this
Agreement shall be true and correct as of the date hereof and at and as of the
Closing with the same effect as though such representations and warranties had
been made at and as of such time.
Section 4.2 No Prohibition. No court, arbitrator or governmental body,
agency or official shall have issued any order, decree or ruling (which shall
not have been stayed or suspended pending appeal) and there shall not be any
effective statute, rule or regulation, restraining, enjoining or prohibiting the
Closing.
ARTICLE 5. MISCELLANEOUS
Section 5.1 Survival. All representation and warranties contained herein
shall survive the Closing.
Section 5.2 Entire Agreement; Assignment. This Agreement (i) constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (ii) shall not be assigned by operation of law or otherwise without the
prior written consent of the other party (except that the Purchaser may assign
its rights, interests and obligations to any of its affiliates without the
consent of the Seller provided no such assignment shall relieve the Purchaser of
any liability for any breach by such assignee). Sections 3 and 4 of the Voting
and Stockholders Agreement, dated as of December 18, 1997, as amended and
restated, among the Seller, the Company and the Purchaser ("Stockholders
Agreement") shall become null and void upon the Closing hereunder.
Section 5.3 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
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Section 5.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in the manner set forth in the Stockholders
Agreement.
Section 5.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 5.6 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
Section 5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but both of which
shall constitute one and the same Agreement.
Section 5.8 Descriptive Headings The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 5.9 Adjustment Upon Changes in Capitalization. In the event of any
change in the Company Common Stock by reason of any stock dividend,
extraordinary dividend or distribution, split-up, recapitalization, combination,
exchange of shares or the like, the number of Shares, and the purchase prices
therefor, shall be appropriately adjusted.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PX HOLDING CORPORATION
By: /s/ Glenn P. Dickes
--------------------------------
Name: Glenn P. Dickes
Title: Vice President
WARBURG, PINCUS CAPITAL COMPANY, L.P.
By: WARBURG, PINCUS & CO., ITS GENERAL
PARTNER
By: /s/ Sidney Lapidus
--------------------------------
Name: Sidney Lapidus
Title: Partner
6
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TAX SHARING AGREEMENT
TAX SHARING AGREEMENT (the "Agreement") entered into as of February 1.
1999, by and among MAFCO HOLDINGS INC., a Delaware corporation ("Parent").
PANAVISION INC., a Delaware corporation ("Panavision"), the Subsidiaries (as
hereinafter defined) of Panavision that are signatories hereto and any entities
that become parties hereto pursuant to Paragraph 19 hereof. Parent and its
Subsidiaries are hereinafter sometimes referred to as the "Parent Group." and
Panavision and its Subsidiaries are hereinafter sometimes referred to as the
"Panavision Group."
WHEREAS. Panavision is an indirect Subsidiary of Parent:
WHEREAS. Parent and the Panavision Group desire, to the extent permitted by
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder (the "Treasury Regulations"), that the Panavision Group
be included in the filing of consolidated federal income tax returns on behalf
of the Parent Group:
WHEREAS. Parent and the Panavision Group desire that the Panavision Group
participate, to the extent permitted by applicable state or local law, in
combined state or local income tax returns (which shall be deemed for all
purposes of this Agreement to include any consolidated state or local tax
return) if so requested by Parent or any Subsidiary of Parent (other than
Panavision or any Subsidiary of Panavision):
WHEREAS, Parent and the Panavision Group wish to allocate and settle among
themselves in an equitable manner the consolidated federal and combined state or
<PAGE>
local income tax liability of the Panavision Group for Taxable Periods governed
by this Agreement, and
WHEREAS, the Panavision Group desires to be indemnified by Parent with
respect to certain tax liabilities, and Parent is willing to so indemnify the
Panavision Group.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parities agree as follows:
1. Definitions.
For purposes of this Agreement. the following terms shall be defined as
follows:
(a) "Taxable Period" shall mean any taxable year or portion thereof
ending after the date hereof during which Panavision is a Subsidiary of Parent,
and with respect to which a consolidated federal income tax return that includes
Panavision is properly filed on behalf of the Parent Group or (in the case of
any combined state or local return) any such taxable year or portion thereof
with respect to which a combined state or local income tax return is filed by
Parent or any Subsidiary of Parent (other than Panavision or any subsidiary of
Panavision) that includes Panavison or any subsidiary of Panavision.
(b) "Panavision Group's Federal Taxable Income" for a Taxable Period
shall mean the federal taxable income (including, for all purposes of this
Agreement, alternative minimum taxable income) for such Taxable period that the
Panavision Group would have reported if it had not been included in the
consolidated federal income tax return filed for the Parent Group with respect
to such Taxable Period
<PAGE>
but instead had filed its own consolidated return for such Taxable Period;,
provided, however, that in computing such taxable income, the Panavision Group
shall not take into account any amounts paid or payable by Panavision to Parent
under Paragraphs 2 or 5 hereof with respect to federal taxes or by Parent to
Panavision under Paragraphs 2, 5 or 7 hereof with respect to federal taxes. In
computing such taxable income, the Panavision Group shall be entitled to take
into account deductions and credits attributable to the carryover or carryback
of any losses or credits of Panavision or any Subsidiary of Panavision, but only
to the extent that such losses or credits arose in a Taxable Period and after
taking into account any limitations on the use of such losses and credits
imposed pursuant to Sections 172, 382, 383, 384, 904 or 1212 of the Code or by
Treasury Regulations Sections 1.1502-15A, 1.1502-15T, 1.1502-20, 1.1502-21A,
1.1502-21T, 1.1502-22A, 1.1502-22T, 1.1502-91T, 1.1502-92T, 1.1502-93T or
1.1502-94T.
(C) "Panavision Group's Federal Tax" for a Taxable Period shall mean the
federal income tax liability or, if applicable, the federal alternative minimum
tax liability for such Taxable Period that the Panavision Group would have
incurred if it had not been included in the consolidated federal income tax
return filed for the Parent Group with respect to such Taxable Period, but had
instead filed its own consolidated return for such Taxable Period; provided that
in computing such tax liability for any Taxable Period, the Panavision Group
shall not take into account any amounts paid or payable by Panavision to Parent
under Paragraphs 2 or 5 hereof with respect to federal taxes or by Parent to
Panavision under Paragraphs 2, 5 or 7 hereof with respect to federal taxes. In
computing such tax liability, the Panavision Group shall
<PAGE>
be entitled to take into account deductions and credits attributable to the
carryover or carryback of any losses or credits of Panavision or any Subsidiary
of Panavision, but only to the extent that such losses or credits arose in a
Taxable Period and after taking into account any limitations on the use of such
LOSSES AND credits imposed pursuant to Sections 172, 382, 383, 384, 904 or 1212
of the Code or by Treasury Regulations Sections 1.1502-15A, 1.1502-15T,
1.1502-20, 1.1502-21A, 1.1502-21T, 1.1502-22A, 1.1502-22T, 1.1502-91T,
1.1502-92T, 1.1502-93T or 1.1502-94T. If the computation of the Panavision
Group's Federal Tax does not result in a positive number, the Panavision Group's
Federal Tax shall be deemed to be zero.
(d) "Panavision Group's State and Local Taxable Income" shall mean the
state and local taxable income, computed in a manner consistent with the
computation of the Panavision Group's Federal Taxable Income, as defined above,
that Panavision and/or any of its Subsidiaries would have reported with respect
to each state or local taxing jurisdiction for any Taxable Period for which
Panavision and/or any Subsidiary of Panavision participates, with Parent or any
Subsidiary of Parent (other than Panavision or any Subsidiary of Panavision),
in the filing of a combined state or local income tax return with such
jurisdiction if Panavision and/or any Subsidiary of Panavision had filed with
each such jurisdiction a separate return (in a case where only one member of
the Panavision Group joins in the filing of such combined return) or a combined
return including only those members of the Panavision Group actually joining in
such combined return (in a case where more than one member of the Panavision
Group joins in the filing of such combined return).
<PAGE>
(e) "Panavision Group's State and Local Tax" shall mean the aggregate
state and local income tax, computed in a manner consistent with the computation
of the Panavision Group's Federal Tax, as defined above, that Panavision and/or
any of its Subsidiaries would have incur-red with respect to each relevant state
and local taxing jurisdiction for any Taxable Period for which Panavision and/or
any Subsidiary of Panavision participates with Parent or any Subsidiary of
Parent (other than Panavision or any Subsidiary of Panavision) in the filing of
a combined state or local income tax return with such jurisdiction if Panavision
and/or any Subsidiary of Panavision had filed with such jurisdiction a separate
return (in a case where only one member of the Panavision Group joins in the
filing of such combined return) or a combined return including only those
members of the Panavision Group actually joining in such combined return (in a
case where more than one member of the Panavision Group joins in the filing of
such combined return).
(f) "Estimated Tax Payments" shall mean for a Taxable Period the
aggregate payments by Panavision to Parent for such Taxable Period provided in
Paragraph 3.
(g) "Final Determination" shall mean a closing agreement with the
Internal Revenue Service or the relevant state or local taxing authorities, an
agreement contained on Internal Revenue Service Form 870-AD or other comparable
form, an agreement that constitutes a determination under Section 1313(a)(4) of
the Code, a claim for refund which has been allowed, a deficiency notice with
respect to which the period for filing a petition with the Tax Court or the
relevant state or local
<PAGE>
tribunal has expired or a decision of any court of competent jurisdiction that
is not subject to appeal or as to which the time for appeal has expired.
(h) "Subsidiary" as to any entity (the parent corporation) shall mean
a corporation that would be an includible corporation that is a member of an
affiliated group of corporations of which the parent corporation would be the
common parent, all within the meaning attributable to such terms in Section 1504
of the Code and Treasury Regulations thereunder.
2. Payments between Panavision and Parent.
(a) Panavision shall pay to Parent, for each Taxable Period, an amount
equal to the excess, if any, of the Panavision Group's Federal Tax for such
Taxable Period over the aggregate amount of the Estimated Tax Payments actually
made by Panavision to Parent with respect to federal income taxes for such
Taxable Period. If the aggregate amount of the Estimated Tax Payments actually
made to Parent with respect to federal income taxes for such Taxable Period
exceeds the Panavision Group's Federal Tax for such Taxable Period, Parent shall
pay to Panavision an amount equal to such excess.
(b) For each Taxable Period with respect to which Panavision or any
Subsidiary of Panavision participates in the filing of any combined state or
local income tax return with Parent or any Subsidiary of Parent (other than
Panavision or any Subsidiary of Panavision), Panavision shall pay to Parent an
amount equal to the excess, if any, of the Panavision Group's State and Local
Tax for such Taxable Period over the aggregate amount of the Estimated Tax
Payments actually made by Panavision to Parent with respect to such state or
local income tax for such Taxable Period. If the aggregate
<PAGE>
amount of the Estimated Tax Payments actually made to Parent with respect to
Such state and local income tax for such Taxable Period exceeds the Panavision
Group's State and Local Tax for such Taxable Period, Parent shall pay to
Panavision an amount equal to such excess.
3. Estimated Tax Payments.
(a) Panavision shall pay to Parent, for each Taxable Period, no later
than the tenth day of each of the fourth, sixth, ninth and twelfth months of
such Taxable Period, the amount of estimated federal income taxes that the
Panavision Group would have been requited to pay on or before the fifteenth day
of each such month if Panavision were filing a consolidated federal income tax
return for such Taxable Period for an affiliated group of corporations of which
Panavision was the common parent and that consisted only of the members of the
Panavision Group. Such estimated federal income tax liability shall be
determined consistent with the calculation of the Panavision Group's Federal
Tax and shall reflect the estimated taxable income of the Panavision Group
projected for three, six, nine and twelve months, respectively.
(b) For every Taxable Period with respect to which Panavision and/or
any Subsidiary of Panavision participates in the filing of a combined state or
local income tax return with Parent or any Subsidiary of Parent (other than
Panavision or any Subsidiary of Parent), Panavision shall pay to Parent, no
later than the fifth day prior to the date an estimated state or local payment
is due, the amount of estimated taxes that Panavision and/or any such Subsidiary
of Panavision would have been required to pay if Panavision and/or any such
Subsidiary of Panavision had filed for such period a separate return (in a case
where only one member of the Panavision Group joins in the
<PAGE>
filing of such combined return) or a combined return including only those
members of the Panavision Group actually joining in such combined return (in a
case where more than one member of the Panavision Group joins in the filing of
such combined return). Such estimated state or local income tax liability shall
be determined consistent with the calculation of the Panavision Group's State
and Local Tax.
4. Time and Form of Payment.
(a) Payments between Panavision and Parent pursuant to Paragraph 2
hereof shall be made no later than the fifth day prior to the due date of the
Parent Group's consolidated federal income tax return or any relevant combined
state or local income tax return for the period for which such a payment is due.
If the due date for any such return is extended, any amounts due at the time of
filing a request for extension of time to file shall be paid on an estimated
basis. No later than five (5) days prior to the extended due date for such
return for such Taxable Period, Panavision's payment shall be recalculated, and
any difference between (i) the tax liability of the Panavision Group to be
reflected on such return and (ii) all prior Estimated Tax Payments with respect
to such Taxable Period shall be paid by such fifth day to the party entitled
thereto, with interest from the original due date at the relevant statutory
rate.
(b) Each Subsidiary of Panavision agrees to pay to Panavision its
share of each of the items of the Panavision Group's Federal Tax and the
Panavision Group's State and Local Tax and of Estimated Tax Payments, each such
share to be determined in accordance with the principles of Paragraphs 1(c),
I(e), 3(a) and 3(b) hereof, no later than one (1) business day prior to the date
upon which the relevant payment by Panavision is required to be made under the
terms hereof, Panavision agrees
<PAGE>
to pay to each Subsidiary of Panavision its share of any payment received by
Panavision from Parent pursuant to this Agreement, each such share to be
determined in accordance with the principles of Paragraphs 1(c), 1(e), 3(a) and
3(b) hereof, as promptly as practicable following the receipt of any such
payment and the determination of such share.
5. Adjustments.
(a) Redeterminations of Tax Liability. In the event of any
redetermination of the consolidated federal income tax liability of the Parent
Group for any Taxable Period (or of the combined state or local income tax
liability for any Taxable Period for which a combined return is filed) as the
result of an audit by the Internal Revenue Service (or the relevant state or
local taxing authorities), a claim for refund or otherwise, the Panavision
Group's Federal Tax (or the Panavision Group's State and Local Tax) shall be
recomputed for such Taxable Period and any prior and subsequent Taxable Periods
to take into account such redetermination, and payments due pursuant to
Paragraph 2 hereof shall be appropriately adjusted. Any payment for any Taxable
Period by Panavision to Parent or Parent to Panavision required by such
adjustment shall be paid within ten (10) days after the date of a Final
Determination with respect to such redetermination or as soon as such adjustment
practicably can be calculated, if later, together with interest for the period
at the rate provided for in the relevant statute.
(b) Refund of Tax Sharing Payment. In the event that the calculation
of the Panavision Group's Federal Taxable Income (or the Panavision Group's
State and Local Taxable Income) for any Taxable Period results in a loss, such
loss may
<PAGE>
be carried back and deducted in calculating the Panavision Group's Federal Tax
(or the Panavision Group's State and Local Tax) for prior Taxable Periods in the
same manner as it would have been carried back and deducted had it constituted a
net operating loss deduction under Section 172 of the Code or a net capital loss
deduction under Section 1212 of the Code (or in the case of state and local tax,
under applicable state or local provisions), as such provisions would have been
applied to a consolidated (or combined) return filed with respect to the
Panavision Group (or one or more members thereof), but after taking into account
any limitation on the use of such loss imposed pursuant to Section 382, 383, 384
or 904 of the Code or Treasury Regulations Sections 1.1502-15A, 1.1502-15T,
1.1502-20, 1.1502-21A, 1.1502-21T, 1.1502-22A, 1.1502-22T, 1.1502-91T,
1.1502-92T, 1.1502-93T or 1.1502-94T (or with respect to state and local tax,
applicable state or local provisions). In such case, the Panavision Group's
Federal Tax (or the Panavision Group's State and Local Tax) shall be recomputed
for the Taxable period or Periods to which such loss is carried and for any
subsequent Taxable Periods to take into account the deduction of such loss, and
payments made pursuant to paragraph 2 hereof shall be appropriately adjusted. In
the case of any carryback of a loss pursuant to his paragraph 5(b), any payment
between Parent and Panavision required by such adjustment shall be paid within
ten (10) days after the date of filing the consolidated federal income tax
return of the Parent Group (or the relevant combined state or local income tax
return) for the year in which such loss arises. Excess credits for any Taxable
Period shall be carried back and otherwise treated in a manner consistent with
the provisions of this Paragraph 5.
<PAGE>
6. Interest on Unpaid Amounts.
In the event that any party fails to pay any amount owed pursuant to this
Agreement within ten (10) days after the date when due, interest shall accrue on
any unpaid amount at the "designated rate" from the due date until such amounts
are fully paid, For purposes of this Agreement, the "designated rate" shall mean
ten percent (10%).
7. Indemnification
Parent shall indemnify Panavision and each Subsidiary of Panavision on an
after-tax basis (taking into account, when realized, any tax detriment or tax
benefit to Panavision or any Subsidiary of Panavision of (x) a payment hereunder
or (y) the liability to the Internal Revenue Service or state, local or foreign
taxing authority giving rise to such a payment), with respect to and in the
amount of:
(a) any liability to the Internal Revenue Service for federal income
tax incurred by Panavision or any Subsidiary of Panavision for any Taxable
Period with respect to which Panavision is included in a consolidated federal
income tax return filed on behalf of the Parent Group;
(b) any liability for state or local income tax to a state or local
taxing authority incurred by Panavision or any Subsidiary of Panavision with
respect to any jurisdiction for any Taxable Period with respect to which
Panavision or any Subsidiary of Panavision participates in the filing of a
combined return with Parent or any Subsidiary of Parent (other than Panavision
or any Subsidiary of Panavision);
(c) any liability for federal, state or local income tax to the
Internal Revenue Service or a state or local taxing authority, as the case may
be, incurred
<PAGE>
by Panavision or any Subsidiary of Panavision, to the extent attributable to any
member of the Parent Group (other than Panavision or any Subsidiary of
Panavision) and for which Panavision or any Subsidiary of Panavision is liable
as a result of being included in a consolidated federal income tax return of the
Parent Group or as a result of participating in the filing of a combined state
or local income tax return with Parent or any Subsidiary of Parent (other than
Panavision or any Subsidiary of Panavision); and
(d) interest, penalties and additions to tax, and costs and expenses
in connection with any liabilities described in Paragraphs 7(a), (b) and (c)
above.
Parent shall pay to Panavision amounts due under Paragraphs 7(a), (b) and (c)
and Paragraph 7(d) (to the extent such amounts are related to amounts under
Paragraphs 7(a), (b) and (c)) no later than ten (10) days after the date of a
Final Determination with respect thereto.
8. Filing of Returns, Payment of Tax Payment of Tax.
(a) Appointment of Parent as Agent. Each of Panavision and each
Subsidiary of Panavision hereby appoints Parent as its agent, so long as
Panavision or such Subsidiary is a member of the Parent Group, for the purpose
of filing consolidated federal income tax returns and for making any election or
application or taking any action in connection therewith on behalf of Panavision
or such Subsidiary consistent with the terms of this Agreement. Each of
Panavision and each Subsidiary of Panavision hereby appoints Parent as its
agent, so long as Panavision or such Subsidiary is a member of the Parent Group,
for the purpose of filing any combined state or local income tax returns that
Parent may elect to file and for making any election or
<PAGE>
application or taking any action in connection therewith on behalf of Panavision
or such Subsidiary consistent with the terms of this Agreement. Each of
Panavision and each Subsidiary of Panavision hereby consents to the filing of
such returns, and to the making of such elections and applications. Parent
agrees that to the extent the filing of any combined state or local return by
Parent or any Subsidiary of Parent with Panavision, or any Subsidiary of
Panavision for any period will reduce the state or local tax liability of
Panavision or any Subsidiary of Panavision, without causing an increase in the
state or local tax liability of Parent or any Subsidiary of Parent (other than
Panavision or any Subsidiary of Panavision) in such period, Parent will file or
cause to be filed for such taxable period a combined state or local income tax
return with Panavision and/or its Subsidiaries; provided, however, that such
filing is permitted by applicable state or local law. Except as provided in this
Paragraph 8, nothing herein shall be construed as requiring Parent or any
Subsidiary of Parent to file combined state or local income tax returns on
behalf of any members of the Patent Group for any taxable period.
(b) Cooperation. The Panavision Group shall cooperate with Parent in
the filing, to the extent permitted by law, of a consolidated federal income tax
return and such combined state or local income tax returns for members of the
Parent Group as Parent elects to file or cause to be filed, by maintaining such
books and records and providing such information as may be necessary or useful
in the filing of such returns and executing any documents and taking any actions
which Parent may reasonably request in connection therewith. Parent and the
Panavision Group shall provide one another with such information concerning such
returns and the application of payments
<PAGE>
made under this Agreement as Parent or the Panavision Group may reasonably
request of one another.
(c) Payment of Tax. For each Taxable Period, Parent shall timely pay
or discharge, or cause to be timely paid or discharged, the consolidated federal
income tax liability of the Parent Group for such Taxable Period and the
combined state or local income tax liability shown on any combined return that
Parent or any Subsidiary of Parent elects or is required to file that includes
Panavision or any Subsidiary of Panavision.
9. Resolution of Disputes.
Any dispute concerning the calculation or basis of determination of any
payment provided for hereunder shall be resolved by the independent certified
public accountants for Parent, whose judgment shall be conclusive and binding
upon the parties, in the absence of manifest error.
10. Adjudications.
In any audit, conference, or other proceeding with the Internal Revenue
Service or the relevant state or local authorities, or in any judicial
proceedings concerning the determination of the federal income tax liabilities
of the Parent Group, Panavision or any Subsidiary of Panavision or the state or
local income tax liability of any combined group including Panavision or any
Subsidiary of Panavision, the parties shall be represented by persons selected
by Parent. Parent shall undertake any settlement or other action that it is
permitted to take pursuant to this Paragraph 10 affecting the income tax
liability of any member of the Panavision Group or any amount payable by
Panavision to or receivable by Panavision from Parent with the same diligence
and care
<PAGE>
as if such action pertained to an income tax liability of Parent and as if any
amount that might be so payable or receivable by Panavision were payable or
receivable by Parent. Each of Panavision and each Subsidiary of Panavision
hereby appoints Parent as its agent for the purpose of proposing and concluding
any such settlement.
11. Binding Effect; Successors and Assigns.
This Agreement shall be binding upon Parent, Panavision, each Subsidiary of
Panavision that is a signatory hereto and each Subsidiary of Panavision that
becomes a party hereto pursuant to Paragraph 19 hereof. This Agreement shall
inure to the benefit of, and be binding upon, any successors or assigns of the
parties hereto (including, without limitation, any Subsidiary of Panavision
that becomes a party hereto pursuant to Paragraph 19). Parent, Panavision and
each other party hereto may assign its right to receive payments under this
Agreement but may not assign or delegate its obligations hereunder.
12. Interpretation.
This Agreement is intended to calculate and allocate certain federal and
state and local income tax liabilities of Parent and the Panavision Group, and
any situation or circumstance concerning such calculation and allocation that is
not specifically contemplated hereby or provided for herein shall be dealt with
in a manner consistent with the underlying principles of calculation and
allocation in this Agreement.
13. Legal and Accounting Fees.
Any fees or expenses for legal, accounting or other professional services
rendered in connection with (1) the preparation of a consolidated federal or
combined state or local income tax return for the Parent Group or members of
the Parent Group
<PAGE>
(to the extent that such services reasonably pertain to the tax liability of
members of the Panavision Group rather than any other members of the Parent
Group), (ii) the application of the provisions of this Agreement or (iii) the
conduct of any audit, conference or proceeding of the Internal Revenue Service
or relevant state or local authorities or judicial proceedings relevant to any
determination required to be made hereunder shall be allocated between Parent
and the Panavision Group in a manner resulting in the Panavision Group bearing a
reasonable approximation of the actual amount of such fees or expenses hereunder
reasonably related to, and for the benefit of, the Panavision Group rather than
to or for other members of the Parent Group.
14. Effect of the Agreement.
This Agreement shall determine the liability of Parent and the members of
the Panavision Group to each other as to the matters provided for herein,
whether or not such determination is effective for purposes of the Code or of
state or local revenue laws, or for financial reporting purposes or for any
other purposes.
15. Entire Agreement.
This Agreement embodies the entire understanding among the parties relating
to its subject matter and supersedes and terminates any prior agreements and
understandings among the parties with respect to such subject matter. Any and
all prior correspondence, conversations and memoranda are merged herein and
shall be without effect hereon. No promises, covenants or representations of any
kind, other than those expressly stated herein, have been made to induce either
party to enter into this Agreement. This Agreement, including this provision
against oral modification, shall not be modified or terminated except by a
writing duly signed by each of the each of the parties hereto,
<PAGE>
and no waiver of any provisions of this Agreement shall be effective unless in a
writing duly signed by the party sought to be bound.
16. Code References.
Any references to the Code or Treasury Regulations shall be deemed to
refer to the relevant provisions of any successor statute or regulation and
shall refer to such provisions as in effect from time to time.
17. Notices.
Any payment, notice or communication required or permitted to be given
under this Agreement shall be in writing (including telecopy communication) and
mailed, telecopied or delivered:
If to Parent, to it at:
Mafco Holdings Inc.
38 East 63rd Street
New York, New York 10021
Attention: Executive Vice President and General Counsel
If to Panavision, to it at:
Panavision Inc.
6219 DeSoto Avenue
Woodland Hills, California 91367
Attention: Chief Financial Officer
or to such other address as a party shall furnish in writing to the other
parties. All such notices and communications shall be effective when received.
18. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
19. New Members.
Each of the parties to this Agreement recognizes that from time to time
Panavision may acquire one or more Subsidiaries. Each of the parties to this
Agreement agrees that, without the express written consent of the other parties,
each Subsidiary of Panavision shall become a party to this Agreement for all
purposes of this Agreement with respect to Taxable Periods ending after such
Subsidiary became a Subsidiary of Panavision, and that this Agreement may be
modified appropriately by Parent and Panavision to reflect the addition of such
Subsidiary as a party to this Agreement.
20. Termination.
This Agreement shall terminate at such time as all obligations and
liabilities of the parties hereto have been satisfied. Except as otherwise
provided herein, none of the parties hereto shall have any obligations or
liabilities under this Agreement with respect to any taxable period during which
Panavision is not a member of the Parent Group; provided, however that the
indemnification obligations and liabilities of Parent under Paragraph 7 shall
continue and shall not terminate. The obligations and liabilities of the parties
arising under this Agreement with respect to any Taxable Period during which
Panavision is a member of the Parent Group and the indemnification obligations
and liabilities of Parent arising under Paragraph 7 shall continue in full force
and effect until all such obligations have been met and such liabilities have
been paid in full, whether by expiration of time, operation of law, or
otherwise. The obligations and liabilities of each party are made for the
benefit of, and shall be enforceable by, the other parties and their
successors and permitted assigns.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its respective duly authorized officer as of the date first set
forth above.
MAFCO HOLDINGS INC., a Delaware corporation
By /s/ Glenn P. Dickes
-----------------------------------------
Glenn P. Dickes
Senior Vice President
PANAVISION INC., a Delaware corporation
BY /s/ Joseph P. Page
-----------------------------------------
Joseph P. Page
Vice Chairman and Chief Administrative
Officer
KEEPCO I. INC., a Delaware corporation
BY /s/ Joseph P. Page
-----------------------------------------
Joseph P. Page
Executive Vice President and Chief
Financial Officer
KEEPCO II, INC., a Delaware corporation
By /s/ Joseph P. Page
-----------------------------------------
Joseph P. Page
Executive vice President and Chief
Financial Officer
<PAGE>
PANAVISION U.K. HOLDINGS. INC., a Delaware
corporation
By /s/ Joseph P. Page
-----------------------------------------
Joseph P. Page
Executive Vice President and Chief
Financial Officer
PANAVISION REMOTE SYSTEMS. INC., a
California corporation
By /s/ Christopher M.R. Phillips
-----------------------------------------
Christopher M.R. Phillips
Secretary
VICTOR DUNCAN. INC., a Michigan corporation
By /s/ Christopher M.R. Phillips
-----------------------------------------
Christopher M.R. Phillips
Secretary
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
NAME: JURISDICTION OF FORMATION DOING BUSINESS AS:
- ----- ------------------------- ------------------
<S> <C> <C>
Panavision International, L.P. Delaware Panavision;
Panavision Florida;
Panavision Hollywood;
Panavision Wilmington;
Lee Filters
Panavision Remote Systems Inc. California
Keepco I, Inc. Delaware
Keepco II, Inc. Delaware
Panavision U.K. Holdings, Inc. Delaware
Victor Duncan, Inc. Michigan Panavision Chicago;
Panavision Dallas
Panavision (1998) Limited New Zealand
Panavision Europe Limited United Kingdom Panavision U.K.;
Panavision Ireland;
Panavision France;
Lee Filters;
Panavision Alga;
Panavision Australia
Panavision Canada Holdings, Inc. Ontario, Canada
Panavision New Zealand Limited New Zealand
Lee Filters Limited United Kingdom
Camera Bellows Limited United Kingdom
Panavision Poland Ltd. United Kingdom
Joe Dunton Cameras Limited United Kingdom
Lee Lighting Ltd. United Kingdom Lee Lighting
Panavision (Canada) Corporation Ontario, Canada Panavision Canada
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
NAME: JURISDICTION OF FORMATION DOING BUSINESS AS:
- ---------------------------------- --------------------------- -----------------------
<S> <C> <C>
Panavision International, L.P. Delaware Panavision;
Panavision Florida;
Panavision Hollywood;
Panavision Wilmington;
Lee Filters
Panavision Remote Systems Inc. California
Keepco I, Inc. Delaware
Keepco II, Inc. Delaware
Panavision U.K. Holdings, Inc. Delaware
Victor Duncan, Inc. Michigan Panavision Chicago;
Panavision Dallas
Panavision (1998) Limited New Zealand
Panavision Europe Limited United Kingdom Panavision U.K.;
Panavision Ireland;
Panavision France;
Panavision Alga;
Panavision Australia;
Lee Filters
Panavision Canada Holdings, Inc. Ontario, Canada
Panavision New Zealand Limited New Zealand
Lee Filters Limited United Kingdom
Camera Bellows Limited United Kingdom
Panavision Poland Ltd. United Kingdom
Joe Dunton Cameras Limited United Kingdom
Lee Lighting Ltd. United Kingdom Lee Lighting
Panavision (Canada) Corporation Ontario, Canada Panavision Canada
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 333-19971 and Form S-8 No. 333-33709) pertaining to
the Panavision Inc. Stock Option Plan, of our report dated February 16, 1999
with respect to the consolidated financial statements and schedule of
Panavision Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 1998.
ERNST & YOUNG LLP
Los Angeles, California
March 18, 1999
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Glenn P. Dickes, Joseph P. Page, Christopher M.R. Phillips
and Barry F. Schwartz or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
PANAVISION INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1998 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the
Form 10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or in
connection with the Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, including
this power of attorney, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, each acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 16th
day of March 1999.
/s/ RONALD O. PERELMAN
---------------------------
Ronald O. Perelman
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Glenn P. Dickes, Joseph P. Page, Christopher M.R. Phillips
and Barry F. Schwartz or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
PANAVISION INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1998 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the
Form 10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or in
connection with the Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, including
this power of attorney, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, each acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 16th
day of March 1999.
/s/ WILLIAM C. SCOTT
---------------------------
William C. Scott
<PAGE>
Exhibit 24.3
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Glenn P. Dickes, Joseph P. Page, Christopher M.R. Phillips
and Barry F. Schwartz or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
PANAVISION INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1998 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the
Form 10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or in
connection with the Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, including
this power of attorney, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 16th
day of March 1999.
/s/ MARTIN D. PAYSON
---------------------------
Martin D. Payson
<PAGE>
Exhibit 24.4
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Glenn P. Dickes, Joseph P. Page, Christopher M.R. Phillips
and Barry F. Schwartz or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
PANAVISION INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1998 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the
Form 10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or in
connection with the Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, including
this power of attorney, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 16th
day of March 1999.
/s/ HOWARD GITTIS
---------------------------
Howard Gittis
<PAGE>
Exhibit 24.5
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Glenn P. Dickes, Joseph P. Page, Christopher M.R. Phillips
and Barry F. Schwartz or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
PANAVISION INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1998 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the
Form 10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or in
connection with the Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, including
this power of attorney, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 16th
day of March 1999.
/s/ JAMES R. MAHER
---------------------------
James R. Maher
<PAGE>
Exhibit 24.6
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Glenn P. Dickes, Joseph P. Page, Christopher M.R. Phillips
and Barry F. Schwartz or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
PANAVISION INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1998 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the
Form 10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or in
connection with the Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, including
this power of attorney, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 16th
day of March 1999.
/s/ KENNETH ZIFFREN
---------------------------
Kenneth Ziffren
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