<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 1996
REGISTRATION NO. 333-13721
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
FOUR MEDIA COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7819 95-4599440
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
2813 WEST ALAMEDA AVENUE
BURBANK, CA 91505-4455
(818) 840-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBERT T. WALSTON
FOUR MEDIA COMPANY
2813 WEST ALAMEDA AVENUE
BURBANK, CA 91505-4455
TEL: (818) 840-7000
FAX: (818) 846-5197
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
YVONNE E. CHESTER, ESQ. SCOTT T. SMITH, ESQ.
TROY & GOULD PROFESSIONAL CORPORATION PILLSBURY MADISON & SUTRO LLP
1801 CENTURY PARK EAST, SUITE 1600 2700 SAND HILL ROAD
LOS ANGELES, CALIFORNIA 90067 MENLO PARK, CALIFORNIA 94025-7111
TEL: (310) 553-4441 TEL: (415) 233-4500
FAX: (310) 201-4746 FAX: (415) 233-4545
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value........... $97,750,000 $29,622(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
FOUR MEDIA COMPANY
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
-------------------------------- ------------------
<S> <C> <C>
1. Forepart of the Registration Statement Outside Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page; Back Cover Page;
Pages of Prospectus Additional Information
3. Summary Information, Risk Factors and Risk Factors; Selected Financial Data
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Underwriting;
Risk Factors
6. Dilution Dilution
7. Selling Security Holders Principal and Selling Stockholders
8. Plan of Distribution Outside Front Cover Pages; Underwriting
9. Description of Securities to Be Outside Front Cover Page; Prospectus
Registered Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Outside Front Cover Page; Prospectus
Registrant Summary; The Company; Risk Factors;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital Stock;
Shares Eligible for Future Sale; Additional
Information; Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 27, 1996
PROSPECTUS
5,700,000 SHARES
[LOGO]
(R)
COMMON STOCK
---------------
Of the 5,700,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), of Four Media Company (the "Company"), offered hereby, 3,514,578
shares are being offered by the Company and 2,185,422 shares are being offered
by the sole stockholder of the Company (the "Selling Stockholder"). See
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholder.
Prior to this offering there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $12.00 and $14.00 per share. See "Underwriting" for
factors which will be considered in determining the initial public offering
price. Application has been made for quotation of the Common Stock on the
Nasdaq National Market under the symbol "FOUR."
---------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER(2)
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<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
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Total(3)......................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deduction of expenses estimated at $1,100,000 payable pro rata by
the Company and the Selling Stockholder.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
855,000 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
The shares are being offered by the Underwriters, subject to prior sale,
when, as, and if delivered to and accepted by the Underwriters, and subject to
various prior conditions, including the right to reject orders in whole or in
part. It is expected that delivery of share certificates will be made against
payment therefor at the offices of Furman Selz LLC in New York, New York, on or
about , 1997.
FURMAN SELZ
PAINEWEBBER INCORPORATED
---------------
The date of this Prospectus is , 1997
<PAGE>
[PICTURES]
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements (and
related notes thereto) included elsewhere in this Prospectus. The discussion in
this Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section entitled "Risk
Factors" and elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment option.
THE COMPANY
Four Media Company is a leading provider of technical and creative services
to owners, producers and distributors of television programming, feature films
and other entertainment content in the United States and Asia. The name Four
Media Company is derived from the Company's core competencies in film, video,
sound and data. The Company's services integrate and apply a variety of systems
and processes to enhance the creation and distribution of entertainment
content. The Company seeks to capitalize on growth in domestic and
international demand for original entertainment content and for existing
television and film libraries without taking production or ownership risk with
respect to any specific television program, feature film or other content.
Since its formation in 1993 through the first quarter of fiscal 1997, the
Company has invested $72.6 million in infrastructure, primarily for new digital
systems and equipment. In addition, the Company has successfully identified,
acquired and integrated four complementary businesses. The Company acquired the
assets of three companies in connection with its formation in 1993, acquired
the assets of a fourth company in 1994, and capitalized and commenced its
Singapore broadcast operations in 1995. As a result of its investments and
acquisitions, the Company is one of the largest and most diversified
independent (not affiliated with or related to a content owner) providers of
technical and creative services to the entertainment industry, and therefore is
able to offer its customers a single source for such services.
The Company has organized its activities into four divisions through which it
provides services to a diverse base of customers, including all of the major
domestic studios (and their international divisions), as well as independent
producers and owners of television and film libraries, and broadcast networks.
Studio Services. The studio services division, located in Burbank,
California, provides owners of television and film libraries with the
facilities and technical services necessary to manage, format and distribute
content worldwide. These technical services include duplicating videotape for
professional applications, restoring and preserving film, transferring film to
videotape and transforming videotape to film.
Broadcast Services. The broadcast services division, located in Burbank and
the Republic of Singapore, provides domestic and international programmers with
the facilities and services necessary to assemble and distribute programming
via satellite to viewers in the United States, Canada and Asia. These services
include assembling programming into a 24-hour "network" format, creating
promotional graphics, providing production support and facilities for the
creation of programming, and providing automated systems to deliver the
programming via satellite.
Television Services. The television services division, located in Burbank and
Santa Monica, California, provides producers of original television programming
with technical and creative services necessary to convert original film or
video to a final product suitable for airing on network, syndicated, cable or
foreign television. These services include developing film, converting film to
videotape and/or digital formats, creating music, sound and visual effects, and
assembling a program master for broadcast.
Visual Effects Services. The visual effects services division, located in
Burbank and Santa Monica, commenced operations in January 1995 and provides
creators of special visual effects with certain services
3
<PAGE>
required to digitally create or manipulate images in high resolution formats
for integration into feature films. These services include pre-production
consulting, the design and creation of visual effects, scanning film to a
digital format, and recording the digital information on film.
The Company believes that several trends in the entertainment industry will
have a positive impact on the Company's business. These trends include growth
in worldwide demand for original entertainment content, the development of new
markets for existing content libraries, increased demand for innovation and
creative quality in entertainment markets and wider application of digital
technologies to content manipulation and distribution, including the emergence
of new distribution channels. The Company believes that its current and
prospective customers increasingly will outsource services and "buy" rather
than "make" technical and creative services as the creation and distribution of
content becomes more technology driven and capital intensive. Also, the Company
anticipates that as entertainment companies continue to consolidate, they
increasingly will seek services from full-service providers such as the
Company.
The Company intends to pursue the following growth strategies:
. Seek Consolidation Opportunities. The Company believes that its industry
is highly fragmented and presents numerous consolidation opportunities.
The Company plans to pursue acquisitions that complement existing
operations, increase market share and diversify product lines.
. Offer Complete Outsourcing Solutions. The Company offers complete
outsourcing solutions by bundling services, which reduces the capital
costs and certain financial and operating risks of customers.
. Deploy Leading Technologies. The Company plans to continue its
investment in component digital equipment, information systems and other
leading technologies in order to enhance its reputation for
technological leadership in its industry.
. Expand Internationally. The Company intends to expand internationally in
response to specific customer demand, particularly where the Company's
technical expertise, financial strength and the ability to execute
quickly are competitive advantages.
. Establish Strategic Alliances. The Company seeks to generate additional
revenue from its technological resources and facilities by establishing
strategic alliances with content creators and others.
. Capitalize on Increasing Application of Digital Technology. The Company
intends to capitalize on new methods of applying digital technology for
storing, retrieving and manipulating content, as well as increased
demand for digital technology for use in high quality motion video,
multimedia applications and new content distribution channels.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company.............. 3,514,578 shares
Common Stock offered by the Selling Stockholder.. 2,185,422 shares
Common Stock outstanding after the offering...... 9,989,578 shares(1)
Use of proceeds to the Company................... For repayment of certain
indebtedness, capital
expenditures, working
capital and other general
corporate purposes,
including potential
acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol........... FOUR
</TABLE>
- -------------------
(1) Excludes 1,115,125 shares of Common Stock issuable upon exercise of stock
options to be outstanding upon completion of the offering.
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
------------------------------------------ ---------------------------------
JULY 31, 1994 JULY 30, 1995 AUGUST 4, 1996 OCTOBER 29, 1995 NOVEMBER 3, 1996
------------- ------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.............. $42,261 $61,004 $70,028 $17,632 $18,947
Income from
operations........... 2,488 5,149 5,336 1,030 1,338
Net income............ 1,235 3,220 2,424 313 124
Net income per share.. .19 .50 .37 .05 .02
Weighted average
number
of common shares
outstanding(1)....... 6,475 6,475 6,475 6,475 6,475
OTHER DATA:
EBITDA(2)............. $ 5,772 $11,390 $15,501 $ 3,527 $ 4,133
Net cash provided by
operations........... 3,047 4,588 9,387 1,585 796
Net cash used in
investing
activities........... 7,877 30,902 10,318 3,071 8,753
Net cash provided by
(used in) financing
activities........... 8,972 28,102 (410) 332 8,135
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 3, 1996
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, including restricted cash........................ $ 6,199 $ 13,012
Working capital........................................ 3,549 12,380
Total assets........................................... 99,301 106,114
Total debt(4).......................................... 62,970 27,970
Total stockholder's equity............................. 22,264 64,077
</TABLE>
- -------------------
(1) Weighted average number of common shares outstanding has been presented to
reflect retroactively the Company's reorganization and related stock
exchange with and stock dividend to its sole stockholder in October and
November 1996. See notes to the financial statements.
(2) "EBITDA" is defined herein as earnings before interest, taxes, depreciation
and amortization, excluding gains and losses on asset sales and
nonrecurring charges. EBITDA does not take into account normal capital
expenditures and does not represent cash generated from operating
activities in accordance with generally accepted accounting principles
("GAAP"), is not to be considered as an alternative to net income or any
other GAAP measurements as a measure of operating performance and is not
indicative of cash available to fund all cash needs. The Company's
definition of EBITDA may not be identical to similarly titled measures of
other companies. The Company believes that in addition to cash flows and
net income, EBITDA is a useful financial performance measurement for
assessing the operating performance of the Company because, together with
net income and cash flows, EBITDA widely is used to provide investors with
an additional basis to evaluate the ability of the Company to incur and
service debt and to fund acquisitions or invest in new technologies. To
evaluate EBITDA and the trends it depicts, the components of EBITDA, such
as net revenues, cost of services, and sales, general and administrative
expenses, should be considered. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." A reconciliation of net
income to EBITDA is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
------------------------------------------ ---------------------------------
JULY 31, 1994 JULY 30, 1995 AUGUST 4, 1996 OCTOBER 29, 1995 NOVEMBER 3, 1996
------------- ------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net income.............. $1,235 $ 3,220 $ 2,424 $ 313 $ 124
Add (deduct):
Interest expense,
net................. 1,253 2,917 3,906 921 1,214
Income tax benefits.. -- (988) (994) (204) --
Depreciation and
amortization........ 3,284 6,241 10,165 2,497 2,795
------ ------- ------- ------ ------
EBITDA.................. $5,772 $11,390 $15,501 $3,527 $4,133
====== ======= ======= ====== ======
</TABLE>
(3) Adjusted to give effect to the sale of 3,514,578 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $13.00 per share, after deducting underwriting discounts and commissions
and estimated offering expenses, and the application of the estimated net
proceeds therefrom as described in "Use of Proceeds."
(4) Includes a revolving line of credit, current and long term portions of term
loan facilities, short and long term notes payable, capital lease
obligations and a subordinated note due to the Company's sole stockholder.
5
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following matters,
together with the other information contained in this Prospectus, in
evaluating the Company and its business before making an investment decision
with respect to the shares of Common Stock offered hereby.
LOSS OF RELATIONSHIPS WITH KEY CUSTOMERS
Revenue Concentration. A significant portion of the Company's revenues is
derived from a small number of customers. Nine customers, MTV Asia LDC ("MTV
Asia"), Sony Pictures Corporation, TVN Entertainment Corporation ("TVN"),
Warner Bros., Paramount Pictures (a subsidiary of Viacom, Inc.), The Walt
Disney Company, Twentieth Century Fox, Universal Pictures and Hallmark
Entertainment, Inc., accounted for 55% of the Company's revenues in fiscal
1996. The Company expects that these customers will continue to account for a
significant portion of the Company's revenues in future periods. Except for
MTV Asia and TVN, none of these customers has a long-term contractual
relationship with the Company whereby the customer is obligated to purchase
any specified level of services from the Company. Accordingly, there can be no
assurance that revenues generated from these customers, individually or in the
aggregate, will reach or exceed historical levels in any future period. Any
substantial decrease in services provided to one or more of these customers
would have a material adverse effect on the Company's results of operations
and financial condition.
Relationship with MTV Asia. MTV Asia, partially owned by Viacom Inc.,
accounted for 15% of the Company's consolidated revenues in fiscal 1996 and
97% of the revenues of 4MC Asia, the Company's Singapore subsidiary, during
such period. 4MC Asia provides broadcast services to MTV Asia under a contract
which expires in April 2002 and provides for certain minimum performance
standards including, among other things, maintenance by 4MC Asia of specified
staffing levels and on-air reliability. MTV Asia has the right to terminate
the contract at any time if, among other things, 4MC Asia fails to meet the
performance standards or certain key employees cease to be employed by the
Company. See "Risk Factors--Dependence on Key Personnel." MTV Asia also has
the right to terminate the contract any time after April 14, 2000 upon payment
of specified amounts to 4MC Asia. Termination of the MTV Asia contract would
have a material adverse effect on the Company's results of operations and
financial condition. Further, there can be no assurance that the MTV Asia
contract will be renewed upon expiration. Any such failure to renew could have
a material adverse effect on the Company's business.
Relationship with TVN. TVN, a pay-per-view service that provides movies,
sporting events and concerts to satellite dish owners and certain cable
systems, accounted for 7% of the Company's revenues during fiscal 1996. The
Company provides broadcast services to TVN under a contract which expires in
January 1998. In early 1996, the Company and TVN agreed to renew and extend
their long-term contractual relationship (which had lapsed, but continued on a
month-to-month basis through mid-1995) to provide for, among other things, the
repayment by TVN of an aggregate of $3.3 million in outstanding accounts
receivable for broadcast services over three years in monthly installments of
principal and interest at 8%, a reduction in the monthly payments under the
contract, and the potential performance of additional services by the Company.
The Company agreed to these terms in view of: (i) the revenues historically
collected by the Company from the TVN relationship; (ii) the prospect of new
services based upon TVN's expansion; and (iii) the complementary nature of
TVN's requirements with the Company's anticipated conversion of its broadcast
infrastructure from analog to digital technology. TVN is current with respect
to its payment obligations under the contract. There can be no assurance,
however, that TVN will ultimately repay all outstanding amounts due to the
Company, fulfill its obligations under the contract or reach agreement with
the Company with respect to additional services.
Minimum Performance Standards; Possible Termination of Contracts or
Liquidated Damages. Most of the Company's customer contracts, including those
with MTV Asia and TVN, contain provisions that require the Company to meet
specified performance standards. Failure to meet specified performance
standards could result in the termination of the contract or payment of
liquidated damages, the amount of which depends on the nature and duration of
the nonperformance.
6
<PAGE>
Conversion to In-House Operations. Many of the major studios and other
customers of the Company have substantial capabilities to perform several or
all of the services offered by the Company, and evaluate from time-to-time
whether to perform those services in-house. For example, in 1995, The Disney
Channel, a subsidiary of The Walt Disney Company, changed its operating
strategy and moved its network origination and uplink operations in-house. The
Disney Channel accounted for 6%, 4%, and 1% of the Company's revenues in
fiscal 1994, 1995 and 1996, respectively. A decision by other major customers
to move in-house services they currently purchase from the Company could have
a material adverse effect on the Company's results of operations.
INCURRENCE OF SUBSTANTIAL INCREMENTAL COSTS AND CAPITAL EXPENDITURES PRIOR TO
GENERATION OF REVENUES
The Company incurs substantial incremental costs (primarily labor) and makes
significant capital expenditures prior to generating revenues. For example,
the Company has expanded its television services operations, which has
increased labor and depreciation expense significantly, through the addition
of new personnel at increased compensation levels and through the purchase of
new equipment and the construction of infrastructure. The Company incurs such
costs before the equipment and infrastructure generate revenues or achieve
capacity utilization and before the new services gain market acceptance. The
incurrence of incremental costs prior to the generation of revenues will have
an immediate adverse effect on the Company's net income. In addition, the
Company may elect to discontinue services that fail to generate sufficient
levels of revenue and write off the net book value of the assets related to
such services. Failure of the Company to generate anticipated levels of
revenue or the write-off of assets will have an immediate and adverse effect
on the Company's results of operations and financial condition.
RISK OF IMPLEMENTING NEW TECHNOLOGY; TECHNOLOGICAL OBSOLESCENCE
A key growth strategy of the Company is to integrate new systems and
equipment in its facilities and offer new services to customers. The Company
may experience difficulties in deploying new technologies that could delay or
prevent the successful introduction of new services. There can be no assurance
that the deployment of new technology or introduction of new services by the
Company will achieve market acceptance. Failure of the Company to implement
new technology and develop new services successfully or the failure of new
technology and services to achieve market acceptance could have a material
adverse effect on the Company's results of operations.
The systems and equipment utilized by the Company in providing certain
services to customers are subject to rapid technological change and
obsolescence, as well as evolving customer needs and industry standards. In
addition, the Company's competitors may introduce services embodying new
technology which could render the Company's existing services obsolete or
unmarketable. The Company thus may be required to undertake significant
capital expenditures to maintain its technological and competitive position in
the industry. There can be no assurance that the Company will have sufficient
capital or be able to obtain sufficient financing to fund such capital
expenditures, or that subsequent technological change will not make acquired
infrastructure obsolete before the Company recovers its investment.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends in large part on the continued service
of its executive officers (see "Management"), its key creative artists and
skilled technicians, and other key personnel. A significant percentage of the
Company's revenues can be attributed to services requiring highly compensated
creative technicians. In some instances, certain of the Company's customers
specify by name the personnel that are to work on their projects. Competition
for highly qualified employees is intense and the process of locating key
technical, creative and management personnel with the combination of skills
and attributes required to execute the Company's strategy is often lengthy.
There can be no assurance that the Company will continue to attract, motivate
and retain key personnel. Failure by the Company to retain and attract
qualified key personnel could have a material adverse effect on the Company's
business and results of operations.
7
<PAGE>
4MC Asia's contract with MTV Asia permits MTV Asia to terminate the contract
if both Robert T. Walston, Chairman and Chief Executive Officer, and Gavin W.
Schutz, Vice President and Chief Technology Officer, cease to be employed by
the Company and replacements acceptable to MTV Asia are not found. Termination
of this agreement would have a material adverse effect on the Company's
results of operations and financial condition. In addition, the Company has
entered into a new loan agreement under which the cessation of Mr. Walston's
employment would constitute an event of default and, at the option of the
lenders, result in the acceleration of outstanding loans. Any such
acceleration could have a material adverse effect on the Company's financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
RISKS OF ACQUISITION GROWTH STRATEGY
Ability to Implement Strategy. An important element of the Company's growth
strategy is the acquisition of complementary businesses which may enhance the
Company's operations and profitability. Execution of its growth strategy
requires the Company's existing management to, among other things:
(i) identify acquisition candidates for sale at reasonable prices; (ii) obtain
financing for acquisitions; (iii) consummate identified acquisitions; (iv)
hire, train and assimilate new personnel; and (v) in some instances, invest
substantial funds to enhance the capabilities of the acquired business. There
can be no assurance that the Company will successfully identify, finance,
consummate or assimilate acquisitions. Further, the Company's focus on
acquisition opportunities could lessen the effectiveness of management with
respect to existing operations, which could have a material adverse effect on
the Company's results of operations. In addition, certain of the Company's
larger, better capitalized competitors may seek to acquire some of the same
types of companies that the Company seeks to acquire. Such competition for
acquisitions may increase acquisition prices and related costs and result in
fewer acquisition opportunities, which could have a material adverse effect on
the Company's growth. The Company has entered into an agreement that provides
for an exclusive negotiating period for a potential acquisition. The Company
has not reached agreement on price or completed its due diligence with respect
to such potential acquisition and there can be no assurance that the Company
will be successful in consummating the transaction if it continues to pursue
this opportunity.
Potential Adverse Financial Impacts of Acquisitions. With respect to certain
of the Company's past acquisitions, it generally has taken two years before
the necessary balance sheet restructuring, consolidation with the Company's
existing operations and/or repositioning of marketing strategies, personnel or
equipment has been achieved and the acquisition has been successful from a
financial and operational perspective. The Company expects that certain of its
future acquisitions will take an equal or longer period of time to become
successful, if they ever are successful. Accordingly, the Company expects that
certain future acquisitions will have a material adverse effect on the
business, results of operations and financial condition of the Company for a
minimum period of two years. The Company expects that its future acquisitions
often will involve the recording of a significant amount of goodwill and
deferred charges on its balance sheet. In addition, the Company also might
record deferred charges related to noncompetition agreements. Amortization of
goodwill and deferred charges will reduce net income. The Company may issue
equity securities to finance all or a portion of future acquisitions, which
may have a dilutive effect on the Company's earnings and net tangible book
value per share.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced significant quarterly fluctuations in operating
results and anticipates that these fluctuations will continue. These
fluctuations have been caused by a number of factors, including: (i) with
respect to the Company's studio services division, seasonal and sometimes
fluctuating demand for programming by international broadcasters and other
content buyers, increased labor costs and uneven capacity utilization due to
delays caused by factors outside the Company's control (for example, changes
in customers' production schedules), and unanticipated production downtime due
to equipment failure, work stoppages or the absence of key personnel; (ii)
with respect to the Company's broadcast services division, the expiration of
month-to-month service contracts, the unpredictable use of the Company's
facilities for the broadcast of news stories and special events, and the
inability of the Company to remarket its unused transponder capacity
consistently; (iii) with
8
<PAGE>
respect to the Company's television services division, the unpredictability of
television production schedules; and (iv) with respect to the Company's visual
effects services division, the absorption by the Company of cost overruns in
fixed price contracts and delays in meeting completion deadlines (for reasons
other than the fault of the Company). The Company therefore believes that
quarter-to-quarter comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
COMPETITION
The Company experiences intense competition in each of its business
segments. Although the Company believes no one competitor offers a comparable
range of services, some of the Company's current and potential competitors,
particularly those who perform services in-house, have substantially greater
financial, technical, creative, marketing and other resources than the
Company. The Company's competitors may devote substantially greater resources
to the development and marketing of new competitive services. The Company
expects that competition will increase substantially as a result of industry
consolidations and alliances, as well as the emergence of new competitors.
Increased competition could result in price reductions, reduced profit margins
or loss of market share, all of which would have a material adverse effect on
the Company's results of operations. See "Business--Competition."
DEPENDENCE ON ENTERTAINMENT INDUSTRY
The Company's business is dependent on the success of the motion picture and
television industries, which success in turn is highly dependent upon a number
of factors, including the quality of content produced, the availability of
alternative forms of entertainment and leisure activities, general economic
conditions and international demand for content originated in the United
States. The Company's business also is subject to downturns in the event of a
strike by any creative or other personnel integral to the production of motion
pictures or television programming.
RISKS ASSOCIATED WITH SINGAPORE OPERATIONS
Foreign Exchange Rate Fluctuations. The Company provides certain of its
broadcast services in Singapore through its Singapore subsidiary, 4MC Asia.
Substantially all of 4MC Asia's transactions are denominated in Singapore
dollars, including its bank borrowings. Although 4MC Asia is not subject to
foreign exchange transaction gains or losses, its financial statements are
translated into United States dollars as part of the Company's consolidated
financial reporting. Fluctuations in the exchange rate therefore will affect
the Company's consolidated balance sheets and may, upon repatriation of funds
from 4MC Asia to the Company and payment of related income taxes, affect the
Company's net income. Over the past two years the Singapore dollar has been
stable relative to the United States dollar. However, the continued stability
of the exchange rate is subject to numerous factors, all of which are beyond
the Company's control. There can be no assurance that the Company will not
experience material losses as a result of changes in the relative value of the
Singapore dollar as compared to the United States dollar. The Company
currently does not engage in any hedging activities to mitigate its exchange
rate risk. In the event the Company engages in hedging activities in the
future, there can be no assurance that the Company will not experience losses
as a result of such hedging activities.
Foreign Country Operating Risks. In addition to exchange rate risks, the
Company's Singapore operations are subject to a number of risks inherent in
international operations, including unexpected changes in regulatory
requirements, burdens of complying with a variety of foreign laws, tariffs and
other trade barriers, and political and economic instability. Although the
Company believes that Singapore is currently a friendly environment for
foreign corporations, there can be no assurance that the foregoing factors
will not have a material adverse effect on the Company's future results of
operations.
Loss of Tax Exemption. In 1995, the government of the Republic of Singapore
granted 4MC Asia a seven-year tax exemption as a "pioneer status" company. The
tax exemption is conditioned upon 4MC Asia meeting certain investment
requirements. Although the Company believes that it will meet these
requirements, there can be no assurance that it will do so. The termination or
expiration of the tax exemption would have a material
9
<PAGE>
adverse effect on the Company's results of operations. The Company is subject
to taxation in the United States to the extent that 4MC Asia's income (in
excess of intercompany debt) is repatriated from Singapore, less applicable
taxes paid in Singapore, if any.
NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
will be determined by negotiation among the Company, the Selling Stockholder
and the representative of the Underwriters based on several factors and may
not be indicative of the market price of the Common Stock after this offering.
See "Underwriting." The market price of the shares of Common Stock is likely
to be highly volatile and may be affected significantly by factors such as
fluctuations in the Company's quarterly or annual results of operations; a
shortfall in revenues, EBITDA or earnings compared to public securities market
analysts' expectations; changes in analysts' recommendations or projections;
announcements by the Company or by its competitors; delays in or cancellations
of projects; general market conditions or other factors. In addition, the
stock market is subject to significant price and volume fluctuations, some of
which may be unrelated or disproportionate to the operating performance of the
companies affected. Broad market and industry sector fluctuations may
adversely affect the market price of the Common Stock.
CONCENTRATION OF OWNERSHIP
Upon completion of this offering, Robert T. Walston, Chairman and Chief
Executive Officer, will beneficially own approximately 23% of the outstanding
shares of Common Stock (approximately 20% if the Underwriters' over-allotment
option is exercised in full), and the present executive officers and directors
of the Company and their affiliates, as a group, will beneficially own or have
vested stock options for approximately 45% of the outstanding shares of Common
Stock (approximately 41% if the Underwriters' over-allotment option is
exercised in full). Accordingly, these stockholders will have the ability to
control or significantly influence all matters requiring approval by the
stockholders of the Company, including the election of directors and approval
of significant corporate transactions. Such a level of ownership may have the
effect of delaying, deferring or preventing a change in the control of the
Company. See "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act of 1933, as amended
(the "Securities Act"), and lock-up agreements executed by all of the officers
and directors and the sole stockholder of the Company under which such
security holders have agreed not to sell or otherwise dispose of any of their
shares for a period of 270 days after the date of this Prospectus, in the case
of the sole stockholder, and three years after the date of this Prospectus, in
the case of the officers and directors, without the prior written consent of
Furman Selz LLC. Furman Selz LLC may, however, in its sole discretion and at
any time without notice, release all or any portion of the shares subject to
lock-up agreements. In addition to the 5,700,000 shares of Common Stock
offered hereby (assuming no exercise of the Underwriters' over-allotment
option), there will be 4,289,578 shares of Common Stock outstanding as of the
date of this Prospectus, all of which are "restricted" shares under the
Securities Act. As a result of the lock-up agreements described above and the
provisions of Rules 144(k), 144 and 701, the restricted shares will be
available for sale in the public market as follows: (i) none of such shares
will be eligible for immediate sale on the date of this Prospectus; (ii)
1,802,800 shares will be eligible for sale 270 days after the date of this
Prospectus, upon expiration of lock-up agreements; and (iii) 2,486,778 shares
will be eligible for sale three years after the date of this Prospectus, upon
expiration of lock-up agreements. See "Shares Eligible for Future Sale."
RISK OF LOSS FROM EARTHQUAKES, FIRE OR OTHER CATASTROPHIC EVENTS
The Company is subject to the risk of loss arising from earthquakes, fires
and other catastrophic events due to the concentration of its business
activities and operations in specific structures. The structures housing the
Company's business activities consist of commercial office buildings subject
to vibration and movement that, in
10
<PAGE>
such a catastrophic event, could cause the dislocation of various pieces of
equipment, potentially creating downtime in the Company's operations. The
Company's operations, other than its Singapore operations, are located in
Southern California which may expose the Company to greater risk from
earthquakes and fires. For example, the Northridge, California earthquake in
January 1994 damaged certain of the Company's facilities and equipment and
temporarily interrupted the Company's operations. Because of the large amount
of specialized equipment combined with customized listening and viewing
environments, the Company's operations cannot temporarily be relocated to
mitigate the occurrence of a catastrophic event. The Company also may be
unable to broadcast signals for an extended period of time. Consequently, the
Company carries insurance for property loss and business interruption
resulting from such events, subject to deductibles. Although the Company
believes that it possesses adequate insurance coverage for damage to its
property and the disruption of its business from earthquakes, fire and other
casualties, there can be no assurance that such insurance would be sufficient
to cover all of the Company's potential losses or that it will continue to be
available at rates acceptable to the Company, if at all.
RENEWAL OF FCC LICENSES; CHANGE IN CONTROL FILINGS
Pursuant to the Communications Act of 1934, as amended (the "Communications
Act"), transmissions from the Company's domestic broadcast division's earth
station to satellites must be made pursuant to license granted by the Federal
Communications Commission ("FCC"). See "Business--Government Regulations."
Catalina Transmission Corp. ("Catalina"), a wholly owned subsidiary of the
Company, holds three licenses for satellite earth stations. One such license
(for a transportable earth station) is granted for a period of one year and
has been routinely renewed. The two other licenses (for fixed earth stations)
were granted for a period of ten years with one expiring in 2001 and the other
expiring in 2004. While the FCC generally renews licenses for satellite earth
stations routinely, there can be no assurance that the Company's licenses will
be renewed at their expiration dates, and failure to obtain such renewal could
have a material adverse effect on the Company. The Communications Act further
prohibits the transfer of control of any station license without prior
approval of the FCC. The Company has filed an application with the FCC for
consent to the transfer of control of the licenses in connection with this
offering. The FCC has granted special temporary authority to continue to
operate the licensed facilities subsequent to the offering subject to final
action on the Company's application. The special temporary authority expires
in April 1997, unless renewed. Although the Company has no reason to believe
that the FCC will deny the Company's application, there can be no assurance of
FCC approval. Failure to obtain such approval would have a material adverse
effect on the Company.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing Common Stock in this
offering will, therefore, incur immediate dilution of $6.91 in net tangible
book value per share of Common Stock (based upon an assumed initial public
offering price of $13.00 per share and after deducting estimated underwriting
discounts and commissions and offering expenses) from the initial public
offering price and will incur additional dilution upon the exercise of
outstanding stock options. There are currently outstanding and exercisable
options to purchase 308,179 shares of Common Stock. See "Dilution."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK
Certain provisions of the Company's Certificate of Incorporation and By-Laws
may be deemed to have anti-takeover effects and may delay, defer or prevent a
tender offer, proxy contest or takeover attempt that a stockholder might
consider to be in such stockholder's best interest, including those attempts
that might result in a premium over the market price for the shares held by
such stockholder. See "Description of Capital Stock." In addition, the Board
of Directors, without further stockholder approval, may issue preferred stock
that could have the effect of delaying, deterring or preventing a change in
control of the Company. The issuance of preferred stock could also adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. The Company has no present plans to issue any
preferred stock. See "Description of Capital Stock--Preferred Stock."
11
<PAGE>
THE COMPANY
Four Media Company was incorporated in Delaware in September 1996 as a
holding company to acquire the capital stock of three operating companies:
4MC-Burbank, Inc. ("4MC Burbank"); Four Media Company Asia PTE Ltd. ("4MC
Asia"); and Digital Magic Company ("DMC"). 4MC Burbank was formed in July 1993
to acquire substantially all of the assets of Compact Video Group, Inc.,
Compact Video Services, Inc., Image Transform, Inc. and Meridian Studios, Inc.
DMC was formed in October 1994 to acquire substantially all of the assets of
Digital Magic & Transfer Company ("DM&T"). 4MC Asia was formed in January 1995
to build and operate the Company's Singapore broadcast facilities. Unless the
context otherwise requires, all references herein to the "Company" refer to
Four Media Company and its direct and indirect subsidiaries. The Company's
principal executive offices are located at 2813 West Alameda Avenue, Burbank,
California 91505, and its telephone number is (818) 840-7000.
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered by the
Company hereby, after deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be $41.8 million ($52.1 million
if the Underwriters' over-allotment option is exercised in full). From these
net proceeds, the Company intends to use approximately $35.0 million to repay
outstanding debt, consisting of: (i) approximately $16.0 million outstanding
under a senior term loan which is payable in 84 monthly principal payments
commencing November 1997 and bears interest at a rate of LIBOR plus 2.75% or
the prime rate quoted by Chase Manhattan Bank ("Prime") plus .75%, at the
Company's option, and was incurred to repay amounts outstanding under the
Company's previous credit facility; (ii) approximately $10.0 million of notes
payable and capital leases which are due at various times through 2001 and
bear interest at fixed rates ranging between 9.0% and 12.0% per year; and
(iii) approximately $9.0 million plus accrued interest outstanding under a
note payable to Technical Services Partners, L.P. ("TSP"), the Company's sole
stockholder, which is due in August 1998 and bears interest at 10% per annum
(see "Certain Transactions"). The Company intends to apply the remaining net
proceeds of the offering to fund planned capital expenditures, for working
capital, to fund potential acquisitions and for general corporate purposes.
The Company expects to spend an estimated $15.0 million over the next two
years to upgrade its domestic broadcast and television sound facilities and
plans to fund this amount from the net proceeds of the offering, together with
cash flow from operations and amounts available under existing credit
facilities.
A significant element of the Company's strategy is to pursue acquisitions
that complement its existing business. The Company regularly engages in
discussions with potential acquisition candidates. Although the Company
currently has no definitive commitment or agreement to effect any acquisition,
it has entered into an agreement that provides for an exclusive negotiating
period for a potential acquisition of a studio and television services
business. The Company anticipates that it would fund the potential acquisition
currently under consideration from the assumption of indebtedness of the
acquired entity and, if necessary, from the remaining proceeds of the
offering. Discussions with the seller and its creditors are ongoing regarding
the potential acquisition and possible terms thereof. However, the Company has
not reached agreement on price or completed its due diligence with respect to
such potential acquisition, and there can be no assurance that the Company
will be successful in consumating the transaction if it continues to pursue
this opportunity.
Pending such uses, the net proceeds will be placed in interest bearing bank
accounts or invested in United States government securities, certificates of
deposit of major banks, high grade commercial paper or investment grade
securities determined to be appropriate by the Company. The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholder. See "Principal and Selling Stockholders."
12
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock
and does not anticipate paying any cash dividends or other distributions on
its Common Stock in the foreseeable future. The Company's credit facilities
prohibit the payment of dividends or other distributions to the Company from
its subsidiaries without lender approval, and would thus limit the ability of
the Company to pay dividends. The current policy of the Company's Board of
Directors is to reinvest earnings to finance the expansion of the Company's
business.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) on an
actual basis as of November 3, 1996 and (ii) as adjusted to reflect the sale
by the Company of 3,514,578 shares of Common Stock offered hereby at an
assumed initial public offering price of $13.00 per share, after the deduction
of the estimated expenses of the offering and the application of the net
proceeds therefrom as described under "Use of Proceeds." The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 3, 1996
-------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt and capital lease obligations,
including current portion........................... $ 62,970 $ 27,970
Stockholder's equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding....... -- --
Common stock, $.01 par value; 50,000,000 shares
authorized, 6,475,000 shares issued and outstanding
as of November 3, 1996; 9,989,578 shares issued and
outstanding, as adjusted(1)........................ 65 100
Additional paid-in capital.......................... 14,946 56,724
Foreign currency translation adjustment............. 250 250
Retained earnings................................... 7,003 7,003
----------- -----------
Total stockholder's equity......................... 22,264 64,077
----------- -----------
Total capitalization.............................. $ 85,234 $ 92,047
=========== ===========
</TABLE>
- --------------------
(1) Excludes 1,115,125 shares of Common Stock issuable upon exercise of stock
options which are currently outstanding or will be outstanding upon
completion of the offering.
13
<PAGE>
DILUTION
The net tangible book value of the Company as of November 3, 1996 was
$19.0 million or $2.94 per share of Common Stock. Net tangible book value per
share represents the amount of the Company's tangible assets less total
liabilities, divided by 6,475,000 shares of Common Stock outstanding.
After giving effect to the sale of 3,514,578 shares of Common Stock offered
by the Company hereby and after deduction of underwriting discounts and
commissions and a pro rata allocation of estimated offering expenses payable
by the Company and the Selling Stockholder, the Company's pro forma net
tangible book value as of November 3, 1996 would have been $60.9 million, or
$6.09 per share of Common Stock. This represents an immediate increase in net
tangible book value of $3.15 per share to the Company's existing stockholder
and an immediate dilution of $6.91 per share to new investors. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $13.00
Net tangible book value per share as of November 3, 1996.......... $2.94
Increase per share attributable to new investors.................. 3.15
-----
Pro forma net tangible book value per share after the offering..... 6.09
------
Dilution per share to new investors................................ $ 6.91
======
</TABLE>
The following table sets forth, on a pro forma basis as of November 3, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid (at an assumed initial public offering price of $13.00 per
share) and the average price per share paid by the existing stockholder and by
purchasers of Common Stock in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholder(1)(2)........ 6,475,000 64.8% $15,011,000 24.7% $ 2.32
New investors(1).......... 3,514,578 35.2% 45,689,514 75.3% 13.00
--------- ----- ----------- -----
Total.................... 9,989,578 100.0% $60,700,514 100.0%
========= ===== =========== =====
</TABLE>
- --------------------
(1) The sale of Common Stock by TSP, the Selling Stockholder, will reduce the
number of shares of Common Stock held by it to 4,289,578, or approximately
43.0% (or approximately 39.6% if the Underwriters' over-allotment option
is exercised in full), and will increase the number of shares held by new
investors to 5,700,000, or approximately 57.0% (6,555,000 shares, or
approximately 60.4% if the Underwriters' over-allotment option is
exercised in full), of the total number of shares of Common Stock
outstanding after this offering. Robert T. Walston, the Company's chief
executive officer, has a profit participation in TSP and as a result
beneficially owns 2,486,778 of the 4,289,578 shares held of record by TSP.
See "Principal and Selling Stockholders."
(2) Does not include (i) 615,125 shares of Common Stock issuable upon exercise
of stock options outstanding as of November 3, 1996, with exercise price
of $.34 per share, (ii) 100,000 shares of Common Stock issuable upon
exercise of stock options outstanding as of November 3, 1996, with an
exercise price of $11.70 per share or (iii) 400,000 shares of Common Stock
issuable upon exercise of stock options to be outstanding upon completion
of the offering with an exercise price equal to the initial public
offering price. See "Management--Stock Plans." To the extent outstanding
stock options are exercised, there will be further dilution to new
investors.
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Statement of
Operations Data," "Other Data" and "Balance Sheet Data" for, and as of the end
of, each of the fiscal years ended July 31, 1994, July 30, 1995 and August 4,
1996 and the accountants report thereon, are derived from the financial
statements of the Company, which financial statements have been audited by
Coopers & Lybrand, L.L.P., independent accountants. The financial statements
as of July 31, 1994, July 30, 1995 and August 4, 1996 are included elsewhere
in this Prospectus. The Company had no operations prior to August 4, 1993. The
consolidated financial data for the three months ended October 29, 1995 and
November 3, 1996, are derived from unaudited consolidated financial statements
of the Company included elsewhere in this prospectus. All of the unaudited
financial statement data referred to above, in the opinion of the Company's
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations. The operating results for the three months ended
November 3, 1996 are not necessarily indicative of the operating results for
the full year.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
--------------------------- -----------------------
JULY 31, JULY 30, AUGUST 4, OCTOBER 29, NOVEMBER 3,
1994 1995 1996 1995 1996
-------- -------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Studio................... $15,746 $20,677 $23,468 $ 5,746 $ 5,957
Broadcast................ 10,876 16,163 20,901 5,489 5,512
Television............... 15,639 22,712 23,343 5,631 7,084
Visual effects........... -- 1,452 2,316 766 394
------- ------- ------- ------- -------
Total revenues........ 42,261 61,004 70,028 17,632 18,947
------- ------- ------- ------- -------
Cost of services:
Personnel................ 17,096 22,795 25,344 6,527 6,779
Material................. 4,240 6,424 7,354 1,920 1,853
Facilities............... 3,774 3,917 4,692 1,124 1,328
Other.................... 3,752 5,560 6,021 1,504 1,745
------- ------- ------- ------- -------
Total cost of
services.............. 28,862 38,696 43,411 11,075 11,705
------- ------- ------- ------- -------
Gross profit.......... 13,399 22,308 26,617 6,557 7,242
------- ------- ------- ------- -------
Operating expenses:
Sales, general and
administrative.......... 7,627 10,918 11,116 3,030 3,109
Depreciation and
amortization............ 3,284 6,241 10,165 2,497 2,795
------- ------- ------- ------- -------
Total operating
expenses.............. 10,911 17,159 21,281 5,527 5,904
------- ------- ------- ------- -------
Income from
operations........... 2,488 5,149 5,336 1,030 1,338
Interest expense, net..... 1,253 2,917 3,906 921 1,214
------- ------- ------- ------- -------
Income before income
tax benefits......... 1,235 2,232 1,430 109 124
Income tax benefits....... -- 988 994 204 --
------- ------- ------- ------- -------
Net income............ $ 1,235 $ 3,220 $ 2,424 $ 313 $ 124
======= ======= ======= ======= =======
Net income per share...... $ .19 $ .50 $ .37 $ .05 $ .02
======= ======= ======= ======= =======
Weighted average number of
common shares
outstanding(1)........... 6,475 6,475 6,475 6,475 6,475
======= ======= ======= ======= =======
OTHER DATA:
EBITDA(2)................. $ 5,772 $11,390 $15,501 $ 3,527 $ 4,133
Net cash provided by
operations............... 3,047 4,588 9,387 1,585 796
Net cash used in investing
activities............... 7,877 30,902 10,318 3,071 8,753
Net cash provided by (used
in) financing
activities............... 8,972 28,102 (410) 332 8,135
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AS OF
-------------------------------------------
JULY 31, JULY 30, AUGUST 4, NOVEMBER 3,
1994 1995 1996 1996
-------- -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, including restricted cash.... $ 4,691 $ 7,368 $ 6,021 $ 6,199
Working capital.................... 4,674 5,665 1,642 3,549
Total assets....................... 32,982 71,780 81,827 99,301
Long-term debt..................... 20,924 38,472 42,978 56,610
Total debt(3)...................... 21,556 41,942 49,131 62,970
Total stockholder's equity......... 6,245 19,617 22,143 22,263
</TABLE>
- --------------------
(1) Weighted average number of common shares outstanding has been presented to
reflect retroactively the Company's reorganization and related stock
exchange with and stock dividend to its sole stockholder in October and
November 1996. See notes to the financial statements.
(2) EBITDA does not take into account normal capital expenditures and does not
represent cash generated from operating activities in accordance with
GAAP, is not to be considered as an alternative to net income or any other
GAAP measurements as a measure of operating performance and is not
indicative of cash available to fund all cash needs. The Company's
definition of EBITDA may not be identical to similarly titled measures of
other companies. The Company believes that in addition to cash flows and
net income, EBITDA is a useful financial performance measurement for
assessing the operating performance of the Company because, together with
net income and cash flows, EBITDA widely is used to provide investors with
an additional basis to evaluate the ability of the Company to incur and
service debt and to fund acquisitions or invest in new technologies. To
evaluate EBITDA and the trends it depicts, the components of EBITDA, such
as net revenues, cost of services, and sales, general and administrative
expenses, should be considered. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." A reconciliation of net
income to EBITDA is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
---------------------------- -----------------------
JULY 31, JULY 30, AUGUST 4, OCTOBER 29, NOVEMBER 3,
1994 1995 1996 1995 1996
-------- -------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income.............. $1,235 $ 3,220 $ 2,424 $ 313 $ 124
Add (deduct):
Interest expense, net... 1,253 2,917 3,906 921 1,214
Income tax benefits..... -- (988) (994) (204) --
Depreciation and
amortization........... 3,284 6,241 10,165 2,497 2,795
------ ------- ------- ------ ------
EBITDA.................. $5,772 $11,390 $15,501 $3,527 $4,133
====== ======= ======= ====== ======
</TABLE>
(3) Includes current and long-term portions of (i) term loan facilities and a
revolving line of credit; (ii) equipment notes payable; (iii) capital
lease obligations; and (iv) a subordinated note due to the Company's sole
stockholder, TSP.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. When used
in the following discussion, the words "believes," "anticipates," "intends,"
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected,
including, but not limited to, those set forth in "Risk Factors." Readers are
cautioned not to place undue reliance on forward-looking statements, which
speak only as of the date hereof.
OVERVIEW
The Company is a leading provider of technical and creative services to
owners, producers and distributors of television programming, feature films
and other entertainment content. The Company's services integrate and apply a
variety of systems and processes to enhance the creation and distribution of
entertainment content. The Company seeks to capitalize on domestic and
international growth in demand for original entertainment content as well as
from the exploitation of existing television and film libraries without taking
production or ownership risk with respect to any specific television program,
feature film or other content.
The Company's business is divided into studio, broadcast, television and
visual effects services. In each of its four business divisions, the Company
offers most of the systems and technical solutions that constitute the
processes that are integral to the creation, enhancement and distribution of
entertainment content. The studio services division, located in Burbank,
California manages, formats and distributes existing content libraries to end
users in the United States and internationally. The broadcast services
division, located in Burbank and the Republic of Singapore, assembles and
distributes cable television channels and programming via satellite to viewers
in the United States, Canada and Asia. The television services division,
located in Burbank and Santa Monica, California assembles film or video
principal photography into a form suitable for domestic network, syndicated,
cable or foreign television. The visual effects services division, located in
Santa Monica, digitally creates and manipulates images in high resolution
formats for use in feature films. The following table sets forth revenues by
business division and as a percentage of consolidated revenues for the periods
indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
-------------------------------------------------------- -------------------------------------
JULY 31, 1994 JULY 30, 1995 AUGUST 4, 1996 OCTOBER 29, 1995 NOVEMBER 3, 1996
------------------ ------------------ ------------------ ------------------ ------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues by division:
Studio................ $15,746 37.3% $20,677 33.9% $23,468 33.5% $ 5,746 32.6% $ 5,957 31.4%
Broadcast............. 10,876 25.7 16,163 26.5 20,901 29.9 5,489 31.1 5,512 29.1
Television............ 15,639 37.0 22,712 37.2 23,343 33.3 5,631 31.9 7,084 37.4
Visual effects........ -- -- 1,452 2.4 2,316 3.3 766 4.4 394 2.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total revenues...... $42,261 100.0% $61,004 100.0% $70,028 100.0% $17,632 100.0% $18,947 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Revenues increased from $42.3 million in fiscal 1994 to $70.0 million in
fiscal 1996. The Company attributes this growth to several factors including:
(i) an increase in demand for the Company's services resulting from the growth
in worldwide demand for entertainment content; (ii) an expansion of capacity
resulting from its extensive investment in new digital infrastructure; (iii)
successful acquisitions and international expansion; (iv) the diversification
of its service offerings; and (v) the increasing acceptance of its bundled
service outsourcing solutions.
EBITDA increased from $5.8 million in fiscal 1994 to $15.5 million in fiscal
1996. The Company attributes this growth to several factors including: (i)
growth in revenues from fiscal 1994 to fiscal 1996; (ii) improvement in the
Company's gross profit resulting from the efficiency of its new Singapore
operations and new domestic
17
<PAGE>
infrastructure; and (iii) decrease in the ratio of overhead and fixed costs to
revenues, as the Company has generally increased capacity utilization and
decreased the cost of adding new capacity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the related notes thereto included elsewhere in this Prospectus.
The Company believes that EBITDA is an important measure of its financial
performance. "EBITDA" is defined as earnings before interest, taxes,
depreciation and amortization, excluding gains and losses on asset sales and
nonrecurring charges. The Company's investments in new infrastructure, machine
capacity and technology have produced a relatively high depreciation expense
and will remain a significant non-cash charge to earnings. It is the Company's
policy to depreciate equipment and other capitalized items over a period of
three to seven years. EBITDA is calculated before depreciation and amortization
charges and, in businesses with significant non-cash expenses, widely is used
as a measure of cash flow available to pay interest, repay debt, make
acquisitions or invest in capital equipment and new technologies. As a result,
the Company intends to report EBITDA as a measure of financial performance.
EBITDA does not represent cash generated from operating activities in
accordance with generally accepted accounting principles ("GAAP") and should
not be considered in isolation or as a substitute for other measures of
performance prepared in accordance with GAAP. EBITDA does not reflect that
portion of the Company's capital expenditures which may be required to maintain
the Company's market share, revenues and leadership position in its industry.
Moreover, not all EBITDA will be available to pay interest or repay debt. The
Company's presentation of EBITDA may not be comparable to similarly titled
measures reported by other companies. See footnote 3 of "Selected Financial
Data".
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items in the Company's statement of operations and EBITDA.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
--------------------------- -----------------------
JULY 31, JULY 30, AUGUST 4, OCTOBER 29, NOVEMBER 3,
1994 1995 1996 1995 1996
-------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services:
Personnel................ 40.5 37.4 36.2 37.0 35.8
Material................. 10.0 10.5 10.5 10.9 9.8
Facilities............... 8.9 6.4 6.7 6.4 7.0
Other.................... 8.9 9.1 8.6 8.5 9.2
----- ----- ----- ----- -----
Total cost of
services.............. 68.3 63.4 62.0 62.8 61.8
----- ----- ----- ----- -----
Gross profit......... 31.7 36.6 38.0 37.2 38.2
----- ----- ----- ----- -----
Operating expenses:
Sales, general and
administrative.......... 18.0 17.9 15.9 17.2 16.4
Depreciation and
amortization............ 7.8 10.2 14.5 14.2 14.8
----- ----- ----- ----- -----
Total operating
expenses.............. 25.8 28.1 30.4 31.4 31.2
----- ----- ----- ----- -----
Income from
operations.......... 5.9 8.5 7.6 5.8 7.0
Interest expense, net...... 3.0 4.8 5.5 5.2 6.4
----- ----- ----- ----- -----
Income before income
tax benefits........ 2.9 3.7 2.1 0.6 0.6
Income tax benefits........ -- 1.6 1.4 1.2 --
----- ----- ----- ----- -----
Net income........... 2.9% 5.3% 3.5% 1.8% 0.6%
===== ===== ===== ===== =====
EBITDA..................... 13.7% 18.7% 22.1% 20.0% 21.8%
</TABLE>
18
<PAGE>
THREE MONTHS ENDED NOVEMBER 3, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER 29,
1995
Revenues. Total revenues for the three months ended November 3, 1996
increased 7.5% to $18.9 million compared to $17.6 million for the three months
ended October 29, 1995. The revenue increase was attributable primarily to the
factors set forth below.
Studio services revenues for the three months ended November 3, 1996
increased 3.7% to $6.0 million compared to $5.7 million for the three months
ended October 29, 1995. Professional duplication led the growth in the studio
services division during the first quarter of fiscal 1997, increasing 26.9%.
The growth in professional duplication was partially offset by a 31.0%
reduction in film-to-tape transfer services revenues. This reduction was the
result of the utilization of film-to-tape transfer capacity to service, on an
interim basis, an increase in the Company's seasonal film-to-tape transfer
commitments in television services. The Company intends to add additional
film-to-tape transfer capacity in its television services division during the
third quarter of fiscal 1997, which is expected to accommodate such seasonal
fluctuations in television services film-to-tape transfer work in the future.
Broadcast services revenues for the three months ended November 3, 1996
increased 0.4% to $5.5 million compared to $5.5 million in the three months
ended October 29, 1995. Revenues from the Company's Singapore operations
increased 35.0% during the first quarter of fiscal 1997. This increase was
attributable to the addition of a six month contract with MGM Gold, increased
utilization of the facility by both MTV Asia and other clients, and the
scheduled annual increase in the fees paid by MTV Asia under its contract with
the Company. The increase in revenues from the Singapore operations was
substantially offset by a reduction in revenues from the Company's domestic
broadcast operations. This reduction in revenues was the result of the
expiration of a service agreement with the Disney Channel in the second
quarter of fiscal 1996, together with a negotiated reduction of the monthly
payments under a service agreement with TVN during the third quarter of fiscal
1996. The Company believes that the deployment of digital compression
technology for broadcast applications and the expansion of cable channel
capacity resulting from the anticipated introduction of digital set-top boxes
will increase demand for its broadcast services. To enhance the efficiency and
competitiveness of its domestic broadcast operations, the Company expects to
commence construction of a new digital broadcast facility during fiscal 1997.
Television services revenues for the three months ended November 3, 1996
increased 25.8% to $7.1 million compared to $5.6 million for the three months
ended October 29, 1995. The revenue increase was the result of the completion
of a portion of a new digital television facility in Burbank, that is designed
to replace existing analog infrastructure and equipment, thereby enhancing the
competitiveness of the Company's Burbank-based television operations. The
Company expects to complete construction of that facility by the end of the
third quarter of fiscal 1997.
Visual effects services revenues for the three months ended November 3, 1996
decreased 48.6% to $394,000 compared to $766,000 for the three months ended
October 29, 1995. This decrease was the result of a delay in a major customer
project that has been rescheduled to commence in the second quarter of fiscal
1997.
Gross Profit. Gross profit for the three months ended November 3, 1996
increased 10.4% to $7.2 million (38.2% of revenues) compared to $6.6 million
(37.2% of revenues) in the three months ended October 29, 1995. The
improvement of 1.0% in the Company's gross profit was attributable primarily
to the increase in revenues, but was partially offset by increases in
personnel, facility and satellite transponder costs. To meet demand for
television services anticipated for the third quarter of fiscal 1997, the
Company significantly increased personnel levels during the three months ended
November 3, 1996. Because of the normal lag between an increase in capacity
and the generation of revenues from utilization of such capacity, the Company
anticipates that gross profit will be significantly reduced in the second
quarter of fiscal 1997.
Sales, General and Administrative Expenses. Sales, general and
administrative expenses for the three months ended November 3, 1996 increased
2.6% to $3.1 million (16.4% of revenues) compared to $3.0 million (17.2% of
revenues) for the three months ended October 29, 1995. The improvement of 0.8%
in sales, general
19
<PAGE>
and administrative expenses as a percentage of revenues was the result of the
Company's ability to leverage existing overhead to manage the expanded revenue
base. Expenses incurred in the three months endedOctober 29, 1995 were offset
by $225,000 of insurance proceeds.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses for the three months ended November 3, 1996 increased 11.9% to
$2.8 million compared to $2.5 million in the three months ended October 29,
1995, primarily due to the $18.9 of capital expenditures made during fiscal
1996.
Interest Expense. Interest expense for the three months ended November 3,
1996 increased 31.8% to $1.2 million compared to $921,000 in the three months
ended October 29, 1995. The increase was attributable to additional long term
borrowings incurred by the Company to fund capital expenditures in fiscal 1996
and the first quarter of fiscal 1997.
Income Tax Benefits. Income taxes for the three months ended November 3,
1996 reflect the recognition, for financial accounting purposes, of the use of
net operating loss carryforwards that fully offset the Company's tax provision
for the period. Recognition of this tax benefit accounted for 40.3% of the
Company's net income for the three months ended November 3, 1996. Income taxes
for the three months ended October 29, 1995 reflect the recognition, for
financial accounting purposes, of the use of net operating loss carryforwards
and an increase in net deferred tax assets. Recognition of these tax benefits
accounted for 65.2% of the Company's net income for the three months ended
October 29, 1995.
Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
the three months ended November 3, 1996 increased 17.1% to $4.1 million
compared to $3.5 million in the three months ended October 29, 1995. The
increase was a result of increased revenues, improvement in gross profit and a
reduction in sales, general and administrative expenses as a percentage of
revenues. See "Liquidity and Capital Resources" for a discussion of net cash
provided by operating activities for the period. See footnote 3 to "Selected
Financial Data" for a discussion of EBITDA generally.
FISCAL YEAR ENDED AUGUST 4, 1996 COMPARED TO FISCAL YEAR ENDED JULY 30, 1995
Revenues. Total revenues for fiscal 1996 increased 14.8% to $70.0 million
compared to $61.0 million in fiscal 1995. The revenue increase was
attributable primarily to the factors set forth below.
Studio services revenues for fiscal 1996 increased 13.5% to $23.5 million
compared to $20.7 million in fiscal 1995. Professional duplication led the
growth in the studio services division during fiscal 1996, increasing 35.0%.
The Company responded to increased demand for its services by adding machine
capacity, upgrading technology, improving service reliability and completing a
new archive during the period. The archive provides capacity to store, manage
and distribute up to 400,000 master videotapes and film elements and the
Company estimates that approximately 50.0% of this capacity is already being
utilized. The Company intends to continue to develop infrastructure and add
machine capacity in response to market demand and opportunities to fill unused
archive capacity.
Broadcast services revenues for fiscal 1996 increased 29.3% to $20.9 million
compared to $16.2 million in fiscal 1995. The increase reflects the inclusion
of a full year of operating results of the Company's Singapore operations and
the expansion of such operations (fiscal 1996 revenues of $11.0 million
compared to fiscal 1995 revenues of $4.0 million). The results of the
Singapore operations consist almost entirely of revenues under a long-term
contract with MTV Asia. Under the contract, the Company's revenues from MTV
Asia are scheduled to increase 4.0% per year over the remaining term of the
contract. The increase in Singapore partially was offset by a decline in
domestic broadcast revenues due to the expiration of a service agreement with
the Disney Channel in the second quarter of fiscal 1996, resulting in a
decline in revenues from this source of $1.8 million over the prior fiscal
year.
Television services revenues for fiscal 1996 increased 2.8% to $23.3 million
compared to $22.7 million in fiscal 1995. The increase was a result of the
inclusion of a full year of operating results of the Company's Santa Monica
operations (1996 revenues of $10.6 million compared to 1995 revenues of $8.9
million). This increase partially was offset by a reduction in revenues due to
the loss of key creative talent in sound mixing and editing and reduced
capacity utilization resulting from the inefficiencies associated with the
continued operation of analog equipment.
20
<PAGE>
Visual effects services revenues for fiscal 1996 increased 59.5% to $2.3
million compared to $1.5 million in fiscal 1995. The revenue increase was the
result of an increase in the Company's high resolution digital image
processing capacity and increased sales and marketing activity. During fiscal
1996, the visual effects services division completed projects for a number of
prominent customers including New Line Cinema (18%), Sony Pictures Corporation
(15%), Twentieth Century Fox (13%) and Paramount (5%).
Gross Profit. Gross profit for fiscal 1996 increased 19.3% to $26.6 million
(38.0% of revenues) compared to $22.3 million (36.6% of revenues) in fiscal
1995. The improvement of 1.4% in the Company's gross profit was attributable
primarily to the inclusion of a full year of operating results of the
Company's Singapore operations. This improvement partially was offset by a
reduction in the gross profit in the Company's television operations, and
costs associated with the start-up and operation of the Company's new archive
facility.
Sales, General and Administrative Expenses. Sales, general and
administrative expenses for fiscal 1996 increased 1.8% to $11.1 million (15.9%
of revenues) compared to $10.9 million (17.9% of revenues) in fiscal 1995. The
improvement of 2.0% in sales, general and administrative expenses as a
percentage of revenues is a result of relatively low sales, general and
administrative expenses associated with the Singapore operations and the
Company's ability to leverage its existing corporate overhead to manage
expanded domestic and international operations. In addition, insurance
proceeds received, which offset expenses incurred of $900,000, further reduced
sales, general and administrative expenses.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses for fiscal 1996 increased 65.0% to $10.2 million compared to $6.2
million in fiscal 1995. The increase was primarily the result of $18.9 million
in capital expenditures made during fiscal 1996.
Interest Expense. Interest expense for fiscal 1996 increased 33.9% to
$3.9 million compared to $2.9 million in fiscal 1995. The increase was
attributable to additional long term borrowings incurred by the Company to
fund capital expenditures in fiscal 1995 and fiscal 1996, including the
construction of its Singapore broadcast facility.
Income Tax Benefits. Income taxes for fiscal 1996 reflected the recognition,
for financial accounting purposes, of a $1.0 million tax benefit. Recognition
of this tax benefit accounted for 41% of the Company's net income in fiscal
1996. Recognition of tax benefits in fiscal 1996 resulted from the Company's
profitability in its third year of operations which made recognition of future
tax deductions (arising from, among other things, net operating loss
carryforwards) more certain. Continued profitability in future fiscal years
will result in the Company recognizing income tax expense as it exhausts its
existing tax credits and net operating loss carryforwards.
Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
fiscal 1996 increased 35.9% to $15.5 million compared to $11.4 million in
fiscal 1995. The increase in EBITDA was a result of an increase in revenues,
an improvement in gross profit and a reduction in sales, general and
administrative expenses as a percentage of revenues. See "Liquidity and
Capital Resources" for a discussion of net cash provided by operating
activities for the period. See footnote 3 to "Selected Financial Data" for a
discussion of EBITDA generally.
FISCAL YEAR ENDED JULY 30, 1995 COMPARED TO FISCAL YEAR ENDED JULY 31, 1994
Revenues. Total revenues for fiscal 1995 increased 44.2% to $61.0 million
compared to $42.3 million in fiscal 1994. The revenue increase was
attributable primarily to the factors set forth below.
Studio services revenues for fiscal 1995 increased 31.8% to $20.7 million
compared to $15.7 million in fiscal 1994. This increase was primarily
attributable to the integration of its various studio service operations into
a single new facility during the second quarter of 1995, which increased
capacity, quality and service reliability. In response to customer demand and
inadequate internal storage capacity, the Company commenced construction of a
new archive facility during fiscal 1995 to support future revenue growth in
studio services.
21
<PAGE>
Broadcast services revenues for fiscal 1995 increased 48.6% to $16.2 million
compared to $10.9 million in fiscal 1994. The revenue increase was primarily
the result of the initiation of operations in Singapore, which generated
$4.0 million of revenues in fiscal 1995. In addition, the domestic broadcast
operation added two long-term contract customers and one short-term customer.
Television services revenues for fiscal 1995 increased 45.2% to $22.7
million compared to $15.6 million in fiscal 1994. The revenue increase was
primarily the result of the acquisition of the assets of DM&T in October 1994,
which generated revenues of $7.5 million in fiscal 1995. The increase in
revenues provided by the Company's Santa Monica operations was partially
offset by a decline in revenues generated by the Burbank television operations
resulting from the loss of key creative talent in sound mixing and reduced
capacity utilization due to the inefficiencies associated with the continued
operation of analog equipment.
Visual effects services revenues were $1.5 million in fiscal 1995,
representing approximately seven months of operations. These revenues
primarily were attributable to visual effects services for eight feature
films. In June 1995, the Company expanded its high resolution processing
capacity.
Gross Profit. Gross profit for fiscal 1995 increased 66.5% to $22.3 million
(36.6% of revenues) compared to $13.4 million (31.7% of revenues) in fiscal
1994. The improvement of 4.9% in the Company's gross profit was attributable
primarily to the efficiencies of the new Singapore broadcast facility
experienced during fiscal 1995 (approximately three and one-half months of
operations) and the contribution of higher margin services resulting from the
acquisition of the DM&T assets (approximately nine months of operations).
Sales, General and Administrative Expenses. Sales, general and
administrative expenses for fiscal 1995 increased 43.1% to $10.9 million
(17.9% of revenues) compared to $7.6 million (18.0% of revenues) in fiscal
1994. The improvement in sales, general and administrative expenses as a
percentage of total revenues was primarily the result of efficiencies gained
in the elimination of duplicative staff positions and expenses resulting from
the acquisition of the DM&T assets in October 1995.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses for fiscal 1995 increased 90.0% to $6.2 million compared to $3.3
million in fiscal 1994. The increase was primarily the result of $30.3 million
in capital expenditures made during fiscal 1995.
Interest Expense. Interest expense for fiscal 1995 increased 132.8% to
$2.9 million compared to $1.3 million in fiscal 1994. The increase was
attributable to additional long term borrowings incurred by the Company to
fund capital expenditures in fiscal 1994 and fiscal 1995.
Income Tax Benefits. Income taxes for fiscal 1995 reflected the recognition,
for financial accounting purposes, of a $1.0 million tax benefit. Recognition
of this tax benefit in 1995 accounted for 30.7% of the Company's net income in
fiscal 1995. Recognition of these tax benefits resulted from the Company's
profitability in its second year of operations which made recognition of
future tax deductions (arising from, among other things, net operating loss
carryforwards) more certain.
Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
fiscal 1995 increased 97.3% to $11.4 million compared to $5.8 million in
fiscal 1994. The increase in EBITDA was a result of an increase in revenues,
improvement in gross profit, and a reduction in sales, general and
administrative expenses as a percentage of revenues. See "Liquidity and
Capital Resources" for a discussion of net cash provided by operating
activities for the period. See footnote 3 to "Selected Financial Data" for a
discussion of EBITDA generally.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities. The Company's net cash provided
by operating activities was $9.4 million, $4.6 million, $3.0 million in fiscal
1996, 1995, 1994, respectively. The increases for fiscal 1996 compared to
fiscal 1995 and for fiscal 1995 compared to fiscal 1994 primarily reflect
year-to-year increases in
22
<PAGE>
revenues and improvements in gross profit, offset in part by year-to-year
increases in depreciation and amortization included in net income and changes
in the components of operating assets and liabilities. The Company's net cash
provided by operating activities was $1.6 million and $796,000 in the three
months ended October 29, 1995 and November 3, 1996, respectively. The decrease
was attributable to changes in the components of operating assets and
liabilities, primarily an increase in accounts receivable.
Net Cash Provided by Financing Activities. The Company's net cash provided
by financing activities was $400,000, $28.1 million and $9.0 million in fiscal
1996, 1995 and 1994, respectively. The Company obtained third-party financing
in the form of term debt, equipment notes, and capital leases of $11.5
million, $21.6 million and $2.2 million in fiscal 1996, 1995 and 1994,
respectively. In fiscal 1994 and 1995, the Company also issued subordinated
notes of $10.0 million and $9.0 million to its sole stockholder. The Company's
net cash provided by financing activities was $322,000 and $8.1 million in the
three months ended October 29, 1995 and November 3, 1996, respectively. In the
three months ended November 3, 1996 the Company obtained $9.1 million of
third-party financing in the form of equipment notes and capital leases
compared to $1.1 million in the three months ended October 29, 1995. In
October, 1996 the Company entered into a $34 million loan agreement. At
November 3, 1996, $17.6 million was borrowed under this agreement of which
$11.7 million was used to repay then existing debt.
Capital Expenditures. Since its formation in 1993 through the first quarter
of fiscal 1997, the Company has invested $72.6 million to convert its
infrastructure from analog to component digital, develop management
information systems, consolidate various operations, expand into the Asian
market and create new businesses. The Company's capital expenditures
illustrate a systematic concentration of infrastructure and equipment
investment across each business division, with 69.8% of total capital
expenditures in studio services in fiscal 1994, 57.9% of total capital
expenditures in broadcast services in fiscal 1995 and 62.6% of total capital
expenditures in television services in fiscal 1996 and 72.2% of total capital
expenditures in television services for the three months ended November 3,
1996. For a description of these capital expenditures, see "Business--
Strategic Accomplishments." The following table sets forth capital
expenditures in each business division as well as capital expenditures
associated with new management information systems by amount and percentage of
total capital expenditures for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEARS ENDED ENDED
------------------------------------------------------- ------------------
JULY 31, 1994 JULY 30, 1995(1) AUGUST 4, 1996 NOVEMBER 3, 1996
----------------- ------------------ ------------------ ------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ ---------- ------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital expenditures(2):
Studio................ $6,167 69.8% $ 5,072 16.7% $ 3,175 16.8% $ 2,704 18.7%
Broadcast............. 518 5.9 17,521 57.9 2,411 12.7 785 5.4
Television............ 1,499 16.9 3,291 10.9 11,853 62.6 10,436 72.2
Visual effects........ -- -- 2,525 8.3 413 2.2 -- --
Management information
systems.............. 656 7.4 1,878 6.2 1,084 5.7 532 3.7
------ ----- ------- ----- ------- ----- ------- -----
Total capital
expenditures....... $8,840 100.0% $30,287 100.0% $18,936 100.0% $14,457 100.0%
====== ===== ======= ===== ======= ===== ======= =====
</TABLE>
- --------------------
(1) Reflects $1.1 million of organization costs for 4MC Asia.
(2) Does not include the net assets written off pertaining to the January 1994
earthquake of $1.9 million and $567,000 for the fiscal years ended
July 30, 1995 and August 4, 1996, respectively.
The Company expects to complete its new television services facility by the
end of the third quarter of fiscal 1997. The Company believes that, upon
completion of that facility, it will have accomplished substantially all of
the major infrastructure upgrades required to convert its existing facilities
from analog to digital, except for an estimated $15.0 million in
infrastructure upgrades to be completed over the next two years for domestic
broadcast and television sound facilities. Nevertheless, the Company could
seek to exploit business opportunities in
23
<PAGE>
existing or new markets, new technologies could be developed which would
render some or a substantial portion of the Company's infrastructure or
equipment obsolete, or the pressure of competition or customer demands could
require the Company to further rebuild or upgrade its infrastructure and
equipment. In addition, the Company could acquire businesses requiring
significant capital investment or purchase real property. In any such case,
the Company may incur significant additional capital expenditures. The Company
has no definitive commitment or agreement to make any such acquisition or
purchase except for the purchase of certain real property located in Burbank
as described below.
Credit Agreements and Other Indebtedness. In October 1996, the Company
entered into a loan agreement with The CIT Group/Business Credit, Inc. and The
CIT Group/Equipment Financing, Inc. (the "CIT Facility") which provides for
secured revolving and term loan facilities of up to $34.0 million to 4MC
Burbank and DMC guaranteed by the Company. The agreement provides for three
separate loan facilities: (i) a $16.0 million term loan, which bears interest
at a rate of LIBOR plus 2.75% or Prime plus .75%, at the Company's option and
is payable in 84 monthly principal payments commencing November 1997; (ii) an
$11.0 million revolving line of credit which bears interest at a rate of LIBOR
plus 2.5% or Prime plus .50%, at the Company's option; and (iii) a $7.0
million capital expenditure line of credit which bears interest at a rate of
LIBOR plus 2.75% or Prime plus .75%, at the Company's option and is payable in
60 equal monthly installments commencing the month after funding. The Company
may, at its option, elect a fixed interest rate for the term loan at the
treasury rate (applicable for the remaining term of the loan) plus 3.35%.
Total availability under the revolving line of credit is subject to certain
limitations related to the amount of 4MC Burbank's and DMC's accounts
receivable and inventory.
The obligations of 4MC Burbank and DMC under the CIT Facility are secured by
substantially all of the assets of 4MC Burbank and DMC. The obligations are
also guaranteed by the Company and secured by a pledge of the capital stock of
4MC Burbank and DMC. The CIT Facility contains restrictive covenants that,
among other things, and with certain exceptions, limit the ability of 4MC
Burbank and DMC to pay dividends or make other distributions to the Company or
to incur additional indebtedness. 4MC Burbank and DMC also are required to
satisfy certain financial covenants and tests, including the maintenance of
minimum net worth, working capital, fixed charge coverage ratios and leverage
ratios. As of November 3, 1996, the Company's total obligations outstanding
under the CIT Facility were $17.6 million. The Company intends to repay the
$16.0 million term loan portion of the CIT Facility with a portion of the
proceeds of this offering.
In February 1995, 4MC Asia borrowed $16.9 million Singapore dollars ($11.8
million U.S. dollars as of November 3, 1996) under a term loan facility with
the Hong Kong and Shanghai Banking Corporation Limited ("HKSB") to fund the
construction of its Singapore broadcast facility. The term loan bears interest
at an annual rate equal to the HKSB prime rate plus 1.25% and is payable in 60
monthly installments commencing April 1997. The term loan is secured by
substantially all of the assets of 4MC Asia and is guaranteed by the Company.
The term loan facility contains restrictive covenants that, among other
things, will prohibit 4MC Asia from incurring additional indebtedness or
paying any dividend or making any other distribution to the Company, other
than under certain conditions the repayment of intercompany debt in an amount
not to exceed $3.0 million Singapore dollars in each of the first two years of
the loan. The term loan will become due and payable, at the option of HKSB,
upon the termination of 4MC Asia's contract with MTV Asia or the occurrence of
certain other events of default.
The Company has entered into various capital lease and equipment notes
related to the purchase of equipment. As of August 4, 1996 and November 3,
1996, the Company's total obligations under capital leases and outstanding
equipment notes were $18.5 million and $24.6 million, respectively. These
notes are due at various times through 2001 and bear interest at rates of 8.0%
to 11.9%. The Company intends to repay $10.0 million of these notes (with
proceeds from the offering) over the next 12 to 18 months as prepayment
penalties diminish or lapse.
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<PAGE>
In December 1996, the Company purchased a 90,000 square foot building in
Burbank. Prior to the purchase, the Company subleased 45,000 square feet for
use as its archive facility. The additional 45,000 square feet is subleased by
an outside tenant through 1999. The purchase price was $11.3 million, of which
$8.4 million was borrowed under a term loan agreement and the balance was paid
from cash. The term loan provides for monthly principal payments over a period
of 84 months and a final payment at maturity in December 2003. The term loan
bears interest at the lender's prime rate plus 1% or LIBOR plus 2.25%, at the
Company's option.
The Company believes that the remaining proceeds of this offering (after
repayment of certain outstanding debt, see "Use of Proceeds"), combined with
cash flow from operations and amounts available under the CIT Facility, will
be sufficient to meet its anticipated working capital and capital expenditure
requirements through the end of 1997. The Company may, however, be required to
seek additional debt and/or equity financing to support a more rapid than
planned expansion, respond to competitive pressures or customer demands, or
meet unanticipated requirements.
In addition, the Company regularly engages in discussions regarding the
acquisition of complementary businesses. Although the Company has no
definitive commitment or agreement to effect any acquisition, it has entered
into an agreement that provides for an exclusive negotiating period for a
potential acquisition of a studio and television services business. The
Company anticipates that it would fund the potential acquisition currently
under consideration from the assumption of indebtedness of the acquired entity
and, if necessary, from the remaining proceeds of this offering. Discussions
with the seller and its creditors are ongoing regarding the potential
acquisition and possible terms thereof. However, the Company has not reached
agreement on price or completed its due diligence with respect to such
potential acquisition, and there can be no assurance that the Company will be
successful in consummating the transaction if it continues to pursue this
opportunity. In addition, if the Company were to make other acquisitions, it
may be required to obtain additional debt and/or equity capital.
FOREIGN EXCHANGE
Substantially all of 4MC Asia's transactions are denominated in Singapore
dollars, including its bank borrowings. Although 4MC Asia is not subject to
foreign exchange transaction gains or losses, its financial statements are
translated into United States dollars as part of the Company's consolidated
financial reporting. Fluctuations in the exchange rate therefore will affect
the Company's consolidated balance sheets and may, upon repatriation of funds
from 4MC Asia to the Company and payment of related income taxes, affect the
Company's net income. Over the past two years the Singapore dollar has been
stable relative to the United States dollar. However, the continued stability
of the exchange rate is subject to numerous factors, all of which are beyond
the Company's control.
QUARTERLY REVENUE FLUCTUATIONS
The Company's results from operations are dependent upon several market
factors that are beyond its control, including: (i) the size of the domestic
and international markets for the exploitation of content libraries; (ii) the
ability of specialty programmers to find, acquire and market domestic capacity
for new channels and pay-per-view services; (iii) the ability of the major
entertainment companies to launch their domestic cable channels in
international markets (e.g., Asia); (iv) the demand for original programming
for airing on network and/or cable channels; (v) the acceptance of digital
methods of image production and manipulation by producers of feature films and
television programming; and (vi) the viewing audience's demand for higher
levels of production value in film and television programming.
Revenues derived from the Company's television division are seasonal in
nature, generally beginning in September and ending in May. As a result, the
Company has experienced its lowest operating results in the fourth quarter,
and the first and second quarter results generally are lower than third
quarter results. In addition, the Company's television division can experience
fluctuations in quarterly financial results for reasons beyond the Company's
control including a work stoppage or other event resulting in delays in
production schedules; changes
25
<PAGE>
in or extensions of vacation time around holidays; network cancellations of
projects at mid-season; and changes in staffing, location or budgets of
production companies. These factors result in idle capacity until replacement
work can be found. The expansion of the Company's studio and broadcast
services businesses have mitigated, to a certain extent, the seasonality of
the Company's revenues, EBITDA and net income in prior periods. However, the
completion of a portion of the Company's new television facility in Burbank,
increased revenues generated by the Company's Santa Monica facility, and
future expansion of television operations would likely create more seasonal
variation in the Company's revenues, EBITDA and net income in current and
future fiscal years. See "Risk Factors--Potential Fluctuations in Operating
Results; Seasonality."
The Company generally experiences a lag between the time that it incurs
expenditures to increase capacity (for both labor and equipment) and the
generation of revenues from utilization of such capacity. The duration of this
lag and the severity of its impact are unpredictable and could result in
significant fluctuations in the Company's quarterly operating results. See
"Risk Factors--Incurrence of Substantial Incremental Costs and Capital
Expenditures Prior to Generation of Revenues."
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<PAGE>
The following table presents (in thousands, except per share data), by
fiscal quarter, unaudited information derived from the Company's Consolidated
Statements of Operations and Statements of Cash Flows for the two fiscal years
ended August 4, 1996 and for the three months ended November 3, 1996.
<TABLE>
<CAPTION>
FISCAL QUARTERS ENDED
-----------------------------------------------------------------------------------
FISCAL
FISCAL 1995 FISCAL 1996 1997
------------------------------------- ------------------------------------ -------
OCT. 30, JAN. 29, APRIL 30, JULY 30, OCT. 29, JAN. 28, APRIL 28, AUG. 4, NOV. 3,
1994 1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Studio................. $ 4,269 $ 5,134 $ 5,727 $ 5,547 $ 5,746 $ 6,008 $ 5,840 $ 5,874 $5,957
Broadcast.............. 2,838 2,973 4,530 5,822 5,489 5,088 5,065 5,259 5,512
Television............. 3,532 6,705 7,315 5,160 5,631 5,684 7,058 4,970 7,084
Visual effects......... 0 510 313 629 766 305 515 730 394
------- ------- ------- ------- ------- ------- ------- ------- ------
Total revenues....... 10,639 15,322 17,885 17,158 17,632 17,085 18,478 16,833 18,947
------- ------- ------- ------- ------- ------- ------- ------- ------
Cost of services:
Personnel.............. 4,427 5,768 6,362 6,238 6,527 6,280 6,286 6,251 6,779
Material............... 1,204 1,637 1,903 1,680 1,920 1,809 1,816 1,809 1,853
Facilities............. 749 936 1,018 1,214 1,124 1,181 1,144 1,243 1,328
Other.................. 965 1,491 1,579 1,525 1,504 1,707 1,437 1,373 1,745
------- ------- ------- ------- ------- ------- ------- ------- ------
Total cost of
services............ 7,345 9,832 10,862 10,657 11,075 10,977 10,683 10,676 11,705
------- ------- ------- ------- ------- ------- ------- ------- ------
Gross profit........ 3,294 5,490 7,023 6,501 6,557 6,108 7,795 6,157 7,242
------- ------- ------- ------- ------- ------- ------- ------- ------
Operating expenses:
Sales, general and
administrative........ 1,997 2,654 2,898 3,369 3,030 2,871 2,646 2,569 3,109
Depreciation and
amortization.......... 883 1,176 1,931 2,251 2,497 2,508 2,561 2,599 2,795
------- ------- ------- ------- ------- ------- ------- ------- ------
Total operating
expenses............ 2,880 3,830 4,829 5,620 5,527 5,379 5,207 5,168 5,904
------- ------- ------- ------- ------- ------- ------- ------- ------
Income from
operations......... 414 1,660 2,194 881 1,030 729 2,588 989 1,338
Interest expense, net... 391 640 772 1,114 921 1,073 993 919 1,214
------- ------- ------- ------- ------- ------- ------- ------- ------
Income (loss) before
income tax
benefits........... 23 1,020 1,422 (233) 109 (344) 1,595 70 124
Income tax benefits..... 250 204 284 250 204 250 317 223 --
------- ------- ------- ------- ------- ------- ------- ------- ------
Net income (loss)... $ 273 $ 1,224 $ 1,706 $ 17 $ 313 $ (94) $ 1,912 $ 293 $ 124
======= ======= ======= ======= ======= ======= ======= ======= ======
Net income (loss) per
share.................. $ .04 $ .19 $ .26 $ -- $ .05 $ (.02) $ .30 $ .05 $ .02
======= ======= ======= ======= ======= ======= ======= ======= ======
Weighted average number
of common shares
outstanding............ 6,475 6,475 6,475 6,475 6,475 6,475 6,475 6,475 6,475
======= ======= ======= ======= ======= ======= ======= ======= ======
OTHER DATA:
EBITDA.................. $ 1,297 $ 2,836 $ 4,125 $ 3,132 $ 3,527 $ 3,237 $ 5,149 $ 3,588 $4,133
Net cash provided/(used)
by operations.......... (1,613) 862 100 5,239 1,585 2,603 896 4,303 796
Net cash used in
investing activities... 2,883 6,001 15,491 6,527 3,071 3,010 80 4,157 8,753
Net cash provided/(used
in) financing
activities............. 743 4,611 18,446 4,302 332 (527) (1,090) 875 8,135
</TABLE>
27
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading provider of technical and creative services to
owners, producers and distributors of television programming, feature films
and other entertainment content in the United States and Asia. The name Four
Media Company is derived from the Company's core competencies in film, video,
sound and data. The Company's services integrate and apply a variety of
systems and processes to enhance the creation and distribution of
entertainment content. The Company seeks to capitalize on growth in domestic
and international demand for original entertainment content and for existing
television and film libraries without taking production or ownership risk with
respect to any specific television program, feature film or other content.
Since its formation in 1993 through the first quarter of fiscal 1997, the
Company has invested $72.6 million in infrastructure, primarily for new
digital systems and equipment. In addition, the Company has successfully
identified, acquired and integrated four complementary businesses. The Company
acquired the assets of three companies in connection with its formation in
1993, acquired the assets of a fourth company in 1994, and capitalized and
commenced its Singapore broadcast operations in 1995. As a result of its
investments and acquisitions, the Company is one of the largest and most
diversified independent (not affiliated with or related to a content owner)
providers of technical and creative services to the entertainment industry,
and therefore is able to offer its customers a single source for such
services.
The Company has organized its activities into four divisions, each of which
offers services that are integral to the creation, enhancement and/or
distribution of entertainment content.
Studio Services. The studio services division provides owners of television
and film libraries with all of the facilities and services necessary to
manage, format and distribute content worldwide. These services include
restoring and preserving damaged content, archiving original elements and
working masters, creating working masters from original elements, duplicating
masters for professional applications and formatting masters to meet specific
end-user standards and requirements. The studio services division seeks to
offer customers lower operating costs, improved response time and reliability,
access to new technology, and adherence to quality standards that are
recognized by the international technical community. The division's customer
base includes the major domestic studios (and their international divisions)
as well as independent owners of television and film libraries. Studio
services operations are conducted in Burbank.
Broadcast Services. The broadcast services division provides domestic and
international programmers with the facilities and services necessary to
assemble and distribute programming via satellite to viewers in the United
States, Canada and Asia. These services include assembly of programming
provided by the customer into a 24-hour "network" format; creating
interstitial and promotional graphics and other material that support the
brand identity of the programming; providing production support and facilities
for the timely creation of original programming, such as announce and news
segments; and providing automated systems to broadcast the programming via
playback and uplink facilities. In addition, the broadcast services division
provides facilities and services for the delivery of syndicated television
programming in the United States and Canada and also transmits special events,
sports or news stories for insertion in a network, cable system or direct-to-
home broadcast. The division's customer base includes major entertainment
companies offering worldwide network programming, independent content owners
offering niche market programming, and pay-per-view channels marketing movies
and special events to the cable industry and direct-to-home viewers. Broadcast
services operations are conducted in Burbank and the Republic of Singapore.
Television Services. The television services division provides producers of
original television programming with the technical and certain of the creative
services that are necessary to conform original film or video principal
photography to a final product suitable for airing on network, syndicated,
cable or foreign television. These services include developing negative in the
Company's film laboratory; converting developed negative to videotape and/or
digital formats; creating music and sound effects; mixing sound elements for
laydown to the final program master; creating visual effects; integrating
visual effects in the final program master;
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<PAGE>
correcting color; removing artifacts and scratches from the program master;
formatting for commercial integration; and delivering (via tape or satellite)
the program master for broadcast. The division's customer base includes most
of the major domestic studios and broadcast networks that are engaged in the
production of original programming as well as a large number of independent
production companies. Television services operations are conducted in Burbank
and Santa Monica.
Visual Effects Services. The visual effects services division commenced
operations in January 1995 and provides creators of special visual effects
with certain services required to digitally create or manipulate images in
high resolution formats for integration in feature films. These services
include developing negative and correcting color in the Company's film
laboratory; digitally scanning film; and digitally compositing multiple layers
of effects and recording the result on film. The division's customer base
includes most of the major domestic studios as well as independent visual
effects supervisors. Visual effects operations are conducted in Burbank and
Santa Monica.
MARKETS
The entertainment industry creates motion pictures, television programming,
and interactive multimedia content for distribution through theatrical
exhibition, home video, pay and basic cable television, direct-to-home,
private cable, broadcast television, on-line services and video games. Content
is released into a "first-run" distribution channel, and later into one or
more additional channels or media. In addition to newly-produced content, film
and television libraries may be released repeatedly into distribution.
Entertainment content produced in the United States is exported, and is in
increasingly high demand internationally. The Company believes that several
trends in the entertainment industry will have a positive impact on the
Company's business. These trends include growth in worldwide demand for
original entertainment content, the development of new markets for existing
content libraries, increased demand for innovation and creative quality in
entertainment markets and wider application of digital technologies to content
manipulation and distribution, including the emergence of new distribution
channels.
The Motion Picture Industry. The motion picture industry encompasses the
production, distribution and domestic exhibition of feature-length motion
pictures, including their distribution in home video, television and other
ancillary markets. While the domestic motion picture industry is dominated by
the major studios, including Paramount Pictures, Sony Pictures Corporation,
Twentieth Century Fox, Universal Pictures, The Walt Disney Company and Warner
Bros., independent production companies also play an important role in the
production of motion pictures for domestic and international feature film
markets. The major studios release as many as 200 new feature films a year and
domestic independent producers and distributors account for an estimated 180
films a year.
In 1995, the worldwide revenue of United States motion picture distributors
totaled $18.3 billion, an increase of 6.2% over 1994. Recent growth in
international revenue has far exceeded growth in North American revenues, with
international revenue now accounting for nearly half of total revenue.
According to an August 1996 communications industry forecast, it is expected
that by the year 2000, international revenue from motion pictures produced in
the United States will surpass North American revenue. The Company's studio
services division provides services that support the preparation and delivery
of feature films for distribution in domestic and international home video,
television and other ancillary markets.
The Television Production Industry. The North American (United States and
Canada) television production and distribution industry serves the largest
broadcast market in the world, with a population of approximately 290 million
and more than 95 million homes. In North America, programming is delivered to
the end user via conventional broadcast networks, cable channels, individual
television stations and satellite delivery systems. The number of broadcast
television networks in the United States continues to increase, with United
Paramount Network and the Warner Bros. Network recently joining the
established networks, ABC, NBC, CBS and Fox. The established networks
penetrate nearly 100% of domestic television households and provide the most
effective access to a broad-based mass audience for television advertisers.
Spending for television
29
<PAGE>
advertising, which drives the production of new programming and the sale of
existing content libraries, reached a record level of $37.5 billion in 1995,
compared to $29.0 billion in 1990.
The demand for entertainment content has increased significantly as a result
of the introduction of new broadcast networks, direct broadcast satellite
systems, pay television, increased cable penetration and the growth of home
video. The new television networks have created the need for more hours of
original programming and competition for viewers has increased the demand for
innovation and creative quality resulting in higher levels of spending. In
1995, United States television broadcasters (including cable) spent
approximately $8.9 billion for programming, compared to $7.2 billion in 1990.
The Company's television services division supports the creation of television
programming for domestic distribution and the Company's broadcast services
division supports the delivery of programming through various channels of
distribution including cable and satellite delivery systems.
In the last decade, the privatization of broadcasting systems outside the
United States, the proliferation of broadcast licenses, and the introduction
of sophisticated delivery technologies, such as cable and satellite
transmission systems, have led to significant growth of broadcasting and cable
television markets outside North America. European television is the most
visible example of the growth in programming outlets. Over the last 15 years,
European governments have encouraged a major expansion of the public and
private broadcasting sectors. For example, Germany and France each have added
six broadcast networks and the United Kingdom has added four. The introduction
of new television broadcast systems is just beginning in Asia and Eastern
Europe. Most foreign broadcasters require a mix of both indigenous programming
to satisfy the local content requirements of their broadcast licenses and
popular international programming, largely produced in the United States. The
substantial growth of broadcast markets outside North America has also
increased the demand for entertainment content produced in the United States.
The Company's television services division supports the creation of
programming for international distribution, the Company's studio services
division supports the preparation of content to be viewed in international
markets, and the Company's broadcast division supports the distribution of
cable channels in Asia and is seeking to establish a presence in other
developing international markets.
The Multimedia Industry. The interactive multimedia industry encompasses
video games, and on-line and interactive services. While certain segments of
the industry such as video games are well established, the multimedia industry
is an emerging business with significant growth potential. According to an
industry forecast, revenues derived from the sale of video game systems and
game software were $4.5 billion in 1995. Improvements in technology, the
availability of communication bandwidth, the proliferation of distribution
channels for entertainment products and services, and the involvement of large
entertainment companies, together, signify a critical mass to support such
growth. On-line services offer the consumer access to the Internet and the
World Wide Web via internet access providers such as Netcom(R) and UUNet(R),
and to services such as America On-line(R) and Prodigy(R) which offer both
internet access and proprietary features. Numerous companies provide Web site
design and creation, such as Digital Planet(R), Dimension X(R) and
Starware(R), that integrate various forms of media including live action
video, animation, graphics and audio. Other interactive on-line services such
as video-on-demand are being deployed by cable television operators and
certain of the regional telephone companies. Although the Company currently
derives no significant revenues from these market segments, the Company
believes that its creative and technical processes will be marketable to the
multimedia industry specifically in the areas of video compression,
digitization, 2D and 3D graphics, and authoring for the more complex platforms
and applications such as digital versatile disk ("DVD") and server-based on-
demand services.
30
<PAGE>
STRATEGIC ACCOMPLISHMENTS
The Company has implemented its business plan and capitalized on industry
trends and opportunities to accomplish the following:
Studio Services. In fiscal 1994, the Company identified a growth opportunity
in servicing technical and operational needs related to the domestic and
international distribution of entertainment content. The Company pursued this
opportunity by improving and upgrading its infrastructure, constructing an
archive and developing and implementing a management information system to
provide customers with instant access to information regarding the status of
their assets, work-in-process and shipments. Since 1993, the Company has
invested approximately $17.1 million in its studio services facilities. The
facilities occupy approximately 82,000 square feet of new space (in two
buildings) and feature a state-of-the-art digital infrastructure. Studio
services revenues have increased to $23.5 million in fiscal 1996 compared to
$15.7 million in fiscal 1994. The Company intends to capitalize on the
emergence of growth opportunities related to the domestic and international
distribution of content and the digitization and compression of content for
new distribution and multimedia applications by continuing to add capacity to
its studio services facilities.
Broadcast Services. In fiscal 1995, the Company determined that it could
capitalize on its core competencies and customer relationships and expand its
broadcast operations internationally. The Company evaluated expansion in
Europe, South America, Asia and Africa. After extensive research, the Company
selected Asia and established a new broadcast facility in Singapore. The
Company selected Asia because of (i) the availability of powerful transponder
capacity serving the entire Asian and Asean populations; (ii) the growing
popularity and acceptance of television as an entertainment vehicle in various
Asian and Asean cultures; (iii) the ability of the region to draw advertising
dollars based upon the emergence of a large middle class with disposable
income; and (iv) the large number of international and local programmers
seeking access to the region using cost-efficient satellite delivery systems.
The Company invested approximately $19.6 million to design and construct its
Singapore broadcast facility. The all digital and fully integrated broadcast
facility occupies approximately 20,000 square feet of newly developed space.
MTV Asia is the Company's first major customer in Singapore. The Company's
long-term contract with MTV Asia provides a base upon which to build other
business. The value of the Singapore operation is derived from (i) MTV Asia's
long-term commitment to the Company; (ii) the growth potential of the region
in general and Singapore as a broadcast hub specifically; (iii) the
availability of the facility's excess capacity to generate revenues outside
the MTV Asia relationship; and (iv) the ability of the Company to apply its
outsourcing model to domestic or international customers in any location.
Broadcast services revenues increased to $20.9 million in fiscal 1996 compared
to $10.9 million in fiscal 1994. The Company intends to rebuild its domestic
broadcast facility to accommodate the transmission of digitally compressed
signals and server-based playback systems by the end of fiscal 1998.
Television Services. In 1994, the Company acquired the assets of DM&T, a
facility specializing in providing visual effects for television. The Company
invested a total of $16.3 million in the facility, including approximately
$7.7 million to acquire the DM&T assets and an additional $5.3 million for the
purchase of component digital equipment and other improvements. The Company
believes that its facility is among the most technologically advanced
television services facilities in the Los Angeles area. The Company expects to
complete construction by the end of the third quarter of fiscal 1997 of a new
television facility in Burbank providing new server-based technology targeted
at the episodic television market. The Company studied the migration to a file
server environment for all digital non-linear assembly of television
programming and implemented a new design incorporating server-based
technology. In addition, the Company incorporated four Rank Cintel URSA
Gold(R) telecines in the new infrastructure to provide high quality pictures
as well as seamless transition from telecine to off-line and on-line
applications. The Company invested approximately $17.4 million to design and
construct the Burbank facility.
The Company intends to exploit the depth of the Company's television service
offerings by pursuing revenue opportunities related to the production and
distribution of original television programming--one of the largest segments
of the Los Angeles entertainment market. The Company offers the television
industry a full
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range of services in desirable geographic locations, a fully integrated
infrastructure designed to reduce turnaround time and increase creative
flexibility, and segmented service offerings. Television services revenues
increased to $23.3 million in fiscal 1996 compared to $15.6 million in fiscal
1994.
Visual Effects Services. In fiscal 1995, the Company determined that it
could apply its core competencies in the digital manipulation of images for
television to high resolution visual effects for feature films. The Company
retained a highly respected creative staff and acquired certain high
resolution equipment including a Quantel(R) Domino(R) computer and a Silicon
Graphics(R) computer that runs Discreet Logic(R) Inferno(R) software. In
addition, the Company acquired six Silicon Graphics(R) workstations running a
variety of software for high resolution animation applications, and film
scanning and recording equipment required to digitize high resolution images.
As of November 3, 1996, the Company's total capital investment in the visual
effects operation was approximately $2.9 million. The Company has attracted
visual effects projects for medium budget feature films and portions of
projects for large budget major motion pictures. The Company anticipates
making additional investments in high resolution capacity in response to
demand. Visual effects services revenues increased to $2.3 million in fiscal
1996 compared to $1.5 million in fiscal 1995.
GROWTH STRATEGY
The Company seeks to benefit from the increasing worldwide demand for
original entertainment content and the development of new markets for existing
television and film libraries. The Company intends to increase its market
share and to establish a brand identity in the markets it serves by executing
the following growth strategies:
. Seek Consolidation Opportunities. The Company plans to pursue
acquisitions that complement existing operations, increase market share
and diversify product lines. The Company participates in a highly
fragmented industry in which many small, entrepreneurial companies
compete for market share. Many do not have the size, diversity,
liquidity or capital resources required to modernize infrastructure or
derive efficiencies from economies of scale. The Company has
successfully identified, acquired and integrated four complementary
business. The Company acquired the assets of three companies in
connection with its formation in 1993, acquired the assets of DM&T in
1994, and capitalized and commenced its broadcast operations in
Singapore in 1995. The Company has entered into an agreement that
provides for an exclusive negotiating period for a potential acquisition
of a studio and television services business. The Company has not
reached agreement on price or completed its due diligence with respect
to such potential acquisition, and there can be no assurance that the
Company will be successful in consummating the transaction, if it
continues to pursue this opportunity.
. Offer Complete Outsourcing Solutions. The Company intends to expand the
range of outsourcing solutions it provides to customers and to bundle
its diverse services into a variety of combinations. This innovative
outsourcing approach provides customers several benefits including (i)
lower capital investment and operating costs than in-house alternatives;
(ii) more control over processes by using a single vendor; (iii) access
to current technology without the necessity of continuously upgrading
equipment; (iv) no diversion of technical, administrative and managerial
resources to non-core activities; (v) access to a diverse group of
broadly experienced technical and creative professionals; (vi) the
ability to enforce contractual standards of performance, thereby
improving accountability and reliability; and (vii) the ability to
reduce financial risk by identifying and fixing all of the costs
associated with a particular process.
. Deploy Leading Technologies. The Company plans to continue its
investment in component digital equipment and other leading technologies
in order to enhance its reputation for technological leadership in its
industry. Since its formation in 1993 through the first quarter of
fiscal 1997, the Company has invested $72.6 million to expand the scope
and scale of its operations, broaden its service offerings, expand
internationally and convert the majority of its infrastructure and
equipment to be compatible with new digital content formats. As part of
these capital expenditures, the Company has invested approximately $4.1
million to design, develop and implement a management information system
that
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provides timely and accurate information to customers about the status
of archived material, work orders, shipments and deliveries. The Company
believes that continued investment in infrastructure and the deployment
of digital technology will position the Company to benefit from the
domestic and international growth in entertainment content production
and distribution.
. Expand Internationally. The Company intends to expand internationally in
response to specific customer demand, particularly where the Company's
technical expertise, financial strength and the ability to execute
quickly are competitive advantages. The Company has demonstrated its
ability to respond quickly to international expansion opportunities. For
example, it commenced negotiations with MTV Networks in August 1994
regarding a contract for services in Asia, and after locating,
designing, building and staffing a $19.6 million state-of-the-art
digital broadcast facility in Singapore, commenced the broadcast of two
MTV Asia channels, MTV Aseana and MTV Pan China, in April 1995. In
addition, the Company recently commenced the broadcast of MTV India, and
also the broadcast of MGM Gold, an additional channel in Singapore. The
Company intends to capitalize on its experience in Singapore by pursuing
similar opportunities in other locations.
. Establish Strategic Alliances. The Company seeks to generate additional
revenue from its technological resources and facilities by establishing
strategic alliances with content creators and others. In fiscal 1996,
the Company entered into an agreement with Silverhammer, Inc., a design
and production firm specializing in the creation of network and
corporate visual promotions, identities, in-show graphics and internet
home pages. The agreement specifies that the Company will be
Silverhammer's exclusive service provider and permits the Company to
acquire an equity position in Silverhammer.
. Capitalize on the Increasing Application of Digital Technology. The
Company intends to capitalize on new methods of applying digital
technology for storing, retrieving and manipulating content as well as
increased demand for digital technology for use in high quality motion
video, multimedia applications and new content distribution channels.
For example, the Company anticipates opportunities in authoring and
mastering content for DVD and video on demand applications. The Company
believes that compression technologies, such as MPEG II, will gain
acceptance in the broadcast and cable industries and facilitate the
expansion of channel capacity and programming opportunities. The Company
purchased compression equipment in fiscal 1996 in anticipation of the
development of a market for compression applications. In addition, the
Company currently is developing the capability to transmit digitally
compressed signals to domestic satellites.
PRODUCTS AND SERVICES
The Company has defined its operating divisions in terms of the entertainment
industry market segments each serves. Each entertainment industry market
segment is driven by diverse but related economic factors, and as a result, the
Company is not solely dependent upon any single market segment within the
entertainment industry. The Company intends to maintain and expand the
diversity of its revenue sources and views such diversity as a significant
competitive operating and financial advantage.
For each of its operating divisions, the Company has defined a set of
services which support the entire technical and creative process of its
customers: studio services--"Content Preparation Process;" broadcast services--
"Network Delivery Process;" television services--"Original Programming Delivery
Process;" and visual effects--"Effects Creation Process."
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STUDIO SERVICES
The studio services division offers a broad range of facilities and
technical services to owners of television and film libraries. The division
provides all of the services necessary to manage, format and distribute
content on an international scale. These services include archiving original
elements and working masters, restoring and preserving damaged content,
creating working masters from original elements, duplicating masters for
professional applications, and formatting masters to meet specific end-user
standards and requirements. The Company offers the customer lower operating
costs, improved response time and reliability, access to new technology, and
adherence to standards of quality that are recognized by the international
technical community.
The Company's Content Preparation Process consists of the services outlined
in the chart below. While the Company markets these services as a cost-
effective package, service offerings are available individually and priced
separately.
The Content Preparation Process
--------------------------------------------------------------------
Audio
Restoration Transfer Layback
Archive Preservation Transform Conversion
Duplication
-------- -------------- ---------- -------------
---------------------------------------------------------------------
Archive. The storage and handling of videotape and film elements require
specialized security and environmental control procedures. Throughout the
entertainment industry, content representing millions of dollars of future
revenue is stored in physically small units that are subject to the risk of
loss resulting from physical deterioration, natural disaster, unauthorized
duplication or theft. The Company's archive is designed to store approximately
400,000 master videotapes and film elements in an environment protected from
temperature and humidity variation, seismic disturbance, fire, theft and other
external events. In addition to the physical security of the archive, content
owners require frequent and regular access to their libraries. Speed and
accuracy of access is a critical value added factor. The Company believes that
its archive, built at a cost of $3.1 million in fiscal 1994, is the largest
among independent service providers and among the most advanced with respect
to security, environmental control and access features.
Restoration. Substantially all film elements originating prior to 1983 have
faded, degraded or have been damaged in some way. Generally, damaged negatives
cannot be utilized in the Content Delivery Process because the resulting
broadcast submaster will not meet the minimum quality standards required in
domestic and foreign markets. The Company's technicians restore damaged film
negative to original and sometimes enhanced quality through the use of
proprietary optical and electronic equipment and techniques. The Company
believes it is well recognized for its ability to complete technically
challenging restoration assignments.
Preservation. Modern film stock, introduced in 1983, has a shelf life
exceeding 100 years. Because images recorded on old film stock degrade over
time resulting in the loss of color and in extreme cases the integrity of the
film itself, older film frequently is converted to a new archival film stock
medium. Film is the preferred archival medium because it has the highest image
resolution of any image storage medium. Using a proprietary process, the
Company takes the original (or restored) negative and creates an archival
answer print and interpositive (i.e., a new negative). The Company believes
that, due to technical and operational advances in its proprietary
preservation process, it is a market leader in the preservation of existing
film content.
Transfer. Substantially all film content ultimately is distributed to the
home video, broadcast, cable or pay-per-view television markets, requiring
that film images be transferred to video images. Each frame must be color
corrected and adapted to the size and aspect ratio of a television screen in
order to ensure the highest level of
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conformity to the original film version. Because certain film formats require
transfers with special characteristics, it is not unusual for a motion picture
to be mastered in many different versions. For example, anamorphic
(Cinemascope) formats require mastering in at least two aspect ratios
(pan/scan and letter box) and certain international broadcasters have other
requirements. The Company transfers film to videotape using Ursa Gold(R)
telecine equipment and DaVinci(R) digital color correction systems recently
installed at a cost exceeding $3.0 million. This equipment produces the
highest quality transfers available in the industry. Technological
developments, such as the anticipated domestic introduction of television sets
with 16 x 9 aspect ratios and the implementation of advanced definition
television systems for terrestrial and satellite broadcasting, if they occur,
should contribute to the growth of the Company's film-to-tape transfer
business in the future.
Transform. Production companies may choose to originate their work on
videotape even though the ultimate market is a theatrical release on film. The
Company developed a proprietary process called Transform(R) to convert
videotape to film. Transform(R) uses an electron beam recorder and a patented
color imaging system to transform video pictures from all current broadcast
standards to 16mm or 35mm film. The process involves transferring red, blue
and green video images sequentially to a 16mm fine grain intermediate film
stock using an electron beam modulated with the video image. These fine grain
separations are then sequentially step-printed onto color negative film stock.
The Transform(R) process is applicable to advertising commercials and
interstitial programming material (less than 90 seconds in running length) as
well as theatrical length presentations including feature films, concerts and
special events. The Company currently transforms numerous short segments,
special events, and six to ten feature films per year.
Audio Layback. Audio layback is the process of creating duplicate videotape
masters with sound tracks that are different from the original recorded master
sound track. Content owners selling their assets in foreign markets require
the replacement of dialog with voices speaking local languages. In some cases,
all of the audio elements, including dialog, sound effects, music and laughs,
must be recreated, remixed and synchronized with the original videotape. Audio
sources are premixed foreign language tracks or tracks that contain music and
effects only. The latter is used to make a final videotape product that will
be sent to a foreign country to permit addition of a foreign dialogue track to
the existing music and effects track. The Company attracts audio layback
business by offering (i) optimum sound quality; (ii) synchronization of audio
to picture within a half frame accuracy; (iii) consistent quality and
accuracy; (iv) quick turnaround; and (v) competitive pricing.
Conversion. Conversion is the process of changing the frame rates of a video
signal from one video standard (such as the United States standard) to another
(such as the European standard). Through the utilization of Digital Electronic
Film Transfer and Phase Correlation technologies, the Company provides the
highest quality conversion services available. The Company's primary
competitive advantages are its state-of-the-art equipment and its detailed
knowledge of the international markets with respect to quality-control
requirements and technical specifications.
Duplication. The final step in the Content Preparation Process is the
creation of submasters for distribution to professional end users. Master
tapes are used to make submasters in NTSC, PAL and other formats. Videotape
content is copied for use in intermediate processes, such as editing, on-air
backup and screening, and for final delivery to cable and pay-per-view
programmers, broadcast networks, television stations, airlines, home video
duplicators and foreign distributors. The Company duplicates videotape in all
international standards in 22 tape formats. The Company believes that its
professional duplication facility is technically advanced and has unique
characteristics that significantly increase equipment capacity utilization
while reducing error rates and labor costs.
BROADCAST SERVICES
The broadcast services division offers a broad range of facilities and
technical and creative services to domestic and international programmers. The
Company provides all of the facilities and services necessary to assemble and
distribute programming via satellite to viewers in the United States, Canada
and Asia. These services include assembling programming provided by the
customer into a 24-hour "network" format, creating
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interstitial and promotional graphics and other material that support the
brand identity of the programming, providing production support and facilities
for the timely creation of original programming such as announce and news
segments, and providing automated systems to deliver the programming to air
via playback and uplink facilities. In addition, the Company provides
broadcast facilities and services for the delivery of syndicated television
programming in the United States and Canada and transmits special events,
sports or news stories for insertion in a network, cable system or direct-to-
home broadcast. The Company's customer base consists of the major studios and
entertainment companies offering world-wide network programming, independent
content owners offering niche market programming and pay-per-view channels
marketing movies and special events to the cable industry and direct-to-home
viewers. Broadcast service operations are conducted in Burbank and the
Republic of Singapore.
The Company's Network Delivery Process consists of the services outlined in
the chart below. While the Company markets these services as a cost-effective
package, service offerings are available individually and priced separately.
The Network Delivery Process
----------------------------------------------------------------------
Production Uplink
Promotion Assembly Network Satellite
Audio Origination Transponder
----------- --------- ------------ ------------
----------------------------------------------------------------------
Production and Promotion. A broadcaster's identity and continuity during the
broadcast day are established and enhanced when an on-camera personality
(presenter) is used to introduce the channel or the channel's programming.
Timely broadcast programming, such as news, requires immediate and precise
coordination of on-camera talent, the script, the pre-recorded videotape and
graphic materials and the broadcast schedule. The Company operates a state-of-
the-art production studio in Singapore with three cameras, production and
audio control rooms, videotape playback and record, multi-language prompter,
computerized lighting, and dressing and makeup rooms. The studio is fully
configured for host, news and chroma key segments. A one-camera field crew is
also available for electronic field production recording, and the Company
offers live-to-satellite interview and other on-camera services. On-screen
marketing and broadcast continuity also depend on on-air promotional material
to support the channel's brand identity and the channel's programming. The
Company, working in conjunction with the customer's producers, offers a
complete on-air promotional service, including graphics, editing, voice-over
record, sound effects editing, sound mixing and music composition.
Audio. Programming designed for distribution in markets other than those for
which it was originally produced is prepared for export through language
translation and either subtitling or voice dubbing. The Company provides
dubbed language versioning with an audio layback and conform service that
supports various audio and videotape formats to create an international
language-specific master videotape. The Company's Burbank facility also
creates music and effects tracks from programming shot before an audience to
prepare television sitcoms for dialog record and international distribution.
The Company's Singapore facility supports subtitling with translation
coordination and a complete on-screen and closed-caption subtitling facility.
Subtitling currently is available in Chinese and English; other languages can
be added in response to customer need.
Assembly. Prior to broadcast, program and interstitial material is checked
for quality control and may be pre-compiled into final broadcast form prior to
on-air playback. Interstitial pre-compilation is performed in Company editing
facilities, often using proprietary systems and software which permit the
efficient assembly of high production value visual effects. Syndicated
programming is also prepared for distribution with commercials and similar
elements inserted prior to distribution. Control procedures are used to ensure
on-air reliability. The Company provides programming to almost all United
States broadcast television stations through daily satellite feeds and tape
shipments. A variety of movie and show formatting and time compression
services are available
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to prepare programming for distribution. Commercial, promotional, billboard,
warning, logo and other integration, as well as closed captioning for the
hearing impaired and source identification encoding, is performed. The Company
also provides program log and traffic support to programmers; affiliate
relations and station coordination; library storage of broadcast master tapes;
and a syndication program library and recycled videotape inventory.
Network Origination. The Company provides videotape playback and origination
to cable, pay-per-view and direct-to-home networks and services. The Company
accepts daily program schedules, programs, promos and advertising, and
delivers 24 hours of seamless daily programming to cable affiliates and home
satellite subscribers. The Company uses automated robotics systems for
broadcast playback, which include proprietary systems and software. The
Company also operates industry-standard encryption and/or compression systems
as needed for customer satellite distribution. The Company uses a customized
approach to satisfy each customer's timeliness, flexibility and reliability
requirements. Playback systems are both videotape and video server-based, and
subtitling and "local avail" (head and commercial insertion) are supported.
Quality control, tape storage and trafficking services are also offered by the
Company. Currently, the Company supports over twenty 24-hour channels from its
Burbank facility, and two 24-hour channels originate from the Singapore
facility.
Uplink and Satellite Transponders. The Company's Burbank facility operates a
C-band video-oriented satellite earth station facility with eight
transmit/receive antennas and over 30 transmit chains. Catalina is licensed by
the FCC and operates as a common carrier. Facilities are staffed 24 hours a
day and also are used for downlink and turnaround services. The Company
communicates with two transponders on the Galaxy IV(R) satellite in support of
the Company's syndication and Canadian distribution business segments.
Catalina accesses various "satellite neighborhoods" daily, including basic and
premium cable, broadcast syndication and direct-to-home markets. The Company
resells transponder capacity for ad hoc and other occasional use and bundles
its transponder capacity with other broadcast services to provide a complete
broadcast package at a fixed price.
TELEVISION SERVICES
The television services division provides a broad range of facilities and
technical and creative services directed to producers of original television
programming. The Company provides all of the technical and certain of the
creative services that are necessary to conform original film or video
principal photography to a final product suitable for network, syndicated,
cable or foreign television. These services include developing negative in the
Company's film laboratory, converting developed negative to video tape and/or
digital formats, creating music and sound effects, mixing all sound elements
for laydown to the final program master, creating visual effects in the final
program master, color correction, dirt and scratch removal, formatting for
commercial integrating and physical delivery via tape or digital delivery via
satellite of the program master for air. The Company's customer base includes
most of the major studios and broadcast networks that produce original
programming as well as a large number of independent production companies.
Television operations are conducted in Burbank and Santa Monica.
The Company's Programming Delivery Process consists of the services outlined
in the chart below. While the Company markets these services as a cost-
effective package, service offerings are available individually and priced
separately.
The Original Programming Delivery Process
-----------------------------------------------------------------------
Negative Assembly
Developing Off-Line Audio Formatting
Transfer Editing Visual Effects Duplication
Digitization
-------------- ---------- --------------- ------------
-----------------------------------------------------------------------
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Negative Developing. Because of the creative freedom, high resolution image
quality and flexibility attained by working with film, the majority of prime
time network and first run syndicated television programming originates on
film. "Dailies" (camera original negative shot during each day) for one hour
dramas, situation comedies and movies-of-the-week are delivered to the
Company's film laboratory to be developed overnight. The Company's film
laboratory specializes in negative developing for television applications and
has increased its television related activities in each year since the
Company's inception.
Transfer and Digitization. The transfer department accepts developed
negative from a laboratory and transfers the film to videotape. The transfer
process enables the customer to view the previous day's work on videotape and
begin the creative process of editing the footage. The transfer process is one
of the most technically and creatively challenging of any of the Company's
services. The Company must integrate various forms of audio and encode the
video picture with feet and frame numbers from the original film. The Company
utilizes state-of-the-art URSA Gold(R) telecine equipment adapted for
television specifications. The Company believes that its equipment produces
the highest quality results attainable in the industry today in part because
it uses only URSA Gold(R) technology for television transfer services.
Off-Line Editing. The Company delivers low resolution digitized images to
the customer for processing by various non-linear editing work stations, such
as the Avid(R), Media Composer(R), Lightworks(R) and Heavyworks(R). Using
these or similar systems, the customer determines the programming content and
creates an edit decision list, which will eventually be used to assemble the
source material into a final product suitable for broadcast. The Company
provides and fully supports non-linear off-line editing with personnel and
equipment for use by the customer within the Company's facilities or at other
locations designated by the customer. In addition, the Company is currently
constructing communications infrastructure to provide digitized images
directly from the film-to-tape transfer room to work stations via dedicated
phone lines.
Audio. After the customer has made substantially all of the creative
decisions necessary to determine the programming content, the Company offers
various services to enhance and conform the audio to the video image. The
Company creates sound effects, assists in replacing dialog and re-records all
the audio elements for integration with the final video product. The Company
designs sound effects to give life to the visual images with a proprietary
library of over 30,000 digital sound effects. Dialog replacement is sometimes
required to improve quality, replace lost dialog or eliminate extraneous noise
from the original recording. Re-recording combines sound effects, dialog,
music and laughter together to complete the final product. In addition, the
re-recording process allows the enhancement of the listening experience by
adding specialized sound treatments, such as stereo, Dolby(R) SR(R) and
Surroundsound(R). The Company's primary audio markets are situation comedies
and one-hour dramas. Finally, the Company has two theater sized re-recording
stages targeted at the feature film and made-for-TV movie markets. The Company
employs an award winning staff in both areas and is well respected for its
technical and creative contribution.
Visual Effects. Visual effects are used to enhance the visual experience of
the viewing audience by supplementing images obtained in principal photography
with computer generated images. Most often, visual effects create images that
cannot be created by any other means on a cost effective basis. DMC, the
Company's visual effects operation located in Santa Monica, specializes in
creating visual effects for television. DMC's compositing suites are
configured for nine layers of color correction and eight layers of compositing
with powerful wipe generators. These devices are used to generate bends,
warps, morphs, 3D shapes and transformations in real time. DMC also offers an
array of graphics and animation workstations using a variety of software to
accomplish unique effects, including 3D animation. The Company believes that
DMC is a leader in providing visual effects for the television industry as
evidenced by its involvement in numerous award winning series, including Star
Trek(R)--The Next Generation(R), Star Trek(R)--Deep Space Nine(R) and Star
Trek(R)--Voyager(R).
Assembly, Formatting and Duplication. Once all of the creative decisions
have been made by the customer, including the integration of sound and visual
effects, the Company employs the edit decision list to assemble the source
material into its final form. To accomplish this, the Company utilizes a
combination of
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component digital linear assembly systems and super computer based non-linear
assembly systems. The Company believes that its assembly systems, which will
become fully operational in the last three months of 1996, are among the most
technologically advanced in the industry. In addition, the Company utilizes
sophisticated computer graphics equipment to generate titles and characters
and to format the program to meet specific network requirements (e.g., time
compression and commercial blocks). Finally, the Company creates multiple
"masters" for delivery to the network for broadcast, archival and other
purposes designated by the customer.
VISUAL EFFECTS SERVICES
The visual effects services division offers a broad range of facilities and
technical and creative services to creators of special visual effects for
feature films and television. The Company provides services required to
digitally create or manipulate images in high resolution formats for
integration into feature films as well as certain television applications.
These services include negative developing and color correction utilizing the
Company's film laboratory facilities, film scanning and recording and digital
compositing. The Company bundles its visual effects services in order to lower
the cost of certain visual effects, improve response time and the consistency
of results, and to provide customers access to new technology. The Company's
customer base includes most of the major studios as well as independent visual
effects supervisors contracted by producers of feature films. Visual effects
operations are conducted in Burbank and Santa Monica.
The Company's Effect Creation Process consists of the services outlined in
the chart below. While the Company markets these services as a package,
service offerings are available individually and priced separately.
The Effect Creation Process
----------------------------------------------------------------------
Correction
Pre-Production Design Scanning Developing
Consulting Creation Recording Printing
--------------- ---------- ----------- ------------
----------------------------------------------------------------------
Pre-Production and Principal Photography Consulting. Using a script provided
by the production company, the Company provides a written outline for
implementing the effects, time frame and preliminary effects budget. The
Company makes recommendations on how best to realize each visual effect,
taking into consideration the complexity of the desired effect, the production
schedule and budget. Even projects that would not normally be considered a
special effect feature will make use of digital techniques to create sets,
backgrounds, lighting, crowds and other effects. The Company creates story
boards in order to reach an understanding as to which elements will be shot
and by whom prior to principal photography. Upon request, the Company will
provide a visual effects supervisor to assist in the principal photography
that will later be incorporated in a digital effect. Often, the Company
assembles a film crew to shoot elements that are necessary to properly
integrate a visual effect into a particular scene.
Effect Design and Creation. In order to reduce costs and meet shorter
release schedules, the studios have recently begun reducing the amount of time
available for the Effect Creation Process from twelve months to four months.
This acceleration is often at odds with the responsibility of the visual
effects supervisor to evaluate many effect alternatives before making a final
selection. In order to minimize costs, the Company first designs effects in
low (i.e., video) resolution. Once the design is approved, the Company creates
visual effects in high (i.e., film) resolution using powerful super computers,
such as the Domino(R) Double Four(R) and the Silicon Graphics(R) Onyx Reality
Engine II(R). The Domino(R) is used for high speed digital image creation,
animation, compositing, retouching, rotoscoping, motion and color correction.
The Reality Engine(R) runs a variety of software packages, including
Inferno(R) by Discrete Logic(R), which is capable of creating elaborate
digital multi-plane matte paintings and live action effect composites. The
Company also employs other Silicon Graphics(R) work stations to run
specialized software, including Alias(R), Soft Image(R) and Elastic Reality(R)
for 3D animation applications.
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Film Scanning and Recording. An integral part of the Effect Creation Process
is the digitizing of principal photography so that images can be created or
manipulated in a digital work station. The Company digitizes film on an
Oxberry(R) 6400 film scanner and transfers the digital information to a
central file server where it can be accessed by any of the Company's work
stations. Once the effect is completed and approved by the visual effects
supervisor, the Company downloads the digital information to a Celco(R)
Extreme Effects(R) digital film recorder, which records the digital
information on film. The completed conversion can then be assembled with the
film negative.
Color Correction, Negative Developing and Prints. Throughout the Effect
Creation Process the visual effects supervisor relies upon the film laboratory
to process and print the visual effects segments so that they can be viewed in
film resolution. In preparing the final cut it is often difficult to integrate
the effect seamlessly with the principal photography on a timely or cost
efficient basis. The Company's film laboratory offers a proprietary color
correction process designed to give the visual effects supervisor more control
over the integration of the digitally created images with the principal
photography. The Company believes that it has the only visual effects
operation that offers this film laboratory quality control feature.
CUSTOMERS
The Company's customer base includes the major studios, independent owners
of television and film libraries, programmers, producers of original
television programming and creators of visual effects. As of November 3, 1996,
the Company's customer base included approximately 1,800 customer accounts.
The Company is committed to building and retaining a loyal customer base by
providing a broad range of service offerings, state-of-the-art equipment and
technology, and superior customer service at competitive prices.
The Company's ten largest customers accounted for 57.4% of total revenues in
fiscal 1996. In addition, 29.5% of the Company's revenues were generated by
the six major domestic studios (Disney, MCA/Universal, Sony Pictures
Corporation, Viacom/Paramount, Warner Bros. and Twentieth Century Fox) in
fiscal 1996. MTV Asia accounted for 15% of the Company's revenues in fiscal
1996. No other customer accounted for 10% or more of the Company's revenues.
The increase in revenue concentration among the Company's top ten revenue
producing customers is the result of the substantial increase in revenues from
MTV Asia and the expansion of the Company's relationship with Sony Pictures
Corporation. The Company believes that the increase in the percentage of its
revenues generated by the major studios reflects the expansion of services
provided by each of the Company's operating divisions together with greater
customer acceptance of the Company's ability to provide complete outsourcing
solutions. Except for MTV Asia, TVN and a limited number of other customers,
none of the Company's customers has a long-term contractual relationship with
the Company whereby the customer is obligated to purchase any specified level
of services from the Company.
In the Company's television and visual effects divisions, customer
relationships also can be measured by the number and types of projects
completed by the Company during the production season. During the 1995-1996
television season, the Company provided one or more services to 67 episodic
television programs. In the 1996-1997 season, the Company expects to provide
one or more services to over 80 episodic television programs. The Company
believes that the increase in its television customer base is the result of an
increased volume of television production, the construction of a new
television facility in Burbank (which the Company expects to complete in the
third quarter of fiscal 1997) and significantly improved coordination between
the Burbank and Santa Monica television facilities. In fiscal 1995 and 1996,
the Company provided one or more visual effects services to eight and 13
feature film projects, respectively.
The Company's standard credit term for customers is "Net 30 Days," although,
in the Company's experience, the prevailing practice among major studios and
certain other customers is to pay outstanding accounts within approximately 60
to 90 days. The Company reviews a customer's credit history and establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends, and other information. During fiscal
1996, the Company entered into a long term agreement for services with TVN
under which TVN agreed to repay $3.3 million in outstanding accounts
receivable for broadcast services over three years in monthly installments of
principal and interest at 8.0%.
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TECHNOLOGY
The Company purchases hardware and software developed and manufactured by
others and integrates various systems and technologies in a proprietary manner
to accomplish the objectives of customers. The integration of hardware and
software often requires the development of new proprietary systems and
infrastructure by the Company. From time to time, the Company forms strategic
alliances with hardware and software manufacturers to jointly develop a
specific application. Examples of informal strategic alliances involving joint
development projects include: (i) BTS(R) and NVision(R) component digital
routing systems; (ii) Snell & Wilcox, Alchemist(R), phase correlation
standards conversion equipment; (iii) Rank Cintel URSA Gold(R) technology
deployment for television and feature mastering applications; (iv) Sony Corp.
LMS(R) automated robotic broadcast systems; and (v) Quantel, Inc.(R) Edit
Box(R) and Clip Box(R) file server and non-linear editing technology for
episodic television assembly.
The Company substantially has completed the deployment of new component
digital infrastructure in its television and studio services divisions. The
Company believes that this infrastructure is state-of-the-art and sets the
industry standard for performance, efficiency and reliability. The Company
intends to upgrade its broadcast services operation in Burbank to accommodate
new digital technologies and convert the remaining analog portions of the
Company's television business to component digital as it becomes technically
and operationally feasible. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION
Los Angeles is the center of domestic television and feature film production
and the exploitation of content libraries. It is also the largest and most
competitive market in the world in terms of total revenue potential in the
Company's studio, television and visual effects business segments. The
entertainment services industry in Los Angeles is highly fragmented, and no
single industry participant, including the Company, has a dominant market
share in any service offering. The Company believes that it is unique,
however, among industry competitors in terms of the breadth of its operating
divisions and the depth of service offerings within each business segment.
The Company experiences intense competition in each of its business
segments. Although the Company believes no one competitor offers a comparable
range of services, some of the Company's current and potential competitors,
particularly those who perform services in-house, have substantially greater
financial, technical, creative, marketing and other resources than the
Company. The Company's competitors may devote substantially greater resources
to the development and marketing of new competitive services. The Company
expects that competition will increase substantially as a result of industry
consolidations and alliances, as well as the emergence of new competitors. The
Company also actively competes with industry participants operating niche or
specialty businesses. In addition, certain of the Company's current and
prospective customers conduct in-house operations that the Company considers
competitive. For example, Warner Bros., a major customer, conducts extensive
in-house operations in several of the Company's business segments. The Company
believes that all of its services offerings are competitive with in-house
operations and other independent service providers.
The Company entered the international broadcast market with the completion
of its Singapore facility in 1995, and it will seek to provide services to
domestic and foreign programmers in regional television markets in Asia and
abroad. The Company competes with local service providers that may have
competitive advantages resulting from their experience in the region,
including in Singapore and elsewhere in Asia, who have well established
customer relationships and business operations.
EMPLOYEES
The Company employs creative, technical, engineering, administrative and
managerial staff in each operating division. In addition, the Company has
centralized certain financial and administrative functions, including
accounting, credit, billing, payroll and human resources. As of August 4,
1996, the Company had a total of 549 full time employees, of which 393 were
located in Burbank, 74 in Santa Monica and 82 in Singapore.
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The Company has entered into employment agreements with certain members of
its creative staff to secure their services. The Company believes that it
provides compensation and benefits that are competitive with the market for
persons with the skills required by the Company. The Company has experienced
no work stoppages since its formation in 1993, and considers its relations
with employees to be good.
PROPERTIES
The Company's principal executive offices, together with its facilities for
domestic broadcast, television and studio services, are located in four
buildings in the Burbank Media District. The Company leases these facilities,
which in the aggregate occupy approximately 86,000 square feet, under
agreements with terms expiring between January 1999 and October 1999, and
options to renew extending through October 2014. The Company's visual effects
division and a portion of its television division are located in Santa Monica
in a 29,000 square foot facility, which is leased under an agreement that
expires in October 1999 and may be renewed at the Company's option through
October 2004. The Company's film laboratory is located in an 18,000 square
foot facility in Burbank, and is owned by the Company. In December 1996, the
Company purchased a 90,000 square foot facility in Burbank in which the
Company occupies 45,000 square feet to house its archive. The film laboratory
services both the television and the studio services divisions. The Company
leases 20,000 square feet in Singapore to house its Singapore broadcast
facility. The lease expires in December 1996, and may be renewed at the
Company's option through December 2001. The Company believes that all of its
facilities substantially comply with applicable environmental and other laws
and regulations. The Company believes that its facilities are adequate for its
current needs and that additional space will be available as needed for future
expansion.
GOVERNMENT REGULATION
The Communications Act prohibits the operation of satellite earth station
facilities such as those operated by Catalina, except under licenses issued by
the FCC. Catalina holds three satellite earth station licenses and other
authorizations required for the operation of the Company's business. One of
the licenses is for a transportable earth station, which is granted for a
period of one year and has been routinely renewed. The FCC has adopted but not
yet implemented an order to extend the term for all such licenses to ten
years. Catalina also holds two licenses for fixed earth stations, granted for
a period of ten years, which expire in 2001 and 2004. While the FCC generally
renews licenses for satellite earth stations routinely, there can be no
assurance that the Company's licenses will be renewed at their expiration
dates, which could have a material adverse effect on the Company.
The Communications Act further prohibits the transfer of control of any
station license without prior approval of the FCC. The Company has filed an
application with the FCC for consent to the transfer of control of Catalina in
connection with this offering (the "FCC Application"). Catalina has received
special temporary authority granted by the FCC to continue to operate the
licensed facilities subsequent to the offering subject to final action on the
FCC Application. The special temporary authority expires in April 1997, unless
renewed. In reviewing applications, the FCC considers whether a transfer of
control will serve the "public interest, convenience and necessity," as well
as whether the proposed transferee has the requisite legal, technical and
other qualifications to operate the licensed facilities. In making its
decision, the FCC has the authority to approve or deny the FCC Application, or
to place conditions on its approval that the FCC believes would best serve the
public interest. Although the Company has no reason to believe that the FCC
will deny the FCC Application, there can be no assurance of FCC approval.
Failure to obtain such approval would have a material adverse effect on the
Company.
Catalina also holds authorizations from the FCC to operate a microwave
station for the transmission of signals from a single point to the Company's
Burbank facilities, and to offer services to Canada and Mexico using both U.S.
and non-U.S. licensed satellites. Catalina also has filed applications
relating to those authorizations for transfer of control in connection with
this offering (the "Secondary Applications"). The Company expects that
approval of those applications will be issued in the normal course of FCC
administration, although there can be no assurance that FCC approval will be
obtained on a timely basis or at all. The Company
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does not believe that failure to obtain FCC approval of the Secondary
Applications or delay in obtaining that approval would materially affect its
business operations.
No FCC authorization is required for reception of transmission from domestic
satellites from points within the United States. The Company relies on third
party licenses or authorizations when it transmits domestic satellite traffic
through earth stations operated by such third parties. The FCC establishes
technical standards for satellite transmission equipment which change from
time to time, and also requires coordination of earth stations with land-based
microwave systems at certain frequencies to assure noninterference.
Transmission equipment must also be installed and operated in a manner that
avoids exposing humans to harmful levels of radio-frequency radiation. The
placement of earth stations or other antennae is typically subject to
regulation under local zoning ordinances.
LITIGATION
The Company is involved in two legal proceedings with the International
Alliance of Theatrical Stage Employees ("IATSE"), the union which formerly
represented approximately 100 employees of Compact. In the first case,
entitled ATS Acquisition Corp., Inc. v. National Labor Relations Board
("NLRB") Case No. 31-CA-20089, IATSE argued that the Company should have
bargained with it as a labor law "successor" following the sale of Compact's
assets to the Company in August 1993. The Company refused to bargain with
IATSE, contending that only a broad, company-wide bargaining unit was
appropriate. In a decision issued in July, 1996, the NLRB ordered the Company
to bargain with IATSE with regard to certain of the Compact bargaining unit
employees. The Company has continued to express its disagreement with this
bargaining unit. Since the NLRB's orders are not self-executing, the Company
anticipates that the NLRB will seek enforcement of its order in the United
States Court of Appeals. The Company will continue to assert that only
company-wide bargaining is appropriate following a secret ballot election
conducted among its employees. The Company will fulfill its legal obligations
if bargaining is eventually ordered by the courts. However, the National Labor
Relations Act does not require a party to compromise its position in
collective bargaining. Moreover, the NLRB has confirmed the Company's position
that it lawfully implemented its own wages, benefits and working conditions
when it acquired the assets owned by Compact in 1993 and denied the union's
request for back pay. The NLRB's bargaining order, therefore, provides for no
backpay liability to the Company.
The second action, entitled IATSE, et. al. v. ATS Acquisition Corp., Inc.,
et. al., United States District Court Case No. CB 93-5574-JGD(x), was filed by
IATSE against the Company in United States District Court for the Central
District of California on September 14, 1993. This lawsuit essentially alleges
that the Company is an alter ego or "disguised continuance" of Compact and is
therefore bound by Compact's collective bargaining agreement with IATSE. The
Company believes this lawsuit is baseless. In any event, in 1996, the court
stayed further proceedings in the matter pending completion of the NLRB
proceedings referred to above. Accordingly, the Company has not been forced to
defend this lawsuit and believes that the resolution of Case No. 31-CA-20089
will determine the final outcome of legal disputes with IATSE, and that the
Company will ultimately prevail in that matter.
In addition, the Company is subject from time to time to litigation arising
in the ordinary course of its business, and the Company believes that no such
litigation is pending (including the IATSE matters referred to above) that
would have a material adverse effect on the Company's results of operations or
financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and director nominees of the Company and
their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert T. Walston....... 38 Chairman of the Board and Chief Executive Officer
John H. Donlon.......... 51 President and Director
John H. Sabin........... 57 Vice President, Chief Financial Officer and Director
Gavin W. Schutz......... 43 Vice President, Chief Technology Officer and Director
Robert Bailey........... 39 Vice President, Director of Marketing and Director
James T. Conlon......... 48 Vice President and Director of International Operations
Shimon Topor(1)......... 52 Director
Edward Kirtman(1)....... 44 Director
Paul Bricault........... 33 Director nominee
</TABLE>
- --------------------
(1) Member of Compensation Committee
Robert T. Walston is the founder of the Company and has served as Chairman
and Chief Executive Officer since August 1993. From 1991 until he founded the
Company, Mr. Walston served as a Vice President and Director of Steinhardt
Group, Inc. where he directed the firm's sourcing and financial analysis of
acquisitions of middle market companies. From 1988 to 1991, Mr. Walston was a
Vice President of Dean Witter Reynolds, Inc. where he worked on merger and
acquisition assignments and debt and equity offerings. Mr. Walston received a
BBA from Baylor University and an MBA from the University of Texas at Austin.
John H. Donlon has served as President and a Director of the Company since
August 1993. Prior to joining the Company, Mr. Donlon was President and Chief
Executive Officer of Compact Video Group, Inc., a provider of post-production
services to the television industry, from 1984 to 1993. From 1981 to 1984, Mr.
Donlon was employed by Technicolor, Inc. as President of Technicolor's
videocassette subsidiary and from 1977 to 1981 as Vice President and Director
of Technicolor's Laboratory Operations. Mr. Donlon received a BA degree from
the University of Florida.
John H. Sabin has served as Vice President, Chief Financial Officer and a
Director of the Company since August 1993. Prior to joining the Company he was
a Senior Vice President and Chief Financial Officer of Compact Video Group,
Inc. From 1988 to 1993 he was an Executive Vice President of Kenmare Capital
Corp., a private holding company involved in merchant banking activities. From
1978 to 1988, he was a Vice President and Chief Financial Officer of Robert
Bruce Industries, a publicly held multi-division apparel manufacturer and
wholesaler. Mr. Sabin received a BS degree in Industrial Administration from
Iowa State University.
Gavin W. Schutz has served as Vice President and Chief Technology Officer of
the Company since August 1993, and was elected a Director of the Company in
September 1996. Prior to joining the Company he was Director of Engineering of
Image Transform, Inc., a provider of feature mastering and standards
conversion services to the entertainment industry, from 1980 to 1993. Mr.
Schutz is responsible for the design of digital video standards converters,
time and smear correctors and video noise reduction using four field non-
recursive digital filtering algorithms. Mr. Schutz received a BS degree in
Electronic Engineering from the South Australia Institute of Technology.
Robert Bailey has served as Vice President and Director of Marketing of the
Company since August 1996, and was elected a Director of the Company in
September 1996. From 1993 to 1996 he served as Vice President
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and Director of Marketing for the Company's studio and television services
divisions. Prior to joining the Company he was a Vice President of Image
Transform, Inc., from 1985 to 1993. From 1977 to 1985, he was creator/producer
of "Hollywood Detective" for the A&E Channel, Producer/Director of "Eye on
L.A." for ABC and Producer of "Remmington Steele" for MTM Productions. Mr.
Bailey received a BA from the University of Southern California.
James T. Conlon has served as Vice President of the Company since August
1993, and Director of International Operations since 1994. From 1984 to 1993,
he was Director of Engineering, Director of Distribution Services and Manager
of Satellite Services at Compact Video Group, Inc. From 1975 to 1984, he held
various positions at Trans American Video and assisted the creative
development of Paramount's "Entertainment Tonight" and Merv Griffin
Productions' "Jeopardy". Mr. Conlon received a BS degree in Computer Science
from Pratt Institute and a MBA from the University of Southern California.
Shimon Topor has served as a Director of the Company since August 1993. He
has been a general partner in all of the private investment partnerships
controlled by Michael H. Steinhardt since 1985. Prior to joining the
Steinhardt organization, he managed the international operations of Bank
Hapoalim, served as Chairman and Chief Executive Officer of Israel Continental
Bank, and Senior Vice President of the Ampal Corporation. Mr. Topor received a
law degree from Hebrew University Law School.
Edward Kirtman has served as a Director of the Company since August 1993. He
has been a general partner in all of the private investment partnerships
controlled by Michael H. Steinhardt since 1995. From 1986 to 1994 he served as
the Chief Financial Officer of the Steinhardt organization's real estate
investment corporations and partnerships. Prior to joining the Steinhardt
organization, Mr. Kirtman was an Assistant Vice President of Heller Financial,
Inc. Mr. Kirtman received a BBA from Baruch College.
Paul Bricault will begin serving as a Director of the Company upon the
completion of the offering. Since 1994, he has served as an agent in corporate
consulting on emerging technologies for the William Morris Agency. From 1989
to 1994, he served as a Senior Media Analyst for Paul Kagan Associates, where
he was responsible for the firm's coverage of worldwide film, television and
new media markets. Mr. Bricault currently teaches a course in new technologies
and their impact on the motion picture industry for the graduate program of
the University of Southern California's School of Cinema-Television.
Mr. Bricault received a BA from the University of Western Ontario and an MA in
Communications Management from the Annenberg School of Communication at the
University of Southern California.
The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors. The Board of Directors is divided into
three classes. Class I, with terms expiring in 1999, is comprised of
Messrs. Walston, Topor and Kirtman. Class II, with the terms expiring in 1998,
is comprised of Messrs. Donlon, Sabin and Schutz. Class III, with terms
expiring in 1997, is comprised of Messrs. Bailey and Bricault. There are no
family relationships among any of the executive officers or directors of the
Company.
DIRECTOR COMPENSATION
The Company's non-employee directors are not paid a fee for attending board
or committee meetings; however, all directors are reimbursed for reasonable
expenses incurred in attending such meetings. The Company has recently
established a stock option plan that provides for automatic stock option
grants to non-employee directors commencing upon the consummation of this
offering. See "Management--Stock Plans" and "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in September 1996 to review
and approve the compensation and benefits for the Company's executive
officers, administer the Company's stock option and other benefit plans and
make recommendations to the Board of Directors regarding such matters. The
Committee is currently composed of Messrs. Topor and Kirtman. Prior to
formation of the Compensation Committee, the
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entire Board of Directors administered executive compensation programs. No
interlocking relationships exist between any member of the Company's
Compensation Committee and any member of any other company's board of
directors or compensation committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of the
Company's directors for monetary damages to the maximum extent permitted under
the laws of the State of Delaware. Such limitation of liability has no effect
on the availability of equitable remedies, such as injunctive relief or
rescission.
The Company's Bylaws provide that the Company will indemnify its directors
and officers and may indemnify its employees and agents (other than officers
and directors) against certain liabilities to the maximum extent permitted
under the laws of the State of Delaware. The Company has entered into
indemnity agreements with each of its current directors and executive officers
that provide for indemnification of, and advancement of expenses to, such
persons to the maximum extent permitted under the laws of the State of
Delaware, including by reason of action or inaction occurring in the past and
circumstances in which indemnification and advancement of expenses are
discretionary under Delaware law.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the Chief Executive
Officer and the other four most highly compensated executive officers whose
salary equals or exceeds $100,000 (collectively, the "Named Officers"), for
services rendered to the Company in all capacities during the fiscal year
ended August 4, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
COMPENSATION
---------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION
--------------------------- -------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Robert T. Walston,
Chairman and Chief Executive
Officer......................... $240,000 $ -- $3,508 $ --
John H. Donlon,
President....................... 253,493 -- 4,449 --
John H. Sabin,
Vice President and Chief
Financial Officer............... 174,965 -- 3,617 --
Gavin W. Schutz,
Vice President and Chief
Technology Officer.............. 175,000 40,000 2,673 --
Robert Bailey,
Vice President and Director of
Marketing....................... 125,000 40,000 -- --
</TABLE>
- --------------------
(1) Represents the Company's 401(k) contributions for these individuals for
the year ended December 31, 1995.
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<PAGE>
No Named Officer received a stock option grant during fiscal 1996. The
following table sets forth certain information concerning the number and value
of unexercised stock options held as of August 4, 1996 for each of the Named
Officers who hold stock options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT FISCAL YEAR END
SHARES FISCAL YEAR END ($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John H. Donlon.......... -- -- 89,209 88,852 $1,129,386 $1,124,866
John H. Sabin........... -- -- 72,990 72,698 924,053 920,357
Gavin W. Schutz......... -- -- 72,990 72,698 924,053 920,357
Robert Bailey........... -- -- 72,990 72,698 924,053 920,357
</TABLE>
- --------------------
(1) Based on the difference between the deemed fair market value of the
securities underlying the options at August 4, 1996 (which for purposes of
this table, is assumed to be $13.00 per share) and the exercise price.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements, with Messrs. Walston,
Donlon, Sabin, Schutz and Bailey. Each of the employment agreements with
Messrs. Donlon, Sabin and Bailey is for a term extending through September
1999. The employment agreements with Messrs. Walston and Schutz each have a
term extending through the earlier of repayment of the term loan facility with
HKSB or April 2002, the maturity date of the term loan facility. Messrs.
Walston, Donlon, Sabin, Schutz and Bailey are entitled to receive annual
salaries of $260,000, $253,000, $175,000, $175,000 and $175,000, respectively.
In the event of termination without cause, Messrs. Walston, Donlon, Sabin,
Schutz and Bailey are entitled to receive the full amount of compensation
payable under the original terms of their respective employment agreements for
the remaining term of such agreements, and in the event of disability, the
full amount of compensation payable for the lesser of six months or the
remaining term of such agreements.
STOCK PLANS
1993 Stock Options. The Company granted stock options to four executive
officers of the Company on September 7, 1993. These options are exercisable
for 615,125 shares of Common Stock at $.34 per share, the fair market value on
the date of grant. These stock options vest over a six-year period at the rate
of 16.7% per year. As of November 3, 1996, none of these options have been
exercised.
1997 Stock Plan. The Company's 1997 Stock Plan (the "1997 Plan") provides
for the granting to employees (including officers and employee directors) of
incentive stock options and for the granting to employees (including officers
and employee directors) of nonstatutory stock options and stock purchase
rights ("SPRs"). A total of 1,650,000 shares of Common Stock has been reserved
for issuance under the 1997 Plan, which number will be increased on August 1
of each year, beginning in 1997, by a number of shares equal to five percent
of the Company's outstanding Common Stock as of such dates.
The 1997 Plan will be administered by the Board of Directors or a committee
designated by the Board (the "Administrator"). Options and SPRs granted under
the 1997 Plan are not generally transferable by the optionee except by will or
by the laws of descent and distribution, and are exercisable during the
lifetime of the optionee only by such optionee. Generally, options granted
under the 1997 Plan must be exercised within thirty days of the end of an
optionee's status as an employee of the Company, or within twelve months after
such optionee's termination by death or disability, but in no event later than
the expiration of the option term. The exercise price of all incentive and
nonstatutory stock options granted under the 1997 Plan will be determined by
the Administrator. With respect to any owner of 10% or more of the Company's
outstanding capital stock (a "10% Stockholder"), the exercise price of any
incentive stock option granted must equal at least 110% of the fair
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<PAGE>
market value on the grant date. The exercise price of incentive stock options
for all other employees must be no less than 100% of the fair market value per
share on the grant date. The maximum term of an option granted under the 1997
Plan may not exceed ten years from the date of grant (five years in the case
of an incentive stock option granted to a 10% Stockholder). In the case of
SPRs, unless the Administrator determines otherwise, the Company will have a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). Such repurchase option lapses at a rate determined by the
Administrator. The purchase price for shares repurchased by the Company will
be the original price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company.
1997 Director Option Plan. Non-employee directors will be entitled to
participate in the 1997 Director Option Plan (the "Director Plan"). The
Director Plan will become effective upon the completion of this offering.
A total of 400,000 shares of Common Stock has been reserved for issuance under
the Director Plan.
The Director Plan provides for an automatic grant of an option to purchase
100,000 shares of Common Stock (the "First Option") to each non-employee
director who first becomes a non-employee director (other than an employee
director who ceases to be an employee but remains a director) after the
effective date of the Director Plan. The option is to be granted on the date
such person becomes a non-employee director. Beginning on the third
anniversary of the date he or she became an outside director, each non-
employee director will automatically be granted an option to purchase 5,000
shares (a "Subsequent Option") each year on the date of such anniversary,
provided he or she is then a non-employee director. Each non-employee director
will be eligible to receive a Subsequent Option, regardless of whether such
non-employee director was eligible to receive a First Option. First Options
and each Subsequent Option will have a term of five years. One-quarter of the
shares subject to a First Option will vest one year after its date of grant
and an additional one quarter will vest at the end of each year thereafter,
provided that the optionee continues to serve as a director on such dates. All
of the shares subject to a Subsequent Option will vest one year after the date
of the option grant, provided that the optionee continues to serve as a
director on such date. The exercise prices of the First Option and each
Subsequent Option will be 100% of the fair market value per share of the
Company's Common Stock on the date of the grant of the option.
CERTAIN TRANSACTIONS
ACQUISITION OF COMPACT ASSETS BY SOLE STOCKHOLDER
4MC Burbank was incorporated in July 1993 as a wholly owned subsidiary of
TSP, a partnership formed for the purpose of acquiring certain net assets of
Compact Video Group, Inc., Compact Video Services, Inc., Image Transform, Inc.
and Meridian Studios, Inc. (collectively "Compact"). In August 1993, TSP was
capitalized by cash from private investment funds managed by Michael H.
Steinhardt and his affiliates and assets from Compact, providing for a total
capitalization at the time of formation of approximately $5.0 million. The
initial equity interest in TSP of the private investment funds managed by
Mr. Steinhardt was 80%. TSP contributed all of its cash and noncash assets to
4MC Burbank in exchange for all of the capital stock of 4MC Burbank. In
connection with this contribution, 4MC Burbank entered into a loan agreement
with Compact's primary lender with respect to approximately $10.6 million of
previously outstanding debt of Compact.
As a result of subsequent capital investments in TSP during fiscal 1994 and
1995, the equity interests of the private investment funds managed by
Mr. Steinhardt increased to 94.8%, 98.1% and 98.1% as of July 31, 1994, July
30, 1995 and August 4, 1996, respectively.
In connection with the acquisition of Compact in 1993, the Company's Chief
Executive Officer was granted a profit interest in TSP for identifying,
analyzing and consummating the acquisition. The profit interest is equal to
10% of the excess, if any, by which the distributions (in cash or in kind)
from TSP exceed the partners' total investment in TSP plus a return of 9% per
annum. No amounts have been earned or paid under this profit interest. Upon
completion of this offering, at an assumed initial public offering price of
$13.00, as a result of his profit interest in TSP, Mr. Walston will
beneficially own 23.5% of the Company's Common Stock (20.4% if the
Underwriters' over-allotment option is exercised in full).
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<PAGE>
LOANS FROM SOLE STOCKHOLDER
In August 1993, TSP agreed to provide 4MC Burbank with up to $10.0 million
pursuant to a subordinated note, which bears interest at 10% per annum and is
due in August 1998. In November 1994, TSP agreed to provide 4MC Burbank with
up to an additional $9.0 million on the same terms as the August 1993 note.
During fiscal 1994 and 1995, TSP advanced to 4MC Burbank $8.4 million and
$10.6 million, respectively, under these arrangements. In July 1995, TSP
contributed the $10.0 million principal amount of the August 1993 note to the
capital of 4MC Burbank. The remaining $9.0 million principal amount of, and
accrued interest on, the November 1994 note will be repaid using a portion of
the proceeds of this offering.
SERVICES PROVIDED TO STEINHARDT BAER PICTURES COMPANY
The Steinhardt Baer Pictures Company ("SBPC") is owned by Thomas Baer and S.
Pictures Company, Inc. (a corporation wholly owned by Michael H. Steinhardt).
SBPC holds limited partnership interests in a series of limited partnerships,
each of which owns the rights to a single motion picture (the "Movie LPs").
Mr. Baer was a director of 4MC Burbank from September 1993 until August 1996.
At various times during the period from 1993 to 1995, the Movie LPs engaged
4MC Burbank and/or its subsidiaries to provide services. The aggregate value
of services rendered by 4MC Burbank and its subsidiaries to the Movie LPs
totaled $188,000 in fiscal 1994, $2,000 in fiscal 1995 and $1,000 in fiscal
1996.
CONSULTING AGREEMENT WITH FORMER DIRECTOR
Donald Ross was a director of 4MC Burbank from March 1995 through August
1996. After the Company's acquisition of the DM&T assets, Mr. Ross, through a
wholly owned company, provided certain financial and administrative services
to 4MC Burbank and DMC on an independent contractor basis. During fiscal 1995
and 1996, 4MC Burbank paid Mr. Ross an aggregate of $147,000 and $205,000,
respectively. No amounts were paid to Mr. Ross in fiscal 1994. Mr. Ross is no
longer a director of, or independent contractor for, the Company.
INDEMNITY AGREEMENTS
The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director and executive officer of the
Company (the "Indemnitees"). The Indemnity Agreements provide that the Company
will indemnify each Indemnitee against payment of and liability for any and
all expenses actually and reasonably incurred by the Indemnitee in defending
or investigating a claim, by reason of the fact that the Indemnitee is or was
a director and/or officer of the Company or is or was serving at the request
of the Company as a director, officer, employee or agent of another
corporation, partnership, or other enterprise, provided it is determined that
the Indemnitee acted in good faith and reasonably believed his actions to be
in the best interests of the Company.
REORGANIZATION
On October 1, 1996, the Company sold 100,000 shares of Common Stock to TSP
in consideration for $1,000. On October 17, 1996, the Company completed a
reorganization pursuant to which it issued 5,900,000 shares of Common Stock to
TSP in exchange for 1,000 shares of 4MC Burbank common stock, representing
100% of the issued and outstanding shares of the corporation, and as a result
4MC Burbank became a wholly owned subsidiary of the Company. In connection
with the reorganization, 4MC Burbank's interests in its wholly owned
subsidiaries, DMC and 4MC Asia were transferred to the Company in the form of
a dividend distribution. The purpose of the reorganization was to facilitate
future financing transactions and acquisitions. On November 18, 1996, the
Company distributed a stock dividend of 475,000 shares of Common Stock to TSP.
The Company believes that the above transactions were, and any future
transactions between the Company and any affiliate thereof will be, on terms
no less favorable than those that generally are available from unaffiliated
third parties.
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of December 27, 1996,
and as adjusted to reflect the sale of Common Stock offered hereby, by: (i)
each person who is known by the Company to own beneficially more than 5% of
the Common Stock; (ii) the Selling Stockholder; (iii) each of the Company's
directors and director nominees; (iv) each of the Named Officers; and (v) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED AFTER
PRIOR TO OFFERING(1) SHARES TO OFFERING(1)
-------------------------- BE SOLD -----------------------
NAME OF BENEFICIAL IN
OWNERS NUMBER PERCENT OFFERING NUMBER PERCENT
- ------------------ -------------- ----------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Technical Services
Partners, L.P.(2)...... 6,475,000 100.0 2,185,422 4,289,578 42.9
Robert T. Walston(3).... -- -- -- 2,486,778 23.5
John H. Donlon(4)....... 89,209 1.4 -- 89,209 *
John H. Sabin(5)........ 72,990 1.1 -- 72,990 *
Gavin W. Schutz(6)...... 72,990 1.1 -- 72,990 *
Robert Bailey(7)........ 72,990 1.1 -- 72,990 *
Shimon Topor(2)(8)...... 6,475,000 100.0 -- 4,289,578 42.9
Edward Kirtman(2)(8).... 6,475,000 100.0 -- 4,289,578 42.9
Paul Bricault........... -- -- -- -- --
All directors and
executive officers as a
group
(8 persons)(9)......... 6,783,179 100.0 -- 4,597,757 44.7
</TABLE>
- --------------------
* Less than 1% of outstanding shares.
(1) Assumes no exercise of the Underwriters' over-allotment option. Applicable
percentage of ownership is based on 6,475,000 shares of Common Stock
outstanding as of December 27, 1996. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of December 27, 1996 at a price less than or equal to the
market price are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each stockholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such stockholder's name.
(2) Technical Services Partners, L.P. is a limited partnership the general
partner of which is Technical Services Holdings Inc. ("Holdings"), a
corporation, all of the voting capital stock of which is owned by
Steinhardt Partners, L.P. The non-voting capital stock of Holdings is
owned by Institutional Partners, L.P., S.P. International S.A., Steinhardt
Overseas Fund, Ltd. The managing general partner of Steinhardt Partners,
L.P. is Michael Steinhardt. The principal business address of Steinhardt
Partners, L.P. and Messrs. Steinhardt, Topor and Kirtman is 605 Third
Avenue, New York, New York 10158. Totals include shares beneficially owned
by Robert T. Walston reflecting his profit interest in TSP.
(3) Mr. Walston's address is c/o Four Media Company, 2813 West Alameda Avenue,
Burbank, California 91505. As a result of his profit interest in TSP, Mr.
Walston will beneficially own 2,486,778 shares of the Company's Common
Stock (2,341,428 shares if the Underwriter's overallotment option is
exercised in full). See "Certain Transactions."
(4) Represents 89,209 shares issuable upon exercise of vested options.
(5) Represents 72,990 shares issuable upon exercise of vested options.
(6) Represents 72,990 shares issuable upon exercise of vested options.
(7) Represents 72,990 shares issuable upon exercise of vested options.
(8) These shares are owned by TSP. Messrs. Topor and Kirtman are executive
officers of the general partner of TSP, and general partners of Steinhardt
Partners, L.P., the owner of all the voting capital stock of Holdings.
Neither Mr. Topor nor Mr. Kirtman own any shares of Common Stock directly,
but may be considered the beneficial owner of the securities listed above.
However, Messrs. Topor and Kirtman disclaim beneficial ownership of such
shares.
(9) Includes 308,179 shares issuable upon exercise of vested options.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
At the closing of this offering, the authorized capital stock of the Company
will consist of 50,000,000 shares of Common Stock, $.01 par value and
5,000,000 shares of undesignated Preferred Stock, $.01 par value.
COMMON STOCK
As of December 27, 1996, there were 6,475,000 shares of Common Stock held of
record by the Company's sole stockholder. Holders of Common Stock are entitled
to one vote per share on all matters to be voted upon by the stockholders,
including the election of directors. As of December 27, 1996, options to
purchase an aggregate of 715,125 shares of Common Stock were also outstanding.
See "Management." Subject to preferences that may be applicable to any
outstanding Preferred Stock, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior liquidation
rights of any outstanding Preferred Stock. The Common Stock has no preemptive
or conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable, and the shares of Common
Stock to be outstanding upon completion of this offering will be fully paid
and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions without any further vote or action by the
stockholders. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. The issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control. The Company has
no present plan to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of the Company's Certificate of Incorporation (the
"Certificate") and Bylaws summarized in the following paragraph may be deemed
to have anti-takeover effects and may delay, defer or prevent a tender offer,
proxy contest or takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including those attempts that might result
in a premium over the market price for the shares held by such stockholder.
The Company's Certificate and Bylaws provide that: (i) the Board of
Directors shall be divided into three classes of directors, with the term of
each class being for a period of three years and expiring in a different year;
(ii) the number of directors shall be fixed by the Board of Directors, but
shall consist of no less than three nor more than 11 directors; (iii) a
majority of the Board of Directors then in office, although less than a
quorum, has the authority to fill any vacancies on the Board of Directors;
(iv) a stockholder give advance notice of a proposal or director nomination
that such stockholder desires to present at the annual meeting; (v) the Bylaws
of the Company may be amended only by the Board of Directors or by two-thirds
of the Company's voting stock; (vi) any action by the stockholders be taken
only at an annual or special meeting of stockholders and not by written
consent; and (vii) a special meeting of stockholders may be called only by the
Chairman of the Board of Directors or a majority of the directors then in
office, though less than a quorum.
REDEMPTION OF STOCK
Under the Company's Certificate, outstanding shares of stock of any class or
series may be redeemed, upon action by the Company's Board of Directors, to
the extent necessary to prevent the loss or secure the reinstatement of any
license from a governmental agency held by the Company or any of its
subsidiaries to conduct any portion of the
51
<PAGE>
business of the Company or such subsidiary, which license is conditioned upon
some or all of the holders of the Company's stock of any class or series
possessing prescribed qualifications. The redemption price of any stock is
payable in cash, property or rights, as described in the Company's Certificate
equal to the lesser of the fair market value (to be determined by the Board)
of the stock at the time of the redemption or the holder's purchase price of
the stock to be redeemed.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is U.S.
Stock Transfer Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering. there has been no public market for the Company's
Common Stock. Sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock.
Upon completion of this offering, the Company will have an aggregate of
9,989,578 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, the 5,700,000 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless held by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act. The remaining 4,289,578 shares of Common Stock
are held by the Company's sole stockholder, TSP, and are "restricted"
securities within the meaning of Rule 144 under the Securities Act. Beginning
90 days after the date of this Prospectus, and absent consideration of the
contractual restrictions described below, all of these shares would be
eligible for sale by TSP in reliance upon Rule 144 promulgated under the
Securities Act. In addition, absent the restrictions described below, if TSP
were to effect a distribution of the shares of Common Stock it holds to its
constituent partners, up to 1,802,800 of these shares may become available for
immediate sale in the public market without restriction pursuant to Rule
144(k).
The Company's officers and directors and TSP have agreed not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or enter into any similar agreement that
transfers, in whole or in part, the economic risk of ownership of the Common
Stock, for a period of 270 days from the date of this Prospectus, in the case
of TSP, and three years from the date of this Prospectus, in the case of the
Company's officers and directors, without the prior written consent of Furman
Selz LLC. Furman Selz LLC may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. In addition, TSP has agreed that it will not effect a distribution
of the shares of Common Stock it holds to its constituent partners without
obtaining an agreement of the distributee to be bound by the terms of TSP's
lock-up agreement. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144 and 144(k), (i) no shares will be eligible for immediate sale on the
effective date of this offering and, unless earlier released from the lock-up
agreements, (ii) 1,802,800 shares of Common Stock will be eligible for sale
270 days after the effective date of this offering, and (iii) 2,486,778 shares
of Common Stock will be eligible for sale three years after the effective date
of this offering, subject to the volume limitations of Rule 144 in the case of
shares held by TSP or any of its distributees who are "affiliates" of the
Company.
Additionally, pursuant to Rules 144 and 701, beginning three years after the
effective date of this offering, upon the expiration of contractual lock-up
restrictions, an aggregate of approximately 790,125 shares will be vested and
eligible for sale upon the exercise of outstanding stock options.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least two years but less than
three
52
<PAGE>
years, will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock (approximately 99,896 shares immediately after the offering) or
(ii) the average weekly trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned his or her shares for at least three years is entitled to
sell such shares pursuant to Rule 144(k) without regard to the limitations
described above. In general, under Rule 701 under the Securities Act as
currently in effect, any employee, consultant or advisor of the Company who
purchases shares from the Company in connection with a compensatory stock or
option plan or other written agreement related to compensation is eligible to
resell such shares 90 days after the effective date of the offering in
reliance on Rule 144, but without compliance with certain restrictions
contained in Rule 144.
At December 27, 1996, the Company had reserved an aggregate of 1,650,000
shares of Common Stock for issuance pursuant to the 1997 Plan, and options to
purchase approximately 100,000 shares were outstanding under the 1997 Plan. In
addition, 400,000 shares of Common Stock were reserved for issuance under the
Director Plan. No options are outstanding under the Director Plan. As soon as
practicable following the offering, the Company intends to file registration
statements under the Securities Act to register shares of Common Stock
reserved for issuance under the 1997 Plan and the Director Plan. Such
registration statements will automatically become effective immediately upon
filing. Substantially all of such shares will be eligible for immediate public
sale.
53
<PAGE>
UNDERWRITING
Each of the Underwriters named below (the "Underwriters"), for which Furman
Selz LLC and PaineWebber Incorporated are acting as the representatives (the
"Representatives"), has severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company and the Selling
Stockholder, and the Company and the Selling Stockholder have agreed to sell
to each of the Underwriters, the number of shares of Common Stock set forth
opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Furman Selz LLC...........................................
PaineWebber Incorporated..................................
---------
Total................................................. 5,700,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock listed above are subject to the
approval of certain legal matters by counsel and various other conditions. The
Underwriting Agreement also provides that the Underwriters are committed to
purchase all of such shares of Common Stock offered hereby, if any are
purchased (without consideration of any shares that may be purchased through
the Underwriters' over-allotment option).
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose to offer the shares of Common Stock to the
public initially at the public offering price set forth on the cover of this
Prospectus and to certain dealers at such price less a concession of not in
excess of $ per share. The Underwriters may allow, and such selected
dealers may reallow, a concession not in excess of $ per share to certain
other dealers. After the initial public offering of the shares of Common
Stock, the public offering price and other selling terms may be changed by the
Representatives.
Prior to the offering made hereby, there has been no public market for the
Common Stock. Accordingly, the initial public offering price for the Common
Stock will be determined by negotiation among the Company, the Selling
Stockholder and the Representatives. Among the factors to be considered in
such negotiations are the Company's results of operations and current
financial condition, estimates of the business potential and prospects of the
Company, the experience of the Company's management, the economics of the
industry in general, the general condition of the equities market and other
relevant factors. There can be no assurance that any active trading market
will develop for the Common Stock or as to the price at which the Common Stock
may trade in the public market from time to time subsequent to the offering
made hereby.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 855,000
additional shares of Common Stock at the public offering price set forth on
the cover page of this Prospectus, less underwriting discounts and
commissions. To the extent that the Underwriters exercise this option, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase such number of additional shares of Common Stock as is proportionate
to such Underwriter's initial commitment to purchase shares from the Company.
The Underwriters may exercise such option solely to cover over-allotments, if
any, incurred in the sale of the shares of Common Stock offered hereby.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required
to make in respect thereof.
The Company, the Selling Stockholder and each officer and director of the
Company have agreed, subject to certain exceptions, not to offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or enter into any similar agreement that transfers, in whole or
in part, the
54
<PAGE>
economic risk of ownership of the Common Stock, for 180 days (in the case of
the Company), 270 days (in the case of the Selling Stockholder) and three
years (in the case of each officer and director) from the date of the
Underwriting Agreement, without the prior written consent of Furman Selz LLC.
The Representatives have informed the Company and the Selling Stockholder
that the Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "FOUR."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Troy & Gould Professional Corporation, Los Angeles,
California. Certain legal matters will be passed upon for the Underwriters by
Pillsbury Madison & Sutro LLP, Menlo Park, California.
EXPERTS
The consolidated balance sheets of 4MC-Burbank, Inc. as of July 30, 1995 and
August 4, 1996 and the consolidated statements of operations, stockholder's
equity, and cash flows for each of the three fiscal years in the period ended
August 4, 1996, and the balance sheet of Four Media Company at October 1,
1996, included in this prospectus have been included in reliance on the
reports of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedule thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed as part thereof. Statements contained in this Prospectus regarding the
contents of any contract or other document are not necessarily complete, and,
in each instance reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement, and the exhibits and schedule thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048, and copies of all or any part of the
Registration Statement may be obtained from such offices upon the payment of
the fees prescribed by the Commission. In addition, the Registration Statement
may be accessed electronically at the Commission's site on the World Wide Web
located at http://www.sec.gov.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent accountants and
quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
4MC-Burbank, Inc.
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets at July 30, 1995, August 4, 1996 and November
3, 1996 (unaudited)..................................................... F-3
Consolidated Statements of Operations for the fiscal years ended July 31,
1994, July 30, 1995, August 4, 1996 and the three months ended October
29, 1995 (unaudited) and November 3, 1996 (unaudited) .................. F-4
Consolidated Statements of Stockholder's Equity for the fiscal years
ended July 31, 1994, July 30, 1995, August 4, 1996 and three months
ended November 3, 1996 (unaudited)...................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended July 31,
1994, July 30, 1995, August 4, 1996 and the three months ended October
29, 1995 (unaudited) and November 3, 1996 (unaudited)................... F-6
Notes to Consolidated Financial Statements............................... F-7
Four Media Company
Report of Independent Accountants........................................ F-18
Balance Sheet at October 1, 1996......................................... F-19
Notes to Financial Statements............................................ F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
4MC-Burbank, Inc.
Burbank, California
We have audited the accompanying consolidated balance sheets of 4MC-Burbank,
Inc. (the "Company") as of July 30, 1995 and August 4, 1996, and the related
consolidated statements of operations, stockholder's equity, and cash flows
for each of the three fiscal years in the periods ended July 31, 1994, July
30, 1995 and August 4, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements 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 4MC-Burbank, Inc. as of July 30, 1995 and August 4, 1996, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the periods ended July 31, 1994, July 30, 1995 and
August 4, 1996, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Los Angeles, California
September 25, 1996
except for Note 12,
as to which the date is
November 18, 1996
F-2
<PAGE>
4MC-BURBANK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 30, AUGUST 4, NOVEMBER 3,
1995 1996 1996
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash........................................... $ 6,651 $ 5,312 $ 5,490
Restricted cash................................ 717 709 709
Trade accounts receivable, net of allowance for
doubtful accounts of $563, $823 and $791 as of
July 30, 1995, August 4, 1996 and November 3,
1996, respectively............................ 9,745 8,622 13,744
Inventory...................................... 695 867 746
Prepaid expenses and other current assets...... 1,548 2,838 3,288
------- ------- -------
Total current assets......................... 19,356 18,348 23,977
Property, plant and equipment, net.............. 49,410 57,665 69,066
Deferred taxes.................................. 1,000 2,000 2,000
Long-term receivable............................ -- 2,008 1,756
Other assets.................................... 2,014 1,806 2,502
------- ------- -------
Total assets................................. $71,780 $81,827 $99,301
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations..................... $ 3,470 $ 6,153 $ 6,360
Accounts payable............................... 5,010 5,803 9,004
Accrued and other liabilities.................. 5,211 4,750 5,064
------- ------- -------
Total current liabilities.................... 13,691 16,706 20,428
Long-term debt and capital lease obligations.... 29,472 33,978 47,610
Subordinated debt, due to stockholder........... 9,000 9,000 9,000
------- ------- -------
Total liabilities............................ 52,163 59,684 77,038
Commitments and contingencies (Note 7)
Stockholder's equity:
Common stock, $.01 par value; 1,000 shares
authorized, issued and outstanding............ -- -- --
Additional paid-in capital..................... 15,010 15,010 15,010
Foreign currency translation adjustment........ 152 254 250
Retained earnings.............................. 4,455 6,879 7,003
------- ------- -------
Total stockholder's equity................... 19,617 22,143 22,263
------- ------- -------
Total liabilities and stockholder's equity... $71,780 $81,827 $99,301
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
4MC-BURBANK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
--------------------------- -----------------------
JULY 31, JULY 30, AUGUST 4, OCTOBER 29, NOVEMBER 3,
1994 1995 1996 1995 1996
-------- -------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Studio................... $15,746 $20,677 $23,468 $5,746 $5,957
Broadcast................ 10,876 16,163 20,901 5,489 5,512
Television............... 15,639 22,712 23,343 5,631 7,084
Visual effects........... -- 1,452 2,316 766 394
------- ------- ------- ------ ------
Total revenues.......... 42,261 61,004 70,028 17,632 18,947
------- ------- ------- ------ ------
Cost of services:
Personnel................ 17,096 22,795 25,344 6,527 6,779
Material................. 4,240 6,424 7,354 1,920 1,853
Facilities............... 3,774 3,917 4,692 1,124 1,328
Other.................... 3,752 5,560 6,021 1,504 1,745
------- ------- ------- ------ ------
Total cost of services.. 28,862 38,696 43,411 11,075 11,705
------- ------- ------- ------ ------
Gross profit........... 13,399 22,308 26,617 6,557 7,242
------- ------- ------- ------ ------
Operating expenses:
Sales, general and
administrative.......... 7,627 10,918 11,116 3,030 3,109
Depreciation and
amortization............ 3,284 6,241 10,165 2,497 2,795
------- ------- ------- ------ ------
Total operating
expenses............... 10,911 17,159 21,281 5,527 5,904
------- ------- ------- ------ ------
Income from
operations............ 2,488 5,149 5,336 1,030 1,338
Interest expense, net..... 1,253 2,917 3,906 921 1,214
------- ------- ------- ------ ------
Income before income
tax benefits.......... 1,235 2,232 1,430 109 124
Income tax benefits....... -- 988 994 204 --
------- ------- ------- ------ ------
Net income............. $ 1,235 $ 3,220 $ 2,424 $ 313 $ 124
======= ======= ======= ====== ======
Net income per share...... $ .19 $ .50 $ .37 $ .05 $ .02
======= ======= ======= ====== ======
Weighted average number of
common shares
outstanding.............. 6,475 6,475 6,475 6,475 6,475
======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
4MC-BURBANK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY TOTAL
------------- PAID-IN TRANSLATION RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS EQUITY
------ ------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock.................. 1,000 $ -- $ 5,010 $ -- $ -- $ 5,010
Net income.............. 1,235 1,235
----- ----- ------- ----- ------ -------
Balance, July 31, 1994.. 1,000 5,010 1,235 6,245
Stockholder subordinated
debt conversion........ 10,000 10,000
Net income.............. 3,220 3,220
Foreign currency
translation
adjustments............ 152 152
----- ----- ------- ----- ------ -------
Balance, July 30, 1995.. 1,000 15,010 152 4,455 19,617
Net income.............. 2,424 2,424
Foreign currency
translation
adjustments............ 102 102
----- ----- ------- ----- ------ -------
Balance, August 4,
1996................... 1,000 -- 15,010 254 6,879 22,143
Foreign currency
translation adjustments
(unaudited)............ (4) (4)
Net income (unaudited).. 124 124
----- ----- ------- ----- ------ -------
Balance, November 3,
1996 (unaudited)....... 1,000 $ -- $15,010 $ 250 $7,003 $22,263
===== ===== ======= ===== ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
4MC-BURBANK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
----------------------------- -----------------------
JULY 31, JULY 30, AUGUST 4, OCTOBER 29, NOVEMBER 3,
1994 1995 1996 1995 1996
-------- -------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $ 1,235 $ 3,220 $ 2,424 $ 313 $ 124
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization............ 3,284 6,241 10,165 2,536 2,795
Provision for doubtful
accounts................ 183 215 580 100 97
Deferred taxes........... -- (1,000) (1,000) (204) --
Changes in operating
assets and liabilities:
(Increase) decrease in
restricted cash........ -- (717) 8 13 --
Increase in trade and
long term receivables.. (668) (4,644) (1,469) (1,936) (4,967)
(Increase) decrease in
inventory.............. (39) (277) (172) 43 121
Increase in prepaid
expenses and other
current assets......... (694) (606) (1,289) (18) (889)
Increase in accounts
payable................ 1,862 3,148 792 1,053 3,201
Increase (decrease) in
accrued and other
liabilities............ (2,116) (992) (652) (315) 314
------- ------- -------- ------ -------
Net cash provided by
operating activities.. 3,047 4,588 9,387 1,585 796
Cash flows from investing
activities:
Purchases of property,
plant and equipment...... (7,877) (25,077) (10,318) (3,071) (8,753)
Organization costs for 4MC
Asia..................... -- (1,066) -- -- --
Acquisition of business... -- (4,759) -- -- --
------- ------- -------- ------ -------
Net cash used in
investing activities.. (7,877) (30,902) (10,318) (3,071) (8,753)
Cash flows from financing
activities:
Proceeds from subordinated
promissory note.......... 8,400 10,600 -- -- --
Proceeds from term loans.. -- 12,070 -- -- 16,000
Proceeds from revolving
credit facility.......... -- -- -- -- 1,580
Proceeds from term loan
financing of
acquisition.............. -- 3,542 -- -- --
Proceeds from equipment
notes.................... 1,261 3,723 3,685 1,143 3,383
Proceeds from issuance of
common stock in exchange
for note payable......... 4,000 -- -- -- --
Repayment of note
payable.................. (4,000) -- -- -- --
Repayment of equipment
notes and capital lease
obligations.............. (689) (1,833) (4,095) (811) (12,828)
------- ------- -------- ------ -------
Net cash provided by
(used in) financing
activities............ 8,972 28,102 (410) 332 8,135
Effect of exchange rate
changes on cash........... -- 172 2 (45) --
------- ------- -------- ------ -------
Net increase (decrease) in
cash...................... 4,142 1,960 (1,339) (1,199) 178
Cash at beginning of year.. 549 4,691 6,651 6,651 5,312
------- ------- -------- ------ -------
Cash at end of year........ $ 4,691 $ 6,651 $ 5,312 $5,452 $ 5,490
======= ======= ======== ====== =======
Supplemental disclosure of
cash flow information:
Cash paid during the
fiscal year for:
Interest................. $ 926 $ 3,664 $ 3,406 $ 704 $ 997
Income taxes............. -- -- -- -- --
Non cash investing and
financing activities:
Capital lease obligations
incurred................ $ 963 $ 2,284 $ 7,851 $1,761 $ 5,704
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
4MC-BURBANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION
4MC-Burbank, Inc. (the "Company") is a provider of technical and creative
services to owners, producers and distributors of television programming,
feature films and other entertainment content. The Company's services
integrate and apply a variety of systems and processes to enhance the creation
and distribution of entertainment content.
While the Company believes that it operates in one business segment, which
is providing services to the entertainment industry, the Company has organized
its activities into four divisions: studio, broadcast, television and visual
effects services. The studio services division located in Burbank, California,
manages, formats and distributes content worldwide. The broadcast services
division, located in Burbank, and the Republic of Singapore, assembles and
distributes television networks and programming via satellite to viewers in
the United States, Canada and Asia. The television services division, located
in Burbank and Santa Monica, California, assembles film or video principal
photography into a form suitable for network, syndicated, cable or foreign
television. The visual effects division, located in Santa Monica, digitally
creates and manipulates images in high-resolution formats for use in feature
films.
The Company was incorporated in July 1993 as a wholly owned subsidiary of
Technical Services Partners, L.P. ("TSP"), a limited partnership formed for
the purpose of acquiring certain defined net assets of Compact Video Group,
Inc., Compact Video Services, Inc., Image Transform, Inc. and Meridian
Studios, Inc. (collectively "Compact").
On August 4, 1993, TSP acquired and transferred to the Company,
substantially all of the assets of Compact. The acquisition was accounted for
under the purchase method of accounting. The purchase price of $5,010,000 was
allocated to the fair value of current assets of $5,127,000, property, plant,
and equipment of $16,939,000, the assumption of current liabilities (including
acquisition costs) of $6,506,000 and $10,550,000 in the form of a new term
loan with the Company's previous primary lender.
On October 26, 1994, 4MC Acquisition Corp., a wholly owned subsidiary of the
Company, acquired substantially all of the assets of Digital Magic and
Transfer Company ("DM&T") for a purchase price of $50,000 in cash. The
acquisition was accounted for under the purchase method of accounting. The
purchase price was allocated, at fair value, to current assets of $1,001,000,
property, plant, and equipment of $6,639,000, and included $4,048,000 in
assumed liabilities and acquisition costs, and $3,542,000 in equipment notes.
Subsequent to this acquisition, 4MC Acquisition Corp. changed its name to
Digital Magic Company ("DMC").
On February 13, 1995, Four Media Company Asia PTE Ltd. ("4MC Asia"), a
wholly owned subsidiary of the Company registered in the Republic of
Singapore, entered into an agreement with a customer to provide production,
post production and network origination services. The agreement has a seven
year term and provides for early termination by the customer after five years
by paying a fee, as defined in the agreement, not to exceed $3,500,000.
Results of operations include the 51 1/2 weeks ended July 31, 1994, the 52
weeks ended July 30, 1995, the 53 weeks ended August 4, 1996, the 13 weeks
ended October 29, 1995 and the 13 weeks ended November 3, 1996.
Interim Results (Unaudited). The accompanying consolidated balance sheet as
of November 3, 1996 and the consolidated statements of operations and cash
flows for the three months ended October 29, 1995 and November 3, 1996, and
the statement of stockholder's equity for the three months ended November 3,
1996 are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited consolidated financial statements
and include all adjustments, consisting of only normal recurring adjustments,
necessary for the fair presentation of the results of the interim periods. The
data disclosed in these notes to the consolidated financial statements for
those interim periods are also unaudited.
F-7
<PAGE>
4MC-BURBANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include
the accounts of 4MC-Burbank, Inc. and its wholly owned subsidiaries, DMC and
4MC Asia. All intercompany accounts and transactions have been eliminated.
Revenue Recognition. Revenues are recognized when a product is shipped or a
service is provided.
Foreign Currency Translation. All balance sheet accounts of 4MC Asia are
translated at the current exchange rate as of the end of the year. Statement
of operation items are translated at average currency exchange rates. The
resulting translation adjustment is recorded as a separate component of
stockholder's equity. The functional currency in which 4MC Asia transacts
business is the Singapore dollar. Transaction gains and losses included in
operations were not significant in fiscal 1995 or 1996.
Cash and Cash Equivalents. The Statement of Cash Flows classifies changes in
cash (short-term, highly liquid investments readily convertible into cash with
an original maturity of three months or less at the date of purchase)
according to operating, investing or financing activities. At times, cash
balances may be in excess of Federal Deposit Insurance Corporation insurance
limits.
Inventory. Inventories are stated at the lower of cost (first-in, first-out)
or market, and are comprised of raw materials and supplies.
Property, Plant and Equipment. Property, plant and equipment acquired from
Compact and DM&T were recorded at their acquisition cost which resulted in a
reduction of their historical carrying value in accordance with Accounting
Principles Board (APB) Opinion No. 16. Additions to property, plant and
equipment subsequent to the date of acquisition are recorded at cost.
Depreciation and Amortization. Depreciation of property, plant and equipment
is computed by use of the straight-line method based on the estimated useful
lives of 3 to 7 years of the respective assets, except for leasehold
improvements, which are amortized using the straight-line method over the life
of the improvement or the length of the lease, whichever is shorter.
Amortization of assets recorded under capital leases is based on the term of
the lease. Interest costs incurred during construction totaling $490,000 and
$142,000 were capitalized for the years ended July 30, 1995 and August 4,
1996, respectively, and are being amortized over the related assets estimated
useful lives. When properties are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts, and the
resulting gain or loss is credited or charged to operations. The policy of the
Company is to charge amounts expended for maintenance and repairs to current
year expense and to capitalize expenditures for major replacements and
betterments.
Other Assets. Other assets include costs incurred by 4MC Asia prior to the
commencement of operations and a lease interest associated with the
acquisition of the assets of DM&T. These assets are amortized on the straight-
line method over five to seven years. Other assets also include software
development costs. The Company capitalizes internal software development costs
when technological feasibility has been established. Capitalization ends when
the software is put into service. Amortization of software development costs
is computed by use of the straight-line method over three years.
Use of Estimates. The preparation of financial statements is in accordance
with generally accepted accounting principles and requires management to make
estimates and assumptions for the reporting period and as of the financial
statement date. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses. Actual results could differ
from those estimates.
F-8
<PAGE>
4MC-BURBANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Recently Issued Accounting Standards. In March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No.
121 established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company is required to adopt the provisions of SFAS No.
121 for fiscal 1997, and the Company believes that upon its adoption there
should be no impact to the Company's financial position or results of
operations.
In November 1995, the FASB also issued SFAS No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123"). SFAS No. 123 establishes new accounting
standards for the measurement and recognition of stock-based awards prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees" however,
under this opinion, the Company will be required to disclose the pro forma
effect of stock-based awards on net income and earnings per share as if SFAS
No. 123 had been adopted. SFAS No. 123 is effective for fiscal 1997. The
Company intends to use the provisions of APB Opinion No. 25 in accounting for
stock-based awards. As such, this standard will have no impact on the
Company's results of operations upon adoption.
Fair Values of Financial Instruments. SFAS No. 107 "Disclosure About Fair
Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of fair
value information about most financial instruments both on and off the balance
sheet, if it is practicable to estimate. SFAS No. 107 excludes certain
financial instruments such as certain insurance contracts and all non-
financial instruments from its disclosure requirements. A financial instrument
is defined as a contractual obligation that ultimately ends with the delivery
of cash or an ownership interest in an entity. Disclosure regarding the fair
value of financial instruments are derived using external market sources,
estimates using present value or other valuation techniques. Cash, accounts
receivable, accounts payable, accrued and other liabilities and short-term
revolving credit agreements and variable rate long-term debt instruments
approximate their fair value.
Advertising. Advertising costs are expensed as incurred and included in
sales, general and administrative expenses. Advertising expenses amounted to
$288,000, $476,000 and $287,000 in the years ended July 31, 1994, July 30,
1995 and August 4, 1996, respectively and $114,000 (unaudited) and $32,000
(unaudited) for the three months ended October 29, 1995 and November 3, 1996,
respectively.
3. BUSINESS AND CREDIT CONCENTRATIONS
The Company grants credit to its customers, substantially all of whom are
participants in the entertainment industry. The Company reviews a customer's
credit history before extending credit. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
specific customers, historical trends, and other information. For the fiscal
year ended August 4, 1996 one customer accounted for 10% of the Company's
domestic sales and 12% of net accounts receivable. For the fiscal year ended
July 30, 1995, no single customer accounted for a significant amount of the
Company's domestic sales. For the fiscal year ended July 31, 1994, the
Company's two largest customers accounted for 16% and 10% of sales and 7% and
15% of net accounts receivable. For the three months ended November 3, 1996,
one customer accounted 15% of the Company's domestic sales and 11% of net
accounts receivable. During the fiscal year ended August 4, 1996, the Company
entered into a long term agreement for services with a customer and as a part
of the agreement the Company deferred payment in the amount of $3,300,000.
This amount is payable over three years in monthly installments of principal
and interest at 8%. There can be no assurance that this customer ultimately
will repay all outstanding amounts due to the Company.
F-9
<PAGE>
4MC-BURBANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. BUSINESS AND CREDIT CONCENTRATIONS, CONTINUED
Approximately 30% and 57% of the Company's net income for the years ended
July 30, 1995 and August 4, 1996, respectively, related to 4MC Asia. For the
year ended August 4, 1996, 97% of 4MC Asia revenues and 15.3% of the Company's
consolidated total revenues were generated by one customer. This customer
accounted for 5% of the Company's consolidated net accounts receivable. For
the three months ended November 3, 1996 this customer accounted for 81% of 4MC
Asia revenues, 14% and 9% of Company's consolidated revenues and net accounts
receivable, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment (in thousands):
<TABLE>
<CAPTION>
JULY 30, AUGUST 4, NOVEMBER 3,
1995 1996 1996
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land........................................... $ 925 $ 925 $ 925
Buildings and building improvements............ 4,511 4,689 4,918
Machinery and equipment........................ 46,801 62,399 63,374
------- ------- -------
52,237 68,013 69,217
Less, accumulated depreciation and
amortization.................................. 9,092 18,717 21,299
------- ------- -------
43,145 49,296 47,918
Construction in progress....................... 6,265 8,369 21,148
------- ------- -------
Property, plant and equipment, net........... $49,410 $57,665 $69,066
======= ======= =======
Included above is property and equipment under
capital leases of:
Machinery and equipment...................... 3,350 11,856 17,560
Less, accumulated amortization............... 542 1,756 2,365
------- ------- -------
Property and equipment under capital leases,
net......................................... $ 2,808 $10,100 $15,195
======= ======= =======
</TABLE>
During fiscal the years ended July 31, 1994, July 30, 1995 and August 4,
1996 and the three months ended October 29, 1996 and November 3, 1996, the
Company expensed maintenance, repairs and spare parts in amounts of
$1,389,000, $1,889,000, $1,795,000, $541,000 (unaudited) and $381,000
(unaudited), respectively.
During the year ended August 4, 1996, the Company settled its claim arising
from the January 17, 1994 earthquake for $4,093,000. Of this amount $2,333,000
was received as partial settlement during the year ended July 30, 1995 and the
remainder amounting to $1,760,000 was received in the 1996 fiscal year.
Insurance proceeds in excess of the net book value of destroyed assets and
repair costs of damaged assets were approximately $1,098,000. Of this amount
$198,000 and $900,000 was credited to sales, general and administrative
expense as a recovery under the business interruption coverage of expenses
incurred in 1995 and 1996, respectively.
5. INCOME TAXES
Deferred income taxes are determined in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each year-end based on enacted tax laws and statutory rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established to reduce deferred tax assets to the
amount expected to be realized.
F-10
<PAGE>
4MC-BURBANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES, CONTINUED
The income tax provision (benefit) consisted of the following (in
thousands):
<TABLE>
<CAPTION>
JULY 31, JULY 30, AUGUST 4,
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Current:
Federal........................................ $ 380 $ -- $ 26
State.......................................... 115 12 11
Deferred
Federal........................................ (380) (768) (791)
State.......................................... (115) (232) (240)
----- ----- -----
Total........................................ $ -- $(988) $(994)
===== ===== =====
</TABLE>
The significant components of the deferred tax asset consisted of the
following (in thousands):
<TABLE>
<CAPTION>
JULY 31, JULY 30, AUGUST 4,
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Deferred tax asset:
Allowance for doubtful accounts.............. $ 209 $ 226 $ 339
Plant, property & equipment.................. 2,370 2,450 1,871
Intangible assets............................ 148 160 335
Accrued vacation............................. 158 161 168
Acquisition expenses......................... 311 78 43
Net operating loss carryforward.............. 1,068 1,116 1,894
Deferred lease............................... -- 180 (12)
Other........................................ 68 37 (191)
Valuation allowance.......................... (4,332) (3,408) (2,447)
------- ------- -------
Net deferred tax asset..................... $ -- $ 1,000 $ 2,000
======= ======= =======
</TABLE>
At July 31, 1994, July 30, 1995 and August 4, 1996, the Company had a net
deferred tax asset before valuation allowance of $4,332,000, $4,408,000 and
$4,447,000, respectively. The Company recorded a valuation allowance against
the entire deferred tax asset in 1994, as the Company was in its first year of
operations.
The Company has assessed its past earnings history and trends, budgeted
revenues and expiration dates of net operating loss carryforwards and has
determined that it is more likely than not that $2,000,000 of deferred tax
assets will be realized. The remaining valuation allowance of $2,447,000 is
maintained on deferred assets which the Company has not determined to be more
likely than not realizable at August 4, 1996. The Company will continue to
review this valuation allowance on a quarterly basis and make adjustments, as
appropriate.
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Federal tax at statutory rate............................... 34% 34% 34%
State income taxes, net of federal tax benefits............. -- 1 --
Permanent differences....................................... -- 1 1
Foreign income not subject to taxes......................... -- (10) (33)
Tax net operating loss carryforward......................... (31) (25) --
Reduction of valuation allowance............................ -- (45) (70)
Other....................................................... (3) -- (2)
--- --- ---
--% (44)% (70)%
=== === ===
</TABLE>
F-11
<PAGE>
4MC-BURBANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES, CONTINUED
As of August 4, 1996, the Company has net operating loss carryforwards of
approximately $9,800,000 and $2,300,000 for Federal and California tax
purposes, respectively. The net operating loss carryforwards begin to expire
in 2009 and 1999 for Federal and California income tax purposes, respectively.
In 1995, the government of the Republic of Singapore granted 4MC Asia a
seven-year tax exemption as a "pioneer status" company. The tax exemption is
conditioned upon 4MC Asia meeting certain investment requirements. The Company
believes that it will meet these requirements, and will be able to realize the
full future benefit of the tax exemption. The resulting tax savings reflected
in net income amounted to $178,000 in fiscal 1995 and $378,000 in fiscal 1996.
Income taxes (unaudited) for the three months ended November 3, 1996 reflect
the recognition, for financial accounting purposes, of the use of net
operating loss carryforwards that fully offset the Company's tax provision for
the period. Income taxes (unaudited) for the three months ended October 29,
1995 reflect the recognition, for financial accounting purposes, of the use of
net operating loss carryforwards and an increase in net deferred tax assets.
6. LONG TERM DEBT
The following is a summary of long-term debt (in thousands):
<TABLE>
<CAPTION>
JULY 30, AUGUST 4, NOVEMBER 3,
1995 1996 1996
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CIT term loan.................................... -- -- $16,000
CIT revolving credit facility.................... -- -- 1,580
BABC term loan................................... $ 7,350 $ 6,615 --
BABC revolving credit facility................... 3,200 3,200 --
HKSB term loan................................... 12,070 11,817 11,817
Equipment notes.................................. 7,122 8,645 9,551
Capital lease obligations........................ 3,200 9,854 15,022
Subordinated promissory note..................... 9,000 9,000 9,000
------- ------- -------
41,942 49,131 62,970
Less, current maturities......................... 3,470 6,153 6,360
------- ------- -------
$38,472 $42,978 $56,610
======= ======= =======
</TABLE>
Aggregate loan and capital lease obligation maturities for the next five
fiscal years are as follows (in thousands):
<TABLE>
<CAPTION>
PRINCIPAL FUTURE LEASE
PAYMENTS PAYMENTS TOTAL
--------- ------------ -------
<S> <C> <C> <C>
Fiscal years ending in
1997............................................ $ 4,041 $2,112 $ 6,153
1998............................................ 14,082 2,288 16,370
1999............................................ 13,236 2,465 15,701
2000............................................ 3,480 1,778 5,258
2001............................................ 2,771 1,211 3,982
Thereafter...................................... 1,667 -- 1,667
------- ------ -------
Total......................................... $39,277 $9,854 $49,131
======= ====== =======
</TABLE>
On August 4, 1994, the Company entered into a loan agreement with Bank of
America Business Credit ("BABC") in conjunction with the purchase of the
assets of Compact. The bank provided a senior term and revolving loan which
are collateralized by substantially all the assets of the Company and its
subsidiaries. The term loan is due July 31, 1998, with monthly installments of
$61,250 commencing August 1995, at an interest
F-12
<PAGE>
4MC-BURBANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG TERM DEBT, CONTINUED
rate of 8.5%. The revolving credit is due July 31, 1998 at an interest rate of
8.5% through July 31, 1995 and prime (8.25% as of August 4, 1996) plus 1.5%
thereafter. The loan agreement contains various covenants restricting the cash
payments to stockholder for management fees, dividends or repayment of the
subordinated note payable. The Company is also required to make mandatory
capital expenditures, maintain specified financial ratios and levels of net
worth.
On February 22, 1995, 4MC Asia entered into a loan agreement with The Hong
Kong and Shanghai Banking Corporation Limited ("HKSB"), providing a term loan
facility of SD$16,898,000 Singapore dollars (approximately $12,070,000 US
dollars at June 30, 1995). The loan is collateralized by substantially all of
4MC Asia's assets and is guaranteed by the Company. The loan is payable in 60
monthly installments commencing April 17, 1997 at a rate of 1.25% above the
HKSB prime rate (6.25% and 6.5% as of July 30, 1995 and August 4, 1996,
respectively). The loan agreement contains various restrictive covenants,
including the maintenance of $1,000,000 Singapore dollars (approximately
$717,000 U.S. dollars at July 30, 1995 and $709,000 as of August 4, 1996) in
cash deposits and certain debt-to-equity ratios.
The Company has entered into various capital lease and equipment notes
related to the purchase of equipment. These notes are due through 2001 and are
at interest rates of 8.0% to 11.9%.
On August 4, 1993, the Company entered into an agreement with TSP to provide
to the Company up to $10,000,000 in borrowings in the form of a subordinated
promissory note, at an interest rate of 10%, with no principal payment
required until August 1998. On September 6, 1993, TSP exchanged a $4,000,000
note payable by the Company for 800 shares of Common Stock. On November 17,
1994, the Company entered into an agreement for additional borrowings of up to
$9,000,000 under the same terms as the August 1993 subordinated promissory
note. Repayment of borrowings under the August 1993 and November 1994
subordinated notes is restricted under covenants contained in the BABC loan
agreement, various equipment notes and various capital lease obligations.
During the years ended July 31, 1994 and July 30, 1995, TSP advanced to the
Company $8,400,000 and $10,600,000, respectively, under the subordinated
promissory notes. On July 28, 1995, TSP contributed $10,000,000 in
subordinated promissory notes to the equity of the Company.
7. COMMITMENTS AND CONTINGENCIES
The Company and certain subsidiaries have employment agreements with certain
members of their creative staff to secure their services for up to two years
at amounts approximating their current levels of compensation. At August 4,
1996, the Company's remaining aggregate commitment under such contracts is
approximately $1,111,000.
F-13
<PAGE>
4MC-BURBANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES, CONTINUED
The Company leases its production and office facilities under noncancelable
operating leases with initial terms up to five years through 2000. These
leases contain renewal options, require additional payments for property
taxes, utilities, insurance and maintenance costs and are subject to periodic
escalation charges. Facilities rent expense amounted to $3,242,000,
$4,327,000, $4,392,000, $1,013,000 (unaudited) and $1,114,000 (unaudited) for
the fiscal years ended July 31, 1994, July 30, 1995 and August 4, 1996 and for
the three months ended October 29, 1995 and November 3, 1996, respectively. At
August 4, 1996 and November 3, 1996 the annual commitment under these
facilities leases is summarized as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 4, NOVEMBER 3,
1996 1996
--------- -----------
(UNAUDITED)
<S> <C> <C>
Fiscal years ending in:
1997.................................................... $ 4,129 $ 3,877
1998.................................................... 3,951 3,962
1999.................................................... 3,787 3,142
2000.................................................... 356 --
------- -------
Total................................................. $12,223 $10,984
======= =======
</TABLE>
The Company leases certain office equipment under operating leases which
expire through 1999. Rent expense related to equipment amounted to $324,800,
$134,800, $190,200, $89,000 (unaudited) and $208,000 (unaudited) for the
fiscal years ended July 31, 1994, July 30, 1995 and August 4, 1996, and for
the three months ended October 29, 1995 and November 3, 1996, respectively. At
August 4, 1996 and November 3, 1996 the annual commitment under various leases
is summarized as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 4, NOVEMBER 3,
1996 1996
--------- -----------
(UNAUDITED)
<S> <C> <C>
Fiscal years ending in:
1997.................................................... $ 434 $ 429
1998.................................................... 434 409
1999.................................................... 418 365
------ ------
Total................................................. $1,286 $1,203
====== ======
</TABLE>
The Company is involved in litigation matters arising in the normal course
of business. Management believes that the disposition of these lawsuits will
not materially affect the financial position or results of operations of the
Company.
8. EMPLOYEE BENEFIT PLANS
The Company's savings and investment plan covers substantially all of the
employees of the Company. The participants may contribute up to 15% of their
annual compensation (subject to the annual IRS limitation) to the plan and the
Company will match the participant's contribution up to a maximum of 2% of the
participant's compensation. The Company expensed $225,000, $208,000, $211,000,
$51,000 (unaudited) and $48,000 (unaudited) related to the plan for the years
ended July 31, 1994, July 30, 1995 and August 4, 1996 and for the three months
ended October 29, 1995 and November 3, 1996, respectively.
F-14
<PAGE>
4MC-BURBANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RELATED PARTIES
As of July 30, 1995 and August 4, 1996, TSP was the holder of subordinated
promissory notes from the Company totaling $9,000,000. In addition, the
Company owed $450,000 of accrued interest to TSP as of August 4, 1996 and no
amounts were due as of July 30, 1995. During the years ended July 30, 1995 and
August 4, 1996, the Company paid $1,762,000 and $450,000, respectively, to TSP
in interest.
The Company provided services to a company controlled by a then member of
the Board of Directors in the amount of $188,008, $2,000 and $1,000 for the
years ended July 31, 1994, July 30, 1995 and August 4, 1996, respectively.
The Company paid consulting fees and expenses to a member of the Board of
Directors of the Company of $147,000 and $205,423 for the years ended July 30,
1995 and August 4, 1996, respectively. As of August 4, 1996, the director is
no longer affiliated with the Company.
The Company has entered into an agreement with an emerging company wherein
the Company would advance it up to $600,000. As of August 4, 1996 and November
3, 1996, the Company has advanced cash for operating purposes of approximately
$238,000 and $406,000 (unaudited), respectively. The Company has the option to
purchase a significant portion of the stock of the emerging company as of
January 1, 1997. Management has not determined at this time whether this
option will be exercised.
In connection with the acquisition of Compact in 1993, the Company's Chief
Executive Officer was granted a profit interest in TSP for identifying,
analyzing and consummating the acquisition. The profit interest is equal to
10% of the excess, if any, by which the distributions (in cash or in kind)
from TSP exceed the partners' total investment in TSP plus a return of 9% per
annum. No amounts have been earned or paid under this profit interest.
10. STOCK OPTIONS
The Company issued stock options to four key executives of the Company on
September 7, 1993. These options were for 95 shares of common stock at an
exercise price of $2,212 per share, the fair market value at the date of grant
as determined by the Company and approved by the Board of Directors. These
stock options vest over a six year period at 16.7% per year. As of August 4,
1996, options for 48 shares are exercisable, no options have been exercised or
canceled and no additional options have been granted.
F-15
<PAGE>
4MC-BURBANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. BUSINESS SEGMENTS
Information about the Company's operations in different geographic areas for
the years ended July 31, 1994, July 30, 1995 and August 4, 1996 and the
quarter ended November 3, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
UNITED CONSOLIDATED
STATES ASIA CORPORATE TOTAL
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers:
Year ended July 31, 1994 $42,261 $ -- $ -- $42,261
Year ended July 30, 1995 56,999 4,005 -- 61,004
Year ended August 4, 1996 58,970 11,058 -- 70,028
- ------------------------------------------------------------------------------
Income from operations:
Year ended July 31, 1994 $ 7,601 $ -- $(5,113) $ 2,488
Year ended July 30, 1995 9,249 1,107 (5,207) 5,149
Year ended August 4, 1996 7,095 2,922 (4,681) 5,336
- ------------------------------------------------------------------------------
Identifiable assets:
Year ended July 31, 1994 $31,120 $ -- $1,862 $32,982
Year ended July 30, 1995 46,364 21,620 3,796 71,780
Year ended August 4, 1996 54,741 22,307 4,779 81,827
- ------------------------------------------------------------------------------
Capital expenditures:
Year ended July 31, 1994 $ 8,146 $ -- $ 694 $ 8,840
Year ended July 30, 1995 9,131 17,362 1,934 28,427
Year ended August 4, 1996 14,978 2,208 983 18,169
- ------------------------------------------------------------------------------
Depreciation expense and amortization:
Year ended July 31, 1994 $ 3,123 $ -- $ 161 $ 3,284
Year ended July 30, 1995 4,721 954 566 6,241
Year ended August 4, 1996 6,548 2,722 895 10,165
- ------------------------------------------------------------------------------
</TABLE>
12. SUBSEQUENT EVENTS (UNAUDITED)
On October 17, 1996, the Company entered into a new credit agreement with
CIT Group/Business Credit, Inc. and CIT Group/Equipment Financing, Inc.
("CIT"). The agreement consists of a $34,000,000 credit facility including (i)
a $16,000,000 term loan, payable in 84 monthly principal payments commencing
November 1997 at an interest rate of LIBOR plus 2.75% or Prime plus .75%, at
the Company's option, (ii) a $11,000,000 revolving line of credit at an
interest rate of LIBOR plus 2.5% or Prime plus .50%, at the Company's option;
and (iii) a $7,000,000 capital expenditures line of credit payable in 60
monthly installments commencing three months after funding at an interest rate
of LIBOR plus 2.75% or Prime plus .75%, at the Company's option. These loans,
which are collateralized by substantially all the assets of 4MC-Burbank and
DMC, contains various covenants restricting the cash payment to the
stockholder for management fees, dividends or repayment of the subordinated
note payable. The Company is also required to maintain specified financial
ratios and levels of net worth for both the Company and specified
subsidiaries. As part of this financing, the Company repaid the $9,693,000
BABC loans and $1,919,000 of CIT equipment notes. The Company may, at its
option, elect a fixed rate for the term loan at the treasury rate (applicable
for the remaining term of the loan) plus 3.35%.
F-16
<PAGE>
4MC-BURBANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUBSEQUENT EVENTS (UNAUDITED), CONTINUED
On September 25, 1996 the Company changed its name from Four Media Company
to "4MC-Burbank, Inc." On the same date, a holding company was incorporated in
the State of Delaware ("4MC Delaware"). On October 17, 1996, 4MC Delaware
completed a reorganization of the Company (the "Reorganization") which for
accounting purposes is accounted for as of September 29, 1996. Under the terms
of the Reorganization which is accounted for in a manner similar to a pooling
of interests, 4MC Delaware issued 5,900,000 shares on October 17, 1996 of its
common stock to TSP in exchange for 1,000 shares of 4MC-Burbank, Inc. common
stock, representing 100% of the issued and outstanding shares of the Company
and as a result, 4MC-Burbank became a wholly owned subsidiary of 4MC Delaware.
In conjunction with the Reorganization, the Company's interests in the wholly
owned subsidiaries, DMC and 4MC Asia were transferred to 4MC Delaware in the
form of a dividend distribution from the Company. The purpose of the
Reorganization was to facilitate future transactions and acquisitions.
Per share information based on the weighted average number of common shares
outstanding has been presented to reflect retroactively the Company's
reorganization and a related stock exchange with and stock dividend to its
sole stockholder in October and November 1996. Other stockholder's data
(stockholder's equity and stock options) presented in the financial statements
and notes have not been retroactively adjusted to present such reorganization.
For comparative financial presentation purposes the financial statements of
the consolidated group, as described above, for the three months ended
November 3, 1996 have been presented herein.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Four Media Company
Burbank, California
We have audited the accompanying balance sheet of Four Media Company as of
October 1, 1996. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respect, the financial position of Four Media Company as of
October 1, 1996, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Los Angeles, California
October 1, 1996,
except for Note 2
as to which the date is
November 18, 1996
F-18
<PAGE>
FOUR MEDIA COMPANY
BALANCE SHEET
OCTOBER 1, 1996
<TABLE>
<S> <C>
ASSETS
Cash................................................................... $1,000
------
Total assets......................................................... $1,000
======
STOCKHOLDER'S EQUITY
Preferred stock, $.01 par value, 5,000,000 shares authorized, none
issued and outstanding................................................ $ --
Common stock, $.01 par value, 50,000,000 shares authorized, 100,000
shares issued and outstanding......................................... $1,000
------
Total stockholder's equity........................................... $1,000
======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-19
<PAGE>
FOUR MEDIA COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Four Media Company (the "Company") was incorporated in the State of Delaware
on September 25, 1996. The authorized capital stock of the Company consists of
50,000,000 shares of common stock, par value of $.01 per share and 5,000,000
shares of preferred stock, par value of $.01 per share. As of October 1, 1996,
the Company issued and had outstanding 100,000 shares of Common Stock and no
preferred shares were issued or outstanding. Each holder of common stock shall
be entitled to one vote for each share held.
2. SUBSEQUENT EVENTS (UNAUDITED)
On October 17, 1996, the Company completed a reorganization (the
"Reorganization") which for accounting purposes is accounted for as of
September 29, 1996. Under the terms of the Reorganization which was accounted
for in a manner similar to a pooling of interests, the Company issued
5,900,000 shares of its common stock on October 17, 1996 to TSP in exchange
for 1,000 shares of 4MC-Burbank, Inc. common stock, representing 100% of the
issued and outstanding shares of the corporation and 4MC-Burbank became a
wholly owned subsidiary of the Company. In conjunction with the
Reorganization, 4MC-Burbank's interests in its wholly owned subsidiaries, DMC
and 4MC Asia were transferred to the Company in the form of a dividend
distribution. The purpose of the Reorganization was to facilitate future
financing transactions and acquisitions. On November 18, 1996, the Company
distributed a stock dividend to TSP of 475,000 shares of its common stock.
For comparative financial presentation purposes, the financial statements of
the consolidated group for the three months ended November 3, 1996 have been
presented with 4MC-Burbank included elsewhere herein.
The unaudited following stockholder's equity statement (unaudited) presents
the historical November 3, 1996 amounts as adjusted for the transactions
described above.
CONDENSED BALANCE SHEET (IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL REORGANIZATION AS ADJUSTED
NOVEMBER 3, 1996 ADJUSTMENTS NOVEMBER 3, 1996
---------------- -------------- ----------------
<S> <C> <C> <C>
Assets
Cash........................ $ 1 $ -- $ 1
Investment in wholly owned
subsidiary................. -- 22,263 22,263
--- ------- -------
Total assets.................. $ 1 $22,263 $22,264
=== ======= =======
Stockholder's equity
Preferred stock, $.01 per
value; 5,000,000 shares
authorized, no shares
issued and outstanding..... $-- $ -- $ --
Common stock, $.01 par
value; 50,000,000 shares
authorized, 6,475,000
shares issued and
outstanding................ 1 64 65
Additional paid-in capital.. -- 14,946 14,946
Foreign currency translation
adjustment................. -- 250 250
Retained earnings........... -- 7,003 7,003
--- ------- -------
Total stockholder's equity.... $ 1 $22,263 $22,264
=== ======= =======
</TABLE>
F-20
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THIS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 12
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 13
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Financial Data.................................................. 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 28
Management............................................................... 44
Certain Transactions..................................................... 48
Principal and Selling Stockholders....................................... 50
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 52
Underwriting............................................................. 54
Legal Matters............................................................ 55
Experts.................................................................. 55
Additional Information................................................... 55
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,700,000 SHARES
[LOGO]
(R)
COMMON STOCK
---------------------
PROSPECTUS
---------------------
FURMAN SELZ
PAINEWEBBER INCORPORATED
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all expenses to be
incurred in connection with the issuance and distribution of the securities
that are the subject of this Registration Statement. All amounts shown, other
than the Securities and Exchange Commission registration fee and the NASD
filing fee, are estimates only.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 29,622
NASD filing fee............................................... 10,275
Nasdaq National Market listing fee............................ 40,000
Printing expenses............................................. 125,000
Transfer agent fees........................................... 5,000
Legal fees and expenses....................................... 350,000
Accounting fees and expenses.................................. 300,000
"Blue sky" fees and expenses.................................. 30,000
Miscellaneous expenses........................................ 210,103
----------
Total....................................................... $1,100,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and the Bylaws of the Company provide for
the indemnification of directors and officers to the fullest extent permitted
by the General Corporation Law of the State of Delaware (the "GCL").
Section 145 of the GCL authorizes indemnification when a person is made a
party to any proceeding by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or was serving as a
director, officer, employee or agent of another enterprise, at the request of
the corporation, and if such person acted in good faith and in a manner
reasonably believed by him or her to be in, or not opposed to, the best
interests of the corporation. With respect to any criminal proceeding, such
person must have had no reasonable cause to believe that his or her conduct
was unlawful. If it is determined that the conduct of such person meets these
standards, he or she may be indemnified for expenses incurred and amounts paid
in such proceeding if actually and reasonably incurred by him or her in
connection therewith.
If such a proceeding is brought by or on behalf of the corporation (i.e., a
derivative suit), such person may be indemnified against expenses actually and
reasonably incurred if he or she acted in good faith and in a manner
reasonably believed by him or her to be in, or not opposed to, the best
interests of the corporation. There can be no indemnification with respect to
any matter as to which such person is adjudged to be liable to the
corporation; however, a court may, even in such case, allow such
indemnification to such person for such expenses as the court deems proper.
Where such person is successful in any such proceeding, he or she is entitled
to be indemnified against expenses actually and reasonably incurred by him or
her. In all other cases, indemnification is made by the corporation upon
determination by it that indemnification of such person is proper because such
person has met the applicable standard of conduct.
The Underwriting Agreement, the form of which is included as Exhibit 1.1 to
this Registration Statement, provides that the Company shall indemnify the
Underwriters under certain circumstances and the Underwriters shall indemnify
the officers and directors of the Company under certain circumstances.
The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director and executive officer of the
Company (the "Indemnitees"). The Indemnity Agreements provide that the Company
will indemnify each Indemnitee against payment of and liability for any and
all expenses actually and reasonably incurred by the Indemnitee in defending
or investigating a claim, by reason of the fact that the Indemnitee is or was
a director and/or officer of the Company or is or was serving at the request
of the Company as a director, officer, employee or agent of another
corporation, partnership, or other enterprise, provided it is determined that
the Indemnitee acted in good faith and reasonably believed his actions to be
in the best interests of the Company.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On October 1, 1996, the Company sold 100,000 shares of Common Stock to
Technical Services Partners, L.P., a Delaware limited partnership ("TSP"), in
consideration for $1,000, and on October 17, 1996, the Company issued
5,900,000 shares of Common Stock to TSP in exchange for 1,000 shares of common
stock of 4MC Burbank. On November 18, 1996 the Company distributed a stock
dividend to TSP of 475,000 shares of its Common Stock. The general partner of
TSP is Technical Services Holdings Inc. ("Holdings"), a corporation of which
all of the voting capital stock is owned by Steinhardt Partners, L.P. The non-
voting capital stock of Holdings is owned by Institutional Partners, L.P.,
S.P. International S.A., Steinhardt Overseas Fund, Ltd, Compact Video Group,
Inc., Image Transform Inc., Compact Video Services, Inc. and Meridian Studios,
Inc. The managing general partner of Steinhardt Partners, L.P. is Michael
Steinhardt. These shares were issued pursuant to exemptions available under
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) The following exhibits, which are furnished with this Registration
Statement or incorporated herein by reference, are filed as part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Company.(1)
3.2 Bylaws of the Company.(1)
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Troy & Gould Professional Corporation.*
10.1 Four Media Company 1997 Stock Plan and Stock Option Agreement.
10.2 Four Media Company 1997 Director Option Plan and Director Stock Plan
Stock Option Agreement, as amended.*
10.3 Form of Indemnity Agreement between the Company and each of its
officers and directors.(1)
10.4 Agreement dated as of February 13, 1995 between MTV Asia LDC and Four
Media Company Asia PTE. Ltd.+
10.5 Guaranty by Viacom International Inc. of MTV Asia's obligations to
Four Media Company Asia PTE Ltd. dated February 13, 1995.(1)
10.6 Guaranty by Four Media Company of obligations of Four Media Company
Asia PTE Ltd. to MTV Asia dated February 13, 1995.(1)
10.7 January 18, 1996 Amendment Letter re Agreement dated as of February
13, 1995 between MTV Asia LDC and Four Media Company Asia PTE.
Ltd.+(1)
10.8 Uplink-Playback Service Deal Memorandum between TVN Entertainment
Corporation and Compact Video Services, Inc. dated November 20, 1989,
as amended.+(1)
10.9 Letter Agreement between Four Media Company and TVN Entertainment
Corporation dated March 18, 1996.+(1)
10.10 Agreement for Term Loan Facilities between The Hong Kong and Shanghai
Banking Corporation Limited and Four Media Company Asia PTE. Ltd.
dated February 22, 1995.(1)
10.11 Deed of Subordination between Four Media Company, Four Media Company
Asia PTE LTD and The Hong Kong and Shanghai Banking Corporation
Limited dated February 22, 1995.(1)
10.12 Deed of Debenture between Four Media Company Asia PTE LTD. and The
Hong Kong and Shanghai Banking Corporation Limited dated February 22,
1995.(1)
10.13 Deed of Assignment between Four Media Company Asia PTE LTD and The
Hong Kong and Shanghai Banking Corporation Limited dated February 22,
1995.(1)
10.14 Guarantee by Four Media Company of Four Media Company Asia PTE Ltd.
liabilities to The Hong Kong and Shanghai Banking Corporation Limited
dated February 16, 1995.(1)
10.15 Satellite Services Agreement re Transponder 7 between Global Access
Telecommunications Services, Inc. and Four Media Company dated April
12, 1996.(1)
10.16 Satellite Services Agreement re Transponder 5 between Global Access
Telecommunications Services, Inc. and Four Media Company dated April
12, 1996.(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.17 Global Access Telecommunications Services, Inc. Standard Terms and
Conditions.(1)
10.18 August 28, 1996 Letter Amendment to the Satellite Services Agreement
re Transponder 5 dated April 12, 1996 and to the Satellite Services
Agreement re Transponder 7 dated April 12, 1996.(1)
10.19 Financing agreement between The CIT Group/Business Credit, Inc., The
CIT Group/Equipment Financing, Inc., 4MC-Burbank, Inc. and Digital
Magic Company dated October 17, 1996.
10.20 Lease between Singapore Telecommunications Limited and Four Media
Company Asia PTE Ltd. commencing December 15, 1994.(1)
10.21 Office Building Lease between Ford Motor Credit Company and Four Media
Company dated August 1, 1994.(1)
10.22 Employment Agreement between the Company and Robert T. Walston dated
October 1, 1996, as amended.*
10.23 Employment Agreement between the Company and John H. Donlon dated as
of October 1, 1996.
10.24 Employment Agreement between the Company and John H. Sabin dated as of
October 1, 1996.
10.25 Employment Agreement between the Company and Gavin W. Schutz dated as
of October 1, 1996, as amended.*
10.26 Employment Agreement between the Company and Robert Bailey dated as of
October 1, 1996.
10.27 Purchase and Sale Agreement and Escrow Instructions between C.P.
Private Partners, L.P.I. and Four Media Company dated July 29,
1996.(1)
10.28 August 1, 1996 Amendment Letter re Agreement dated as of February 13,
1995 between MTV Asia and Four Media Company Asia PTE Ltd.+
10.29 Term Loan Agreement between Tokai Bank of California and Four Media
Company, dated December 5, 1996.*
21.0 List of Subsidiaries.(1)
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1).*
24.1 Power of Attorney (contained in Part II).(1)
27.1 Financial Data Schedule.(1)
</TABLE>
- --------------------
* To be filed by amendment.
+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.
(1) Previously filed with the Company's Registration Statement filed October
8, 1996 (File No. 333-13721).
(b) Schedules are omitted since the required information is not present in
amounts sufficient to require submission of schedules or because the
information required is included in Registrant's Consolidated Financial
Statements and Notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
II-3
<PAGE>
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Burbank, State of California, on December 27, 1996.
Four Media Company
/s/ Robert T. Walston
By: _________________________________
ROBERT T. WALSTON
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert T. Walston Chairman of the December 27,
- ------------------------------------- Board and Chief 1996
ROBERT T. WALSTON Executive Officer
(Principal
Executive Officer)
* President and December 27,
- ------------------------------------- Director 1996
JOHN H. DONLON
/s/ John H. Sabin Vice President, December 27,
- ------------------------------------- Chief Financial 1996
JOHN H. SABIN Officer (Principal
Financial and
Accounting Officer)
and Director
* Vice President, December 27,
- ------------------------------------- Chief Technology 1996
GAVIN W. SCHUTZ Officer and
Director
* Vice President, December 27,
- ------------------------------------- Director of 1996
ROBERT BAILEY Marketing and
Director
* Director December 27,
- ------------------------------------- 1996
SHIMON TOPOR
* Director December 27,
- ------------------------------------- 1996
EDWARD KIRTMAN
*By: /s/ Robert T. Walston
___________________________
ROBERT T. WALSTON,
AS ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Company.(1)
3.2 Bylaws of the Company.(1)
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Troy & Gould Professional Corporation.*
10.1 Four Media Company 1997 Stock Plan and Stock Option Agreement.
10.2 Four Media Company 1997 Director Option Plan and Director Stock Plan
Stock Option Agreement, as amended.*
10.3 Form of Indemnity Agreement between the Company and each of its
officers and directors.(1)
10.4 Agreement dated as of February 13, 1995 between MTV Asia LDC and Four
Media Company Asia PTE. Ltd.+
10.5 Guaranty by Viacom International Inc. of MTV Asia's obligations to
Four Media Company Asia PTE Ltd. dated February 13, 1995.(1)
10.6 Guaranty by Four Media Company of obligations of Four Media Company
Asia PTE Ltd. to MTV Asia dated February 13, 1995.(1)
10.7 January 18, 1996 Amendment Letter re Agreement dated as of February
13, 1995 between MTV Asia LDC and Four Media Company Asia PTE.
Ltd.+(1)
10.8 Uplink-Playback Service Deal Memorandum between TVN Entertainment
Corporation and Compact Video Services, Inc. dated November 20, 1989,
as amended.+(1)
10.9 Letter Agreement between Four Media Company and TVN Entertainment
Corporation dated March 18, 1996.+(1)
10.10 Agreement for Term Loan Facilities between The Hong Kong and Shanghai
Banking Corporation Limited and Four Media Company Asia PTE. Ltd.
dated February 22, 1995.(1)
10.11 Deed of Subordination between Four Media Company, Four Media Company
Asia PTE LTD and The Hong Kong and Shanghai Banking Corporation
Limited dated February 22, 1995.(1)
10.12 Deed of Debenture between Four Media Company Asia PTE LTD. and The
Hong Kong and Shanghai Banking Corporation Limited dated February 22,
1995.(1)
10.13 Deed of Assignment between Four Media Company Asia PTE LTD and The
Hong Kong and Shanghai Banking Corporation Limited dated February 22,
1995.(1)
10.14 Guarantee by Four Media Company of Four Media Company Asia PTE Ltd.
liabilities to The Hong Kong and Shanghai Banking Corporation Limited
dated February 16, 1995.(1)
10.15 Satellite Services Agreement re Transponder 7 between Global Access
Telecommunications Services, Inc. and Four Media Company dated April
12, 1996.(1)
10.16 Satellite Services Agreement re Transponder 5 between Global Access
Telecommunications Services, Inc. and Four Media Company dated April
12, 1996.(1)
10.17 Global Access Telecommunications Services, Inc. Standard Terms and
Conditions.(1)
10.18 August 28, 1996 Letter Amendment to the Satellite Services Agreement
re Transponder 5 dated April 12, 1996 and to the Satellite Services
Agreement re Transponder 7 dated April 12, 1996.(1)
10.19 Financing agreement between The CIT Group/Business Credit, Inc., The
CIT Group/Equipment Financing, Inc., 4MC-Burbank, Inc. and Digital
Magic Company dated October 17, 1996.
10.20 Lease between Singapore Telecommunications Limited and Four Media
Company Asia PTE Ltd. commencing December 15, 1994.(1)
10.21 Office Building Lease between Ford Motor Credit Company and Four Media
Company dated August 1, 1994.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
<C> <S>
10.22 Employment Agreement between the Company and Robert T. Walston dated
October 1, 1996, as amended.*
10.23 Employment Agreement between the Company and John H. Donlon dated as
of October 1, 1996.
10.24 Employment Agreement between the Company and John H. Sabin dated as of
October 1, 1996.
10.25 Employment Agreement between the Company and Gavin W. Schutz dated as
of October 1, 1996, as amended.*
10.26 Employment Agreement between the Company and Robert Bailey dated as of
October 1, 1996.
10.27 Purchase and Sale Agreement and Escrow Instructions between C.P.
Private Partners, L.P.I. and Four Media Company dated July 29,
1996.(1)
10.28 August 1, 1996 Amendment Letter re Agreement dated as of February 13,
1995 between MTV Asia and Four Media Company Asia PTE Ltd.+
10.29 Term Loan Agreement between Tokai Bank of California and Four Media
Company dated
December 5, 1996.*
21.0 List of Subsidiaries.(1)
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1).*
24.1 Power of Attorney (contained in Part II).(1)
27.1 Financial Data Schedule.(1)
</TABLE>
- --------------------
* To be filed by amendment.
+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.
(1) Previously filed with the Company's Registration Statement filed October 8,
1996 (File No. 333-13721).
<PAGE>
EXHIBIT 10.1
FOUR MEDIA COMPANY 1997 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant of any Option and subject to the applicable provisions of Section 422 of
the Code and the regulations promulgated thereunder. Stock Purchase Rights may
also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means a Committee appointed by the Board of Directors
---------
in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means FOUR MEDIA COMPANY, a Delaware corporation.
-------
(g) "Consultant" means any person who is engaged by the Company or any
----------
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services. The term Consultant shall not include Directors
who are not compensated for their services or are paid only a Director's fee by
the Company.
1
<PAGE>
(h) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
company or between the Company, its Parent, any Subsidiary or successor. A
leave of absence approved by the Company shall include sick leave, military
leave or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract, including Company policies. If reemployment upon expiration
of a leave of absence approved by the Company is not so guaranteed, on the 91st
day of such leave any Incentive Stock Option held by the Optionee shall cease to
be treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option.
(i) "Director" means a member of the Board of Directors of the Company.
--------
(j) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination and reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
2
<PAGE>
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
------
(q) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(r) "Optionee" means an Employee or Consultant who receives an Option
--------
or Stock Purchase Right.
(s) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(t) "Plan" means this 1997 Stock Plan.
----
(u) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 below.
(v) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 below.
3
<PAGE>
(w) "Stock Purchase Right" means a right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(x) "Subsidiary" means a "subsidiary corporation," whether not or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to Section 12, the maximum
-------------------------
aggregate number of Shares which may be subject to option and sold under the
Plan is 1,650,000 Shares; provided, however, that beginning August 1, 1997, the
number of Shares shall be increased each August 1st by five percent (5%) of the
total issued and outstanding Shares on such date. In no event, except as
subject to Section 12, shall more than 1,650,000 Shares be available for
issuance pursuant to Incentive Stock Option grants under the Plan.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the plan (unless
the Plan has terminated). However, Shares that have actually been issued under
the Plan, upon exercise of either an Option or Stock Purchase Right, shall not
be returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price and the original purchaser of such
Shares did not receive any benefits of ownership of such Shares, such Shares
shall become available for future grant under the Plan. For purposes of the
preceding sentence, voting rights shall not be considered a benefit of Share
ownership.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, the Plan may be administered by different bodies with respect to
Directors and Officers, and Employees and Consultants who are neither Directors
nor Officers.
(ii) Administration With Respect to Directors and Officers.
-----------------------------------------------------
With respect to grants of Options and Stock Purchase
4
<PAGE>
Rights to Employees who are also Officers or Directors of the Company, the Plan
shall be administered by (A) the Board if the Board may administer the Plan in
compliance with Rule 16b-3 promulgated under the Exchange Act or any successor
thereto ("Rule 16b-3") with respect to a plan intended to qualify thereunder as
a discretionary plan, or (B) a Committee designated by the Board to administer
the Plan, which Committee shall be constituted in such a manner as to permit the
Plan to comply with Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended
to qualify thereunder as a discretionary plan.
(iii) Administration With Respect to Other Employees and
--------------------------------------------------
Consultants. With respect to grants of Options and Stock Purchase Rights to
- ------------
Employees or Consultants who are neither Directors nor Officers of the Company,
the Plan shall be administered by (A) the Board or (B) a Committee designated by
the Board, which committee shall be constituted in such a manner as to satisfy
the legal requirements relating to the administration of incentive stock option
plans, if any, of California corporate and securities laws, of the Code, and of
any applicable stock exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
5
<PAGE>
Stock is listed, the Administrator shall have the authority it its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options or Stock Purchase Rights may be exercised (which may be based
on performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase Right or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations
6
<PAGE>
relating to sub-plans established for the purpose of qualifying for preferred
tax treatment under foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 14 of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xii) to determine the terms and restrictions applicable to
Options and Stock Purchase Rights and any Restricted Stock; and
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options or Stock Purchase Rights.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if otherwise eligible, be granted additional Options
or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Shares subject to an Optionee's Incentive Stock Options granted by the
Company, any Parent or Subsidiary, which become exercisable for the first time
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds the limit imposed by
7
<PAGE>
Section 422(d) of the Code or any successor statute thereto, such excess Options
shall be treated as Nonstatutory Stock Options. For purposes of this Section
5(b), Incentive Stock Options shall be taken into account in the order in which
they were granted. The Fair Market Value of the Shares shall be determined as of
the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuation of his or her
employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than ________
Shares.
(ii) The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 12.
(iii) If an Option or Stock Purchase Right is cancelled in the
same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the cancelled Option
shall be counted against the limit set forth in Section 5(d)(i). For this
purpose, if the exercise price of an Option is reduced, such reduction will be
treated as a cancellation of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company, as described in Section 18 of the Plan. It shall
continue in effect for a term of
8
<PAGE>
ten (10) years unless sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per Share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant;
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3)
9
<PAGE>
promissory note, (4) other Shares which (x) in the case of Shares acquired upon
exercise of an Option, have been owned by the Optionee for more than six months
on the date of surrender, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which such
Option shall be exercised, (5) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and a broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price, (6)
a reduction in the amount of any Company liability to the Optionee, including
any liability attributable to the Optionee's participation in any Company-
sponsored deferred compensation program or arrangement, or (7) any combination
of the foregoing methods of payment. In making its determination as to the type
of consideration to accept, the Administrator shall consider if acceptance of
such consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan. Notwithstanding the foregoing, no Option may be exercised earlier
than six (6) months from the date of grant of such Option.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) hereof. Until
the issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote, receive dividends or any other rights
as a stockholder shall exist with respect to the Optioned Stock,
10
<PAGE>
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment shall be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 hereof.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event of termination of an Optionee's Continuous Status as an Employee or
Consultant (but not in the event of an Optionee's change of status from Employee
to Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the ninety-first (91st)
day following such change of status) or from Consultant to Employee), such
Optionee may, but only within such period of time as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
not exceeding three (3) months after the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise his or her Option to the extent that the
Optionee was entitled to exercise it at the date of such termination. To the
extent that the Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event of termination of an
----------------------
Optionee's Continuous Status of an Employee or Consultant as a result of his or
her "Disability," as such term is defined in Section 22(e)(3) of the Code, the
Optionee may, but only within twelve (12) months from the date of such
termination (and in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise the Option to the extent
otherwise entitled to exercise it at the date of such termination. To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the
11
<PAGE>
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant) by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option on the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after the Optionee's death,
the Optionee's estate or a person who acquires the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards
12
<PAGE>
granted under the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time within
which such person must accept such offer, which shall in no event exceed thirty
(30) days from the date upon which the Administrator makes the determinations to
grant the Stock Purchase Right. The offer shall be accepted by execution of a
Restricted Stock purchase agreement in the form determined by the Administrator.
Shares purchased pursuant to the grant of a Stock Purchase Right shall be
referred to herein as "Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment or consulting relationship with the Company for any
reason (including death or Disability). The purchase price for Shares
repurchased pursuant to the Restricted Stock purchase agreement shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at such rate as the Administrator may determine.
(c) Rule 16b-3. Stock Purchase Rights granted to persons subject to
----------
Rule 16b-3 of the Exchange Act ("Insiders"), and Shares purchased by Insiders in
connection with Stock Purchase Rights, shall be subject to any restrictions
applicable thereto in compliance with Rule 16b-3. An Insider may only purchase
Shares pursuant to the grant of a Stock Purchase Right, and may only sell Shares
purchased pursuant to the grant of a Stock Purchase Right, during such time or
times as are permitted by Rule 16b-3.
(d) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
13
<PAGE>
(e) Rights as a Stockholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have rights equivalent to those of a stockholder
and shall be a stockholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of Shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per Share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of Shares of stock of any class, or
securities convertible into Shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the
extent it has not been previously exercised, the Option or Stock Purchase Right
shall terminate immediately prior to the consummation of such proposed action.
14
<PAGE>
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be exercisable. If an Option or Stock
Purchase Right is exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Administrator shall notify the Optionee that
the Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets was not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
13. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator.
Notice of the
15
<PAGE>
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain stockholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted, and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute
16
<PAGE>
such Shares if, in the opinion of counsel for the Company, such a representation
is required by any of the aforementioned relevant provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan,
---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
17. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written agreements in such form as the Administrator shall approve from time to
time.
18. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
17
<PAGE>
FOUR MEDIA COMPANY
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
---------------------------
_____________________________
_____________________________
_____________________________
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number: _________________________
Date of Grant: _________________________
Vesting Commencement Date: _________________________
Exercise Price per Share: $________________________
Total Number of Shares for which
Option is Granted: _________________________
Total Exercise Price: $________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
18
<PAGE>
Vesting Schedule:
----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Termination Period:
------------------
This Option may be exercised for _____ [months/days] after termination of
your employment or consulting relationship, or such longer period as may be
applicable upon death or Disability of Optionee as provided in the Plan. In the
event of the Optionee's change in status from Employee to Consultant or
Consultant to Employee, this Option Agreement shall remain in effect. In no
event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
---------
1. Grant of Option. FOUR MEDIA COMPANY, a Delaware corporation (the
---------------
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase the total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the 1997 Stock Plan (the "Plan")
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option Agreement.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
19
<PAGE>
2. Exercise of Option,
------------------
(a) Right to Exercise. This Option shall be exercisable during its
-----------------
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement. In the
event of Optionee's death, disability or other termination of the employment or
consulting relationship, this Option shall be exercisable in accordance with the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B, and shall
read the applicable rules of the California Commissioner of Corporations
attached to such Investment Representation Statement.
20
<PAGE>
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company which (A)
in the case of Shares acquired pursuant to the exercise of an Option, have been
owned by the Optionee for more than six (6) months on the date of surrender, and
(B) have a Fair Market Value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised; or
(d) delivery of a properly executed exercise notice together with such
other documentation as the Administrator and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the Exercise Price.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board.
6. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a
21
<PAGE>
result of his or her disability, Optionee may, but only within twelve (12)
months from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall cease to
be treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option on the day three months and one day following such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
8. Death of Optionee. In the event of termination of Optionee's
-----------------
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 10 below), by Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee could exercise the Option at
the date of death.
9. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) stockholders shall apply to
this Option.
22
<PAGE>
11. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
(a) Grant of Options. The Optionee will not recognize any income for
----------------
either federal or California income tax purposes upon grant of an Option under
the Plan, regardless of whether the Option qualifies as an ISO or is an NSO.
(b) Exercise of ISO. If this Option qualifies as an ISO, there will
---------------
be no regular federal income tax liability or California income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal tax purposes
and may subject the Optionee to the alternative minimum tax in the year of
exercise.
(c) Exercise of ISO Following Disability. If the Optionee's
------------------------------------
Continuous Status as an Employee or Consultant terminates as a result of
disability that is not total and permanent disability as defined in Section
22(e)(3) of the Code, to the extent permitted on the date of termination, the
Optionee must exercise an ISO within 90 days of such termination for the ISO to
be qualified as an ISO.
(d) Exercise of NSO. There may be a regular federal income tax
---------------
liability and California income tax liability upon the exercise of an NSO. The
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is
an Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
23
<PAGE>
(e) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for more than one year, any gain or loss realized on disposition of the Shares
will be treated as long-term capital gain or loss for federal and California
income tax purposes; and if Shares are held for one year or less, any such
profit or loss will be treated as short-term capital gain or loss. In the case
of an ISO, if Shares received pursuant to exercise of the Option are held for
more than one year after exercise and are disposed of more than two years after
the date of grant, any gain realized on disposition of the Shares will also be
treated as long-term capital gain for federal and California income tax
purposes. If Shares purchased under an ISO are disposed of within such one-year
period or within two years after the date of grant, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the difference between the Exercise Price and the lesser
of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the
sale price of the Shares.
(f) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
12. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This Option Agreement is governed by California law except for that
body of law pertaining to conflict of laws.
FOUR MEDIA COMPANY,
a Delaware corporation
24
<PAGE>
By:___________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Dated:__________________ _______________________
Optionee
Residence Address:
______________________
______________________
______________________
25
<PAGE>
EXHIBIT A
---------
1997 STOCK PLAN
EXERCISE NOTICE
FOUR MEDIA COMPANY
2813 W. ALAMEDA AVENUE
BURBANK, CA 91505
Attention: Secretary
Exercise of Option. Effective as of today, _________, 19__, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
________ shares of the Common Stock (the "Shares") of FOUR MEDIA COMPANY (the
"Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the [ ]
Incentive [ ] Nonstatutory Stock Option Agreement dated _______, 19__ (the
"Option Agreement"). Unless otherwise defined herein, the terms defined in the
Plan shall have the same defined meanings in this Exercise Notice.
1. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
2. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12.
Optionee shall enjoy rights as a stockholder until such time as
Optionee disposes of the Shares or the Company and/or its
26
<PAGE>
assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise,
Optionee shall have no further rights as a holder of the Shares so purchased
except the right to receive payment for the Shares so purchased in accordance
with the provisions of this Agreement, and Optionee shall forthwith cause the
certificate(s) evidencing the Shares so purchased to be surrendered to the
Company for transfer or cancellation.
3. Company's Right of First Refusal. Before any Shares held by Optionee
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
27
<PAGE>
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Notwithstanding anything
--------------------------------------
to the contrary contained in this Section, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon the first sale of Common Stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the
28
<PAGE>
Securities and Exchange Commission under the Securities Act of 1933, as amended.
4. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE
OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST
29
<PAGE>
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been transferred.
6. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
7. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
8. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State
30
<PAGE>
of California excluding that body of law pertaining to conflicts of law. Should
any provision of this Agreement be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
9. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
10. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
11. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
31
<PAGE>
12. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: FOUR MEDIA COMPANY
By:______________________________
Its:_____________________________
_________________________
(Signature)
Address: Address:
- ------- -------
_________________________ 2813 W. ALAMEDA AVENUE
BURBANK, CA 91505
_________________________
32
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : FOUR MEDIA COMPANY
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are
33
<PAGE>
subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the Securities. Optionee
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company, a legend prohibiting their transfer without the
consent of the Commissioner of Corporations of the State of California and any
other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three
34
<PAGE>
years, the satisfaction of the conditions set forth in sections (1), (2), (3)
and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Optionee
shall not sell or otherwise transfer any Shares or other securities of the
Company during a period of up to 180 days following the effective date of a
registration statement of the Company filed under the Securities Act; provided,
however, that such restrictions shall only apply to the first registration
statement of the Company to become effective under the Securities Act which
include securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such 180-day period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that
any such other registration exemption will be available in such event.
(f) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature of Optionee:
35
<PAGE>
___________________________
Date:___________, 19__
36
<PAGE>
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.143.33: Restriction on Transfer. (a) The issuer of any security upon
---------- -----------------------
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory
or country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities
37
<PAGE>
is not in violation of any securities law of the foreign state, territory
or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
38
<PAGE>
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the code by exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is non
the condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES."
39
<PAGE>
EXHIBIT 10.4
Portions of this exhibit have been deleted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment. The redacted portions are identified by an asterisk indicating
deleted information.
AGREEMENT
DATED AS OF FEBRUARY 13, 1995
BETWEEN
MTV ASIA LDC
AND
FOUR MEDIA COMPANY ASIA PTE LTD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<C> <S> <C>
1. USE OF PREMISES, CREWS, SERVICES AND EQUIPMENT.......................... 1
2. TERM; CANCELLATION OPTION; CANCELLATION FEE; AMELIORATION MEASURES...... 5
3. FAILURE TO SATISFY...................................................... 6
4. CREWS AND MEALS......................................................... 7
5. MATERIALS TO BE SUPPLIED BY MTVA........................................ 11
6. CONSIDERATION........................................................... 11
7. SECURITY; INSURANCE..................................................... 19
8. DELAYS OR ADDITIONAL EXPENSES DUE TO EQUIPMENT FAILURE OR 4MCA PERSONNEL 21
9. TERMINATION............................................................. 23
10. ENGINEERING AND MAINTENANCE............................................. 25
11. PERSONNEL............................................................... 27
12. PRINCIPAL MANAGERS...................................................... 28
13. OVERHEAD................................................................ 28
14. PUBLICITY; PRESS RELEASES............................................... 28
15. CLOSED SET.............................................................. 29
16. 4MCA REPRESENTATIONS, WARRANTIES AND COVENANTS.......................... 29
17. MTVA REPRESENTATIONS, WARRANTIES AND COVENANTS.......................... 30
18. INDEMNITIES............................................................. 32
19. FORCE MAJEURE........................................................... 34
20. ASSIGNMENT.............................................................. 35
21. WAIVER NOT CONSENT...................................................... 35
22. NOTICES................................................................. 35
23. APPLICABLE LAW; JURISDICTION............................................ 37
24. PROPRIETARY INFORMATION................................................. 38
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
25. ADDITIONAL SERVICES...................................................... 39
26. ATTORNEYS' FEES.......................................................... 39
27. END OF TERM.............................................................. 40
28. ENTIRE AGREEMENT......................................................... 40
29. CONSENT NOT UNREASONABLY WITHHELD........................................ 40
30. SURVIVAL OF INDEMNITIES.................................................. 40
31. FURTHER INSTRUMENTS...................................................... 40
32. SEVERABILITY............................................................. 40
33. COUNTERPARTS............................................................. 41
34. GUARANTIES............................................................... 41
35. CHANGES IN TAX LAW....................................................... 41
36. REASONABLE EFFORTS....................................................... 41
37. CONTRAVENTION OF LAWS.................................................... 41
38. CHANGES IN LABOR LAW..................................................... 41
39. EXECUTION OF LEASE....................................................... 42
40. EMPLOYMENT CONTRACTS AND OTHER EMPLOYMENT DOCUMENTATION.................. 42
SCHEDULES................................................................ 44
</TABLE>
ii
<PAGE>
EXHIBIT 10.4
This Agreement (the "Agreement"), dated as of February 13, 1995, is entered
into by and between MTV Asia LDC, Treasury Building, 8 Shenton Way, #01-01,
Republic of Singapore 0106 ("MTVA"), and Four Media Company Asia PTE Ltd., 30
Choon Guan Street, Republic of Singapore 0207 ("4MCA").
1. USE OF PREMISES, CREWS, SERVICES AND EQUIPMENT
----------------------------------------------
1.1. 4MCA agrees to furnish for the use of MTVA certain premises located
at 30 Choon Guan Street, Republic of Singapore, as listed in, and of the size
described in, SCHEDULE A attached hereto and made a part hereof (collectively,
----------
the "Premises"). At no cost to MTVA, 4MCA shall renovate the Premises in
accordance with that certain floor plan which has been provided to MTVA by 4MCA,
which floor plan is attached hereto and made a part hereof as SCHEDULE F (the
----------
"Floor Plan"). By MTVA's execution of this Agreement, MTVA shall be deemed to
have approved the Floor Plan in the form of SCHEDULE F. If either party desires
----------
to implement any material change to the Floor Plan, any such change shall only
be implemented upon the prior written approval of the other party. MTVA shall
have the right to consult with 4MCA with respect to the design, carpeting and
painting of the Premises.
1.2. 4MCA agrees to furnish for the exclusive use of MTVA certain
production, on-line editing, audio mixing, subtitling, origination and library
personnel, all as more specifically described in SCHEDULE B attached hereto and
----------
made a part hereof, and any other similar personnel that are added pursuant to
Paragraphs 4.1(c) and 6.6 (collectively, the "Crews"). SCHEDULE B also sets
----------
forth each particular Crew position, the number of Crew members for each such
position, the work week and work hours for each Crew member, and the budgeted
total compensation for each Crew member.
1.3. 4MCA agrees to furnish certain services to enable MTVA to produce,
videotape and transmit programming to an interconnect on the terms and
conditions hereunder, including, without limitation, production studio services,
production control room services, on-line editing services, off-line editing
services, audio mixing services, graphics services, subtitling services,
origination services, videotape library services, and other services, all as
more particularly described in SCHEDULE C attached hereto and made a part hereof
----------
(collectively, the "Services"). MTVA acknowledges that the Services to be
provided hereunder shall be limited to those services which are capable of being
provided from the Premises (except for off-line editing, which shall be provided
from two edit bays located on premises leased by MTVA, for which 4MCA shall be
responsible solely for providing and maintaining certain off-line editing
equipment and shall not be responsible for off-line editing personnel), and
shall also be limited by the Equipment (as hereinafter defined) to be provided
hereunder pursuant to Paragraph 1.4.
1.4. 4MCA agrees to furnish and maintain certain equipment to enable MTVA
to produce, videotape and transmit programming to an interconnect on the terms
and conditions hereunder, as generally described in SCHEDULE C, and as more
----------
specifically detailed on an
1
<PAGE>
item-by-item basis in SCHEDULE D attached hereto and made a part hereof
----------
(collectively, the "Equipment").
1.5. 4MCA agrees to furnish a local satellite downlink capability to the
Premises to provide access to one or more satellite transponders as requested by
MTVA, on which MTVA programming may be carried, if and only if 4MCA makes the
determination, in its sole and absolute discretion, after using all reasonable
efforts, that the following conditions are or can be reasonably satisfied:
(a) the ability to construct, operate and maintain small aperture receive-
only antenna(s) is technically feasible;
(b) the landlord on whose property the antenna is to be placed grants
permission for the placement of such antenna;
(c) 4MCA is granted the appropriate licenses (the "TVRO License") to
install and operate the downlink antenna from the Singapore Broadcasting
Authority and any other appropriate governmental licensing agencies (in which
event the term of 4MCA's services under this Paragraph 1.5 shall be co-extensive
with the term of such licenses);
(d) 4MCA and MTVA can mutually agree on a reasonable fee for such downlink
services, which fee shall be in addition to the fees described in Paragraph 6.1
hereof; and
(e) MTVA obtains all applicable licenses, as required, for the signal to be
transmitted from 4MCA's downlink antenna at the Premises to MTVA's premises and
MTVA complies with all of the material terms and conditions of such licenses
(but only if MTVA requests that the signal be transmitted to MTVA's premises).
To the extent 4MCA defaults in its obligations as set forth in this
Paragraph 1.5, such default shall not be deemed a "Default" for purposes of
Paragraph 9.1 hereof, nor shall the technical specifications set forth in
SCHEDULE H be applicable to the services which may be provided pursuant to this
- ----------
Paragraph 1.5.
1.6. In connection with the origination services to be provided by 4MCA as
described on SCHEDULE C, 4MCA shall use all reasonable efforts to implement
----------
certain systems and procedures in order to maintain the reliability of the
origination services to be provided hereunder, which systems and procedures are
described in Paragraph 7.6 of SCHEDULE C.
----------
1.7. Subject to the terms of Paragraph 1.8 hereof, MTVA shall have the
right to inspect and approve the Premises prior to the commencement of the Term
(as defined in Paragraph 2.1) to determine compliance with subparagraphs (a),
(b) and (c) of this Paragraph
2
<PAGE>
1.7. 4MCA hereby acknowledges and agrees that MTVA shall only be obligated to
commence payments of the fees set forth in Paragraph 6 below on the Actual
Commencement Date (as defined in Paragraph 1.8(b) hereof) if and when:
(a) the Premises have been renovated in substantial compliance with the
Floor Plan;
(b) the Premises are operational for the use intended by and described in
this Agreement (except as set forth in Paragraph 1.10 hereof); and
(c) the Premises may be lawfully occupied, as determined by the appropriate
local authorities, and used for the intended purposes described herein. In
connection therewith, 4MCA shall deliver to MTVA copies of any and all
certificates or other documents it may possess evidencing the satisfaction of
this subparagraph (c), if applicable. MTVA acknowledges and agrees that,
notwithstanding 4MCA's failure to receive a Certificate of Statutory Completion
in connection with the Premises as evidence of compliance with this subparagraph
(c) as of the date 4MCA delivers the Commencement Notice (as hereinafter
defined) to MTVA, if 4MCA has received, as of such date, a Temporary Occupation
Permit which permits the Premises to be lawfully occupied and used in the manner
intended by and described in this Agreement, then 4MCA shall be deemed to have
satisfied this subparagraph (c) with respect to lawful occupancy of the
Premises.
1.8. MTVA shall determine in good faith whether the conditions set forth
in Paragraph 1.7 have been reasonably satisfied in accordance with the following
procedures:
(a) 4MCA shall notify MTVA in writing that the conditions set forth in
Paragraph 1.7 have been satisfied (the "Commencement Notice").
(b) MTVA shall have seven (7) business days from the date of its receipt of
the Commencement Notice to approve or disapprove the conditions set forth in
Paragraph 1.7. If MTVA approves the conditions set forth in Paragraph 1.7, MTVA
shall deliver written confirmation of such approval within the seven (7)-
business day period set forth above. If the date of such confirmation is on or
prior to April 15, 1995, then April 15, 1995 shall be the "Actual Commencement
Date" hereunder. If the date of such confirmation is after April 15, 1995, then
the date of such confirmation shall be the Actual Commencement Date hereunder.
If MTVA disapproves one or more of the conditions set forth in Paragraph 1.7,
MTVA shall deliver written notice of disapproval to 4MCA within such seven (7)-
business day period set forth above, specifying the particular reason(s) for
disapproval. MTVA's failure to respond in writing to the Commencement Notice
within seven (7) business days after receipt thereof shall be deemed MTVA's
approval of the conditions set forth in Paragraph 1.7 above and, in such event,
the Actual Commencement Date will be the later of (i) April 15, 1995 or (ii)
seven (7) business days after MTVA's receipt of the Commencement Notice.
3
<PAGE>
Notwithstanding the foregoing, if MTVA commences to utilize a portion of the
Premises, Crews, Services and Equipment pursuant to Paragraph 1.10 hereof in
connection with any particular activity to be provided hereunder in the manner
intended by, and described in, this Agreement, then MTVA shall not use or cite
such particular activity as a basis on which to disapprove the conditions set
forth in Paragraph 1.7 (unless such portion of the Premises, Services, Crews and
Equipment that are utilized in connection with such particular activity no
longer complies with the conditions set forth in Paragraph 1.7).
1.9. MTVA shall have the exclusive use of all Premises and Crews described
in SCHEDULES A and B during the Regular Hours (as defined in Paragraph 4.4) with
----------- -
respect to production, on-line editing, audio mixing, subtitling and graphics
Services and at all times with respect to origination and library Services.
MTVA shall be given scheduling priority over any other 4MCA customer in
connection with the production, on-line editing, audio mixing, subtitling and
graphics Premises and Crews during Overtime Hours, Weekend Hours and Holiday
Hours (all as defined in Paragraph 4.7), in accordance with the provisions set
forth in Paragraph 4.7. The production studio and production control rooms
shall be exclusively available to MTVA, unless 4MCA obtains MTVA's consent to
use such facilities for 4MCA's other customers, which consent may be withheld by
MTVA in its sole and absolute discretion. MTVA acknowledges that 4MCA may
provide services, facilities, personnel and equipment to other customers of 4MCA
which may be similar to the Premises, Services, Crews and Equipment to be
provided to MTVA hereunder. MTVA acknowledges that such similar facilities,
services, personnel and equipment may be provided by 4MCA from the Premises.
4MCA represents and warrants that its provision of facilities, services,
personnel and equipment to such other 4MCA customers will in no way infringe
upon MTVA's rights under this Agreement or adversely affect 4MCA's obligations
hereunder.
1.10. Prior to the Actual Commencement Date and subject to the next four
sentences of this Paragraph 1.10, at MTVA's request, 4MCA may provide a portion
of the Premises, Crews, Services and Equipment in accordance with the Pre-
Commencement Fee Schedule set forth on SCHEDULE G attached hereto and made a
----------
part hereof. If the Premises, Crews, Services and Equipment to be used in
connection with any particular activity to be provided hereunder (for example,
origination) satisfy the conditions set forth in Paragraph 1.7 for use in the
manner intended by, and described in, this Agreement prior to the Actual
Commencement Date, then, if MTVA requests the commencement of such particular
activity, 4MCA shall be obligated to commence the provision of such Premises,
Crews, Services and Equipment to MTVA and MTVA shall be obligated to commence
paying a prorated portion of the Monthly Base Fee (as defined in Paragraph
6.1(a)(ii)) for such Premises, Crews, Services and Equipment, in accordance with
the Pre-Commencement Fee Schedule. The date on which 4MCA commences its
provision of the Premises, Crews, Services and Equipment in connection with any
particular activity pursuant to the prior sentence shall be referred to as the
"Pre-Commencement Date". Notwithstanding the foregoing, if the Premises, Crews,
Services and Equipment to be used in connection with any particular activity to
be provided hereunder do not
4
<PAGE>
fully satisfy the conditions set forth in Paragraph 1.7 prior to the Actual
Commencement Date, but 4MCA and MTVA agree that MTVA shall nevertheless commence
utilizing such Premises, Crews, Services and Equipment in connection with such
particular activity in a manner other than as specifically intended for use by
and described in this Agreement, then (a) MTVA shall not be obligated to
commence payment in accordance with the Pre-Commencement Fee Schedule, but
rather shall pay to 4MCA an amount equal to 4MCA's actual documented costs
incurred in connection with the provision of such Premises, Crews, Services and
Equipment (but in no instance shall the amount be greater than the amount
payable in accordance with SCHEDULE G), and (b) MTVA shall not be obligated
----------
to pay for the full complement of Crew members in connection with such
particular activity, but rather shall be obligated to pay 4MCA's actual
documented costs in connection with those Crew members who are actually being
utilized during such pre-commencement period (but in no instance shall the
amount be greater than the amount payable in accordance with SCHEDULE G).
----------
4MCA's obligation to provide the Premises, Crews, Services and Equipment
pursuant to this Paragraph 1.10 shall at all times take priority over any
potentially conflicting arrangement or relationship with any other 4MCA customer
or other party.
2. TERM; CANCELLATION OPTION; CANCELLATION FEE; AMELIORATION MEASURES
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2.1. The term of this Agreement (the "Term") shall commence on the Actual
Commencement Date and shall continue through and including April 14, 2002 (the
"Termination Date"), subject to earlier termination as provided herein.
2.2. (a) MTVA shall have the option, in its sole discretion, to cancel
this Agreement (the "Cancellation Option") as of the date which is five (5)
years from April 15, 1995 (the "Cancellation Date"), exercisable by written
notice to 4MCA no less than one (1) year prior to the Cancellation Date. If
MTVA fails to deliver such notice to 4MCA at least one (1) year prior to the
Cancellation Date, MTVA shall be deemed to have waived the Cancellation Option.
(b) If MTVA exercises the Cancellation Option, then on the Cancellation
Date, MTVA shall be obligated to pay to 4MCA a cancellation fee in an amount
equal to * of the actual aggregate
documented costs of the Initial Equipment, Installation and Wiring Expenditures
(as defined in, and determined pursuant to, Paragraph 6.4(a)), but in no event
to exceed * * (the
"Cancellation Fee").
2.3. If and when MTVA delivers written notice to 4MCA of its exercise of
the Cancellation Option in accordance with Paragraph 2.2(a) , 4MCA shall be
obligated to use all reasonable efforts during the one-year period prior to the
Cancellation Date to ameliorate 4MCA's potential business losses as the result
of MTVA's exercise of the Cancellation Option, including without limitation,
using all reasonable efforts to secure replacement customers to
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utilize the Premises, Services and Crews during the two-year period following
the Cancellation Date and/or using all reasonable efforts to sell the Equipment.
2.4. Notwithstanding the provisions of Paragraph 2.2(b), if 4MCA is
successful in finding a replacement customer or customers who will pay
substantially the same fee that MTVA would have paid hereunder during the two-
year period following the Cancellation Date, then MTVA shall not be obligated to
pay the Cancellation Fee to 4MCA.
2.5. If 4MCA is unable to find such replacement customer(s) but is able to
sell substantially all of the Equipment for an aggregate purchase price in
excess of the lesser of: (a) *
* of the actual aggregate documented costs of the Initial Equipment,
Wiring and Installment Expenditures (as determined pursuant to Paragraph 6.4(a))
or (b) *
* (such excess dollars to be referred to as the "Excess Equipment
Price"), then the Cancellation Fee shall be reduced on a dollar-for-dollar basis
by the amount of the Excess Equipment Price.
2.6. If 4MCA is able to find a replacement customer or customers who will
utilize a portion (but less than substantially all) of the Premises, Services
and Crews (but only with respect to those Crew members under written contract or
to whom severance would be owing upon termination of such Crew members'
services) during the two year period following the Cancellation Date, and is
also able to sell a portion of the Equipment, then 4MCA and MTVA shall negotiate
in good faith to determine the appropriate reduction in the Cancellation Fee.
4MCA shall negotiate in good faith with, and use all reasonable efforts to
contact, all potential buyers, customers and/or other parties in order to
accomplish the amelioration measures set forth in Paragraphs 2.3 through 2.6.
3. FAILURE TO SATISFY
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In the event that the Premises do not satisfy the terms of subparagraphs
(a), (b) or (c) of Paragraph 1.7 above and such failure to satisfy (a "Premises
Failure") exists on or after April 15, 1995 (which shall not include a Premises
Failure that is directly caused by either (a) a Force Majeure Event or (b) any
unreasonable act or failure to act by MTVA (including without limitation and for
illustration purposes only, a Premises Failure relating to MTVA's approval
rights set forth in Paragraph 4.1(b) below) or (c) any other event not within
4MCA's control (including without limitation and for illustration purposes only,
(i) reasonably unforeseen delays in the delivery of any Equipment listed on
SCHEDULE D or (ii) the reasonably unforeseen failure of the Landlord to act
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regarding the installation of certain equipment by the Landlord pursuant to the
Lease or (iii) delays (which delays are reasonably unforeseen as of the date
hereof, or thereafter are unforeseen in the exercise by 4MCA of all reasonable
efforts) in the granting of appropriate required licenses and/or permits by the
appropriate local authorities, so long as 4MCA has taken all necessary actions
to obtain such required licenses and permits)), and
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the Premises Failure continues to exist as of May 15, 1995 (the "Penalty Date"),
then 4MCA shall be in material breach of this Agreement and MTVA shall have the
right, among other remedies available to it hereunder or at law or equity, to
terminate this Agreement forthwith and MTVA shall have no obligation to 4MCA of
any nature whatsoever (other than MTVA's pre-commencement payment obligations to
4MCA under Paragraph 1.10 hereunder, if applicable).
4. CREWS AND MEALS
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4.1. (a) 4MCA shall furnish MTVA with the Crews described in SCHEDULE B
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on the terms set forth herein. The employment of all persons (and any
individual who replaces any such person during the Term) comprising the Crews
listed in SCHEDULE B will be subject to MTVA's reasonable approval, as more
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specifically set forth in Paragraph 4.1(b) below.
(b) SCHEDULE B attached hereto and made a part hereof sets forth the
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initial individual (by job description) and aggregate budgeted annualized Crew
costs of *
U.S. Dollars * (the "Budgeted Crew Costs") necessary for
implementation of this Agreement on April 15, 1995. For each individual Crew
member, the Budgeted Crew Costs include base compensation, benefits and taxes,
holiday compensation, if applicable, and an expatriate allowance, if applicable
(collectively for each individual Crew member "Total Compensation").
(i) From time to time after the execution of this Agreement but in any
event no less than thirty (30) days prior to April 15, 1995, 4MCA shall deliver
to MTVA a notice or notices containing the name(s) of proposed Crew member(s)
and corresponding proposed Total Compensation (each a "Crew Notice"). MTVA
shall have the right to reasonably approve or disapprove each Crew member for
any reason; provided, however, if MTVA desires to disapprove a particular Crew
member on the basis of Total Compensation alone, MTVA may only do so if the
proposed Total Compensation for such Crew member, as set forth in the Crew
Notice, exceeds the Total Compensation, by job title, for such Crew member as
set forth on SCHEDULE B. If MTVA disapproves a particular Crew member on the
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basis of proposed Total Compensation as set forth in the Crew Notice, MTVA shall
have thirty (30) days from the date of receipt of the particular Crew Notice to
find a replacement Crew member at a Total Compensation equal to or less than the
level set forth in the Crew Notice (even if such Total Compensation set forth in
the Crew Notice is in excess of the level set forth on SCHEDULE B). If MTVA is
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unable to find a replacement Crew member at a Total Compensation equal to or
less than that set forth in the Crew Notice within such thirty (30) day period,
MTVA shall be deemed to have approved the individual Crew member and
corresponding Total Compensation set forth in the Crew Notice. If MTVA locates
a replacement Crew member at a Total Compensation equal to or less than that set
forth in the Crew Notice, then 4MCA shall be obligated to hire such replacement
Crew member at such equal or lesser Total Compensation level.
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(ii) MTVA shall have fifteen (15) business days from the date of receipt of
a particular Crew Notice to disapprove a particular Crew member for any reason
other than Total Compensation. MTVA shall deliver notice to 4MCA of MTVA's
disapproval of such particular Crew Member within such fifteen (15) business day
period, stating the particular reason for MTVA's disapproval. MTVA may provide
such notice verbally or in writing, but if 4MCA so requests, MTVA shall confirm
any verbal notice in writing. If MTVA fails to notify 4MCA in writing of MTVA's
disapproval within such fifteen (15) business day period, MTVA shall be deemed
to have approved such particular Crew member (unless MTVA disapproves such
particular Crew member on the basis of Total Compensation, in which case the
provisions of subparagraph (i) above shall be applicable).
(iii) To the extent the aggregate actual Crew costs as of April 15, 1995
exceed the aggregate Budgeted Crew Costs (taking into account the possible
exercise by MTVA of the procedures set forth in this Paragraph 4.1(b)), then the
Annual Base Fee (as defined in Paragraph 6.1(a)) will be increased by an amount
equal to * of such difference.
(iv) To the extent the aggregate actual Crew costs as of April 15, 1995 are
less than the aggregate Budgeted Crew Costs (taking into account the possible
exercise by MTVA of the procedures set forth in this Paragraph 4.1(b)), then the
Annual Base Fee will be decreased by a net amount equal to * of such
difference.
(c) From and after the Actual Commencement Date and subject to paragraph
6.6 hereof, MTVA retains the right, in MTVA's sole and absolute discretion, to
add individual Crew members to, or remove individual Crew members from, the
complement of Crew members and negotiate the consideration paid for any such
additions or removals accordingly (and upon any such removal, MTVA, in its sole
and absolute discretion, may also elect to delete the corresponding Crew
position from the Crew complement). MTVA shall be billed monthly in an amount
equal to the monthly consideration to be paid for any additional Crew members
added by MTVA in accordance with this paragraph and Paragraph 6.6 hereof. If at
any time during the Term MTVA determines to cause the termination of Crew
members required hereunder, and if the particular Crew members whose services
are terminated hereunder have been employed pursuant to written long-term
contracts and/or would be entitled to receive severance payments upon
termination of employment pursuant to any written agreement or in accordance
with Local Laws and Practice (as hereinafter defined), then MTVA shall be
obligated to pay to 4MCA an amount equal to the aggregate severance payments
owing to any and all such terminated Crew members. As used in this Agreement,
the term "Local Laws and Practice" shall mean any and all applicable laws,
rules, regulations, statutes, acts, administrative requirements and related
legislation of the Republic of Singapore with respect to labor matters as such
matters relate to the Crews, and all other mandatory rules, regulations and
practices imposed by the Singapore government.
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4.2. 4MCA shall make the Crew members listed on SCHEDULE B under
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"Production Studio", "Production Control Room", "Production Audio Control Room"
and "Production Video Tape" and any other similar Crew members that are added to
the complement of Crew members pursuant to Paragraphs 4.1(c) and 6.6
(collectively, "Studio Crew") available to MTVA exclusively on a Monday through
Friday schedule, in accordance with the hours set forth on SCHEDULE B with each
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day consisting of nine hours, including a meal period of up to one hour (the
"Regular Production Hours"), except for the holidays set forth in SCHEDULE B-1
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("Holidays"). Weekly call schedules may be requested by MTVA no later than the
previous Friday at noon, and 4MCA shall use its best efforts to accommodate such
schedule. Daily call schedule amendments may be requested by MTVA by 6:00 p.m.
or at the end of the taping day, whichever is later, on the day prior to the
date such amended call schedule is to become effective, and 4MCA shall use its
best efforts to accommodate such schedule.
4.3. 4MCA shall make the Crew members listed on SCHEDULE B under "Edit 1",
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"Edit 2", "Edit 3" and "Edit Other" and any other similar Crew members that are
added to the complement of Crew members pursuant to Paragraphs 4.1(c) and 6.6
(collectively, "Edit Crew") and Crew members listed on SCHEDULE B under "Audio
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Mixing Room" and any other similar Crew members that are added to the complement
of Crew members pursuant to Paragraphs 4.1(c) and 6.6 (collectively, "Audio
Mixing Crew") available to MTVA exclusively on a Monday through Friday schedule,
in accordance with the hours set forth on SCHEDULE B, with each day consisting
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of nine hours including a meal period of up to one hour (the "Regular Edit and
Audio Mixing Hours"), except for Holidays. 4MCA shall use its best efforts to
accommodate requests for changes to the daily schedule, in accordance with
Paragraph 4.7 below. Regular Production Hours and Regular Edit and Audio Mixing
Hours shall sometimes collectively be referred to herein as the "Regular Hours".
4.4. 4MCA shall make the Crew members listed on SCHEDULE B under
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"Subtitling 1" and "Subtitling 1/2" and any other similar Crew members that are
added to the complement of Crew members pursuant to Paragraphs 4.1(c) and 6.6
(collectively, "Subtitling Crew") exclusively available to MTVA, with each week
consisting of seven days, in accordance with the shifts and hours set forth on
SCHEDULE B, with each day consisting of nine hours including a meal period of up
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to one hour, except for Holidays. 4MCA shall use its best efforts to
accommodate requests for changes to the daily schedule, in accordance with
Paragraph 4.7 below.
4.5. 4MCA shall make the Crew members listed on SCHEDULE B under
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"Origination" and any other similar Crew members that are added to the
complement of Crew members pursuant to Paragraphs 4.1(c) and 6.6 (collectively,
"Origination Crew") available to MTVA on an exclusive basis at all times during
the Term, each week to consist of 168 hours of continuous seven (7) day per week
coverage between and including Monday through Sunday, including all Holidays, in
eight and one-half hour shifts, including a meal period of one-half hour.
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4.6. 4MCA shall make the Crew members listed on SCHEDULE B under "Library
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Facility" and any other similar Crew members that are added to the complement of
Crew members pursuant to Paragraphs 4.1(c) and 6.6 (collectively, "Library
Crew") available to MTVA on an exclusive basis in accordance with the Monday
through Sunday schedule set forth in SCHEDULE B, in eight and one-half hour
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shifts, including a meal period of one-half hour, except for Holidays which will
be worked with a reduced Crew that is proportional to actual origination and
other related activities. 4MCA shall use its best efforts to accommodate
requests for changes to the Library Crew schedule, in accordance with Paragraph
4.7 below.
4.7. If MTVA requests that 4MCA provide the Studio Crew, Edit Crew,
Subtitling Crew and/or Audio Mixing Crew in excess of the Regular Hours, such
additional hours shall be deemed "Overtime Hours". If MTVA requests that 4MCA
provide the Studio Crew, Edit Crew, Subtitling Crew and/or Audio Mixing Crew
during a weekend, such hours shall be deemed "Weekend Hours". Notwithstanding
the above, work begun on a Friday which continues beyond midnight and is in
excess of Regular Hours shall be deemed Overtime and not Weekend Hours. If MTVA
requests that 4MCA provide the Studio Crew, Edit Crew, Subtitling Crew and/or
Audio Mixing Crew during a Holiday, the hours worked during the Holiday shall be
deemed "Holiday Hours", except that work begun on a non-Holiday which continues
into a Holiday shall not be deemed Holiday Hours. MTVA shall have priority over
any other 4MCA customer in connection with securing Crew members to work during
Overtime Hours, Weekend Hours and Holiday Hours; provided however, that MTVA
shall not unreasonably seek to extend its use of the Premises, Services and
Crews into Overtime Hours, Weekend Hours and/or Holiday Hours, and provided
further that MTVA shall use its best efforts to notify 4MCA within a reasonable
time period of its need for such Overtime Hours, Weekend Hours and/or Holiday
Hours.
4.8. MTVA shall use all reasonable efforts to provide each member of the
Studio Crew, Edit Crew, Audio Mixing Crew and Subtitling Crew with one one-hour
meal break during each full production, on-line editing, audio mixing or
subtitling day, the commencement of which meal break shall be determined by MTVA
in its sole discretion. In addition, Origination Crew members and Library Crew
members shall be provided with a meal break of up to one-half hour per each
eight and one-half hour shift, the commencement of which meal break shall be
determined by MTVA in its sole discretion. On days extending beyond the Regular
Hours, MTVA shall use its reasonable efforts to provide each member of the
Studio Crew, Edit Crew, Subtitling Crew and Audio Mixing Crew with an additional
meal break, the commencement of which break shall be determined by MTVA in its
sole discretion. Notwithstanding the foregoing, MTVA shall use all reasonable
efforts to conform to standard local industry practice in providing timely meal
breaks to Crew members hereunder (which shall not result in any increased cost
to MTVA hereunder).
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4.9. MTVA acknowledges and agrees that 4MCA shall not be responsible for
providing any off-line editing or graphics Crews hereunder. Any and all off-
line editing and/or graphics Services to be performed hereunder shall be
performed by MTVA's personnel.
4.10. Notwithstanding any other provision herein, the shifts and hours
set forth in SCHEDULE B may be adjusted by mutual agreement of the parties, in
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writing.
5. MATERIALS TO BE SUPPLIED BY MTVA
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5.1. MTVA shall be responsible for providing (at its cost):
(a) Videotape in such formats as MTVA shall deem appropriate, and such
audio tape, raw stock and videocassettes and data media, including disks,
diskettes and cartridges, as may be used by MTVA. All of the aforementioned
shall be of high quality material, and, to MTVA's knowledge, shall be free of
defect. Any defective tapes, raw stock and/or videocassettes causing down time
shall be the responsibility of MTVA. MTVA shall be liable for any consequential
or other unforeseen damages which reasonably result from such defective
materials only to the extent any damages are solely and directly caused by the
defective materials and not by defective Equipment or by operator error.
(b) All wardrobe, various props, sets, curtains, scrims, soft cyclorama,
certain "above-the-line" personnel and any additional support personnel required
by (i) MTVA's employees or (ii) talent hired by MTVA.
(c) Production and stage accessories not otherwise provided for in this
Agreement.
5.2. All materials and equipment supplied by MTVA in connection with this
Agreement may be stored at the Premises at no extra charge to MTVA, and MTVA's
materials and equipment shall be insured and secured by 4MCA in accordance with
the provisions of Paragraph 7 hereof.
6. CONSIDERATION
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6.1. CONSIDERATION FOR PREMISES, CREW, SERVICES AND EQUIPMENT
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(a) Except as otherwise expressly provided for in this Agreement, in full
and complete consideration for 4MCA's provision of the Premises, Crews, Services
and Equipment in accordance herewith during the Term, MTVA shall pay to 4MCA and
4MCA shall accept from MTVA the sum of *
* (the "Base Fee"),
exclusive of taxes, in annual payments in the amount of *
* U.S.
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Dollars * ("Annual Base Fee"), payable in Singapore dollars, using a
1.0:1.5 exchange rate from U.S. Dollars to Singapore Dollars (i.e., the Annual
Base Fee will equal *
* Singapore Dollars * Singapore)), as follows:
(i) The first installment due on the Actual Commencement Date in the amount
of * U.S. Dollars *
if the Actual Commencement Date falls on the first day of a month. If the
Actual Commencement Date falls on a day other than the first day of a month, the
first installment shall be paid on the Actual Commencement Date and shall be
equal to the prorated portion of *
* U.S. Dollars * for such partial month.
(ii) Subsequent installments due on the first day of each consecutive month
of the Term in advance (beginning with the first day of the month following the
Actual Commencement Date and terminating on the first day of the month preceding
the Termination Date), each installment in the amount of *
* U.S. Dollars * , except that if the
Term ends on a day other than the last day of a month, then the final
installment shall be paid on the first day of such month and shall equal the
prorated portion of * U.S.
Dollars * for such partial month. Each monthly installment fee shall
be referred to as the "Monthly Base Fee".
(b) Notwithstanding the above payment schedule, the Annual Base Fee shall
be increased annually commencing one year from the Actual Commencement Date by
* percent * over the prior year's Annual Base Fee. In addition, unless
otherwise stated herein or agreed to by the parties, any and all other stated
costs and charges payable by MTVA hereunder shall be subject to an annual
increase of * commencing one year from the Actual Commencement Date, over the
prior year's stated costs and charges.
(c) Notwithstanding the above payment schedule, the Annual Base Fee may
increase or decrease pursuant to the terms of Paragraphs 4.1(b) and may decrease
pursuant to the terms of Paragraphs 6.4(a) and/or 6.4(b).
(d) Any costs that are incurred by 4MCA during the Term of this Agreement
in order for 4MCA to perform its obligations under this Agreement (other than
the amounts which MTVA is expressly required to pay pursuant to this Agreement,
including without limitation, those amounts set forth in Paragraphs 4.1(c), 6.1,
6.2, 6.5, 6.6 and 6.7) shall be the sole and exclusive responsibility of 4MCA,
except that MTVA shall be responsible for the payment of all existing and new
sales and service taxes and other similar taxes applicable to the Premises,
Services and Equipment, prorated for the period of MTVA's actual use and/or
occupancy of the Premises, Services and Equipment.
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(e) Notwithstanding the above, 4MCA shall have the one-time right, at any
time prior to the Actual Commencement Date, to elect to receive a portion of any
and/or all of the payments required to be made under Paragraphs 6.1(a)(i) and
(ii) in U.S. Dollars. Upon any such election by 4MCA hereunder, the payment
schedules set forth Paragraph 6.1 shall be adjusted accordingly and the parties
agree to be bound thereby.
(f) All payments of the Monthly Base Fee, together with any other amounts
to be paid by MTVA hereunder, shall be paid in Singapore dollars by wire
transfer of immediately available funds to a bank to be designated by 4MCA and
delivered in writing to MTVA no less than seven (7) business days prior to the
Actual Commencement Date, provided that should local banking and/or currency
laws, rules or regulations (collectively, "Currency Rules") at any time prohibit
the making of such payments (or any portion thereof) in accordance with this
Paragraph 6.1(f), then (a) the parties shall agree in good faith to alternative
payment arrangements and (b) MTVA agrees that in such instances, 4MCA shall
nevertheless remain entitled to the full payment that 4MCA would have received
as a result of MTVA making payment in the manner contemplated herein but for
such Currency Rules. If 4MCA exercises the one-time right to elect to receive a
portion of any or all of the payments required to be made under Paragraphs
6.1(a)(i) and (ii) in U.S. dollars, at such time as 4MCA notifies MTVA in
writing of such election, 4MCA shall specify the U.S. location to which such
funds should be sent via wire transfer of immediately available funds.
6.2. OVERTIME, WEEKEND AND HOLIDAY SERVICES AND CREW
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(a) MTVA will pay Overtime Hours for Services worked by the Studio Crew,
Edit Crew, Audio Mixing Crew and Subtitling Crew in excess of the Regular Hours,
in accordance with SCHEDULE B-2 attached hereto and made a part hereof. For
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each Overtime Hour that MTVA requests 4MCA to provide, MTVA agrees to pay the
hourly fee set forth on SCHEDULE B-2, prorated for less than a full Studio Crew
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or Edit Crew pursuant to the formula described in Paragraph 6.2(d). The fee for
any Overtime Hours, Weekend Hours or Holiday Hours shall be prorated to the
quarter-hour.
(b) MTVA agrees to pay 4MCA and 4MCA agrees to accept the applicable
amounts set forth on SCHEDULE B-2 for a full complement of Services and Crews
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that MTVA requests 4MCA to provide which are deemed Weekend Hours or Holiday
Hours (i.e., not including services of the Crews begun after 5 PM on a Friday
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that continue beyond midnight in excess of Regular Hours, which shall be deemed
Overtime Hours, or services of the Crews begun on a non-holiday that continue
into a Holiday), prorated for less than a full Studio Crew or Edit Crew pursuant
to the formula described in Paragraph 6.2(d).
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(c) If MTVA procures other services of 4MCA in excess of the Regular Hours,
the charges for such additional time shall be agreed upon by MTVA and 4MCA in
good faith and shall in no event exceed the lowest rate then charged by 4MCA for
similar services or crew.
(d) If MTVA requests that 4MCA provide less than a full complement of
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Studio Crew and/or Edit Crew in connection with any Overtime, Weekend or Holiday
Hours, then MTVA shall pay 4MCA the applicable amount set forth on SCHEDULE B-2
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with respect to studio Services and Studio Crew and/or edit Services and Edit
Crew (as the case may be), reduced as follows: MTVA shall designate those
individual Studio Crew members and/or Edit Crew members whose presence is not
required with respect to such Overtime, Weekend or Holiday Hours. The actual
base salary of each such designated Studio Crew member and/or Edit Crew member
as of the Actual Commencement Date (as increased annually pursuant to the terms
of this Agreement) shall be divided by 2080 (40 hours per week multiplied by 52
weeks per year) and the quotient shall be multiplied by 1.5. The resulting
product with respect to each such designated Studio Crew member and/or Edit Crew
member shall be deducted from the hourly fee set forth on SCHEDULE B-2 with
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respect to studio Services and Studio Crew members and/or edit Services and Edit
Crew members, as applicable.
(e) There shall be no charge to MTVA for Overtime Hours, Holiday Hours or
Weekend Hours without the express written authorization of MTVA (via its
production manager or other designated representative).
(f) Crew utilization during Overtime Hours, Weekend Hours and Holiday Hours
shall be subject, in all instances, to availability of particular Crew members.
Notwithstanding the foregoing, 4MCA shall use all reasonable efforts to provide
the full complement of Crew members requested by MTVA during Overtime, Weekend
or Holiday Hours (even if 4MCA cannot provide certain individually-identified
Crew members during such periods).
6.3. ACCESS TO PREMISES
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Unless expressly provided to the contrary herein, MTVA and its personnel
and other representatives shall have the full right of access to the Premises,
on a twenty-four (24) hour, seven (7) days per week basis, for the purpose of
producing, videotaping and transmitting programming to an interconnect and all
related activities thereto. MTVA represents and warrants that, notwithstanding
the full right of access provided pursuant to the preceding sentence, under no
circumstances shall MTVA and/or its personnel interfere in any manner with
4MCA's provision of services, facilities, personnel and equipment to other
customers of 4MCA, to the extent such provision of services, facilities,
personnel and equipment is permissible hereunder. MTVA further covenants that
(a) neither it nor any of its personnel shall utilize such right of access for
any purposes other than in connection with the terms and conditions of this
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Agreement and (b) MTVA and its personnel shall be subject to all security
measures implemented by 4MCA pursuant to the terms of this Agreement, including
without limitation, those security measures described in Paragraph 7.1 herein.
6.4. INITIAL CAPITAL EXPENDITURES AND BUILD-OUT COSTS
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(a) SCHEDULE D attached hereto and made a part hereof sets forth 4MCA's
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budgeted initial capital expenditures on an itemized basis relating to
Equipment, installation and wiring of the Premises but excluding start-up and
build-out costs of the Premises (the "Initial Equipment, Installation and Wiring
Expenditures") of *
Dollars U.S. Dollars * (the "Initial Equipment, Installation and
Wiring Expenditure Budget"). If the proposed cost of any item of Equipment
required to implement the terms of this Agreement (without regard to any
increased services pursuant to Paragraph 25 or elsewhere) exceeds the cost for
such item on the Initial Equipment, Installation and Wiring Expenditure Budget
by the greater of * or * then MTVA shall have the right to disapprove
such item and to designate a piece of replacement Equipment which 4MCA shall be
required to purchase, provided such Equipment is reasonably compatible with the
other items of Equipment to be installed pursuant to this Agreement. If MTVA
fails to disapprove a particular item of Equipment within seven (7) business
days after receiving written notification from 4MCA of the proposed cost of such
item of Equipment, then MTVA shall be deemed to have approved such item of
Equipment at such proposed cost. If the aggregate actual documented costs of
the Initial Equipment, Installation and Wiring Expenditures required to
implement the terms hereof (without regard to any increased services pursuant to
Paragraph 25 or elsewhere), which documentation shall be presented to MTVA no
later than thirty (30) days after the Actual Commencement Date, are lower than
the Initial Equipment, Installation and Wiring Expenditure Budget (taking into
account the possible exercise by MTVA of the approval procedures set forth in
this paragraph), then for each * Dollar * decrease in
actual documented costs of the Initial Equipment, Installation and Wiring
Expenditures from the Initial Equipment, Installation and Wiring Expenditure
Budget, the Annual Base Fee shall decrease by *
Dollars * (it being understood and agreed that the calculation of any
decrease in the Annual Base Fee in accordance with this Paragraph 6.4(a) shall
be based on such * to * proportion). The Monthly Base Fee shall
be decreased accordingly, effective as of the Actual Commencement Date (i.e. all
amounts that have been paid in excess of such decreased amount prior to the
effectiveness of the foregoing calculation (the "Capital Credit") shall be
deducted from the next adjusted Monthly Base Fee to be paid hereunder and any
subsequent adjusted Monthly Base Fees as required to reduce the Capital Credit
to zero). If the aggregate actual documented costs of the Initial Equipment,
Installation and Wiring Expenditures exceed the Initial Equipment, Installation
and Wiring Expenditure Budget (without taking into account any increased
services pursuant to Paragraph 25 or elsewhere), there shall be no increase in
the Annual Base Fee or Monthly Base Fee based upon such increased costs. For
illustration purposes only, assume that within 30 days after the Actual
Commencement Date, 4MCA delivers documentation to MTVA which
15
<PAGE>
demonstrates that the aggregate actual documented costs of the Initial
Equipment, Installation and Wiring Expenditures total *
* * resulting in a
decrease of * Dollars * from the Initial Expenditure
Budget. An amount equal to * Dollars *
would be deducted from the Annual Base Fee in each year of the Term, and the
Monthly Base Fee would be reduced accordingly.
(b) 4MCA's budgeted initial expenditures relating to start-up and build-out
costs of the Premises, together with possible overages in connection with
Initial Equipment, Installation and Wiring Expenditures (collectively, the
"Build-Out Costs"), total *
* Dollars * all in accordance with the Floor Plan
(the "Initial Build-Out Budget"). If the aggregate actual documented Build-Out
Costs required to implement the terms hereof (based on the Floor Plan and
without regard to any increased services pursuant to Paragraph 25 or elsewhere),
which documentation shall be presented to MTVA no later than thirty (30) days
after the Actual Commencement Date, are lower than the Initial Build-Out Budget,
then for each * Dollar * decrease in actual documented
Build-Out Costs from the Initial Build-Out Budget, the Annual Base Fee shall
decrease by * Dollars * (it being
understood and agreed that the calculation of any decrease in the Annual Base
Fee in accordance with this Paragraph 6.4(b) shall be based on such *
to * proportion). The Monthly Base Fee shall be decreased accordingly,
effective as of the Actual Commencement Date (i.e. all amounts that have been
paid in excess of such decreased amount prior to the effectiveness of the
foregoing calculation (the "Build Out Credit") shall be deducted from the next
adjusted Monthly Base Fee to be paid hereunder and any subsequent adjusted
Monthly Base Fees as required to reduce the Build Out Credit to zero). For
illustration purposes only, assume that within thirty (30) days after the Actual
Commencement Date, 4MCA delivers documentation to MTVA which demonstrates that
the aggregate actual documented Build-Out Costs total *
* Dollars * resulting in a
decrease of * in actual Build-Out Costs from the Initial Build-Out
Budget. An amount equal to * Dollars *
would be deducted from the Annual Base Fee in each year of the Term, and the
Monthly Base Fee would be reduced accordingly. If the actual initial Build-Out
Costs exceed the Initial Build-Out Budget (without taking into account any
increased services pursuant to Paragraph 25 or elsewhere), there shall be no
increase in the Annual Base Fee or the Monthly Base Fee based upon such
increased costs.
(c) Notwithstanding the foregoing provisions contained in subparagraphs (a)
and (b) above, if MTVA request changes and/or additions to the Floor Plan that
would result in an increase in the Build Out Costs and/or the Initial Equipment,
Installation and Wiring Expenditures, and 4MCA agrees to make such changes
and/or additions to the Floor Plan, then 4MCA and MTVA shall negotiate in good
faith to determine the appropriate increase, if any, in the Annual Base Fee.
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<PAGE>
6.5. ADDITIONAL EQUIPMENT
--------------------
(a) From and after the Commencement Date, MTVA may from time to time
request that 4MCA make available to MTVA certain additional equipment and/or
facilities of 4MCA not otherwise provided hereunder in connection with MTVA's
production, post-production or related activities, and 4MCA agrees to provide
such additional equipment and/or facilities to MTVA, to the extent such
equipment and/or facilities are reasonably available. In consideration for
4MCA's provision of such equipment and/or facilities pursuant to this paragraph,
MTVA shall pay 4MCA a mutually agreed rental price not to exceed 4MCA's then-
current rate card for such services. If MTVA requests documented
substantiation of such costs, 4MCA agrees to provide the same in a timely
manner.
(b) At MTVA's request and according to MTVA's need, 4MCA shall provide
supplementary equipment from an outside source as requested throughout the Term
of this Agreement, so long as such supplementary equipment is reasonably
available. The cost of such equipment shall be at a mutually agreed upon rate
and shall be borne by MTVA.
*
*
*
*
*
*
*
*
*
*
*
*
*
*
(ii) If 4MCA elects not to secure the Additional Equipment for MTVA, or
MTVA elects not to secure the Additional Equipment from 4MCA, MTVA may then rent
or lease the Additional Equipment from any outside source engaged by MTVA,
provided such Additional Equipment is reasonably compatible with the existing
Equipment located at the Premises and is delivered to 4MCA in good and proper
working order. Any Additional Equipment installed from an outside source
engaged by MTVA shall be installed and maintained at MTVA's expense and
liability or, if MTVA elects, MTVA may engage 4MCA to install and maintain such
Additional Equipment, at costs acceptable to MTVA. Notwithstanding the
foregoing, if any Additional Equipment is to be installed in areas of the
Premises relating to origination Services, then 4MCA shall install and maintain
such Additional Equipment, at costs
17
<PAGE>
acceptable to MTVA. 4MCA shall have the right to inspect the Additional
Equipment prior to installation to confirm that such Additional Equipment is not
defective and is reasonably compatible with the existing Equipment required
pursuant to this Agreement. MTVA shall be solely responsible for any damages to
the Additional Equipment and/or any materials supplied by MTVA hereunder which
are a direct result of any installation of Additional Equipment by a person or
an entity other than 4MCA or 4MCA's designee. Further, MTVA shall be liable to
4MCA for any damages to 4MCA's equipment, personnel and/or the Premises which
are a direct result of such installation by a person or an entity other than
4MCA or 4MCA's designee.
6.6. ADDITIONAL CREW
---------------
MTVA may request that additional Crew members be added to or removed from
the Crew complement provided by 4MCA in SCHEDULE B at any time and from time to
----------
time, at MTVA's sole and absolute discretion, subject to the provisions of
Paragraph 4.1(c). Upon any such removal, MTVA, in its sole and absolute
discretion, may also elect to delete the corresponding Crew position from the
Crew complement. In the event that 4MCA provides any additional Crew members
pursuant to MTVA's request, MTVA agrees to pay and 4MCA agrees to accept payment
with respect thereto in accordance with a rate card to be negotiated in good
faith by the parties. In the event 4MCA fails to provide MTVA with additional
crew members pursuant to MTVA's request therefor, MTVA shall have the right to
engage such person or persons as MTVA's employees.
6.7. OVERAGES; CREDITS TO MTVA
--------------------------
(a) 4MCA shall invoice MTVA weekly for all amounts due in excess of the
consideration payable as set forth in Paragraph 6.1 (the "Overages"). Each
Overage invoice shall be delivered to MTVA within 10 business days after the
date the Overage fee was incurred, or such Overage shall be deemed waived by
4MCA. MTVA shall have the right to reasonably contest any Overages by requiring
4MCA to provide written documentation substantiating any such Overages. To the
extent the parties cannot agree on a particular Overage invoice, both parties
shall submit the relevant calculations and any relevant documentation to a
mutually approved independent third-party accounting firm of international
standing who shall promptly render its decision as to the appropriate Overage in
writing , which decision shall be final and binding on the parties. If such
accounting firm determines that the Overage was either properly invoiced or
should have been a higher amount, then MTVA shall bear the costs of such
accounting firm. If such accounting firm determines that the Overage invoice
was improperly invoiced in exceeding the actual amount that should have been
invoiced to MTVA, then 4MCA shall bear the costs of such accounting firm.
Payment of any uncontested Overages shall be payable thirty (30) days after the
delivery to MTVA of such invoice. Payment of any contested Overage shall be
made within ten (10) days of MTVA's receipt of the independent third-party
accounting firm's written decision, such payment to be in the amount specified
in such written decision.
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<PAGE>
(b) To the extent that any amounts paid by MTVA to 4MCA pursuant to this
Paragraph 6 are in excess of the amounts actually owed for the period in
question, 4MCA shall promptly refund to MTVA such overpayment.
7. SECURITY; INSURANCE
-------------------
7.1. 4MCA shall at all times be responsible for providing reasonable care
and reasonable security for the studio, edit, origination, storage areas,
videotape storage and all other areas where MTVA's personnel or property may at
any or all times be located or have access to. Such security measures shall
include, without limitation, a minimum of one security guard in the reception
area that is immediately adjacent to and a part of the Premises, at all times
during MTVA's production hours. 4MCA shall provide a card-key lock or security
key pad system on all entrances to the Premises, which card-key lock or security
key pad system shall be approved in advance by MTVA. Accordingly, access to the
Premises shall be limited to MTVA and its authorized employees and visitors,
4MCA and its authorized employees and visitors (and with respect to 4MCA's
visitors, to the extent prior approval of MTVA has been obtained), and with
respect to certain Premises, 4MCA's other customers (but only to the extent use
of the Premises by such customers is permitted hereunder). In addition, MTVA
may provide additional guards at MTVA's expense during production hours;
provided however, that such additional security shall in no way reduce 4MCA's
obligations to provide reasonable security hereunder. Notwithstanding the
foregoing, if for any reason, including without limitation, the appearance of
high-visibility talent in connection with any MTVA production, extraordinary
security is required (beyond that which would already be provided pursuant to
this Paragraph 7.1), the cost of any and all such extraordinary security
measures shall be borne solely by MTVA.
7.2. 4MCA shall be liable for any and all personal injury and property
damage arising from 4MCA's employees', agents', invitees' or 4MCA's grossly
negligent or willful acts or omissions or 4MCA's material breach of any
representation, warranty, covenant or agreement in this Agreement. MTVA shall
be liable for any and all personal injury and property damage arising from
MTVA's employees', agents', invitees' or MTVA's grossly negligent or willful
acts or omissions or MTVA's material breach of any representation, warranty,
covenant or agreement in this Agreement.
7.3. 4MCA shall maintain fire, theft and comprehensive general personal
and property liability insurance in a form and in amounts satisfactory to MTVA,
which insurance shall also cover all personnel and property on the Premises and
all equipment and materials owned by MTVA as set forth on a schedule to be
provided by MTVA to 4MCA prior to the Actual Commencement Date, naming MTVA and
its parent companies, Viacom International Inc and Viacom Inc. (and any two
other parties as MTVA may designate) as additional insureds. 4MCA shall commit
to, and the parties will cooperate with each other in connection with,
19
<PAGE>
obtaining appropriate insurance coverage for any additional MTVA-owned equipment
and/or materials delivered to the Premises during the Term.
7.4. In addition, 4MCA shall maintain Comprehensive General Liability
insurance and All Risk Property insurance, covering MTVA's interest in all
property located on or around the Premises, and the liability of 4MCA to third
parties, including MTVA's personnel, arising out of the furnishing by 4MCA of
the Services and Crews. 4MCA will maintain such coverage in a form satisfactory
to MTVA and in the amounts set forth below. The policies obtained by 4MCA in
accordance herewith shall remain in effect throughout the Term.
Workman's Compensation and employer's liability
Coverage A - Statutory
Coverage B - Minimal Amount of $1,000,000 (U.S.)
Comprehensive General Liability
Combined Single Limit-Per Occurrence $1,000,000 (U.S.)
Umbrella Liability
$3,000,000 (U.S.) in excess of Primary Insurance
With respect to the Comprehensive General Liability, Umbrella Liability and
All Risk Property Damage coverages scheduled above, MTVA and its parent
companies, Viacom International Inc. and Viacom Inc. (and any two other parties
designated by MTVA), shall be named as additional insureds. With respect to All
Risk Property Damage Coverage, MTVA, Viacom International Inc. and Viacom Inc.
(and any other two parties designated by MTVA) shall be named as loss payees
with respect to their interest in property in the care, custody and control of
4MCA.
7.5. 4MCA shall ensure that each insurance company providing coverage
under Paragraphs 7.3 and 7.4 shall be licensed to do business in the Republic of
Singapore and shall be authorized to issue the policies listed hereunder. All of
the policies referred to above shall be written as primary insurance coverage
only, and shall not be deemed to be in excess of, or to contribute to any,
coverage carried by MTVA, Viacom International Inc., Viacom Inc. or any other
direct or indirect subsidiary or affiliate thereof with respect to the same
risks. 4MCA shall ensure that each insurer providing coverage hereunder shall
provide MTVA with written notice of any change in such insurer, coverage,
material change or reduction thereof (including limits, loss of coverage,
provisions or forms, notice of termination, cancellation or non-renewal or of
aggregate erosion thereon) at least thirty (30) days prior to the proposed
effective date thereof. 4MCA represents and warrants that it will secure
liability insurance and workman's compensation insurance of the type and in the
amounts set forth above with Chubb. 4MCA shall deliver to MTVA certificates of
insurance prior to or upon the execution of this Agreement
20
<PAGE>
evidencing that the coverages identified in Paragraphs 7.3 and 7.4 are in full
force and effect (and also indicating the additional insureds and loss payees as
required herein). MTVA will be provided with renewal certificates upon request.
7.6. MTVA will provide 4MCA with a Workman's Compensation certificate for
its employees and shall obtain liability insurance covering its employees, of
the same type and in the same amounts as set forth in Paragraphs 7.3 and 7.4,
and with respect to such liability insurance, naming 4MCA and Four Media Company
as additional insureds.
8. DELAYS OR ADDITIONAL EXPENSES DUE TO EQUIPMENT FAILURE OR 4MCA
--------------------------------------------------------------
PERSONNEL
- ---------
8.1. If the equipment provided or maintained by 4MCA hereunder (including,
without limitation, property owned by MTVA) ceases to operate properly, causing
an unreasonable delay in production, or unreasonable delays in production occur
due to 4MCA's personnel (including, without limitation, late arrival of
personnel) (any such event, a "Production Failure"), then, except for gross
negligence on the part of 4MCA or 4MCA's personnel (which shall be covered
pursuant to Paragraph 18 hereof) and notwithstanding any other provision of this
Agreement to the contrary, 4MCA's sole liability (but only with respect to the
consequences of a Production Failure) shall be the rights afforded to MTVA as
set forth in subparagraphs (a), (b), and (c) below in connection with any such
Production Failure, and MTVA at its sole option and within 48 business hours may
elect to:
(a) *
*
*
* ; or
(b) *
*
*
* or
(c) *
*
*
8.2. If MTVA extends the Term pursuant to the option set forth in
Paragraph 8.1(a) above, and such extension conflicts with either services,
personnel and/or equipment being provided to other customers of 4MCA, then,
notwithstanding such conflict, MTVA shall have priority over any other customer
of 4MCA and 4MCA shall fully perform its obligations hereunder without regard to
any such conflict.
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<PAGE>
8.3. If MTVA desires to extend the Term pursuant to Paragraph 8.1(a)
above, but such extension violates the terms of the Lease, then 4MCA agrees to
pay MTVA in an amount equal to the fees that would have been paid to 4MCA for
services performed during such extension, had the Term been extended in
accordance with Paragraph 8.1(a).
8.4. 4MCA shall not be responsible for any delays or additional expenses
due to equipment failure which is the direct result of the servicing of such
equipment by personnel provided by MTVA.
8.5. With respect to any advertising that is not aired as a result of any
negligent act or negligent omission by 4MCA (other than in connection with a
loss of origination of the signals, as described in Paragraph 9.1(b), or a
failure or total loss of the signals, as described in Paragraphs 9.1(c) and (d)
respectively), 4MCA shall be liable for all costs, losses, expenses, claims,
liabilities and damages (collectively, "Damages") incurred by MTVA in connection
with, or arising from, any such negligent act or negligent omission, including
without limitation, all lost advertising revenue that would have been received
by MTVA had such advertising actually aired. At MTVA's option, the Damages
shall be payable directly to MTVA by 4MCA or shall be deducted from any of the
installment payments due for 4MCA pursuant to Paragraph 6.1 hereof.
Notwithstanding anything to the contrary contained herein:
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
(c) 4MCA shall not be liable for any Damages with respect to advertising
that is not aired as a direct result of (i) any Force Majeure event, (ii) any
act or
22
<PAGE>
omission to act by MTVA or (iii) any other reason other than the negligent act
or negligent omission by 4MCA.
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
9. TERMINATION
-----------
9.1. MTVA may, without prejudice to any of its rights hereunder or at law
or equity, upon giving appropriate notice in accordance with Paragraph 22,
terminate this Agreement (which shall extinguish its obligations to 4MCA
hereunder except as otherwise expressly set forth herein) at any time upon the
occurrence of any of the following events (except that if any such event occurs
as a result of a Force Majeure Event, as defined in Paragraph 19, then the
provisions of Paragraph 19 shall apply, rather than the termination provisions
set forth below):
(a) if 4MCA shall fail to observe or perform any of the material terms or
conditions hereof (a "Default") and after MTVA has served notice in accordance
with Paragraph 22 specifying the Default and requiring the same to be remedied,
the Default results in a delay in production or post-production of MTVA
programming for 24 hours or more after
23
<PAGE>
receipt of such notice, and 4MCA fails to either cure the Default or provide
alternative production or post-production facilities satisfactory to MTVA within
such 24-hour period; or
(b) if 4MCA commits a Default, and after MTVA has served notice in
accordance with Paragraph 22 specifying the Default and requiring the same to be
remedied, the Default continues and results in a loss of origination of the
signals (audio and/or video) for * or more after receipt of such
notice, and 4MCA fails to either cure the Default or provide alternative
origination facilities satisfactory to MTVA within such * period; or
(c) if the signals fall below any of the levels specified in SCHEDULE H
----------
(which event shall constitute a Default hereunder) and after MTVA has served
notice specifying the Default and requiring the same to be remedied, the signals
continue to fall below any of the levels specified in SCHEDULE H for a period of
----------
12 hours or more after receipt of such notice; or
(d) if by reason of failure of the origination facilities and/or
maintenance and repairs to the origination facilities there is a total loss of
the signals for any individual feed for either:
(i) * in the aggregate in any * day period for any
individual feed; or
(ii) * in the aggregate in any * day period for any
individual feed; or
(iii) * separate periods, each lasting longer than * minutes in
any * day period, for any individual feed; or
(e) if the control and/or ownership of 4MCA passes, directly or indirectly,
to a person or entity engaged in the production and/or distribution of
television programming (via satellite or otherwise) in competition with MTVA; or
(f) if 4MCA or Four Media Company seeks relief under any applicable
bankruptcy statute, is placed in receivership, makes any assignment for the
benefit of creditors or commences the winding-up of its business, and any such
action is not dismissed within thirty (30) days of the commencement of such
action.
(g) without limiting any of MTVA's other rights or remedies provided
hereunder or at law or equity in the event of a Default or otherwise, if there
is a conflict between any provision of this Agreement and the Lease (as defined
in Paragraph 16.2) which (i) prevents 4MCA from effectuating any material term
or provision hereunder or (ii)
24
<PAGE>
results in a material adverse effect on any of MTVA's rights, whether express or
implied, under this Agreement (either of (i) or (ii) shall constitute a Default
hereunder), and after MTVA has served notice in accordance with Paragraph 22
specifying the Default and requiring the same to be remedied, the Default
continues for a period of 48 hours or more after receipt of such notice.
9.2. 4MCA may, without prejudice to any of its rights hereunder or at law
or equity, upon giving appropriate notice in accordance with Paragraph 22,
terminate this Agreement (which shall extinguish its obligations to MTVA
hereunder except as otherwise expressly set forth herein) at any time upon the
occurrence of any of the following events:
(a) subject to the proviso set forth in the first sentence of Paragraph
6.1(f) hereunder, if any payment required to be made by MTVA hereunder (other
than Overages which are in dispute) is not made within * after the
date on which 4MCA notifies MTVA that MTVA's payment is past due (a "Payment
Default Date"), and 4MCA has given MTVA an additional * written
notice of termination to MTVA following the Payment Default Date, provided that
if MTVA delivers payment to 4MCA during such * period following the
Payment Default Date, such termination notice shall cease to be effective; or
(b) if MTVA or Viacom International Inc. seeks relief under any applicable
bankruptcy statute, is placed in receivership, makes any assignment for the
benefit of creditors or commences the winding-up of its business, and any such
action is not dismissed within thirty (30) days of the commencement of such
action.
9.3. Notwithstanding any other provision herein, neither party shall have
the right to exercise termination rights hereunder if such party is in material
default of any of its obligations hereunder.
10. ENGINEERING AND MAINTENANCE
---------------------------
10.1. 4MCA agrees to provide MTVA with engineering coverage through the
availability of at least one engineer on-site or on-call 24 hours a day, 7 days
a week throughout the Term. 4MCA agrees to dedicate at least 40 hours per week
for the maintenance of the studio, edit and origination Equipment. 4MCA shall
provide to MTVA or its designees a weekly schedule in advance showing the
engineering coverage, including the names of the engineers and hours to be
worked. 4MCA shall keep accurate records of maintenance performed on all
Equipment and provide ready access to these records at all times. 4MCA shall
provide the following services, which shall include, without limitation:
(a) Routine maintenance of the Equipment: The Equipment shall be tested
and maintained in accordance with manufacturers' then current specifications,
recommendations and good engineering practice. If no such specifications or
recommendations
25
<PAGE>
have been issued by the manufacturer, then testing and maintenance shall be
performed in accordance with good engineering practice. In all cases of lack of
documentation of specifications, 4MCA shall consult with a designee of MTVA as
to what course of action should be taken.
(b) Routine alignment of origination Equipment: All Equipment shall be
realigned at least three times a year at a time and date to be agreed with MTVA
at least 4 weeks in advance. Further, 4MCA shall cooperate with the uplink and
interconnect service provider in relation to the alignment of the main and
standby audio and video circuits and uplink. Such alignment shall be carried
out in accordance with then current manufacturers' specifications and good
engineering practice. Under no circumstances shall any alignment be conducted
in such a manner as knowingly or negligently will result in the interruption or
loss of origination of the signals. If interruption is necessary for the above
purpose, 4MCA shall obtain MTVA's written approval before conducting any
alignment or maintenance.
(c) Fault detection and restoration: 4MCA shall use its best efforts to
correct any fault, loss, defect, or interruption to the signals (or any part
thereof) immediately after it becomes aware of the same or reasonably should
have become aware of the same. Upon any fault, loss, defect or interruption
that results in the loss of the signals (or any part thereof), 4MCA shall notify
MTVA immediately. All other faults, losses, defects or interruptions shall be
reported to MTVA on the next working day, stating the time, date, cause and the
remedial course of action taken or to be taken.
10.2. 4MCA shall have a documented contingency plan agreed to between MTVA
and 4MCA which specifies the course of action to be taken by 4MCA in the event
of catastrophic failure of the origination Equipment. A copy of the contingency
plan shall be supplied to MTVA prior to the Actual Commencement Date (or the
Pre-Commencement Date, if applicable) and will be updated in agreement with MTVA
annually, or at such shorter intervals as either party shall deem necessary, but
in no event more frequently than every three months.
10.3. The technical suitability of recordings and other transmissions made
with the Equipment described in SCHEDULE D and all other Equipment provided by
----------
4MCA shall at all times be in accordance with then currently accepted television
broadcast standards, practices and regulations (including without limitation
those of BR (Former CCIR), EBU and SMPTE).
10.4. The line of demarcation between the origination signal and the
common carrier ("Carrier") shall be as follows:
(a) For unencrypted and uncompressed signals (whether analog or digital),
including video (with vertical blanking interval ("VBI") signals) and one or two
stereo pairs (whether analog or digital), the line of demarcation shall be
located between the final
26
<PAGE>
output of the originated audio and video signals and the Carrier-provided
customer premise equipment ("CPE"), which in turn interfaces to Carrier's
terrestrial circuits ("Terrestrial Channels").
(b) For encrypted analog signals, including scrambled video (with VBI
signals) and one or two encoded stereo audio pairs, the line of demarcation
shall be located between the output of the scrambling equipment (with
distribution and/or monitoring equipment associated with the operation of the
scrambling equipment) and the input to Carrier-provided CPE, which in turn
interfaces to Carrier's Terrestrial Channels.
(c) For digital compression signals, including one or more digitally
compressed video signals with accompanying digitally compressed audio channels
and other digital signals, the line of demarcation shall be situated between the
output of the digital compression encoder system (with distribution and/or
monitoring equipment associated with the operation of the compression equipment)
and Carrier-provided CPE, which in turn interfaces to Carrier's Terrestrial
Channels.
(d) Provided that 4MCA maintains all origination equipment in conformity
with manufacturer's specifications, then except for any gross negligence by 4MCA
and/or its employees in connection with the use of any such equipment, the
failure of any encryption and/or compression equipment, and all related
equipment (including without limitation, multiplexors, modems, changeover units
and control computers, and also including without limitation, any of such
equipment purchased and/or provided by MTVA), which failure results in the
degradation or loss of the originated signals, shall not trigger the provisions
of Section 9.1 hereunder, notwithstanding any other provision of this Agreement
to the contrary.
10.5. 4MCA shall only be required to operate radio frequency ("RF")
equipment, including, without limitation, wireless microphones, wireless
intercom, receive-only satellite antenna and similar equipment, within the
operating parameters and conditions granted by the local telecommunication
authority and in a manner so as not to cause harm to third parties.
11. PERSONNEL
---------
11.1. 4MCA shall be responsible for all benefits, wages, payroll, and
withholding taxes that may become due with respect to all 4MCA personnel,
including subcontractors engaged by 4MCA or personnel engaged through such
subcontractors in connection with this Agreement. It is the intent of the
parties hereunder that 4MCA is and shall be an independent contractor. All Crew
or other persons providing services hereunder (which are hired by 4MCA) shall be
employees of 4MCA and not MTVA.
27
<PAGE>
11.2. Unless otherwise herein provided, 4MCA covenants that MTVA shall
have no responsibility or liability to or on behalf of any persons or entities
whose services are furnished by 4MCA pursuant to this Agreement or otherwise,
and 4MCA will indemnify MTVA and hold harmless MTVA from any and all claims,
costs, expenses or damages arising out of the employment by 4MCA of personnel
engaged in a strike, boycott, or work slow-down, except in connection with a
Force Majeure Event. 4MCA covenants that it will use its best efforts to employ
qualified replacement workers, subject to MTVA's prior approval, to perform the
services required herein. Notwithstanding the above, if 4MCA is unable to
obtain such replacement workers to fulfill 4MCA's obligations herein, which
results in an unreasonable delay in production (i.e. a delay in production of 24
hours or more) then, MTVA shall have the right to terminate this Agreement
without further obligation to 4MCA, except in connection with a Force Majeure
Event.
12. PRINCIPAL MANAGERS
------------------
If both Robert Walston and Gavin Schutz cease to be actively employed by
4MCA or its parent corporation, or cease to be actively engaged in the
administration of the 4MCA facility or the servicing of MTVA'S relationship with
4MCA, and such individuals are not replaced to the satisfaction of MTVA, then
MTVA may terminate this Agreement upon one month's written notice to 4MCA.
During the Term of this Agreement, MTVA shall pay to 4MCA a monthly fee of up to
* (consistent with the provisions of Paragraph 35) in order to induce 4MCA
to ensure that the oversight and administrative duties described in the prior
sentence will be available throughout the Term. Such monthly fee shall not be
subject to any annual increases during the Term.
13. OVERHEAD
--------
4MCA shall be responsible for providing and maintaining, *
* all basic utilities, services and any other related systems, in proper
working order, necessary for MTVA to use the Premises in accordance with the
purposes set forth herein, including without limitation, plumbing facilities,
adequate heat, air conditioning, power, working lights, equipment maintenance,
set storage space, garbage removal, and maintenance of the studio, edit and
origination facilities and office space, by a cleaning service. The maintenance
shall include, among other services, regular cleaning of all facilities and
reasonable maintenance necessitated as a result of normal wear and tear.
14. PUBLICITY; PRESS RELEASES
-------------------------
14.1. 4MCA shall not release or authorize the release of any advertising
or other publicity in connection with this Agreement, the operations of MTVA,
the use of the 4MCA facilities by MTVA, or in connection with MTVA or its
affiliated companies, without the prior written approval of MTVA.
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14.2. MTVA represents and warrants, and 4MCA acknowledges and agrees, that
MTVA (or its parent or an affiliated company) currently owns all rights in the
names and trademarks: "MTV ASIA", "MTV: MUSIC TELEVISION", and any other names,
marks, logos, copyrights and other intellectual property, and the good will
associated therewith. 4MCA shall not acquire any right, title or interest of
any nature in such property or goodwill as a result of the services to be
performed hereunder and the transactions contemplated hereby. In addition, 4MCA
shall not use any such property in any manner without MTVA's prior written
consent other than as expressly provided for in this Agreement.
15. CLOSED SET
----------
The studio set will be closed at all times, except that persons designated
by MTVA and all 4MCA employees listed as studio Crew members on SCHEDULE B (and
----------
any other 4MCA employees and/or guests approved in advance by MTVA) may enter.
16. 4MCA REPRESENTATIONS, WARRANTIES AND COVENANTS
----------------------------------------------
4MCA represents, warrants and covenants (as applicable) to MTVA as follows:
16.1. 4MCA has the full corporate power and authority to enter into
this Agreement and perform its obligations hereunder.
16.2. 4MCA will occupy the Premises by virtue of its rights as a
tenant under a lease (the "Lease") to be executed between Singapore
Telecommunications Ltd., 375 Tanjong Katong Rd., Singapore 1543, Republic of
Singapore ("Landlord") and 4MCA.
16.3. As of the date of execution of the Lease, the Lease will be in
full force and effect without default thereunder by 4MCA, and without default
thereunder by Landlord (but only to the extent such default by Landlord would
materially adversely affect MTVA's rights, or 4MCA's obligations, hereunder (a
"Material Landlord Default")).
16.4. 4MCA shall comply with all of its obligations under the Lease
and shall immediately provide to MTVA copies of any notices, including default
notices, given to 4MCA under the Lease.
16.5. 4MCA shall advise MTVA of any Material Landlord Defaults, and
provide copies to MTVA of any notices to be given to Landlord.
16.6. To the extent applicable to this Agreement, 4MCA shall not
modify or amend the Lease or waive any rights thereunder (to the extent that
such modification, amendment or waiver would materially adversely affect MTVA's
rights hereunder) or allow same to terminate or expire prematurely, without
prior written consent of MTVA.
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16.7. Under the Lease, 4MCA shall have the right to effectuate all of
the terms and provisions hereunder, without violation of the Lease.
16.8. 4MCA will be in compliance, as of the Actual Commencement Date
(or, if applicable, as of the Pre-Commencement Date), and will continue to
comply, with all applicable government laws, rules, regulations and
administrative requirements, including without limitation, environmental laws,
zoning laws, and applicable fire safety codes and regulations, to the extent
necessary to perform its obligations hereunder without any material adverse
effect on MTVA's rights or obligations hereunder.
16.9. 4MCA will procure, prior to the Actual Commencement Date (or
the Pre-Commencement Date, if applicable), all licenses, permits or other
authorizations or exemptions necessary for performing its obligations hereunder
(unless the failure to obtain such licenses, permits or other authorizations or
exemptions would not have any material adverse effect on MTVA's rights or 4MCA's
obligations hereunder), and shall deliver copies of all such licenses, permits
or other authorizations or exemptions to MTVA, upon MTVA's written request.
4MCA shall maintain such licenses, permits and other authorizations and/or
exemptions in good standing with the appropriate governmental authorities.
Notwithstanding the foregoing, 4MCA shall not be deemed in breach of any
representation, warranty or covenant contained herein on account of any
withdrawal or revocation of the TVRO License, so long as such withdrawal or
revocation was beyond the reasonable control of 4MCA to prevent.
16.10. The representations, warranties and covenants contained in
Paragraphs 16.2 through 16.7 above are subject to the execution of the Lease as
more particularly provided in Paragraph 39 below.
17. MTVA REPRESENTATIONS, WARRANTIES AND COVENANTS
----------------------------------------------
MTVA hereby represents, warrants and covenants (as applicable) to 4MCA as
follows:
17.1. MTVA has the full corporate power and authority to enter into
this Agreement and perform its obligations hereunder.
17.2. MTVA will be in compliance, as of the Actual Commencement Date
(or, if applicable as of the Pre-Commencement Date), and will continue to
comply, with all applicable governmental laws, rules, regulations and
administrative requirements to the extent necessary to perform its obligations
in connection with this Agreement without any material adverse effect on 4MCA's
rights or obligations hereunder.
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17.3. To the best of MTVA's knowledge, (a) none of the programming
content provided by MTVA and/or its suppliers to 4MCA for the purposes of this
Agreement shall infringe upon the rights of third parties, (b) MTVA owns,
licenses or otherwise has the right to use, and will continue to own, license,
or otherwise have the right to use all such programming content, and (c) all
necessary consents, approvals, licenses and other rights from third parties
(including governmental agencies) required for the production and transmission
of such programming content pursuant to this Agreement have been obtained.
17.4. During the Term, MTVA will not, directly or indirectly, employ
or solicit, or receive or accept the performance of services by, any employee of
4MCA, or directly or indirectly assist any other person, firm or entity in the
solicitation of 4MCA's employees, without 4MCA's prior written approval.
17.5. MTVA will procure a valid broadcasting license issued by the
appropriate governmental authorities prior to the Actual Commencement Date (or
the Pre-Commencement Date, if applicable), and all other material licenses,
permits or other similar authorizations or exemptions necessary for carrying on
its broadcasting business (collectively "Broadcasting Licenses") and otherwise
to effectuate the terms of this Agreement. MTVA shall deliver copies of the
Broadcasting Licenses and all such other licenses, such permits and other
similar authorizations to 4MCA, upon 4MCA's written request. MTVA shall
maintain the Broadcasting Licenses and all such other licenses, permits and
other similar authorizations in good standing with the appropriate governmental
authorities.
17.6. During the Term, MTVA will not operate and/or use the Premises
and the Equipment provided by 4MCA to transmit or in any other way assist in the
transmission of a foreign broadcasting service, unless MTVA has obtained prior
written approval from the Singapore Broadcasting Authority to receive and
transmit such foreign broadcasting service.
17.7. MTVA shall not be deemed to be in breach of any representation,
warranty or covenant contained herein on account of any withdrawal or revocation
of the Broadcasting Licenses (or agreements in principle with the relevant
Singapore broadcasting authorities with respect to the same) (any such
withdrawal or revocation, a "Revocation"), so long as the Revocation was beyond
the reasonable control of MTVA to prevent. MTVA acknowledges and agrees that,
notwithstanding any Revocation which was beyond the reasonable control of MTVA
to prevent, MTVA shall be obligated to continue to pay the Monthly Base Fee to
4MCA; provided however, 4MCA shall use reasonable efforts to mitigate MTVA's
payment obligations hereunder in the event of a Revocation which was beyond the
reasonable control of MTVA to prevent, which efforts may result in a reduction
of MTVA's payment obligations hereunder. Notwithstanding the foregoing, MTVA
shall not be obligated to continue to pay the Monthly Base Fee to 4MCA upon a
Revocation if and only if such Revocation is caused solely and directly by any
act or omission of 4MCA: (a) which is either (i) not expressly authorized by
MTVA or (ii) not performed in a manner consistent with the authority implied in
MTVA's grant
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to 4MCA of the right to provide the Premises, Crews, Services and/or Equipment
hereunder; and (b) which is either (i) performed in a grossly negligent manner
---
or (ii) performed with the knowledge that such act violates the Broadcasting
Licenses.
18. INDEMNITIES
-----------
18.1. In addition to any other indemnification obligations set forth
in this Agreement, 4MCA shall at all times indemnify and hold harmless MTVA, its
parent, subsidiaries, affiliates, successors, licensees, and assigns, and their
respective officers, directors, agents, representatives, employees, and
designees, from and against and from any and all claims, damages, liabilities,
liens, costs and expenses, including reasonable counsel fees (herein
collectively called "claims"), arising out of (a) any material breach by 4MCA of
any representation, warranty, covenant, obligation or agreement made by 4MCA
hereunder, or (b) any grossly negligent acts or omissions of 4MCA, its
employees, representatives, guests, agents or invitees in connection with the
Premises, Services or Crew provided herein.
If a claim by a third party is made against MTVA, and MTVA intends to
seek indemnity with respect thereto under Paragraph 18.1 of this Agreement, MTVA
shall promptly (and in any case within 30 days of such claim being formally
made) give 4MCA written notice of such claim. 4MCA shall have thirty days after
receipt of such notice to assume and control the defense of such claim at its
expense and through counsel of its choice, with the prior written consent of
MTVA. 4MCA's counsel shall be reasonably satisfactory to MTVA. If in MTVA's
reasonable judgment a conflict of interest may exist between MTVA and 4MCA with
respect to such claim, MTVA shall be entitled to select counsel of its own
choosing, in which event 4MCA shall be obligated to pay the fees and expenses of
such counsel, to the extent that the same are reasonable.
If 4MCA elects not to defend against any claim that is brought
pursuant to Paragraph 18.1, then it shall within the 30 days set forth in the
preceding paragraph, promptly so notify MTVA and, in such event, MTVA shall
thereupon again be entitled to assume and control the defense of such a claim
through counsel of its choice. In any circumstance where 4MCA elects not to
defend such claim, 4MCA shall promptly pay all reasonable attorneys',
accountants' and other advisors' fees and expenses of MTVA in connection with
the assumption and defense of such claim. If 4MCA exercises its right to
undertake the defense against any such claim as provided above, MTVA shall
cooperate with 4MCA in such defense and make available to 4MCA, at 4MCA's
expense, all pertinent records, materials and information in its possession or
under its control related thereto as is reasonably requested by 4MCA.
Anything in this Paragraph 18.1 to the contrary notwithstanding, (a)
if there is a reasonable probability in the judgment of MTVA that a claim may
materially and adversely affect MTVA (monetarily or otherwise), MTVA will have
the right to defend and co-defend and with the consent of 4MCA (which consent
shall not be unreasonably withheld) compromise and
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settle such claim, and (b) 4MCA will not, without the prior written consent of
MTVA, settle or compromise any claim or consent to entry of any judgment
relating to any such claim, which settlement, compromise or judgment does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to MTVA, a full, complete and unconditional release from all
liabilities in respect of such claim.
18.2. In addition to any other indemnification obligations set forth
in this Agreement, MTVA shall at all times indemnify and hold harmless 4MCA, its
parent, subsidiaries, affiliates, successors, licensees and assigns, and their
respective officers, directors, agents, representatives, employees, and
designees from and against any and all claims, damages, liabilities, liens,
costs and expenses, including reasonable counsel fees (herein collectively
called "claims") arising out of (a) any material breach by MTVA of any
representation, warranty, covenant, obligation or agreement made by MTVA
hereunder, (b) any grossly negligent acts or omissions of MTVA or its employees,
representatives, guests, invitees or agents in connection with performing its
obligations hereunder, (c) the content of any programming delivered by MTVA or
its suppliers to 4MCA pursuant to this Agreement, including without limitation,
any claim for libel, slander, copyright infringement or programming content, or
(d) any Revocation. In connection with subparagraph (d) of this Paragraph 18.2,
4MCA acknowledges that, if such Revocation was beyond the reasonable control of
MTVA to prevent, 4MCA shall use reasonable efforts to mitigate MTVA's payment
obligations hereunder.
If a claim by a third party is made against 4MCA, and 4MCA intends to
seek indemnity with respect thereto under Paragraph 18.2 of this Agreement, 4MCA
shall promptly (and in any case within 30 days of such claim being formally
made) give MTVA written notice of such claim. MTVA shall have thirty days after
receipt of such notice to assume and control the defense of such claim at its
expense and through counsel of its choice, with the prior written consent of
4MCA. MTVA's counsel shall be reasonably satisfactory to 4MCA. If in 4MCA's
reasonable judgment a conflict of interest may exist between MTVA and 4MCA with
respect to such claim, 4MCA shall be entitled to select counsel of its own
choosing, in which event MTVA shall be obligated to pay the fees and expenses of
such counsel, to the extent that the same are reasonable.
If MTVA elects not to defend against any claim that is brought
pursuant to Paragraph 18.2, then it shall within 30 days set forth above,
promptly so notify 4MCA and, in such event, 4MCA shall thereupon again be
entitled to assume and control the defense of such claim through counsel of its
choice. In any circumstance where MTVA elects not to defend such claim MTVA
shall promptly pay all reasonable attorneys', accountant' and other advisors'
fees and expenses of 4MCA in connection with the assumption and defense of such
claim. If MTVA exercises its right to undertake the defense against any such
claim as provided above, 4MCA shall cooperate with MTVA in such defense and make
available to MTVA, at MTVA's expense, all pertinent records, materials and
information in its possession or under its control related thereto as is
reasonably requested by MTVA.
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Anything in this Paragraph 18.2 to the contrary notwithstanding, (a)
if there is a reasonable probability in the judgment of 4MCA that a claim may
materially and adversely affect 4MCA (monetarily or otherwise), 4MCA will have
the right to defend and co-defend and with the consent of MTVA (which consent
shall not be unreasonably withheld) compromise and settle such claim, and (b)
MTVA will not, without the prior written consent of 4MCA, settle or compromise
any claim or consent to entry of any judgment relating to any such claim, which
settlement, compromise or judgment does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to 4MCA, a full, complete
and unconditional release from all liabilities in respect of such claim.
19. FORCE MAJEURE
-------------
19.1. For the purposes of this Paragraph 19, a "Force Majeure Event"
shall be deemed to be any acts of God; natural catastrophes; governmental acts,
omissions or enactments; national emergencies; insurrections; riots; wars; fire;
flood; explosion; or strikes; lock-outs or other labor difficulties beyond the
control of the parties hereto. Governmental action which prohibits MTVA from
broadcasting any or all of its programming shall not be deemed a Force Majeure
Event.
19.2. If either 4MCA or MTVA is unable to timely perform any of its
obligations hereunder because of a Force Majeure Event, then 4MCA or MTVA, as
the case may be, shall not be deemed in breach or in default hereunder by reason
thereof (such party to be referred to hereunder as the "Non-Performing Party"
and the other party to be referred to as the "Terminating Party").
19.3. If a Force Majeure Event prevents the timely performance of any
of the obligations of 4MCA or MTVA hereunder, then:
(a) Only if 4MCA is the Non-Performing Party, the Term shall be
automatically extended for a period equal to the period of the delay without
payment of any additional compensation (so long as such extension does not
violate the terms of the Lease), subject to the provisions of subparagraph (b)
below.
(b) If the delay lasts more than twenty (20) days or if it is
reasonably apparent that such a delay will last for twenty (20) or more days,
then the Terminating Party shall have the right, by written notice given to the
Non-Performing Party, to immediately terminate this Agreement as of the date the
notice is received as set forth in Paragraph 22. If the Force Majeure Event
ceases prior to the expiration of the twenty (20)-day period, and such notice
has been delivered to the Non-Performing Party, then such notice shall be deemed
rescinded.
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(c) If MTVA terminates this Agreement as provided in subparagraph (b)
above, 4MCA shall immediately return to MTVA all amounts paid by MTVA for
Services and/or Crew not yet actually furnished by 4MCA (provided that MTVA
shall be responsible for all amounts due for Premises, Services, Crews and/or
Equipment actually provided during the period prior to termination for such
Force Majeure Event). If 4MCA terminates this Agreement as provided in
subparagraph (b) above, MTVA shall immediately pay to 4MCA all amounts due for
Premises, Services, Crews and/or Equipment actually provided during the period
prior to termination for such Force Majeure Event.
20. ASSIGNMENT
----------
MTVA and 4MCA may each assign this Agreement to any party which, at the
time of such transfer, (a) owns or controls MTVA or 4MCA, as the case may be,
(b) which MTVA or 4MCA, as the case may be, owns or controls, or (c) with which
MTVA or 4MCA, as the case may be, is under common ownership or control, or as
part of the sale or transfer of all or substantially all of the assets or equity
of MTVA or 4MCA, respectively. In addition, in connection with financing to be
obtained by 4MCA, MTVA hereby consents to 4MCA's assignment of 4MCA's rights to
the payments contemplated under this Agreement to any bank or other financing
source. In any other case, neither party may otherwise assign any of its
rights, benefits or obligations hereunder without the prior written consent of
the other party, which consent shall not be unreasonably withheld (it being
understood and agreed that 4MCA shall not assign its rights hereunder in
violation of Paragraph 9.1(e)). A party's failure to respond in writing to a
request for consent to assignment within five (5) business days after receipt of
such request shall be deemed consent to such assignment. The provisions of
Paragraph 12 hereof shall remain in effect in the event of any assignment
hereof. Any purported assignment and/or transfer in violation of this paragraph
shall be null and void.
21. WAIVER NOT CONSENT
------------------
Any waiver of any breach of this Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach by any party hereto.
22. NOTICES
-------
Any and all notices or demands under this Agreement shall be served either
by messenger (i.e., delivered to the business of the party but not necessarily
placed in the party's hands or delivered in the presence of the party) or by
registered or certified mail, postage prepaid, overnight mail or express courier
service or by facsimile or telecopy transmission. If served by messenger,
service conclusively shall be deemed received on the date of service. If served
by registered or certified mail, postage prepaid, service conclusively shall be
deemed received three business days after deposit with the United States or the
Singapore postal service (provided however, that if service is to be effected
from the United States to Singapore or vice versa,
35
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service shall conclusively be deemed received ten business days after deposit
with the United States or the Singapore postal service, as the case may be). If
served by overnight mail or express courier service, service shall conclusively
be deemed received three business days after prepaid dispatch with an
internationally recognized overnight mail or express courier service. If served
by facsimile or telecopy transmission, service shall conclusively be deemed made
on the date and at the time imprinted on any such notice by the receiving
facsimile or telecopy machine.
To MTVA: Scott Davis
Executive Vice President
Viacom Network Operations
1515 Broadway
New York, NY 10036
Fax No. (212) 258-8295
With copies to: Lois Peel Eisenstein, Esq.
Senior Vice President
Business Affairs and General Counsel
MTV Networks
1515 Broadway
New York, NY 10036
Fax No. (212) 258-8358
Regional Counsel - MTV Asia LDC
Treasury Building
8 Shenton Way #01-01
Republic of Singapore 0106
Fax No. 65-221-1061
To 4MCA: Director of Technical Operations
Four Media Company Asia PTE Ltd.
30 Choon Guan Street
Republic of Singapore 0207
Fax No. 65-220-0328
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With copies to: Robert T. Walston
Four Media Company
303 N. Glenoaks Blvd.
6th Floor
Burbank, California 91502
Fax No. (818) 846-5197
and Jill A. Cossman, Esq.
Greenberg, Glusker, Fields,
Claman & Machtinger
1900 Avenue of the Stars
Suite 2000
Los Angeles, California 90067
Fax No. (310) 553-0687
and Leow Su Mei
Lee & Lee
Level 19, UIC Building
No. 5 Shenton Way
Singapore 0106
Fax No. 65-2250438
Either party may change the name and/or address to which notices are to be sent
hereunder by giving written notice of such change in accordance with this
Paragraph 22.
23. APPLICABLE LAW; JURISDICTION
----------------------------
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York and the federal laws of the
United States of America, without regard to conflict of laws principles. Any
legal action or proceeding with respect to this Agreement shall be subject to
the non-exclusive jurisdiction of any courts located in New York, New York, and,
by execution and delivery of this Agreement, both paries hereby irrevocably
accept for themselves and in respect of their property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each of 4MCA and
MTVA hereby irrevocably designates, appoints and empowers Steinhardt Partners,
L.P. (or any affiliate or successor thereof) and MTV Networks, respectively,
with offices on the date hereof at 605 Third Avenue, New York, New York 10158
and 1515 Broadway, New York, New York 10036, respectively, as its designee,
appointee and agent to receive, accept and acknowledge for and on its behalf, in
respect of its property, service of any and all legal process, summons, notices
and documents which may be served in any such action or proceeding. Each of
4MCA and MTVA hereby waives any objection which it may now or hereafter have to
the laying of venue of any of the aforesaid actions or proceedings arising out
of or in connection with this Agreement brought in the courts
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referred to above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient form.
24. PROPRIETARY INFORMATION
-----------------------
24.1. 4MCA and MTVA acknowledge that in the course of 4MCA's
provision of services to MTVA hereunder, either party may become acquainted with
certain "Proprietary Information" of the other party. "Proprietary Information"
of either party shall mean any information relating to such party's business,
business concepts, and/or ideas relating to programming and/or other products,
including all intellectual property pertaining to the foregoing (regardless of
the stage of development of such) (collectively the "Products"), which is not
generally known other than by such party. Proprietary Information may include,
without limitation, the concepts, ideas, designs, formats, and contents of the
Products and the overall marketing and business plan with respect to the
Products; and may include, without limitation, plot lines, designs, devices,
characters, stories, treatments, outlines, sketches, videos, copyrights, and any
actual or contemplated trademark, trade name or service mark. Each party agrees
that it shall not use, disclose, disseminate or otherwise communicate, directly
or indirectly, in whole or in part, during the term of this Agreement, any
Proprietary Information of the other party, except as necessary to implement the
terms of this Agreement, without the other party's prior written consent, nor
shall either party permit any of its representatives, subsidiaries, parent
entity, or any third party person acting for or on its behalf, to do any of the
foregoing. In addition, neither party shall reproduce or copy or summarize any
Proprietary Information of the other party without such other party's prior
written consent in each instance. 4MCA shall cause each and every Crew member
employed by 4MCA pursuant to this Agreement, as well as any other 4MCA employee
who may have access to MTVA's Proprietary Information, to agree to be bound by
this Paragraph 24. The obligations set forth in this Paragraph 24.1 shall
survive the termination or cancellation of this Agreement.
24.2. As a pre-condition to the employment of any Crew member, each
such Crew member shall execute a "work made for hire" agreement in a form
acceptable to MTVA. In addition, 4MCA and its employees hereby acknowledge and
agree that (a) all artistic, literary, dramatic, musical and other materials
created by 4MCA hereunder, together with the results and proceeds of 4MCA's
provision of the Services, Premises, Equipment and Crews hereunder (the
"Materials"), are "works made for hire" (as such term is defined in the United
States Copyright Act) for MTV Networks ("MTVN"), and (b) MTVN is the owner of
the Materials under copyright, in and for all means of exploitation now known or
hereinafter devised, upon creation of such Materials. To the extent that any of
the Materials are not deemed to be "works made for hire" for MTVN, 4MCA hereby
assigns to MTVN all rights for all purposes throughout the world for the full
period of copyright and all extensions and renewals thereof in and for all means
of exploitation now known or hereinafter devised. 4MCA acknowledges and agrees
that neither it nor any third party or person (other than MTVN) has any
copyrights in the Materials
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and any copyright resides in MTVA as the sole owner of such rights, and 4MCA
hereby quitclaims and assigns any rights in the copyright and hereby waives any
and all moral rights with respect thereto. If requested by MTVN, 4MCA shall
execute and deliver to MTVN an acknowledgment, quitclaim and assignment
necessary to give effect to the foregoing in a form approved in advance by MTVN.
24.3. Upon termination of the Term or any earlier termination of this
Agreement pursuant to the terms hereunder, each party shall promptly return to
the other party all manuals, documents, files, reports, programming, videotapes,
Proprietary Information and any other data, materials or property belonging to
such other party.
24.4. MTVA shall cause all of its employees who may have access to
4MCA's Proprietary Information to agree to be bound by Paragraphs 24.1 and 24.3.
25. ADDITIONAL SERVICES
-------------------
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
26. ATTORNEYS' FEES
---------------
In the event of any dispute arising in connection with this Agreement, the
court in such action shall award all costs and expenses of suit and a reasonable
sum as attorneys' fees to the party who, in light of the issues litigated and
the court's decision on those issues, was more successful in the action. The
more successful party need not be the party who recovers a judgment or order
nominally in its favor in the action. If a party voluntarily dismisses an
action, a reasonable sum as attorneys' fees shall be awarded to the other party.
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27. END OF TERM
-----------
On or before expiration or termination of this Agreement, MTVA shall remove
all of its property from the Premises within ten (10) working days following
termination or expiration of this Agreement, leaving the Premises in
substantially the same condition as of the Commencement Date, ordinary wear and
tear excepted. MTVA shall be liable for actual damages incurred by 4MCA to the
Premises (including any and all equipment) in connection with MTVA's removal of
its property, ordinary wear and tear excepted.
28. ENTIRE AGREEMENT
----------------
This Agreement supersedes any prior agreements or understandings, oral or
written between the parties hereto and represents their entire understanding and
agreement with respect to the subject matter hereof and can be amended,
supplemented or changed, and any provision hereof can be waived, only by a
written instrument signed by the party against whom enforcement of any such
amendment, supplement, modification of waiver is sought.
29. CONSENT NOT UNREASONABLY WITHHELD
---------------------------------
Except as otherwise specifically provided herein, in all instances where
either 4MCA or MTVA has consent or approval rights, such consent or approval
shall not be unreasonably withheld.
30. SURVIVAL OF INDEMNITIES
-----------------------
The indemnities contained herein shall survive the termination or
cancellation of this Agreement.
31. FURTHER INSTRUMENTS
-------------------
Each party agrees to execute any further documents and/or instruments and
perform any further acts deemed necessary or desirable to give full effect to
the provisions of this Agreement.
32. SEVERABILITY
------------
If any term or provision of this Agreement is judged invalid or
unenforceable, such term or provision shall be deemed deleted and shall not
affect the validity or enforceability of the remaining terms and provisions of
this Agreement.
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33. COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and together shall constitute a single instrument.
34. GUARANTIES
----------
MTVA's obligations hereunder shall be guaranteed by Viacom International
Inc. pursuant to the terms of the Guaranty in the form attached hereto on
SCHEDULE I-1. 4MCA's obligations hereunder shall be guaranteed by Four Media
- ------------
Company pursuant to the terms of the Guaranty in the form attached hereto on
SCHEDULE I-2.
- ------------
35. CHANGES IN TAX LAW
------------------
To the extent that any Singapore laws, rules and/or regulations concerning
the payment of GST are rescinded or materially modified, the parties shall
appropriately adjust fees to be paid hereunder.
36. REASONABLE EFFORTS
------------------
Unless otherwise provided to the contrary herein, each party shall use all
reasonable efforts to fulfil its obligations hereunder.
37. CONTRAVENTION OF LAWS
---------------------
Notwithstanding any other provision to the contrary herein, neither party
shall be required to undertake any action in order to satisfy its obligations
hereunder, which action would violate the provisions of any Local Laws or
Practice, or any other applicable laws, rules, regulations, statutes and
administrative requirements (unless such violation would have no material
adverse impact on the applicable party hereunder, or on such applicable party's
ability to satisfy or fulfill its obligations hereunder).
38. CHANGES IN LABOR LAW
--------------------
To the extent that any Local Laws and Practice are modified and/or
rescinded during the Term, and such modification and/or rescission has a
material impact on the Total Compensation payable to Crew members hereunder,
and/or any such modification and/or rescission of any Local Laws and Practice
materially adversely affects 4MCA's ability to provide Crew members during the
hours and at the times set forth in SCHEDULE B, then the parties agree to
----------
negotiate in good faith in order to appropriately adjust the fees payable by
4MCA hereunder and/or the scheduled times and/or hours required to be worked by
Crew members hereunder, as applicable.
41
<PAGE>
39. EXECUTION OF LEASE
------------------
4MCA covenants to use all good faith efforts to agree upon and execute the
Lease. The Lease shall contain all terms and conditions necessary to enable
4MCA to fulfil its obligations to MTVA hereunder. If the Lease has not been
fully executed and delivered by 4MCA and the Landlord by February 15, 1995, then
this Agreement shall terminate as of such date and neither 4MCA nor MTVA shall
have any further obligations or liability hereunder. 4MCA shall notify MTVA on
or before February 16, 1995 as to the execution and delivery of the Lease by all
parties. 4MCA's failure to so notify MTVA shall be deemed notice to MTVA that
the Lease has not been executed and delivered by all parties.
40. EMPLOYMENT CONTRACTS AND OTHER EMPLOYMENT DOCUMENTATION
-------------------------------------------------------
40.1. 4MCA shall provide to MTVA copies of all employment
agreements or other documentation reflecting offers of employment or similar
agreements (collectively, "Employment Documents") prior to the Actual
Commencement Date (or prior to the Pre-Commencement Date, if applicable). 4MCA
shall provide to MTVA copies of any and all modifications and/or amendments to
the Employment Documents within 15 business days after the date of such
modification and/or amendment. In connection with any Crew member that is
employed by 4MCA after the Actual Commencement Date, 4MCA shall provide to MTVA
copies of the Employment Documents in connection with such Crew member within 15
days after the commencement of such Crew member's employment.
40.2. In addition to any other rights of MTVA hereunder, MTVA
shall have the right to approve, with respect to any and all existing Crew
members: (a) any renewal of any such Crew member's employment, and (b) any
changes in (i) the duration of any such Crew member's employment or (ii) any
such Crew member's severance arrangement. If 4MCA fails to obtain MTVA's
approval with respect to a particular existing Crew member pursuant to the prior
sentence and MTVA subsequently requests the removal by 4MCA of such Crew member,
then 4MCA shall remove such Crew member, and if such removal leads 4MCA to
terminate such Crew member's employment, then 4MCA shall assume all costs
incurred in connection therewith, including severance, if applicable.
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"MTVA"
MTV ASIA LDC
By: /s/ Scott Davis
_________________________________
Scott Davis
Title: Executive Vice President
"4MCA"
FOUR MEDIA COMPANY ASIA PTE LTD.
By: /s/ Robert T. Walston
_________________________________
Robert T. Walston
Title: Managing Director
43
<PAGE>
SCHEDULES
---------
A PREMISES
B CREWS AND BUDGETED CREW COSTS
B-1 HOLIDAYS
B-2 OVERTIME
C SERVICES
D INITIAL EQUIPMENT, INSTALLATION AND WIRING
EXPENDITURE BUDGET
E [INTENTIONALLY OMITTED]
F FLOOR PLAN
G PRE-COMMENCEMENT FEE SCHEDULE
H TECHNICAL SPECIFICATIONS
I-1 FORM OF GUARANTY FOR VIACOM INTERNATIONAL INC.
I-2 FORM OF GUARANTY FOR FOUR MEDIA COMPANY
44
<PAGE>
SCHEDULE A
PREMISES
<TABLE>
<CAPTION>
PREMISES DESCRIPTION NUMBER APPROXIMATE SQUARE FOOTAGE
-------------------- ------ --------------------------
(per room)
----------
<S> <C> <C>
Production Studio One 3,900
Production Control Room One 381
(to include a main director's console
and second producer's console)
Audio Control Room One 228
Video Control Room One 152
Dressing Rooms Two 155
Green Room One 239
Make-Up Room One 127
Office One 113
Area Suitable for Wardrobe, Set or Prop One 240
Storage
On-Line Editing Suites Three Edit Bay 1-468; Edit Bays 2 and 3-420 each
Adjacent Editing Common Machine Room One 674
Audio Mixing Room One 342
Paintbox, Titling, Still Store and One 346
Subtitling System Room
Master Control Rooms Two 133
Expansion Space for two Additional Two 133
Master Control Rooms
Adjacent Origination Common Machine One 1,100
Room
Editing and Origination Videotape Library One 1,050
Encoding and Terminal Equipment Room One 100
</TABLE>
<PAGE>
SCHEDULE B
CREWS AND BUDGETED CREW COSTS
<TABLE>
<CAPTION>
FUNCTION POSITION WORK WEEK WORK HOURS TOTAL BUDGETED
CREW COSTS
(including base salary,
benefits and taxes,
expatriot allowance and
holiday pay (if
applicable))
<S> <C> <C> <C> <C>
Camera Operator Monday - Friday 7 AM - 4 PM [*]
Camera Operator Monday - Friday 2 PM - 11 PM [*]
Stagehand Monday - Friday 7 AM - 4 PM [*]
Stagehand Monday - Friday 2 PM - 11 PM [*]
Stagehand Monday - Friday 11 AM - 8 PM [*]
Production Studio TeleprompTer Operator Monday - Friday 7 AM - 4 PM [*]
TeleprompTer Operator Monday - Friday 2 PM - 11 PM [*]
Video Engineer Monday - Friday 7 AM - 4 PM [*]
Video Engineer Monday - Friday 2 PM - 11 PM [*]
Technical Director Monday - Friday 7 AM - 4 PM [*]
Technical Director Monday - Friday 2 PM - 11 PM [*]
Production Control Character Generator
Room Operator Monday - Friday 7 AM - 4 PM [*]
Character Generator
Operator Monday - Friday 2 PM - 11 PM [*]
Production Audio Audio Mixer Monday - Friday 7 AM - 4 PM [*]
Control Room Audio Mixer Monday - Friday 2 PM - 11 PM [*]
Production Video Video Tape Operator Monday - Friday 7 AM - 4 PM [*]
Tape Video Tape Operator Monday - Friday 2 PM - 11 PM [*]
Edit 1 Senior Editor Monday - Friday 9:30 AM - 6:30 PM [*]
Tape Operator Monday - Friday 9:30 AM - 6:30 PM [*]
Edit 2 Editor Monday - Friday 9:30 AM - 6:30 PM [*]
Tape Operator Monday - Friday 9:30 AM - 6:30 PM [*]
Edit 3 Editor Monday - Friday 9:30 AM - 6:30 PM [*]
Tape Operator Monday - Friday 9:30 AM - 6:30 PM [*]
Edit Other Tape Operator Monday - Friday 4 PM - 1 AM [*]
Audio Mixing Room Audio Mixer Monday - Friday 9:30 AM - 6:30 PM [*]
Subtitling 1 Subtitling Operator Monday - Friday 9:30 AM - 6:30 PM [*]
</TABLE>
<PAGE>
SCHEDULE B
CREWS AND BUDGETED CREW COSTS
<TABLE>
<CAPTION>
FUNCTION POSITION WORK WEEK WORK HOURS TOTAL BUDGETED
- -------- -------- --------- ---------- --------------
CREW COSTS
----------
(including base salary,
benefits and taxes,
expatriot allowance and
holiday pay (if
applicable))
<S> <C> <C> <C> <C>
Sutitling 1/2 Subtitling Operator Saturday-Wednesday 9:30AM-6:30PM [*]
Technical Director Tuesday-Saturday 8AM-4:30PM [*]
Technical Director Tuesday-Saturday 4PM-12:30AM [*]
Technical Director Tuesday-Saturday Midnight-8:30AM [*]
Technical Director Sunday-Thursday 8AM-4:30PM [*]
Technical Director Sunday-Thursday 4PM-12:30AM [*]
Technical Director Sunday-Thursday Midnight-8:30AM [*]
Technical Director Thursday-Monday 8AM-4:30PM [*]
Technical Director Thursday-Monday 4PM-12:30AM [*]
Technical Director Thursday-Monday Midnight-8:30AM [*]
Floor Director Saturday-Wednesday 8AM-4:30PM [*]
Floor Director Saturday-Wednesday 4PM-12:30PM [*]
Floor Director Saturday-Wednesday Midnight-8:30AM [*]
Origination Supervisor Friday-Tuesday 8PM-4:30PM [*]
Supervisor Friday-Tuesday 4PM-12:30PM [*]
Supervisor Friday-Tuesday Midnight-8:30AM [*]
Supervisor Monday-Friday 8AM-4:30PM [*]
Supervisor Monday-Friday 4PM-12:30AM [*]
Supervisor Monday-Friday Midnight-8:30AM [*]
Tape Operator Wednesday-Sunday 8AM-4:30PM [*]
Tape Operator Wednesday-Sunday 4PM-12:30PM [*]
Tape Operator Wednesday-Sunday Midnight-8:30AM [*]
Tape Operator Thursday-Monday 6AM-2:30PM [*]
Tape Operator Tuesday-Saturday 2PM-10:30PM [*]
Senior Technical
Director* Monday-Friday 9AM-6:30PM [*]
Library Facility Library Supervisor Monday-Friday 8AM-4:30PM [*]
Library Clerk Monday-Friday 8AM-4:30PM [*]
- ------------------------
* Allocation
</TABLE>
<PAGE>
SCHEDULE B
CREWS AND BUDGETED CREW COSTS
<TABLE>
<CAPTION>
FUNCTION POSITION WORK WEEK WORK HOURS TOTAL BUDGETED
CREW COSTS
(including base salary,
benefits and taxes,
expatriot allowance and
holiday pay (if
applicable)
<S> <C> <C> <C> <C>
Library Facility Library Clerk Monday-Friday 8AM - 4:30PM [*]
Library Clerk Monday-Friday Midnight - 8:30AM [*]
Library Facility Library Clerk Monday-Friday 4PM - 12:30AM [*]
Library Clerk Thursday-Monday 8AM - 4:30AM [*]
Library Clerk Thursday-Monday 4PM - 12:30AM [*]
Office Location Dispatch/Messenger Monday-Friday 8AM - 4:30PM [*]
Library Clerk Monday-Friday 8AM - 4:30PM [*]
Total Budgeted [*]
Crew Costs
</TABLE>
<PAGE>
SCHEDULE B-1
HOLIDAYS
--------
The following Holidays will be observed each calendar year.* 1995 dates provided
for reference only.
<TABLE>
<CAPTION>
Holiday Observance 1995
<S> <C> <C>
New Year's Day January 1 January 1 (Sunday)**
Lunar New Year's Day Late January or early February January 31 (Tuesday)
Day after Lunar New Year's Day February 1 (Wednesday)
Good Friday March or April April 14 (Friday)
Labour Day May 1 May 1 (Monday)
Hari Raya Puasa March March 3 (Friday)
Vesak Day May or June May 14 (Sunday)**
Hari Raya Haji May May 10 (Wednesday)
National Day August 9 August 9 (Wednesday)
Deepavali October or November October 23 (Monday)
Christmas Day December 25 December 25 (Monday)
</TABLE>
* No more than 11 holidays shall be observed in each calendar year (unless the
Singapore government mandates or designates additional days as holidays). The
parties will endeavor to coordinate their respective holiday schedules with
each other to insure maximum compatibility.
** The following Monday will be the public holiday.
<PAGE>
SCHEDULE B-2
OVERTIME, WEEKEND AND HOLIDAY HOURLY FEES
-----------------------------------------
<TABLE>
<CAPTION>
OVERTIME WEEKEND HOLIDAY
FEES* FEES* FEES*
<S> <C> <C> <C>
Edit Bay 1 [*] [*] [*]
with Editor and Tape
Operator
Edit Bay 2 [*] [*] [*]
with Editor and Tape
Operator
Edit Bay 3 [*] [*] [*]
with Editor and Tape
Operator
Studio [*] [*] [*]
with crew of eight
Audio Mixing with [*] [*] [*]
Operator
Graphics (No Crew) [*] [*] [*]
Subtitling with [*] [*] [*]
Operator
</TABLE>
* All fees on this Schedule B-2 will be increased annually, commencing one
year from the Commencement Date, by [*] over the prior year's fees.
<PAGE>
SCHEDULE C
SERVICES
--------
1. Production
----------
1.1 The production studio will consist of black walls and ceilings. A
service panel will be provided for camera, microphone, PL and IFB, video
monitoring and similar purposes. A movable flat will be provided and colored for
chroma key use.
Two CCD color studio cameras will be outfitted with 20:1 zoom lenses; triax
cable; tally light; picture monitor; PL communication; a pneumatic pedestal with
precision pan-and-tilt head; and a teleprompter display on each camera with
through-the-lens operation. A third camera will be outfitted with a shoulder
mount and adaptable for studio pedestal use and include picture monitor, PL
communications, and a pneumatic pedestal with precision pan-and-tilt head. This
camera is not designated for out-of-studio (field) use.
The studio will be equipped with microphones, including 4 lavaliere and 2
hand-held, with clips, stands, cables and snake; a four channel wireless
microphone system; a preamp system; two limited reach microphone booms; two
color monitors on movable stands; color monitors with grid mount adapters; a
studio announce audio system; four studio monitor speakers with grid and floor
mounts; talent IFB via the intercom and wireless systems; a wireless floor PL
system; and a time of day display.
Studio lighting and control will include incandescent instruments; a
dimmer control system; a ceiling grid constructed from pipe with adequate
ceiling mounted electrical outlets; and a soft cyclorama on ceiling track,
covering half of the studio's wall area.
1.2 A production control room will be provided to support the studio. The
room will include a main director's console and a rear producer's console. The
control room will include a production switcher with program/preset; a two
channel digital video effects device fed from a switcher buss; a character
generator; and a two channel still store with local control. Routing switcher
sources will be available to the production switcher with VTR playback from a
common machine area. The control room output will be available to the routing
switcher.
Production control room monitoring will include program and preset color
picture monitors; monitors for camera, VTR, DVE, titling, still store,
teleprompter, routing switcher and mix/effect sources; two-channel audio
monitoring with VU and peak meters; waveform and vectorscope monitoring for the
technical director; program and auxiliary buss feeds to studio picture monitors;
and a tally system for cameras and control room monitors.
<PAGE>
An audio control room will be provided with audio console; DAT, real-to-
real, cassette and DigiCart machines; CD player and outboard processing. Audio
monitoring will include VU, peak and phase, and room equalization. Picture
monitoring will include programming preset, teleprompter and cameras.
Studio and control room communication will include studio announce; talent
IFB; floor manager; camera operator; audio control; lighting dimmer control; and
camera control PL. There will be a time of day display.
2. On-Line Editing
---------------
Three on-line edit suites will be provided. The machine complement of the
edit bay will include Digital BetaCam VTRs normally configured as three playback
and one record; an edit controller with keyboard and display, floppy disk drive
and printer; a production switcher operated under editing system control; an AES
digital audio mixer operated under editing system control; shared access to a
two channel digital video effects device with input fed from a switcher buss; a
two channel still store; a title generator with program and preview sources, a
local operator's keyboard and two color monitors; a color corrector; a shared
four-track ATR; DAT with editing features and time code; and a CD player.
Routing switcher sources will be available to the production switcher and audio
mixer. The edit bays will also include intercom stations for communications
with video tape and other operators; VTR remote control; color program and
preview picture monitors; waveform and vectorscope monitoring; picture monitors
for VTRs, title generator, still store, routing switcher, switcher mix-effect
and other sources; a safe action/safe title generator; two channel audio
monitoring with VU and peak meters and phase display; a VTR time code display;
and a time of day display. A color camera will be available to, and shared
between, the edit suites. One of the three edit suites will also include a high-
end DVE device and two digital disk recorders suitable for compositing.
3. Off-Line Editing
----------------
Two off-line edit suites situated on premises leased by MTVA will be
equipped and maintained as follows: The room's PAL S-VHS machines will be
configured as two playback and one record. The linear-access PC-based editing
system will be capable of A-B roll and time code operation, match frame edits
and include a floppy disk drive. An edit list generated in the off-line system
will be compatible with facility on-line editing systems. Monitoring will
include a color picture monitor for each VCR, and there will be two channels of
audio monitoring.
4. Graphics
--------
One latest series Quantel Box system and one HAL system will be provided.
The Paint Box station will include a color monitor, vectorscope and waveform
monitoring. The Paint Box output will be available to, and a capture input
available from, the routing switcher. A high-resolution color camera on graphics
stand will be provided. The system will include a flexible lighting system and
local picture monitoring. A graphics/title generator will be provided with
2
<PAGE>
Chinese and English character sets. The unit will have both program and preview
outputs. A capture input will be available from the routing switcher. The work
station area will have program and preview color monitors. An electronic still
store device will be provided. The still store will be connected to and from the
routing switcher, and be operated from a control station with a color monitor
selectable to output or input. The device will be networked to the production
and edit areas. Additional video monitors, a safe title/safe action generator,
VTR remote controls, intercom stations and routing switcher control panels will
be provided in the graphics area as needed.
5. Subtitling
----------
Two subtitling systems will be provided. Each subtitling station will
include color picture and audio monitoring. Exact subtitling requirements shall
be specified by MTVA and shall conform to Schedule D.
6. Audio Mixing
------------
An audio mixing room suitable for post-production audio and sweetening will
be provided. A computerized editing control and a multi-track disk-based storage
system will be used with a digital audio console. The room will be equipped with
a Digital Beta VTR, an R-DAT machine with time code, and a reel-to-reel ATR, CD
player, cassette and DigiCart machines. A midi workstation with keyboard,
sequencer, and effects capability will also be provided. Noise reduction,
limiting and compression, reverb, and other outboard sound processing will be
included. The room will be equipped with a voice-over for open microphone
recording. Monitoring will include stereo peak, VU and phase, and room
equalization.
7. Origination
-----------
7.1 Master Control. Network origination will be performed from two master
control rooms. Each room will have a one-channel capability. In addition, one of
the two rooms (or an alternate area) will have an additional one-channel
capability. Each of two master control rooms will access a large capacity
automated playback system, additional VTRs, DVE, title generator, still store
and audio DigiCart sources. Each room will also produce a 525/NTSC feed
utilizing standards conversion.
The master control rooms will include a production switcher. The switcher
will have the following features: program/preset switching; key, dissolve, fade
and other effects; audio-follow-video and audio breakaway; local picture and
sound monitor; and bypass switcher protection.
Sources and source equipment provided to each master control room will
include the following: each of two LMS channels; additional VTRs controllable
via remote machine control panels; digital video effects device with input
selection; still store device with remote
3
<PAGE>
control; title generator controlled from a local keyboard; routing switcher
sources selectable from an X-Y panel; and a DigiCart system for audio playback.
7.2 Automated Playback Systems. A large capacity Sony LMS automation
--------------------------
system will be provided to each master control room. Each system will include a
1,000 tape capacity; Digital BetaCam VTRs; B&W confidence monitors for each VTR;
and computer control. A shared monitoring station will be provided in the
playback system area with monitor select of VTR analog sources; color picture,
waveform and vectorscope monitoring; two channels of audio monitoring with VU
and peak meters; time of day display; and an intercom.
7.3 Automation Prep Station. Two preparation and logging stations used to
-----------------------
make video tapes ready for the LMS automation system will be available.
Cataloging and bar code label printing will be performed in this area. Each
station will include a VTR. A computer based system with picture, sound and time
code monitoring will be used.
7.4 Other Video Tape Playback. Additional videotape machines will be
-------------------------
located in a centralized area to support studio production; standards
conversion; duplication; graphics and audio post. Each VTR will have local
picture and audio monitoring and will be fully accessible via a routing
switcher. The machine rooms will have a color picture monitor, waveform monitor
and vectorscope, and dual speaker audio monitoring.
7.5 Standards Conversion. A four field standards conversion system will
--------------------
be available for use with video tapes requiring standards conversion from/to
NTSC and PAL. The device will be located in the common video tape machine area
and accessible from the routing switcher. An audio delay will parallel the
standards converter.
7.6 Systems and Procedures to Ensure Reliability of Origination Services.
--------------------------------------------------------------------
4MCA will use its best efforts to establish the following systems and procedures
in order to maintain the reliability of the origination services to be provided
to MTVA hereunder:
7.6(a) Certain critical pieces of equipment will be accessed or
available for use in place of failed equipment. Such accessed or available
equipment shall include free-standing videotape machines and a control computer.
7.6(b) 4MCA will keep spare parts for certain key pieces of
equipment, including a playback system robotics mechanism.
7.6(c) A by-pass switcher will be located in each master control
room.
7.6(d) A spare master control facility will be available and
patchable for on-air operation in place of a failed master control facility.
7.6(e) 4MCA will establish operating procedures and training to
prepare personnel to react effectively to equipment and system failures.
4
<PAGE>
7.6(f) MTVA shall provide to 4MCA generic programming for use in the event
of a significant system failure or scheduled maintenance period. Such
programming shall be provided by MTVA with corresponding program log and shall
be of no less than eight hours in duration. Such programming shall be suitable
for the insertion of commercials.
8. Infrastructure
--------------
8.1 Electrical. Access to a diesel generator with supplemental fuel storage
----------
for twelve hours of continuous operation without refueling will be provided. The
generator will have an automatic startup capability and automatic transfer
switch to respond to an outage of purchased (municipal) electrical power.
Generator power will be used to support a UPS and air conditioning. An
uninterruptable power supply (UPS) with batteries that allow up to 15 minutes of
continuous operation will be provided. UPS protected power will be used to
support all on-air technical facilities.
8.2 Air Conditioning. Temperature and humidity controlled air conditioning
----------------
will be provided 24 hours a day to all technical facilities and tape storage
areas. Critical equipment will be powered with generator protected power. High
volume low pressure air distribution will be used in all critical listening
areas.
8.3 Telephone. 4MCA will provide on-premise telephones for technical and
---------
operations areas. This equipment will be powered with generator protected power.
Telephone use charges will be the responsibility of MTVA.
8.4 Security and Life Safety. Smoke detectors and an alarm system will be
------------------------
provided. Fire extinguishers and similar equipment will meet municipal
requirements. A controlled access system will be used to secure 24 hour per day
access.
5
<PAGE>
SCHEDULE D
Initial Equipment, Installation and Wiring
Expenditure Budget
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
ROOM EQUIPMENT UNIT COST QUANTITY TOTAL COST ROOM SUB-TOTAL
---- --------- --------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
1 Master Control Rooms AES Codec 4 ch 2,000 6 [*]
2 Master Control Rooms AES 4 ch mixer 3,500 3 [*]
3 Master Control Rooms Audio Amplifier 1,000 2 [*]
4 Master Control Rooms Audio - disk recorder 4,500 3 [*]
5 Master Control Rooms Audio Level Meters 800 3 [*]
6 Master Control Rooms Audio measurement system 5,000 3 [*]
7 Master Control Rooms Audio Limiter / Compressor 2,500 0 [*]
8 Master Control Rooms Audio subtitling inserter 1,500 0 [*]
9 Master Control Rooms Automation Control 10,000 3 [*]
10 Master Control Rooms Cable - Audio 3 1,500 [*]
11 Master Control Rooms Cable - Control 1 600 [*]
12 Master Control Rooms Cable - Video 1 1,000 [*]
13 Master Control Rooms Connectors - Audio 2 150 [*]
14 Master Control Rooms Connectors - R5422 1 60 [*]
15 Master Control Rooms Connectors - Video 2 250 [*]
16 Master Control Rooms Connectors - AES 10 150 [*]
17 Master Control Rooms Countdown clock 1,000 3 [*]
18 Master Control Rooms Intercom station 2,500 3 [*]
19 Master Control Rooms Local avail equipment 5,000 2 [*]
20 Master Control Rooms Patchbays Audio 1,200 3 [*]
21 Master Control Rooms Patchbays Video 1,200 3 [*]
22 Master Control Rooms Rottor Control Panel 1,500 3 [*]
23 Master Control Rooms Speaker, good 500 6 [*]
24 Master Control Rooms Still store 60,000 2 [*]
25 Master Control Rooms Still store remote control 3,000 3 [*]
26 Master Control Rooms Still store networking 1,000 3 [*]
27 Master Control Rooms Switcher M/C 16 in VLA 60,000 3 [*]
28 Master Control Rooms Switcher Backup 25,000 3 [*]
29 Master Control Rooms Switcher manual output 250 3 [*]
30 Master Control Rooms Switcher 40,000 3 [*]
31 Master Control Rooms Switcher Audio Follow 90,704 0 [*]
32 Master Control Rooms Switcher digital 12x1 v 2,500 3 [*]
33 Master Control Rooms Tally system 450 24 [*]
34 Master Control Rooms Title generator networking 1,000 3 [*]
35 Master Control Rooms Vectorscopes 3,750 3 [*]
36 Master Control Rooms WTM Digital
37 Master Control Rooms WTM Digital
38 Master Control Rooms WTM Analog
39 Master Control Rooms WTM Analog
40 Master Control Rooms Video Codec 2,700 10 [*]
41 Master Control Rooms Video Effects Device 50,000 2 [*]
42 Master Control Rooms Video D to A
43 Master Control Rooms Switcher
44 Master Control Rooms Video measurement system 10,000 3 [*]
45 Master Control Rooms Video Monitor 19" 6,000 8 [*]
46 Master Control Rooms Video Monitor 9" Dual 1,000 28 [*]
47 Master Control Rooms VTR Remote Control 2,500 3 [*]
48 Master Control Rooms Time of day clock 800 3 [*]
49 Master Control Rooms Waveform Monitor 6,000 3 [*] [*]
50 Commercial Cart Machines AES Codec 2,000 4 [*]
</TABLE>
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
Unit Total Room
Room Equipment Cost Quantity Cost Sub-Total
----- --------- ----- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
51 Commercial Cart Machines AES Delay 3,500 2 [*]
52 Commercial Cart Machines Audio Amplifier 600 2 [*]
53 Commercial Cart Machines Audio Level Meters 800 4 [*]
54 Commercial Cart Machines Audio Monitoring 2 ch A & D 1,500 8 [*]
55 Commercial Cart Machines Audio Switcher 1,000 2 [*]
56 Commercial Cart Machines Cable - Audio 3 1,500 [*]
57 Commercial Cart Machines Cable - Control 1 2,000 [*]
58 Commercial Cart Machines Cable - Video 1 2,500 [*]
59 Commercial Cart Machines Cart Machine - LMS w/VTRs 575,000 2 [*]
60 Commercial Cart Machines Cart Machine - internal a/c 5,000 2 [*]
61 Commercial Cart Machines Cart Machine - networking 20,000 1 [*]
62 Commercial Cart Machines Cart Machine - Control Remote
63 Commercial Cart Machines Control Computer 10,000 3 [*]
64 Commercial Cart Machines Character Generators - Chinese 75,000 3 [*]
65 Commercial Cart Machines Connectors - Audio 2 180 [*]
66 Commercial Cart Machines Connectors - R5422 1 80 [*]
67 Commercial Cart Machines Connectors - Video 2 150 [*]
68 Commercial Cart Machines Connectors - AES 10 100 [*]
69 Commercial Cart Machines Intercom Station 2,500 2 [*]
70 Commercial Cart Machines Patchbays Audio 1,200 3 [*]
71 Commercial Cart Machines Patchbays Video 1,200 3 [*]
72 Commercial Cart Machines
73 Commercial Cart Machines Racks 800 5 [*]
74 Commercial Cart Machines Router 16 x 16 x 1 GD 50,000 1 [*]
75 Commercial Cart Machines Router 16 x 16 x 2 DA 20,000 1 [*]
76 Commercial Cart Machines Router Control Panel 1,500 2 [*]
77 Commercial Cart Machines Speakers 600 4 [*]
78 Commercial Cart Machines Standards Converter 250,000 2 [*]
79 Commercial Cart Machines Standards Converter 150,000 2 [*]
80 Commercial Cart Machines Timecode UB reader 3,500 2 [*]
81 Commercial Cart Machines Vectorscopes 3,750 10 [*]
82 Commercial Cart Machines Video Codec 2,700 3 [*]
83 Commercial Cart Machines Video Monitor 19" 6,000 2 [*]
84 Commercial Cart Machines Video Monitor 14" 3,000 12 [*]
85 Commercial Cart Machines Video display terminal 800 2 [*]
86 Commercial Cart Machines Video Switcher 2,000 2 [*]
87 Commercial Cart Machines VTR - Digital Betacam 50,000 8 [*]
88 Commercial Cart Machines VTR Remote Control 2,500 2 [*]
89 Commercial Cart Machines Time of day display 800 4 [*]
90 Commercial Cart Machines Waveform Monitor 6,000 10 [*] [*]
91 Tape Preparation AES Codec 2,000 1 [*]
92 Tape Preparation Audio Level Meters 800 4 [*]
93 Tape Preparation Audio Monitoring 2 cn A & D 1,500 4 [*]
94 Tape Preparation Cable - Audio 2 800 [*]
95 Tape Preparation Cable - Control 1 800 [*]
96 Tape Preparation Cable - Video 1 800 [*]
97 Tape Preparation Connectors - Audio 2 40 [*]
98 Tape Preparation Connectors - R5422 1 20 [*]
99 Tape Preparation Connectors - Video 2 40 [*]
100 Tape Preparation Connectors - AES 10 40 [*]
</TABLE>
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
UNIT TOTAL ROOM
ROOM EQUIPMENT COST QUANTITY COST SUB-TOTAL
---- --------- ---- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
101 Tape Preparation Logging station 15,000 4 [*]
102 Tape Preparation Logging station LMS software 15,000 1 [*]
103 Tape Preparation Logging station\Software 0 0 [*]
104 Tape Preparation Logging station monitors
105 Tape Preparation Racks 800 2 [*]
106 Tape Preparation Router Control Panel 1,500 4 [*]
107 Tape Preparation Video Coder 2,700 4 [*]
108 Tape Preparation Video Monitor 14" 3,000 4 [*]
109 Tape Preparation ATM
110 Tape Preparation Audio Test [*]
111 Voice Over Booths AES Codec 4 chan 2,300 2 [*]
112 Voice Over Booths Audio Level Meters 800 2 [*]
113 Voice Over Booths Audio Mixer 5,000 1 [*]
114 Voice Over Booths ADA, routing 5000 1 [*]
115 Voice Over Booths Cable - Audio 3 300 [*]
116 Voice Over Booths Cable - Control 1 100 [*]
117 Voice Over Booths Cable - Video 1 200 [*]
118 Voice Over Booths Connectors - Audio 2 25 [*]
119 Voice Over Booths Connectors - R5422 1 10 [*]
120 Voice Over Booths Connectors - Video 2 25 [*]
121 Voice Over Booths Connectors AES 10 16 [*]
122 Voice Over Booths Headphones 150 2 [*]
123 Voice Over Booths Headphone control 300 2 [*]
124 Voice Over Booths Intercom station 2500 1 [*]
125 Voice Over Booths Microphone mount 300 2 [*]
126 Voice Over Booths Microphone switch 300 2 [*]
127 Voice Over Booths Microphones 1200 2 [*]
128 Voice Over Booths Microphone preamps 0 0 [*]
129 Voice Over Booths Router Control Panel 1,500 1 [*]
130 Voice Over Booths Video Monitor 14" 2,500 2 [*]
131 Voice Over Booths VTR remote control 2,500 1 [*]
132 Voice Over Booths Time of day display 800 1 [*] [*]
133 Online Edit 1 AES Clock regen 1,000 1 [*]
134 Online Edit 1 AES Codec 4 ch 2,700 20 [*]
135 Online Edit 1 AES D/A 1,000 20 [*]
136 Online Edit 1 ATR 24 track digital 150,000 0 [*]
137 Online Edit 1 ATR 24 track remote 5,000 0 [*]
138 Online Edit 1 ATR 4 track digital 15,000 3 [*]
139 Online Edit 1 ATR 4 track reel-to-reel 14,000 0 [*]
140 Online Edit 1 ATR remote 2,000 0 [*]
141 Online Edit 1 Audio DAT editing recorders 10,000 4 [*]
142 Online Edit 1 Audio - CD player 500 2 [*]
143 Online Edit 1 Audio Digital Cart 4,500 0 [*]
144 Online Edit 1 Audio mixer digital 50,000 3 [*]
145 Online Edit 1 Audio mixer DECAM cable 1,000 2 [*]
146 Online Edit 1 Audio outboard processing 20,000 0 [*]
147 Online Edit 1 Audio Amplifiers 1,200 3 [*]
148 Online Edit 1 Audio Level Meters 800 6 [*]
149 Online Edit 1 Audio Measurement System 5,000 0 [*]
150 Online Edit 1 Audio Phase Meter 2,500 3 [*]
</TABLE>
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
Unit Total Room
Room Equipment Cost Quantity Cost Sub-total
---- --------- ---- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
151 Online Edit 1 Audio Switcher 10 x 1 1,500 3 [*]
152 Online Edit 1 Audio DA Analog
153 Online Edit 1 Cable - Audio 3 3,000 [*]
154 Online Edit 1 Cable - Control 1 1,500 [*]
155 Online Edit 1 Cable - Video 1 3,000 [*]
156 Online Edit 1 Camera - accessories 8000 1 [*]
157 Online Edit 1 Camera - CCD 34600 1 [*]
158 Online Edit 1 Camera - CCU adapter 0 0 [*]
159 Online Edit 1 Camera - CCU 8000 1 [*]
160 Online Edit 1 Camera - lens 10000 1 [*]
161 Online Edit 1 Camera - lighting platform 5500 1 [*]
162 Online Edit 1 Camera - remote control 4000 1 [*]
163 Online Edit 1 Camera Cable
164 Online Edit 1 Character Gen Keyboard 5,000 2 [*]
165 Online Edit 1 Character Generator 75,000 1 [*]
166 Online Edit 1 Color Correction System 60,000 1 [*]
167 Online Edit 1 Connectors - Audio 2 300 [*]
168 Online Edit 1 Connectors - R5422 1 72 [*]
169 Online Edit 1 Connectors - Video 2 600 [*]
170 Online Edit 1 DATs
171 Online Edit 1 Editor 50,000 3 [*]
172 Online Edit 1 Effects - DVE 2 channel 100,000 0 [*]
173 Online Edit 1 Effects - storage 50,000 4 [*]
174 Online Edit 1 Effects - DVE 250,000 1 [*]
175 Online Edit 1 Encoders - monitoring 0 0 [*]
176 Online Edit 1 Headphones 150 2 [*]
177 Online Edit 1 Intercom station 2,500 3 [*]
178 Online Edit 1 Patehbays Audio 1,200 12 [*]
179 Online Edit 1 Patehbays Video 1,200 12 [*]
180 Online Edit 1 Racks 800 12 [*]
181 Online Edit 1 Router Control Panel 2,500 3 [*]
182 Online Edit 1 Safe Title Generator 3,700 3 [*]
183 Online Edit 1 Serializers 2,000 6 [*]
184 Online Edit 1 Speakers 600 6 [*]
185 Online Edit 1 Still Store 60,000 3 [*]
186 Online Edit 1 Still Store remote control 3,000 3 [*]
187 Online Edit 1 Switcher 2M/E 160,000 3 [*]
188 Online Edit 1 Switcher 2M/E 130,000 0 [*]
189 Online Edit 1 Timecode character generator 2,500 3 [*]
190 Online Edit 1 Timecode Generator 4,500 3 [*]
191 Online Edit 1 Timecode Phase Meter 2,500 3 [*]
192 Online Edit 1 Vectorscopes 3,750 3 [*]
193 Online Edit 1 Video Codes 2,700 6 [*]
194 Online Edit 1 Component to Serial Codec
195 Online Edit 1 Video A to D
196 Online Edit 1 Video DA'S Analog
197 Online Edit 1 Serial DA's
198 Online Edit 1 Video Measurement System 10,000 3 [*]
199 Online Edit 1 Video Monitor 19" 6,500 6 [*]
</TABLE>
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
Unit Total Room
Room Equipment Cost Quantity Cost Sub-total
-------------------------- -------------------------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
200 Online Edit 1 Video Monitor 9" 1,000 36 [*]
201 Online Edit 1 VTR Remote Control 2,500 3 [*]
202 Online Edit 1 Time of day display 800 3 [*]
203 Online Edit 1 Ultimatte 60,000 1 [*]
204 Online Edit 1 Waveform Monitor 6,000 3 [*] [*]
205 Offline/Online Edit 2,3 Cable - Audio 3 500 [*]
206 Offline/Online Edit 2,3 Cable - Control 1 250 [*]
207 Offline/Online Edit 2,3 Cable - Video 1 500 [*]
208 Offline/Online Edit 2,3 Connectors - Audio 2 50 [*]
209 Offline/Online Edit 2,3 Connectors - RS422 1 25 [*]
210 Offline/online Edit 2,3 Connectors - Video 2 100 [*]
211 Offline/online Edit 2,3 Editor PC based 20000 2 [*]
212 Offline/online Edit 2,3 Headphones 250 0 [*]
213 Offline/online Edit 2,3 Patchbays Video 1200 2 [*]
214 Offline/online Edit 2,3 Racks 800 2 [*]
215 Offline/online Edit 2,3 Router control panel 2500 2 [*]
216 Offline/online Edit 2,3 Safe Title Generator 3700 2 [*]
217 Offline/online Edit 2,3 Speakers 500 4 [*]
218 Offline/online Edit 2,3 Timecode char gen 2500 2 [*]
219 Offline/online Edit 2,3 Vectorscopes 3750 2 [*]
220 Offline/online Edit 2,3 Video Monitor 14" 2500 2 [*]
221 Offline/online Edit 2,3 Video Monitor B & W 750 6 [*]
222 Offline/online Edit 2,3 VCR - EVMS 2000 6 [*]
223 Offline/online Edit 2,3 Waveform Monitor 5000 2 [*] [*]
224 Graph./Char. Gen./Sub. Ttl. Audio Amplifier 1500 2 [*]
225 Graph./Char. Gen./Sub. Ttl. Audio Amplifier/Speaker stereo 500 3 [*]
226 Graph./Char. Gen./Sub. Ttl. Cable - Audio 3 600 [*]
227 Graph./Char. Gen./Sub. Ttl. Cable - Control 1 1,000 [*]
228 Graph./Char. Gen./Sub. Ttl. Cable - Video 1 1,000 [*]
229 Graph./Char. Gen./Sub. Ttl. Camera - accessories 8000 1 [*]
230 Graph./Char. Gen./Sub. Ttl. Camera - CCD 34600 1 [*]
231 Graph./Char. Gen./Sub. Ttl. Camera - CCU 8000 1 [*]
232 Graph./Char. Gen./Sub. Ttl. Camera - lens 10000 1 [*]
233 Graph./Char. gen./Sub. Ttl. Camera - lighting platform 5500 1 [*]
234 Graph./Char. Gen./Sub. Ttl. Camera, Cable 1
235 Graph./Char. Gen./Sub. Ttl. Camera - remote control 4000 1 [*]
236 Graph./Char. Gen./Sub. Ttl. Camera - stand 5000 1 [*]
237 Graph./Char. Gen./Sub. Ttl. Character Generators - Chinese 75000 1 [*]
238 Graph./Char. Gen./Sub. Ttl. Connectors - Audio 2 150 [*]
239 Graph./Char. Gen./Sub. Ttl. Connectors - RS422 1 50 [*]
240 Graph./Char. Gen./Sub. Ttl. Connectors - Video 2 150 [*]
241 Graph./Char. Gen./Sub. Ttl. Connectors - AES 10 26 [*]
242 Graph./Char. Gen./Sub. Ttl. Encoder 20000 2 [*]
243 Graph./Char. Gen./Sub. Ttl. Headphones 150 2 [*]
244 Graph./Char. Gen./Sub. Ttl. Headphone control 300 2 [*]
245 Graph./Char. Gen./Sub. Ttl. Intercom station 2500 3 [*]
246 Graph./Char. Gen./Sub. Ttl. Paintbox - quantel 165000 2 [*]
247 Graph./Char. Gen./Sub. Ttl.
248 Graph./Char. Gen./Sub. Ttl. Hal quantel
249 Graph./Char. Gen./Sub. Ttl. Patchbays Video 1200 2 [*]
250 Graph./Char. Gen./Sub. Ttl. Racks 800 3 [*]
</TABLE>
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
Unit Total Room
Room Equipment Cost Quantity Cost Sub-Total
--------------------------- ---------------------------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
251 Graph./Char. Gen./Sub. Ttl. Router Control Panel 1500 3 [*]
252 Graph./Char. Gen./Sub. Ttl. Safe Title gen 3000 1 [*]
253 Graph./Char. Gen./Sub. Ttl. Serializers 2000 5 [*]
254 Graph./Char. Gen./Sub. Ttl. Still Store 60000 1 [*]
255 Graph./Char. Gen./Sub. Ttl. Still Store remote control 3,000 1 [*]
256 Graph./Char. Gen./Sub. Ttl. Subtitle system 25000 2 [*]
257 Graph./Char. Gen./Sub. Ttl. Timecode character generator 2500 1 [*]
258 Graph./Char. Gen./Sub. Ttl. Vectorscopes 3750 1 [*]
259 Graph./Char. Gen./Sub. Ttl. Video Measurement System 10000 3 [*]
260 Graph./Char. Gen./Sub. Ttl. Video Monitor 14" 6000 2 [*]
261 Graph./Char. Gen./Sub. Ttl. Video Monitor B/W triple 1500 1 [*]
262 Graph./Char. Gen./Sub. Ttl. Video Monitor 8" dual 2000 4 [*]
263 Graph./Char. Gen./Sub. Ttl. VTR Remote Control 2500 1 [*]
264 Graph./Char. Gen./Sub. Ttl. Waveform Monitor 6000 1 [*] [*]
265 Audio Sweetening ATR 24 track analog 75,000 1 [*]
266 Audio Sweetening ATR 24 track remote 5,000 1 [*]
267 Audio Sweetening ATR 4 track reel to reel 14,000 1 [*]
268 Audio Sweetening ATR 2 track reel to reel 11,000 1 [*]
269 Audio Sweetening ATR 4 track
270 Audio Sweetening Audio CD player 0 0 [*]
271 Audio Sweetening Audio cassette rec/player 0 0 [*]
272 Audio Sweetening Audio EFX library 0 0 [*]
273 Audio Sweetening Audio DAT machine 0 0 [*]
274 Audio Sweetening Audio mixer analog 46 input 150,000 1 [*]
275 Audio Sweetening Audio - disk recorder 4,500 1 [*]
276 Audio Sweetening Audio Analog D/A 250 10 [*]
277 Audio Sweetening Audio codecs 1,800 20 [*]
278 Audio Sweetening Audio D/A Frame 650 5 [*]
279 Audio Sweetening Audio Digital D/A 575 10 [*]
280 Audio Sweetening Audio Room equalizer 4,000 1 [*]
281 Audio Sweetening Audio Level Meters 800 4 [*]
282 Audio Sweetening Audio Monitoring - AES Mix 5,000 2 [*]
283 Audio Sweetening Audio Monitoring - Amplifier 2,500 2 [*]
284 Audio Sweetening Audio Monitoring - Speakers 1,500 4 [*]
285 Audio Sweetening Audio Turntable 0 0 [*]
286 Audio Sweetening Audio Workstation 200,000 1 [*]
287 Audio Sweetening Audio Workstation MIDI 55,000 1 [*]
288 Audio Sweetening Audio outboard processing 10,000 1 [*]
289 Audio Sweetening Audio Patchbays 1,200 6 [*]
290 Audio Sweetening Audio ebase meter 2,500 1 [*]
291 Audio Sweetening Cable - Audio 3 6,000 [*]
292 Audio Sweetening Cable - Control 1 2,000 [*]
293 Audio Sweetening Cable - Video 1 2,000 [*]
294 Audio Sweetening Connectors - Audio 2 200 [*]
295 Audio Sweetening Connectors - R5422 1 100 [*]
296 Audio Sweetening Connectors - Video 2 100 [*]
297 Audio Sweetening Connectors AES 10 300 [*]
298 Audio Sweetening Headphones 150 2 [*]
299 Audio Sweetening Intercom station 2,500 1 [*]
300 Audio Sweetening Racks 800 3 [*]
</TABLE>
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
Unit Total Room
Room Equipment Cost Quantity Cost Sub-total
---- --------- ---- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
301 Audio Sweetening Router Control Panel 2,500 1 [*]
302 Audio Sweetening Synchronizing 10,000 1 [*]
303 Audio Sweetening Timecode character generator 2,500 1 [*]
304 Audio Sweetening VTR - Digital Betacam 15,000 0 [*]
305 Audio Sweetening VTR Remote Control 2,500 1 [*]
306 Audio Sweetening Video Monitor 6,000 1 [*] [*]
307 Studio/CCU Amplifier - Audio 1,000 1 [*]
308 Studio/CCU Audio Amplifier/Speaker combo 1,000 1 [*]
309 Studio/CCU Cable - Audio 3 3,000 [*]
310 Studio/CCU Cable - Control 1 2,000 [*]
311 Studio/CCU Cable - Triax 10 400 [*]
312 Studio/CCU Cable - Video 1 2,000 [*]
313 Studio/CCU Cable - service/patch panels 2,500 3 [*]
314 Studio/CCU Camera - CCD 80,000 3 [*]
315 Studio/CCU Camera - CCR 21,000 3 [*]
316 Studio/CCU Camera - triax cable 2,000 3 [*]
317 Studio/CCU Camera - color viewfinder 5,000 3 [*]
318 Studio/CCU Camera - Accessories 10,000 3 [*]
319 Studio/CCU Camera - zoom lenses 30,000 3 [*]
320 Studio/CCU Adapter for vtr
321 Studio/CCU Battery Packs
322 Studio/CCU Battery Charger
323 Studio/CCU Command Network
324 Studio/CCU Camera - encoder RGB - 601 2,000 3 [*]
325 Studio/CCU Camera - master setup panel 7,000 2 [*]
326 Studio/CCU Camera - CCU Block 4.2 0 0 [*]
327 Studio/CCU Camera - VC select switcher 3,000 2 [*]
328 Studio/CCU Camera - teleprompter 3,000 2 [*]
329 Studio/CCU Camera - teleprompter control com 15,000 2 [*]
330 Studio/CCU Camera - pedestal & head 35,000 3 [*]
331 Studio/CCU Color Corrector 5,450 2 [*]
332 Studio/CCU Color Corrector Control 1,805 2 [*]
333 Studio/CCU Connectors - Audio 2 300 [*]
334 Studio/CCU Connectors - R5422 1 160 [*]
335 Studio/CCU Connectors - Video 2 240 [*]
336 Studio/CCU Connectors AES 10 120 [*]
337 Studio/CCU Headphones 160 4 [*]
338 Studio/CCU Intercom station 2,500 1 [*]
339 Studio/CCU Intercom - wireless TFB 3,000 4 [*]
340 Studio/CCU Intercom - wireless FL 3,500 2 [*]
341 Studio/CCU Lighting dimmers 100,000 1 [*]
342 Studio/CCU Lighting instruments 2,500 50 [*]
343 Studio/CCU Lift - equipment 2,500 1 [*]
344 Studio/CCU Microphones 1,200 4 [*]
345 Studio/CCU Microphones - Wireless 5,000 1 [*]
346 Studio/CCU Microphones - clip on 800 3 [*]
347 Studio/CCU Microphones - hand held 0 0 [*]
348 Studio/CCU Microphones - desk stands 200 4 [*]
349 Studio/CCU Microphones - floor stands 250 4 [*]
350 Studio/CCU Microphones - boom stands 1,500 2 [*]
</TABLE>
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
Unit Total Room
Room Equipment Cost Quantity Cost Sub-total
------------------ -------------------------- --------- ---------- ---------- -------------
<C> <S> <C> <C> <C> <C> <C>
351 Studio/CCU Microphone - cables 100 20 [*]
352 Studio/CCU Patchbays Audio 1,200 2 [*]
353 Studio/CCU Patchbays Video 1,200 2 [*]
354 Studio/CCU Racks 800 4 [*]
355 Studio/CCU Faster Control Panel 1,500 1 [*]
356 Studio/CCU Serializers 1,200 3 [*]
357 Studio/CCU Speakers 1,000 4 [*]
358 Studio/CCU Speakers - Self powered PA 2,000 4 [*]
359 Studio/CCU Vectorscopes 3,750 2 [*]
360 Studio/CCU Video Codes 10,000 2 [*]
361 Studio/CCU Video A To D
362 Studio/CCU Video Encoder 3,000 2 [*]
363 Studio/CCU Video Monitor 31" 5,000 3 [*]
364 Studio/CCU Video Monitor 25" 3,000 6 [*]
365 Studio/CCU Video Monitor 14" 4000 2 [*]
366 Studio/CCU Video Monitor 9" B/W
367 Studio/CCU Video Monitor Color Dual 2,000 2 [*]
368 Studio/CCU Video Monitor - roll around carts 600 2 [*]
369 Studio/CCU Video monitor - grid mount hard 800 10 [*]
370 Studio/CCU VTR - Portable Betacom SP 0 0 [*]
371 Studio/CCU Time of day display 800 1 [*]
372 Studio/CCU Serial DA,s
373 Studio/CCU Serial 10X1 Video
374 Studio/CCU Waveform Monitor 6,000 2 [*]
375 Studio/CCU Waveform Monitor 3,500 2 [*] [*]
376 Production Control AES Clock regen 1,000 1 [*]
377 Production Control AES Codet 2,700 5 [*]
378 Production Control AES D/A 1,000 4 [*]
379 Production Control Audio Amplifier 1,500 1 [*]
380 Production Control Audio Level Meters 800 2 [*]
381 Production Control Audio Measurement System 5,000 1 [*]
382 Production Control Audio Room equalizer 1,500 1 [*]
383 Production Control Cable - Audio 3 1,000 [*]
384 Production Control Cable - Control 1 500 [*]
385 Production Control Cable - Video 1 1,000 [*]
386 Production Control Character Gen. Titler 75,000 1 [*]
387 Production Control Connectors - Audio 2 150 [*]
388 Production Control Connectors - RS422 1 25 [*]
389 Production Control Connectors - Video 2 250 [*]
390 Production Control Connectors - 25pin tally 2 200 [*]
391 Production Control Countdown clocks 1,000 2 [*]
392 Production Control Intercom station 2,500 8 [*]
393 Production Control Keyboard - Titler 2,500 1 [*]
394 Production Control Patchbays Audio 1,200 2 [*]
395 Production Control Patchbays Video 1,200 2 [*]
396 Production Control Racks 800 4 [*]
397 Production Control Router Control Panel 2,500 1 [*]
398 Production Control Safe Title Generator 3,700 1 [*]
399 Production Control Serializers 2,000 2 [*]
400 Production Control Speakers 1,000 4 [*]
</TABLE>
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
Unit Total Room
Room Equipment Cost Quantity Cost Sub-total
------------------ ---------------------------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
401 Production Control Still Store 50,000 1 [*]
402 Production Control Still Store remote control 3,000 1 [*]
403 Production Control Switcher 160,000 1 [*]
404 Production Control Timecode character generator 2,500 1 [*]
405 Production Control Vectorscopes 3,750 1 [*]
406 Production Control Video Codec 2,700 2 [*]
407 Production Control Video A To D
408 Production Control Video Effects System 130,000 1 [*]
409 Production Control Video encoder - monitoring 0 0 [*]
410 Production Control Video Measurement 10,000 1 [*]
411 Production Control Video Monitor 14" 3,500 12 [*]
412 Production Control Video Monitor - 14" 4,500 2 [*]
413 Production Control Video Monitor - 19" 6,500 2 [*]
414 Production Control Video Monitor - 9" 1,000 5 [*]
415 Production Control Video Switcher 10 x 1 3,000 1 [*]
416 Production Control VTR Remote Control 2,500 1 [*]
417 Production Control Time of day clock 800 1 [*]
418 Production Control Waveform Monitor 6,000 1 [*]
419 Production Control Tally matrix control 10,000 1 [*]
420 Production Control Ultimatte 0 0 [*] [*]
421 Audio Control ATR 4 track reel to reel 14,000 1 [*]
422 Audio Control ATR 4 track remote 5,000 1 [*]
423 Audio Control ATR remote 2,000 1 [*]
424 Audio Control Audio mixer analog 40 input 60,000 1 [*]
425 Audio Control Audio DAT editing recorders 10,000 2 [*]
426 Audio Control Audio Cassette Player 0 0 [*]
427 Audio Control Audio - Cart machine 4,500 2 [*]
428 Audio Control Audio - CD player 500 1 [*]
429 Audio Control Audio outboard processing 20,000 1 [*]
430 Audio Control Audio Analog D/A 250 2 [*]
431 Audio Control AES Codec 4 ch 2,700 10 [*]
432 Audio Control Audio codecs 1,350 0 [*]
433 Audio Control Audio D/A Frame 850 2 [*]
434 Audio Control Audio Digital D/A 575 3 [*]
435 Audio Control Audio Level Meters 800 2 [*]
436 Audio Control Audio Monitoring - AES Mix 5,000 1 [*]
437 Audio Control Audio Amplifier 1,200 2 [*]
438 Audio Control Audio Phase Meter 2,500 1 [*]
439 Audio Control Audio Measurement System 5,000 1 [*]
440 Audio Control Audio Patchbays 1,200 6 [*]
441 Audio Control Cable - Audio 3 3,000 [*]
442 Audio Control Cable - Control 1 1,000 [*]
443 Audio Control Cable - Video 1 500 [*]
444 Audio Control Connectors - Audio 2 200 [*]
445 Audio Control Connectors - R5422 1 20 [*]
446 Audio Control Connectors - Video 2 60 [*]
447 Audio Control Connectors AES 10 150 [*]
448 Audio Control Microphones 150 4 [*]
449 Audio Control Intercom station 2,500 2 [*]
450 Audio Control Racks 800 4 [*]
</TABLE>
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
Unit Total Room
Room Equipment Cost Quantity Cost Sub-total
---- --------- ---- -------- ------ ---------
<S> <C> <C> <C> <C> <C>
451 Audio Control Speakers 1,000 4 [*]
452 Audio Control Synchronising 10,000 2 [*]
453 Audio Control Timecards character generator 2,500 1 [*]
454 Audio Control Video Monitor 19" 6,000 2 [*]
455 Audio Control Video Monitor 9" 1,000 4 [*]
456 Audio Control Time of day display 800 1 [*] [*]
457 Main Tape AES Coders 2,500 20 [*]
458 Main Tape AES Delay 3,500 4 [*]
459 Main Tape Audio Amplifier 1,000 3 [*]
460 Main Tape Audio Level Meters 800 4 [*]
461 Main Tape Audio measurement system 5,000 3 [*]
462 Main Tape Audio Monitoring & channel A & D 1,500 20 [*]
463 Main Tape Audio Phase Meter 2,500 3 [*]
464 Main Tape Audio Switcher 1,000 3 [*]
465 Main Tape Cable - Audio 3 3,500 [*]
466 Main Tape Cable - Control 1 2,500 [*]
467 Main Tape Cable - Video 1 5,000 [*]
468 Main Tape Connectors - Audio 2 200 [*]
469 Main Tape Connectors - R5422 1 175 [*]
470 Main Tape Connectors - Video 2 1,200 [*]
471 Main Tape Connectors AES 10 1,000 [*]
472 Main Tape Decoder 15,000 2 [*]
473 Main Tape Encoder 20,000 2 [*]
474 Main Tape Interior station 2,500 2 [*]
475 Main Tape Machine Control & Setup System 50,000 1 [*]
476 Main Tape Patchbays Audio 1,200 12 [*]
477 Main Tape Patchbays Video 1,200 12 [*]
478 Main Tape Racks 800 15 [*]
479 Main Tape Center Control Panel 1,500 4 [*]
480 Main Tape Speakers 400 8 [*]
481 Main Tape Timecode character generator 2,500 2 [*]
482 Main Tape Timecode Generator 4,500 1 [*]
483 Main Tape Timecode Analyzer
484 Main Tape Vectorscopes 3,750 3 [*]
485 Main Tape Video Codec 5,000 10 [*]
486 Main Tape Video A to D
487 Main Tape Video format connectors 15,000 2 [*]
488 Main Tape Video Monitor - 14" 4,500 3 [*]
489 Main Tape Video Monitor - 9" 1,000 32 [*]
490 Main Tape Video Measurement system 10,000 12 [*]
491 Main Tape 0 0 [*]
492 Main Tape Video Switcher 2,000 2 [*]
493 Main Tape Picturenet Controll
494 Main Tape VTR - D2 NTSC 50,000 2 [*]
495 Main Tape VTR-Digital Betcam 50,000 18 [*]
496 Main Tape VTR - Digital Betacam 0 0 [*]
497 Main Tape VTR - NTSC Betacam 18 record deck 40,000 2 [*]
498 Main Tape Sony Rack Slides
499 Main Tape VTR - PAL Betacom 27 record decks 40,000 4 [*]
500 Main Tape VTR - JVKS 1,000 8 [*]
</TABLE>
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
Unit Total Room
Room Equipment Cost Quantity Cost Sub-total
----------------------------- -------------------------- --------- ---------- ---------- ---------
<C> <S> <C> <C> <C> <C> <C>
501 Main Tape VTR - TBC 5,000 1 [*]
502 Main Tape VTR - TBC system 25,000 1 [*]
503 Main Tape Time of day clock 800 1 [*]
504 Main Tape Waveform Monitor 6,000 3 [*]
505 Main Tape Waveform Mon Vectorsc combo 6,000 12 [*] [*]
506 Main Machine AES D/A 1500 3 [*]
507 Main Machine AES D/A clock dist 2000 4 [*]
508 Main Machine AES / FBU Measurement System 5000 1 [*]
509 Main Machine AES Delay 4 ch 3500 1 [*]
510 Main Machine AES Reference character 5000 1 [*]
511 Main Machine AES Synchronizer 5500 1 [*]
512 Main Machine AES Tone Generator 2000 1 [*]
513 Main Machine Audio Level Meters 800 4 [*]
514 Main Machine Audio Monitoring - Amplifier 1500 2 [*]
515 Main Machine Audio Measurement System 5000 4 [*]
516 Main Machine Audio Phase Meter 2500 2 [*]
517 Main Machine Audio ph. meter select sw. 200 2 [*]
518 Main Machine Cable - Audio 1 8,000 [*]
519 Main Machine Cable - Control 1 3,500 [*]
520 Main Machine Cable - Video 1 4,000 [*]
521 Main Machine Clock - master 5000 1 [*]
522 Main Machine Codecs - AES 1000 16 [*]
523 Main Machine Codecs - Video 4000 6 [*]
524 Main Machine Connectors - Audio 2 750 [*]
525 Main Machine Connectors - RS422 1 200 [*]
526 Main Machine Connectors - Video 2 500 [*]
527 Main Machine Connectors AES 10 512 [*]
528 Main Machine D/A Analog Audio 2500 8 [*]
529 Main Machine D/A Analog Video 3500 4 [*]
530 Main Machine D/A Digital Audio 2500 8 [*]
531 Main Machine D/A Digital Video 2500 4 [*]
532 Main Machine D/A Misc 3000 4 [*]
533 Main Machine Encoder NTSC - 601 20000 1 [*]
534 Main Machine Frame Synchronizer 6500 1 [*]
535 Main Machine Intercom station 2500 2 [*]
536 Main Machine Intercom system 25000 2 [*]
537 Main Machine Patchbays Audio 1200 10 [*]
538 Main Machine Patchbays Video 1200 10 [*]
539 Main Machine Picturenet 0 0 [*]
540 Main Machine Racks 800 12 [*]
541 Main Machine Router 128 x 128 timecode 35000 1 [*]
542 Main Machine Router 128 x 128 x 4 AES 155000 2 [*]
543 Main Machine Add-on AES
544 Main Machine Router 128 x 128 RE-422 28000 1 [*]
545 Main Machine Router 128 x 128 JD 300000 1 [*]
546 Main Machine Router 16 x 14 alpha 25000 1 [*]
547 Main Machine Router Computer 8000 2 [*]
548 Main Machine Router Control Panel 2500 10 [*]
549 Main Machine Router Software 21000 1 [*]
550 Main Machine Serializers 2000 12 [*]
</TABLE>
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
Unit Total Room
Room Equipment Cost Quantity Cost Sub-total
--------------------- -------------------------- --------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
551 Main Machine Speakers 500 4 [*]
552 Main Machine Standards Converter 150000 1 [*]
553 Main Machine Sync gen NTSC 5500 1 [*]
554 Main Machine Sync gen PAL 10000 2 [*]
555 Main Machine Sync switchber 4500 2 [*]
556 Main Machine Test gen NTSC 10000 1 [*]
557 Main Machine Test gen PAL 10000 2 [*]
558 Main Machine Test Gen Digital
559 Main Machine Timecode Generator 4500 2 [*]
560 Main Machine Vectorscopes 3750 2 [*]
561 Main Machine Vectorscopes NTSC 3750 1 [*]
562 Main Machine Video Measurement System 30000 2 [*]
563 Main Machine Video Measurement System 10000 4 [*]
564 Main Machine Video Monitor 19" 7200 4 [*]
565 Main Machine Video Monitor 8" 1000 4 [*]
566 Main Machine Video Monitor triple 2500 4 [*]
567 Main Machine Video Monitor 9" B&W 450 10 [*]
568 Main Machine Video Monitor 14" B&W 2500 2 [*]
569 Main Machine Time of day display 800 2 [*]
570 Main Machine Waveform Monitor 6000 2 [*]
571 Main Machine Waveform Monitor NTSC 3500 1 [*] [*]
572 Engineering and Maint. AES Test Meter 3,500 1 [*]
573 Engineering and Maint. Computer 8,000 3 [*]
574 Engineering and Maint. Oscilloscopes 8,500 2 [*]
575 Engineering and Maint. Setup Rigs 25,000 1 [*]
576 Engineering and Maint. Spare Parts 29,000 1 [*]
577 Engineering and Maint. Tools 1,000 2 [*]
578 Engineering and Maint. Test equipment 50,000 1 [*] [*]
579 Electrical and HVAC Air Compressor 5,000 1 [*]
580 Electrical and HVAC Air Conditioning 1,000 175 [*]
581 Electrical and HVAC Humidity Control 50,000 1 [*]
582 Electrical and HVAC Electrical transfer switch 15,000 1 [*]
583 Electrical and HVAC UPS 175,000 1 [*] [*]
584 Support Areas Office Furniture 30,000 1 [*]
585 Support Areas Rack Hardware 10,000 1 [*]
586 Support Areas Dense pack storage system 75,000 1 [*]
587 Support Areas Security Systems 50,000 1 [*]
588 Support Areas Consoles & built ins 100,000 1 [*] [*]
589 Wiring 1,105,000 1 [*] [*]
[*] [*]
</TABLE>
<PAGE>
SCHEDULE E
[Intentionally omitted]
<PAGE>
SCHEDULE F
Floor Plan
<PAGE>
MTV Asia Facilities at Four Media Company Singapore
[Map appears here]
<PAGE>
MTV Asia Facilities at Four Media Company Singapore
[Map appears here]
<PAGE>
SCHEDULE G
PRE-COMMENCEMENT FEE SCHEDULE
<TABLE>
<CAPTION>
Service Particular Service Monthly Fees
<S> <C> <C>
First channel [*]
Origination Second channel [*]
(subsequent to first channel)
Edit 1 (compositing) [*]
Editing Edit 2 [*]
Edit 3 [*]
First shift [*]
Studio Second shift, subsequent to [*]
first shift
Audio Mixing [*]
Graphics [*]
Total [*]
</TABLE>
<PAGE>
SCHEDULE H
TECHNICAL SPECIFICATIONS
------------------------
NTSC 525 Analog
- ---------------
1. All video timing parameters shall meet EIA RS170A specifications.
2. All facility signal distribution (video and audio) shall meet RS250C short
haul specifications.
PAL 625 Analog
- --------------
1. All video timing parameters shall meet CCIR Report 624-4 specifications.
2. All facility signal distribution (video and audio) shall meet CCIR Report
624-4 specifications.
625 and 525 Digital
- -------------------
1. All parallel digital signals shall interface in conformance with ANSI/SMPTE
125M-1992 "Component Video Signal 4:2:2 - Bit Parallel Digital Interface"
specifications.
2. All serial digital signals shall interface in conformance with ANSI/SMPTE
259M-1993 "10 Bit 4:2:2 Component and 4fsc NTSC Composite Digital Signals -
Serial Digital Interface" specifications.
3. All digital encoding shall meet CCIR 601-2 "Encoding Parameters of Digital
Television for Studios" specifications.
Acoustic
- --------
Studio NC-25
Control Rooms NC-30
HVAC (studio and all technical areas)
- ----
Temperature 68 degrees-72 degrees F
Relative humidity 40%-60%
<PAGE>
SCHEDULE I-1
Form of Guaranty to be Executed
by Viacom International Inc.
<PAGE>
GUARANTY
This Guaranty ("Guaranty") is entered into as of February 13, 1995 by
Viacom International Inc., a Delaware corporation ("Guarantor"), in favor of
Four Media Company Asia PTE Ltd. ("4MCA").
In order to induce 4MCA to enter into that certain Agreement dated as of
February 13, 1995 (the "Agreement") between 4MCA and MTV Asia LDC ("MTVA"),
which is a wholly-owned subsidiary of (a) Guarantor and (b) MTV Asia Development
Company, Inc. (a wholly-owned subsidiary of Guarantor), and for other valuable
consideration, receipt of which is hereby acknowledged, Guarantor hereby
irrevocably, absolutely, unconditionally guarantees to 4MCA the prompt, punctual
and full performance and payment when due of any and all obligations of MTVA
under the Agreement and the prompt performance of any and all of the terms,
conditions and covenants agreed to be performed by MTVA under the Agreement,
irrespective of the value, genuineness, validity, regularity or enforceability
of the Agreement or any term or provision of any other document relating to the
obligations or any other circumstance, to the extent any of the foregoing might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor (all such obligations, terms, conditions and covenants are hereinafter
collectively referred to as the "Obligations"). The term "Obligations" is used
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities heretofore, now or hereafter made, incurred or
created under the Agreement, whether voluntary or involuntary and whether due or
not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether recovery upon any of the Obligations may be or
hereafter become unenforceable.
This Guaranty has been duly authorized, executed and delivered by Guarantor
and constitutes the legal, valid and binding obligation of Guarantor,
enforceable in accordance with its terms.
Guarantor hereby expressly waives diligence, presentment, demand for
payment, protest, benefit of any statute of limitations affecting MTVA's
liability under the Agreement or the enforcement of this Guaranty, benefit of
any act of omission by 4MCA which directly or indirectly results in or aids the
discharge of MTVA or any of the Obligations by operation of law or otherwise,
all notices whatsoever, including, without limitation, notice of acceptance of
this Guaranty and the incurring of the Obligations, and any requirement that
4MCA exhaust any right, power or remedy or proceed against MTVA or any other
guarantor, or any other security for, or any other party liable for, any of the
Obligations. Guarantor specifically agrees that it will not be necessary or
required, and Guarantor shall not be entitled to require, that 4MCA file suit or
proceed to assert or obtain a claim for personal judgment against MTVA for the
Obligations or to make any effort at collection or enforcement of the
Obligations from MTVA or file suit or proceed to obtain or assert a claim for
personal judgment against any other guarantor or other party liable for the
Obligations or make any effort at collection of the
1
<PAGE>
Obligations from any such party or exercise or assert any other right or remedy
to which 4MCA is or may be entitled in connection with the Obligations or any
guaranty thereof or assert or file any claim against the assets of MTVA or any
other person liable for this Guaranty or the Obligations, or any part thereof,
before or as a condition of enforcing the liability of Guarantor under this
Guaranty.
Until payment and performance in full of the Obligations, Guarantor waives
any right to enforce any remedy of 4MCA which 4MCA now or may hereafter have
against MTVA, any other guarantor or any other person and waives any benefit of,
or any right to participation in, any security whatsoever now or hereafter held
by 4MCA. Guarantor waives any defense Guarantor may have based upon any election
of remedies by 4MCA which impairs or nullifies Guarantor's subrogation rights or
Guarantor's rights to proceed against MTVA for reimbursement, including, without
limitation, any loss of rights Guarantor may suffer by reason of any rights,
powers or remedies of MTVA in connection with any state, federal or foreign
anti-deficiency laws or any other laws limiting, qualifying or discharging the
Obligations.
The liability of Guarantor hereunder shall be reinstated and revived and
the rights of 4MCA shall continue if and to the extent that for any reason any
payment or performance by or on behalf of MTVA is rescinded or must be otherwise
restored by 4MCA, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, all as though such amount had not been paid or
such act had not been performed. The determination as to whether any such
payment or performance must be rescinded or restored shall be made by 4MCA in
its sole discretion; provided, however, that if 4MCA chooses to contest any such
matter at the request of Guarantor, Guarantor agrees to indemnify and hold
harmless 4MCA with respect to all costs (including, without limitation,
attorneys' fees) of such litigation.
This Guaranty shall be governed by and construed in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, this Guaranty has been duly executed and delivered by
Guarantor as of the date first above written.
VIACOM INTERNATIONAL INC., a Delaware corporation
By:
-----------------------------------------------
Its:
------------------------------------------
2
<PAGE>
SCHEDULE I-2
Form of Guaranty to be Executed
by Four Media Company
<PAGE>
GUARANTY
This Guaranty ("Guaranty") is entered into as of February 13, 1995 by Four
Media Company, a Delaware corporation ("Guarantor"), in favor of MTV Asia LDC
("MTVA").
In order to induce MTVA to enter into that certain Agreement dated as of
February 13, 1995 (the "Agreement") between MTVA and Four Media Company Asia PTE
Ltd. ("4MCA"), a wholly-owned subsidiary of Guarantor, and for other valuable
consideration, receipt of which is hereby acknowledged, Guarantor hereby
irrevocably, absolutely and unconditionally guarantees to MTVA the prompt,
punctual and full performance and payment when due of any and all obligations of
4MCA under the Agreement and the prompt performance of any and all of the terms,
conditions and covenants agreed to be performed by 4MCA under the Agreement,
irrespective of the value, genuineness, validity, regularity or enforceability
of the Agreement or any term or provision of any other document relating to the
Obligations or any other circumstance, to the extent any of the foregoing might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor (all such obligations, terms, conditions and covenants are hereinafter
collectively referred to as the "Obligations"). The term "Obligations" is used
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities heretofore, now or hereafter made, incurred or
created under the Agreement, whether voluntary or involuntary and whether due or
not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether recovery upon any of the Obligations may be or
hereafter become unenforceable.
This Guaranty has been duly authorized, executed and delivered by Guarantor
and constitutes the legal, valid and binding obligation of Guarantor,
enforceable in accordance with its terms.
Guarantor hereby expressly waives diligence, presentment, demand for
payment, protest, benefit of any statute of limitations affecting 4MCA's
liability under the Agreement or the enforcement of this Guaranty, benefit of
any act or omission by MTVA which directly or indirectly results in or aids the
discharge or 4MCA or any of the Obligations by operation of law or otherwise,
all notices whatsoever, including, without limitation, notice of acceptance of
this Guaranty and the incurring of the Obligations, and any requirement that
MTVA exhaust any right, power or remedy or proceed against 4MCA or any other
guarantor, or any other security for, or any other party liable for, any of the
Obligations. Guarantor specifically agrees that it will not be necessary or
required, and Guarantor shall not be entitled to require, that MTVA file suit or
proceed to assert or obtain a claim for personal judgment against 4MCA for the
Obligations or to make any effort at collection or enforcement of the
Obligations from 4MCA or file suit or proceed to obtain or assert a claim for
personal judgment against any other guarantor or other party liable for the
Obligations or make any effort at collection of the Obligations from any such
party or exercise or assert any other right or remedy to which MTVA is or may be
entitled in connection with the Obligations or any guaranty thereof or assert or
file
1
<PAGE>
any claim against the assets of 4MCA or any other person liable for this
Guaranty or the Obligations, or any part thereof, before or as a condition of
enforcing the liability of Guarantor under this Guaranty.
Until payment and performance in full of the Obligations, Guarantor waives
any right to enforce any remedy of MTVA which MTVA now or may hereafter have
against 4MCA, any other guarantor or any other person and waives any benefit of,
or any right to participation in, any security whatsoever now or hereafter held
by MTVA. Guarantor waives any defense Guarantor may have based upon any election
of remedies by MTVA which impairs or nullifies Guarantor's subrogation rights
or Guarantor's rights to proceed against 4MCA for reimbursement, including,
without limitation, any loss of rights Guarantor may suffer by reason of any
rights, powers or remedies of 4MCA in connection with any state, federal or
foreign anti-deficiency laws or any other laws limiting, qualifying or
discharging the Obligations.
The liability of Guarantor hereunder shall be reinstated and revived and
the rights of MTVA shall continue if and to the extent that for any reason any
payment or performance by or on behalf of 4MCA is rescinded or must be otherwise
restored by MTVA, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, all as though such amount had not been paid or such
act had not been performed. The determination as to whether any such payment or
performance must be rescinded or restored shall be made by MTVA in its sole
discretion; provided, however, that if MTVA chooses to contest any such matter
at the request of Guarantor, Guarantor agrees to indemnify and hold harmless
MTVA with respect to all costs (including, without limitation, attorneys' fees)
of such litigation.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, this Guaranty has been duly executed and delivered by
Guarantor as of the date first above written.
FOUR MEDIA COMPANY, a Delaware corporation
By:
---------------------------------------------
Its:
----------------------------------------
2
<PAGE>
EXHIBIT 10.19
FINANCING AGREEMENT
-------------------
THE CIT GROUP/BUSINESS CREDIT, INC.
AS AGENT AND LENDER
THE CIT GROUP/EQUIPMENT FINANCING, INC.
AS LENDER
AND
4MC-BURBANK, INC.
DIGITAL MAGIC COMPANY
(AS BORROWERS)
DATED: October 17, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SECTION 1. Definitions........................................
SECTION 2. Conditions Precedent...............................
SECTION 3. Revolving Loans....................................
SECTION 4. Term Loan..........................................
SECTION 5. Letters of Credit..................................
SECTION 6. Collateral.........................................
SECTION 7. Representations, Warranties and Covenants..........
SECTION 8. Interest, Fees and Expenses........................
SECTION 9. Powers.............................................
SECTION 10. Events of Default and Remedies.....................
SECTION 11. Termination........................................
SECTION 12. Miscellaneous......................................
SECTION 13. Agreement between Lenders..........................
SECTION 14. Agency.............................................
EXHIBIT
- -------
Exhibit A - Form of Revolving Loan Promissory Note
Exhibit B - Form of Term Loan Promissory Note A
Exhibit C - Form of Term Loan Promissory Note B
Exhibit D - Form of Capex Term Loan Promissory Note
Exhibit E - Form of Assignment and Transfer Agreement
SCHEDULES
- ---------
Schedule 1 - Existing Liens
Schedule 2 - Collateral Locations and Chief Executive Office
Schedule 3 - Permitted Indebtedness
</TABLE>
2
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation,
(hereinafter "CITBC") with offices located at 300 South Grand Avenue, Los
Angeles, CA 90071 and The CIT Group/Equipment Financing, Inc., a New York
corporation (hereinafter "CITEF") with offices located at 300 South Grand
Avenue, Los Angeles, CA 90071, (CITBC, CITEF and any other party hereafter
becoming a Lender hereunder pursuant to Section 13, Paragraph 9 hereof each
individually sometimes referred to as a "Lender" and collectively the "Lenders")
and CITBC as Agent for the Lenders (hereinafter the "Agent") are pleased to
confirm the terms and conditions under which the Lenders acting through the
Agent shall make revolving loans, term loans and other financial accommodations
to 4MC-Burbank, Inc. (herein the "4MC"), a Delaware corporation with a principal
place of business at 2813 West Alameda Avenue, Burbank, CA 91505-4455 and
Digital Magic Company (herein "DMC"), a Delaware corporation with a principal
place of business at 3000 West Olympic Blvd., Santa Monica, CA 90404 (4MC and
DMC may be referred to herein individually as a "Company" and collectively as
the "Companies").
SECTION 1. DEFINITIONS
-----------
ACCOUNTS shall mean all of the Companies' now existing and future: (a) accounts
- --------
(as defined in the U.C.C.) and any and all other receivables (whether or not
specifically listed on schedules furnished to the Agent), including, without
limitation, all accounts created by or arising from all of their sales of goods
or rendition of services to their customers, and all accounts arising from sales
or rendition of services made under any of their trade names or styles, or
through any of their divisions; (b) any and all instruments (as defined in the
U.C.C.), documents (as defined in the U.C.C.), contract rights (as defined in
the U.C.C.) and chattel paper (as defined in the U.C.C.); (c) unpaid seller's
rights (including rescission, replevin, reclamation and stoppage in transit)
relating to the foregoing or arising therefrom; (d) rights to any goods
represented by any of the foregoing, including rights to returned or repossessed
goods; (e) reserves and credit balances arising hereunder; (f) guarantees or
collateral for any of the foregoing; (G) insurance policies or rights relating
to any of the foregoing; and (H) cash and non-cash proceeds of any and all the
foregoing.
ACCOUNTS RECEIVABLE ADVANCE PERCENTAGE shall mean eighty-five percent (85%).
- --------------------------------------
ANNIVERSARY DATE shall mean the date, occurring forty-two (42) months after the
- ----------------
date of this Financing Agreement (the "Initial Anniversary Date") and the same
date in each year thereafter. Notwithstanding the foregoing, at the Companies'
option subject to the conditions hereof, the Initial Anniversary Date shall be
subject to an extension for an additional period of two (2) years, to be
executed by the Companies giving the Agent and the Lenders sixty (60) day's
notice prior to the Initial Anniversary Date, provided that: (i) no Default
and/or Event of Default has
3
<PAGE>
occurred (other than a Default or Event of Default that has been waived in
writing by, or cured to the satisfaction of, the Agent and the Required
Lenders), and (ii) the then outstanding aggregate balance of the (x) Term Loan
and (y) CAPEX Term Loans is less than eighty percent (80%) of the then currently
appraised orderly liquidation value of the Companies' Equipment (which is
subject to a first and exclusive lien in favor of the Agent for the benefit of
the Lenders). Such appraisal shall be obtained no early than one hundred and
fifty (150) days prior to the Initial Anniversary Date and shall be performed by
an appraiser retained by the Agent (but mutually agreed upon between the Agent
and the Companies) and paid for by the Companies.
ASSIGNMENT AND TRANSFER AGREEMENT shall mean the Assignment and Transfer
- ---------------------------------
Agreement in the form of Exhibit E hereto.
AVAILABILITY shall mean, as to any Company, at any time the excess of the sum of
- ------------
a) Eligible Accounts Receivable of such Company multiplied by the Accounts
Receivable Advance Percentage and b) Eligible Inventory of such Company
multiplied by the Inventory Advance Percentage over the sum of x) the
outstanding aggregate amount of all Obligations of such Company, including,
without limitation, all Obligations with respect to Revolving Loans and Letters
of Credit but excluding the Term Loans and CAPEX Term Loans and y) the
Availability Reserve of such Company.
AVAILABILITY RESERVE shall mean, as to any Company, the sum of three (3) months
- --------------------
rental payments on all of its leased premises (other than the 2820 Olive Avenue,
Burbank, California and 2813 West Alameda Avenue Burbank, California locations)
for which it has not delivered to the Agent a landlord's waiver (in form and
substance satisfactory to the Agent in the exercise of its reasonable business
judgment), provided that such amount shall be adjusted from time to time
hereafter upon (i) delivery to the Agent of any such acceptable waiver, (ii) the
opening or closing of a Collateral location and/or (iii) any change in rental
payment, and further provided that no such reserve shall be established with
respect to the location at 2130 Hollywood Way, Burbank, California 91505 until
the expiration of 90 days after the date hereof.
BUSINESS DAY shall mean any day that the Agent is open for business in New York,
- ------------
New York, which is not (i) a Saturday, Sunday or legal holiday in the state of
New York or (ii) a day on which banking institution chartered by the state of
New York or the United States are legally required to close.
CAPEX TERM LOAN PROMISSORY NOTE shall mean the promissory note in the form of
- -------------------------------
Exhibit D hereto executed by the Companies to evidence a CAPEX Term Loan made by
the Agent in behalf of the Lenders pursuant to Section 4 hereof.
4
<PAGE>
CAPEX TERM LOANS shall mean the term loans made and to be made to the Companies
- ----------------
by the Agent on behalf of the Lenders in the aggregate principal amount of up to
$7,000,000 as more fully described in Section 4 of this Financing Agreement.
CAPEX TERM LOAN LINE OF CREDIT shall mean the commitment of the Lenders to make
- ------------------------------
CAPEX Term Loans to the Companies pursuant to Section 4 of this Financing
Agreement in the aggregate amount of $7,000,000 for the Companies.
CAPITAL EXPENDITURES for any period shall mean the aggregate of all expenditures
- --------------------
of the Companies during such period that in conformity with GAAP are required to
be included in or reflected by the property, plant or equipment or similar fixed
asset account reflected in the balance sheet of the Companies, provided,
however, that, if purchased during the fiscal year ending July 31, 1997, the
purchase of the real property and the building located at 2130 Hollywood Way,
Burbank, California 91505 for a purchase price not to exceed $11,500,000 will
not be considered a Capital Expenditure hereunder.
CAPITAL IMPROVEMENTS shall mean operating Equipment and facilities (other than
- --------------------
land) acquired or installed for use in the Companies' business operations.
CAPITAL LEASE shall mean any lease of property (whether real, personal or mixed)
- -------------
which, in conformity with GAAP, is accounted for as a capital lease or a Capital
Expenditure on the balance sheet of the Companies.
CHASE MANHATTAN BANK RATE shall mean the rate of interest per annum announced by
- -------------------------
Chase Manhattan Bank from time to time as its prime rate in effect at its
principal office in the City of New York. (The prime rate is not intended to be
the lowest rate of interest charged by Chase Manhattan Bank to its borrowers).
CLOSING DATE shall mean the date on or after the date hereof upon which the
- ------------
Agent in behalf of the Lenders makes the initial extension of credit hereunder
whether in the form of Revolving Loans, Letters of Credit, Term Loans or CAPEX
Term Loans.
COLLATERAL shall mean all present and future Accounts, Equipment, Inventory,
- ----------
Documents of Title, General Intangibles, Real Estate and Other Collateral of the
Companies.
COLLATERAL MANAGEMENT FEE shall mean the sum of $25,000 which shall be paid to
- -------------------------
the Agent for its own account in accordance with Section 8, Paragraph 12 hereof
to offset the expenses and costs of the Agent in connection with record keeping,
periodic examinations, analyzing and evaluating the Collateral.
5
<PAGE>
COMMITMENT LETTER shall mean the commitment letter dated August 12, 1996, issued
- -----------------
by CITBC and CITEF to, and accepted by, the Companies.
CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet for Parent,
- --------------------------
the Companies and the consolidated subsidiaries of each eliminating all inter-
company transactions and prepared in accordance with GAAP.
CONSOLIDATING BALANCE SHEET shall mean a Consolidated Balance Sheet plus
- ---------------------------
individual balance sheets for Parent, the Companies, and the subsidiaries of
each showing all eliminations of inter-company transactions and prepared in
accordance with GAAP and including a balance sheet for each Company exclusively.
CURRENT ASSETS shall mean those assets which in accordance with GAAP are
- --------------
classified as current.
CURRENT LIABILITIES shall mean, wherever used through out this Financing
- -------------------
Agreement, those liabilities which in accordance with GAAP, are classified as
"current", provided, however, that notwithstanding GAAP the (i) Revolving Loans
and (ii) the current portion of long term Permitted Indebtedness shall not be
considered Current Liabilities hereunder.
CUSTOMARILY PERMITTED LIENS shall mean
- ---------------------------
(a) liens of local or state authorities for franchise or other like
taxes provided the aggregate amounts of such liens shall not exceed $100,000.00
in the aggregate for the Companies at any one time;
(b) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen and other like liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such liens) and with
respect to which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP;
(c) deposits made (and the liens thereon) in the ordinary course of
business (including, without limitation, security deposits for leases, surety
bonds and appeal bonds) in connection with workers' compensation, unemployment
insurance and other types of social security benefits or to secure the
performance of tenders, bids, contracts (other than for the repayment or
guarantee of borrowed money or purchase money obligations), statutory
obligations and other similar obligations arising as a result of progress
payments under government contracts; and
6
<PAGE>
(d) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, minor defects or
irregularities in title, variation and other restrictions, charges or
encumbrances (whether or not recorded) affecting the Real Estate and which (i)
are listed in Schedule B of the title insurance policy delivered to the Agent
herewith or (ii) in the aggregate (x) do no materially interfere with the
occupation, use or enjoyment by the Companies in their business of the property
so encumbered and (y) in the reasonable business judgment of the Agent do not
materially and adversely affect the value of such Real Estate.
DEFAULT shall mean any event specified in Section 10 hereof, whether or not any
- -------
requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has been satisfied.
DEFAULT RATE OF INTEREST shall mean a rate of interest per annum equal to the
- ------------------------
sum of: a) two percent (2%) plus b) the applicable contract rate of interest
based upon the applicable increment over the Chase Manhattan Bank Rate as
determined under Section 8 hereof, which the Agent in behalf of the Lenders
shall be entitled to charge the Companies on all Obligations due the Agent in
behalf of the Lenders by the Companies to the extent provided in Section 10,
Paragraph 2 of this Financing Agreement.
DEPOSITORY ACCOUNTS shall have the meaning specified in Section 3, Paragraph 4
- -------------------
hereof.
DOCUMENTATION FEE shall mean i) the sum which is included in the Loan Facility
- -----------------
Fee and is intended to compensate the Agent for the use of the Agent's in-house
Legal Department and facilities in documenting, in whole or in part, the initial
transaction solely on behalf of the Agent, exclusive of Out-of-Pocket Expenses,
and ii) the Agent's standard fees relating to any and all future modifications,
waivers, releases, amendments or additional collateral with respect to this
Financing Agreement, the Collateral and/or the Obligations.
DOCUMENTS OF TITLE shall mean all present and future documents (as defined in
- ------------------
the U.C.C.) including, without limitation all warehouse receipts, bills of
lading, shipping documents, chattel paper, instruments and similar documents,
all whether negotiable or not and all goods and Inventory relating thereto and
all cash and non-cash proceeds of the foregoing.
EARLY TERMINATION DATE shall mean the date on which the Companies terminate this
- ----------------------
Financing Agreement or the Line of Credit which date is prior to an Anniversary
Date.
EARLY TERMINATION FEE shall: i) mean the fee the Agent in behalf of the Lenders
- ---------------------
is entitled to charge the Companies in the event they terminate the Line of
Credit or
7
<PAGE>
this Financing Agreement on a date prior to an Anniversary Date; and ii) be
determined by calculating the sum of (x) the average daily loan balance of the
Revolving Loans of the Companies plus (y) the average daily balance of
outstanding Letters of Credit of the Companies and (z) the average daily balance
of the Term Loans and CAPEX Term Loans of the Companies for the period from the
date of this Financing Agreement to the Early Termination Date and multiplying
that number by the applicable percentage set forth below per annum for the
number of days from the Early Termination Date to the next succeeding
Anniversary Date:
(a) 3/4 of 1% if the Early Termination Date occurs prior to one (1) year
after the Closing Date;
(b) 1/2 of 1% if the Early Termination Date occurs after one (1) year
from the Closing Date but prior to two (2) years from Closing Date;
(c) 1/4 of 1% if the Early Termination Date occurs after two (2) years
from the Closing Date but prior to three (3) years from the Closing
Date; and
(d) 0% if the Early Termination Date occurs after three (3) years from
the Closing Date.
EBIT shall mean, in any period, all earnings before all interest and tax
- ----
obligations for said period, determined in accordance with GAAP but excluding
the effect of extraordinary and/or non-recurring gains or losses for such
period.
EBITDA shall mean, in any period, all earnings before all (i) interest and tax
- ------
obligations, (ii) depreciation, and (iii) amortization for said period, all
determined in accordance with GAAP on a basis consistent with the latest audited
financial statements of the Companies but excluding the effect of other non-cash
charges or income and extraordinary and/or non-recurring gains or losses for
such period.
ELIGIBLE ACCOUNTS RECEIVABLE shall mean, as to any Company, the gross amount of
- ----------------------------
such Company's Trade Accounts Receivable that are subject to a valid, first
priority and fully perfected security interest in favor of the Agent in behalf
of the Lenders and which conform to the warranties contained herein and at all
times continue to be acceptable to the Agent in the exercise of its reasonable
business judgment, less, without duplication, the sum of a) any returns,
discounts, claims, credits and allowances of any nature (whether issued, owing,
granted or outstanding) and b) reserves for: i) sales to the United States of
America, any state or local governmental entity, or to any agency, department or
division thereof; ii) foreign sales other than sales x) secured by stand-by
letters of credit (in form and substance satisfactory to the Agent) issued or
confirmed by, and payable at, banks having a place of business in the United
States of America and payable in United States currency, or y) to customers
residing in Canada provided such sales otherwise comply with all of the other
criteria for eligibility hereunder, are payable
8
<PAGE>
in United States currency and such sales do not exceed $100,000 in the aggregate
at any one time; iii) Accounts that remain unpaid more than one hundred and
twenty (120) days from invoice date; iv) contras; v) sales to Parent, any
subsidiary, or to any company affiliated with the Companies or Parent in any
way; vi) bill and hold (deferred shipment) or consignment sales; vii) sales to
any customer which is a) insolvent, b) the debtor in any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under any
federal or state law, c) negotiating, or has called a meeting of its creditors
for purposes of negotiating, a compromise of its debts or d) financially
unacceptable to the Agent or has a credit rating unacceptable to the Agent;
viii) all sales to any customer if fifty percent (50%) or more of either x) all
outstanding invoices or y) the aggregate dollar amount of all outstanding
invoices, are unpaid more than one hundred and twenty (120) days from invoice
date; ix) any other reasons deemed necessary by the Agent in its reasonable
business judgment and which are customary either in the commercial finance
industry or in the lending practices of the Agent and/or the Lenders; and x) an
amount representing, historically, returns, discounts, claims, credits and
allowances.
ELIGIBLE INVENTORY shall mean, as to any Company, the gross amount of such
- ------------------
Company's Inventory that is subject to a valid, first priority and fully
perfected security interest in favor of the Agent in behalf of the Lenders and
which conform to the warranties contained herein and which at all times continue
to be acceptable to the Agent in the exercise of its reasonable business
judgment less any work-in-process, supplies (other than raw material), goods not
present in the United States of America, goods returned or rejected by its
customers other than goods that are undamaged and resaleable in the normal
course of business, goods to be returned to its suppliers, goods in transit to
third parties (other than its agents or warehouses), Inventory in possession of
a warehouseman, bailee or other third party unless such warehouseman, bailee or
third party has executed a notice of security interest agreement (in form and
substance satisfactory to the Agent) and the Agent has taken all other action
required to perfect its security interest in such Inventory, and less any
reserves required by the Agent in its reasonable discretion for special order
goods, market value declines and bill and hold (deferred shipment) or
consignment sales.
EQUIPMENT shall mean all present and hereafter acquired equipment (as defined in
- ---------
the U.C.C.) including, without limitation, all machinery, equipment, furnishings
and fixtures, and all additions, substitutions and replacements thereof,
wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto and all proceeds of
whatever sort.
ERISA shall mean the Employee Retirement Income Security Act or 1974, as amended
- -----
from time to time and the rules and regulations promulgated thereunder from time
to time.
9
<PAGE>
EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of this
- -------------------
Financing Agreement.
FIXED CHARGE COVERAGE RATIO shall mean, for the relevant period, the ratio
- ---------------------------
determined by dividing EBITDA by the sum of (i) all interest obligations
scheduled to be paid, (ii) the amount of principal repaid or scheduled to be
repaid on the Term Loans, Capex Term Loans, Permitted Indebtedness, and
Subordinated Debt, (iii) Net Capital Expenditures and (iv) all federal, state
and local income tax expenses due and payable.
4MC ASIA shall mean Four Media Company Asia Pte. Ltd.
- --------
GAAP shall mean generally accepted accounting principles in the United States of
- ----
America as in effect from time to time and for the period as to which such
accounting principles are to apply.
GENERAL INTANGIBLES shall have the meaning set forth in the U.C.C. and shall
- -------------------
include, without limitation, all present and future right, title and interest in
and to all tradenames, Trademarks (together with the goodwill associated
therewith), Patents, licenses, customer lists, distribution agreements, supply
agreements and tax refunds, together with all monies and claims for monies now
or hereafter due and payable in connection with any of the foregoing or
otherwise, and all cash and non-cash proceeds thereof.
GUARANTORS shall mean i) Parent, and ii) the Companies.
- ----------
INDEBTEDNESS shall mean, without duplication, all liabilities, contingent or
- ------------
otherwise, which are any of the following: (a) obligations in respect of money
(borrowed or otherwise) or for the deferred purchase price of property, services
or assets, other than Inventory, or (b) lease obligations which, in accordance
with GAAP, have been, or which should be capitalized.
INVENTORY shall mean all of the Companies' present and hereafter acquired
- ---------
inventory (as defined in the U.C.C.) including, without limitation all
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials
used or usable in manufacturing, processing, packaging or shipping same; in all
stages of production- from raw materials through work-in-process to finished
goods - and all proceeds thereof of whatever sort.
INVENTORY ADVANCE PERCENTAGE shall mean fifty percent (50%).
- ----------------------------
ISSUING BANK shall mean the bank issuing Letters of Credit for the Companies.
- ------------
10
<PAGE>
LETTERS OF CREDIT shall mean all letters of credit issued with the assistance of
- -----------------
the Agent on behalf of the Lenders by the Issuing Bank for or on behalf of the
Companies.
LETTER OF CREDIT GUARANTY shall mean the guaranty delivered by the Agent in
- -------------------------
behalf of the Lenders to the Issuing Bank of the Companies' reimbursement
obligation under the Issuing Bank's Reimbursement Agreement, Application for
Letter of Credit or other like document.
LETTER OF CREDIT GUARANTY FEE shall mean the fee the Agent in behalf of the
- -----------------------------
Lenders may charge the Companies under Section 8, Paragraph 7 of this Financing
Agreement for: i) issuing the Letter of Credit Guaranty or ii) otherwise aiding
the Companies in obtaining Letters of Credit.
LETTER OF CREDIT SUB-LINE shall mean $1,000,000 in the aggregate for the
- -------------------------
Companies.
LEVERAGE RATIO shall mean the ratio determined by dividing Total Liabilities by
- --------------
Net Worth.
LIBOR shall mean at any time of determination, and subject to availability, for
- -----
each interest period the higher of the applicable London Interbank Offered rate
paid in London on dollar deposits from other banks as (x) quoted by Chase
Manhattan Bank, (y) published under "Money Rates" in the new York City edition
of the Wall Street Journal or if there is no such publication or statement
therein as to Libor then in any publication used in the New York City financial
community or (z) determined by the Agent based upon information presented on
Telerate Systems at Page 3750 as of 11:00 a.m. (London Time).
LIBOR LOAN shall mean those Revolving Loans, Term Loans and/or CAPEX Term Loans
- ----------
for which the Companies have elected to use Libor for interest rate
computations.
LIBOR PERIOD shall mean the Libor for one month, two month or three month U.S.
- ------------
dollar deposits, as selected by the Companies.
LINE OF CREDIT shall mean the commitment of the Lenders to make Revolving Loans
- --------------
pursuant to Section 3 of this Financing Agreement, to make Term Loans and CAPEX
Term Loans pursuant to Section 4 of this Financing Agreement and to assist the
Companies in opening Letters of Credit pursuant to Section 5 of this Financing
Agreement, in the aggregate amount equal to $34,000,000 for the Companies,
provided that the commitment hereunder of (i) CITBC shall not exceed $17,000,000
and (ii) CITEF shall not exceed $17,000,000.
11
<PAGE>
LINE OF CREDIT FEE shall: i) mean the fee due the Agent for the benefit of the
- ------------------
Lenders at the end of each month for the Revolving Line of Credit, and ii) be
determined by multiplying the difference between the Revolving Line of Credit
and the sum of (x) the average daily balance of Revolving Loans of the Companies
plus (y) the average daily balance of Letters of Credit of the Companies for
said month by one half of one percent (1/2 of 1%) per annum for the number of
days in said month.
LOAN FACILITY FEE shall mean the fee payable to the Agent for the benefit of the
- -----------------
Lenders in accordance with, and pursuant to, the provisions of Section 8,
Paragraph 11 of this Financing Agreement.
NET CAPITAL EXPENDITURES shall mean Capital Expenditures which are not financed
- ------------------------
by any third party or by the Lenders under the CAPEX Term Loan Line of Credit
and which are not subject to a lien (other than the liens granted to the Lenders
herein), provided that for purposes of calculation of Net Capital Expenditures,
such financing shall be included in the fiscal year in which it is obtained
whether or not the Capital Expenditures to which it relates were incurred in
such year or the prior year.
NET WORTH shall mean assets in excess of liabilities, and shall be determined in
- ---------
accordance with GAAP, on a consistent basis with the latest audited statements.
OBLIGATIONS shall mean all loans and advances made or to be made by the Agent
- -----------
and/or the Lenders to the Companies or to others for the Companies' account
(including, without limitation, all Revolving Loans, Letters of Credit, Term
Loans and CAPEX Term Loans); any and all indebtedness and obligations which may
at any time be owing by the Companies to the Agent and/or the Lenders howsoever
arising, whether now in existence or incurred by the Companies from time to time
hereafter; whether secured by pledge, lien upon or security interest in any of
the Companies' assets or property or the assets or property of any other person,
firm, entity or corporation; whether such indebtedness is absolute or
contingent, joint or several, matured or unmatured, direct or indirect and
whether the Companies are liable to the Agent and/or the Lenders for such
indebtedness as principal, surety, endorser, guarantor or otherwise.
Obligations shall also include indebtedness owing to the Agent and/or the
Lenders by the Companies under this Financing Agreement or under any other
agreement or arrangement now or hereafter entered into between the Companies and
the Agent and/or the Lenders; indebtedness or obligations incurred by, or
imposed on, the Agent and/or the Lenders as a result of environmental claims
(other than as a result of actions of the Agent and/or the Lenders) arising out
of the Companies' operation, premises or waste disposal practices or sites; the
Companies' liability to the Agent and/or the Lenders as maker or endorser on any
promissory note or other instrument for the payment of money; the Companies'
liability to the Agent and/or the Lenders under any
12
<PAGE>
instrument of guaranty or indemnity, or arising under any guaranty, endorsement
or undertaking which the Agent and/or the Lenders may make or issue to others
for the Companies' account, including any accommodation extended with respect to
applications for Letters of Credit, the Agent's (in behalf of the Lenders)
acceptance of drafts or the Agent's (in behalf of the Lenders) endorsement of
notes or other instruments for the Companies' account and benefit, provided that
Obligations shall exclude any Equipment leases or financing done by any Lender
under separate agreement with the Companies and not as part of the financing
under this Financing Agreement.
OPERATING LEASES shall mean all leases of property (whether real, personal or
- ----------------
mixed) other than Capital Leases.
OTHER COLLATERAL shall mean all now owned and hereafter acquired deposit
- ----------------
accounts maintained with any bank or financial institutions; all cash and other
monies and property in the possession or control of the Agent and/or the
Lenders; all books, records, ledger cards, disks and related data processing
software at any time evidencing or containing information relating to any of the
Collateral described herein or otherwise necessary or helpful in the collection
thereof or realization thereon, and all cash and non-cash proceeds of the
foregoing.
OUT-OF-POCKET EXPENSES shall mean all of the Agent's and/or the Lenders' actual
- ----------------------
present and future expenses incurred relative to this Financing Agreement,
whether incurred heretofore or hereafter, which expenses shall include, without
being limited to, the cost of record searches, all costs and expenses incurred
by the Agent and/or the Lenders in opening bank accounts, depositing checks,
receiving and transferring funds, and any charges imposed on the Agent and/or
the Lenders due to "insufficient funds" of deposited checks and the Agent's
and/or the Lenders' standard fee relating thereto, any amounts paid by the Agent
and/or the Lenders, incurred by or charged to the Agent and/or Lenders by the
Issuing Bank under the Letter of Credit Guaranty or the Companies' Reimbursement
Agreement, Application for Letter of Credit or other like document which pertain
either directly or indirectly to such Letters of Credit, and the Agent's and/or
the Lenders' standard fees relating to the Letters of Credit and any drafts
thereunder, reasonable local counsel fees, title insurance premiums, real estate
survey costs, fees and taxes relative to the filing of financing statements,
costs of preparing and recording mortgages/deeds of trust against the Real
Estate and all expenses, costs and fees set forth in Section 10, Paragraph 3 of
this Financing Agreement.
PARENT shall mean Four Media Company, a Delaware corporation.
- ------
PATENTS shall mean all present and hereafter acquired patents and/or patent
- -------
rights of the Companies and all cash and non-cash proceeds thereof.
13
<PAGE>
PERMITTED ENCUMBRANCES shall mean: i) liens existing on the date hereof on
- ----------------------
specific items of Equipment and listed on Schedule 1 hereto and other liens
expressly permitted, or consented to, by the Agent; ii) Purchase Money Liens;
iii) Customarily Permitted Liens; iv) liens on the real property and building
granted in connection with the Permitted Real Estate Purchase Financing; v)
liens granted the Agent by the Companies; vi) liens of judgment creditors
provided such liens do not exceed, in the aggregate for the Companies, at any
time, $100,000 (other than liens bonded or insured to the reasonable
satisfaction of the Agent); and vii) liens for taxes not yet due and payable or
which are being diligently contested in good faith by the Companies by
appropriate proceedings and which liens are not x) other than with respect to
Real Estate, senior to the liens of the Agent or y) for taxes due the United
States of America.
PERMITTED INDEBTEDNESS shall mean: i) current indebtedness maturing in less
- ----------------------
than one year and incurred in the ordinary course of business for raw materials,
supplies, equipment, services, taxes or labor; ii) the indebtedness secured by
the Purchase Money Liens; iii) Subordinated Debt; iv) indebtedness arising under
the Letters of Credit and this Financing Agreement; v) deferred taxes and other
expenses incurred in the ordinary course of business; vi) other indebtedness
existing on the date of execution of this Financing Agreement and listed on
Schedule 3 attached hereto and vii) Permitted Real Estate Purchase Financing.
PERMITTED REAL ESTATE PURCHASE FINANCING shall mean the financing obtained by
- ----------------------------------------
the Companies in connection with the purchase by the Companies of certain real
property and building located at 2130 Hollywood Way, Burbank, California for an
amount not to exceed $11,500,000 prior to July 31, 1997, provided that (a) such
financing shall (i) be for at least 70% of the purchase price thereof, (ii) be
secured solely by a first mortgage on such real property and building, (iii) be
repayable in accordance with a minimum of a 15 year straight-line amortization
schedule with a balloon payment due no earlier than 5 years after closing
thereof, and (iv) incur interest at a rate of prime plus 1.5% per annum or less
and (b) either (A) the Companies have entered into a written agreement with
Technical Services Partners, L.P. (in form and substance reasonably satisfactory
to the Agent) pursuant to which Technical Services Partners L.P. agrees that, in
the event that the Parent has not completed an initial public offering of its
stock and received at least $25,000,000 (herein the "IPO") on or prior to July
31, 1997, it shall loan to the Companies, on an unsecured basis, an amount equal
to the amount of the purchase price which was not financed pursuant to condition
(i) above, to be repayable in accordance with a minimum of a 5 year straight
line amortization schedule and incur interest at a rate of no more than 12% per
annum, or (B) the IPO has occurred.
PROMISSORY NOTES shall mean the notes, in the form of Exhibits A, B, C and D
- ----------------
attached hereto, delivered by the Companies to the Agent to evidence the
14
<PAGE>
Revolving Loans, Term Loans and CAPEX Term Loans pursuant to, and repayable in
accordance with, the provisions of Sections 3 and 4 of this Financing Agreement.
PURCHASE MONEY LIENS shall mean liens on any item of Equipment acquired after
- --------------------
the date of this Financing Agreement provided that i) each such lien shall
attach only to the property to be acquired, ii) a description of the property so
acquired is furnished to the Agent, and iii) the debt incurred in connection
with such acquisitions shall not exceed in the aggregate in any fiscal year the
difference between (x) the maximum amount of Capital Expenditures permitted
under Section 7, Paragraph 11(b) of this Financing Agreement and (y) the maximum
amount of Net Capital Expenditures permitted under Section 7, Paragraph 11(c) of
this Financing Agreement.
REAL ESTATE shall mean the Companies' fee and/or leasehold interests in real
- -----------
property.
REQUIRED LENDERS shall mean Lenders holding more than fifty percent (50%) of the
- ----------------
outstanding loans, advances, extensions of credit and commitments to the
Companies hereunder.
RESTRUCTURING shall mean (i) the formation of Four Media Company, a Delaware
- -------------
corporation as a wholly owned subsidiary of Technical Services Partners, L.P.
(herein the "New Holding Company"), (ii) the dividend of the stock owned by 4MC
in DMC and 4MC Asia to such New Holding Company and (iii) the changing of 4MC's
name to 4MC-Burbank, Inc.
REVOLVING LINE OF CREDIT shall mean the commitment of the Lenders to make
- ------------------------
Revolving Loans pursuant to Section 3 of this Financing Agreement and to assist
the Companies in opening Letters of Credit pursuant to Section 5 of this
Financing Agreement in the aggregate amount for the Companies equal to
$11,000,000, provided, that the commitment hereunder of (i) CITBC shall not
exceed $5,500,000 and (ii) CITEF shall not exceed $5,500,000 in the aggregate.
REVOLVING LOAN PROMISSORY NOTE shall mean the promissory note in the form of
- ------------------------------
Exhibit A hereto executed by the Companies to evidence Revolving Loans made by
the Agent in behalf of the Lenders to the Companies pursuant to Section 3
hereof.
REVOLVING LOANS shall mean the loans and advances made, from time to time, to or
- ---------------
for the account of the Companies by the Agent in behalf of the Lenders pursuant
to Section 3 of this Financing Agreement.
REVOLVING LOAN ACCOUNT(S) shall have the meaning specified in Section 3,
- -------------------------
Paragraph 6 hereof.
15
<PAGE>
SETTLEMENT DATE shall mean the date, weekly, and more frequently, at the
- ---------------
discretion of the Agent, upon the occurrence of an Event of Default or a
continuing decline or increase of the Revolving Loans that the Agent and the
Lenders shall settle amongst themselves so that x) the Agent shall not have, as
the Agent, any money at risk and y) on such Settlement Date the Lenders shall
have a pro rata amount of all outstanding Revolving Loans and Letters of Credit,
provided that each Settlement Date for a Lender shall be a Business Day on which
such Lender and its bank are open for business.
SUBORDINATED DEBT shall mean the debt due a Subordinating Creditor (and the note
- -----------------
evidencing such) which has been subordinated, by a Subordination Agreement, to
the prior payment and satisfaction of the Obligations of the Companies to the
Agent and/or the Lenders (in form and substance satisfactory to the Agent).
SUBORDINATING CREDITOR shall mean Technical Services Partners, L.P. and any
- ----------------------
other party hereafter executing a Subordination Agreement.
SUBORDINATION AGREEMENT shall mean the agreement among the Companies, a
- -----------------------
Subordinating Creditor and the Agent pursuant to which Subordinated Debt is
subordinated to the prior payment and satisfaction of the Companies' Obligations
to the Agent and/or the Lenders (in form and substance satisfactory to the
Agent).
TERM LOAN PROMISSORY NOTE A shall mean the promissory note in the form of
- ---------------------------
Exhibit B hereto executed by 4MC to evidence Term Loan A made by the Agent in
behalf of the Lenders under Section 4 hereof.
TERM LOAN PROMISSORY NOTE B shall mean the promissory note in the form of
- ---------------------------
Exhibit C hereto executed by DMC to evidence Term Loan B made by the Agent in
behalf of the Lenders under Section 4 hereof.
TERM LOANS shall mean the term loans to 4MC and DMC in the respective principal
- ----------
amounts of $13,000,000 and $3,000,000 made by the Agent in behalf of the Lenders
pursuant to, and repayable in accordance with, the provisions of Section 4 of
this Financing Agreement.
TOTAL LIABILITIES shall mean total liabilities determined in accordance with
- -----------------
GAAP, on a basis consistent with the latest audited statements of the Companies.
TRADE ACCOUNTS RECEIVABLE shall mean that portion of Accounts which arises from
- -------------------------
the sale of Inventory or the rendition of services in the ordinary course of the
Companies' business.
16
<PAGE>
TRADEMARKS shall mean all present and hereafter acquired trademarks and/or
- ----------
trademark rights (together with the goodwill associated therewith) and all cash
and non-cash proceeds thereof.
TREASURY RATE shall be the average life U.S. Treasury Securities rate per annum
- -------------
equal to the yield to maturity for U.S. Treasury Securities having a remaining
term to maturity closest to the average maturity of the Term Loans (based on the
loan term at the time of request for conversion) as reported on page 5 ("U.S.
Treasury and Money Markets") of the information ordinarily provided by Telerate
Systems Incorporated as of the close of business on the third day prior to the
applicable request for conversion. If more than one (1) such government bond
or note has a maturity date in the same month and term of years from the date
the Treasury Rate is selected (as determined by the Agent), the Agent shall
select the interest rate to be used for purposes of this definition.
TREASURY RATE LOANS shall mean all or any portion of the Term Loan for which the
- --------------------
Company has elected to use the Treasury Rate for interest calculations.
U.C.C. shall mean the Uniform Commercial Code as in effect from time to time in
- ------
the state of California.
WORKING CAPITAL shall mean Current Assets in excess of Current Liabilities.
- ---------------
SECTION 2. CONDITIONS PRECEDENT
--------------------
The obligation of the Agent and the Lenders to make loans hereunder is
subject to the satisfaction of, or waiver of, immediately prior to or
concurrently with the making of such loans, the following conditions precedent:
a) LIEN SEARCHES - The Agent shall have received tax, judgment and
-------------
Uniform Commercial Code searches satisfactory to the Agent for all locations
presently occupied or used by the Companies.
b) CASUALTY INSURANCE - The Companies shall have delivered to the
------------------
Agent evidence satisfactory to the Agent that casualty insurance policies
listing the Agent as loss payee or mortgagee, as the case may be, are in full
force and effect, all as set forth in Section 7, Paragraph 5 of this Financing
Agreement.
c) MORTGAGES/DEEDS OF TRUST - The Companies shall have executed and
------------------------
delivered to either the Agent or an agent of the Agent or of a title insurance
Company acceptable to the Agent such mortgages and deeds of trust as the Agent
may reasonably require to obtain first liens on the Real Estate.
d) UCC FILINGS - Any documents (including without limitation,
-----------
financing statements) required to be filed in order to create, in favor of the
Agent for the benefit of the Lenders, a first and exclusive perfected security
interest in the Collateral with respect to which a security interest may be
perfected by a filing
17
<PAGE>
under the U.C.C. shall have been properly filed in each office in each
jurisdiction required in order to create in favor of the Agent a perfected lien
on the Collateral. The Agent shall have received acknowledgement copies of all
such filings (or, in lieu thereof, the Agent shall have received other evidence
satisfactory to the Agent that all such filings have been made); and the Agent
shall have received evidence that all necessary filing fees and all taxes or
other expenses related to such filings have been paid in full.
e) TITLE INSURANCE POLICIES - The Agent shall have received, in
------------------------
respect of each mortgage or deed of trust, a mortgagee's title policy or marked-
up unconditional binder for such insurance. Each such policy shall (i) be in an
amount satisfactory to the Agent; (ii) insure that the mortgage or deed of trust
insured thereby creates a valid first lien on the property covered by such
mortgage or deed of trust, free and clear of all defects and encumbrances except
those acceptable to the Agent; (iii) name the Agent as the insured thereunder;
and (iv) contain such endorsements and effective coverage as the Agent may
reasonably request, including without limitation the revolving line of credit
endorsement. the Agent shall also have received evidence that all premiums in
respect of such policies have been paid and that all charges for mortgage
recording taxes, if any, shall have been paid.
f) SURVEYS - The Agent and the title insurance company issuing each
-------
policy referred to in the immediately preceding paragraph (each, a "Title
-----
Insurance Company") shall have received maps or plats of a perimeter or boundary
- ----------
of the site of each of the properties covered by the mortgages or deeds of
trust, dated a date satisfactory to the Agent and the relevant Title Insurance
Company prepared by an independent professional licensed land surveyor
satisfactory to the Agent and the relevant Title Insurance Company, which maps
or plats and the surveys on which they are based shall be made in accordance
with the Minimum Standard Detail Requirements for Land Title Surveys jointly
established and adopted by the American Land Title Association and the American
Congress on Surveying and Mapping; and, without limiting the generality of the
foregoing, there shall be surveyed and shown on the maps or plats or surveys the
following: (i) the locations on such sites of all the buildings, structures and
other improvements and the established building setback lines insofar as the
foregoing affect the perimeter or boundary of such property; (ii) the lines of
streets abutting the sites and width thereof; (iii) all access and other
easements appurtenant to the sites or necessary or desirable to use the sites;
(iv) all roadways, paths, driveways, easements, encroachments and overhanging
projections and similar encumbrances affecting the sites, whether recorded,
apparent from a physical inspection of the sites or otherwise known to the
surveyor; (v) any encroachments on any adjoining property by the building
structures and improvements on the sites; and (vi) if the site is designated as
being on a filed map, a legend relating the survey to said map. Further, the
survey shall x) be certified to the Agent and the Title Insurance Company and y)
contain a legend reciting as to whether or not the site is located in a flood
zone.
18
<PAGE>
g) GUARANTIES - The Guarantors shall have executed and delivered to
----------
the Agent guaranties, in form acceptable to the Agent, guaranteeing all present
and future Obligations of the Companies to the Agent and/or the Lenders.
h) OPINIONS - Counsel for the Companies and the Guarantors shall have
--------
delivered to the Agent opinions satisfactory to the Agent opining, inter alia,
that, subject to the i) filing, priority and remedies provisions of the Uniform
Commercial Code, ii) the provisions of the Bankruptcy Code, insolvency statutes
or other like laws, iii) the equity powers of a court of law and iv) such other
matters as may be agreed upon with the Agent: (A)(a) this Financing Agreement,
(b) the Guaranty of the Guarantors, and (c) all other loan documents of the
Companies and the Guarantors are x) valid, binding and enforceable according to
their terms, y) are duly authorized and z) do not violate any terms, provisions,
representations or covenants in the charter or by-laws of the Companies or the
Guarantors or, to the best knowledge of such counsel, of any loan agreement,
mortgage, deed of trust, note, security or pledge agreement or indenture to
which the Companies or the Guarantors is a signatory or by which the Companies
or the Guarantors or their assets are bound; and (B) the Restructuring has been
effected. In addition, counsel for the Subordinating Creditor(s) shall have
delivered an opinion satisfactory to the Agent that the Subordination
Agreement(s) have been duly authorized, executed and delivered and constitute
valid and binding agreements of the Subordinating Creditor(s) enforceable
against such Subordinating Creditor(s) in accordance with the terms thereof.
i) PLEDGE AGREEMENT - Parent shall a) execute and deliver to the
-------------------
Agent for the benefit of the Lenders a pledge and security agreement and stock
powers pledging to the Agent for the benefit of the Lenders as additional
collateral for the Obligations of the Companies all of the issued and
outstanding stock of the Companies and, b) deliver to the Agent for the benefit
of the Lenders the stock certificates evidencing such stock together with duly
executed stock powers with respect thereto.
j) ADDITIONAL DOCUMENTS - The Companies shall have executed and
----------------------
delivered to the Agent all loan documents necessary to consummate the lending
arrangement contemplated between the Companies and the Agent.
k) CAPITAL STRUCTURE - The Agent and the Lenders shall have reviewed
-----------------
and be satisfied with (i) the capital structure (consisting of a cash investment
of equity and Subordinated Debt) of the Companies and (ii) all of the terms,
provisions and conditions thereof.
l) SUBORDINATION AGREEMENT - The Subordinating Creditor shall have
-----------------------
executed and delivered to the Agent a Subordination Agreement, in form and
substance satisfactory to the Agent, subordinating the debt due such
Subordinating Creditor by the Companies to the prior payment and satisfaction of
the Obligations of the Companies to the Agent and/or the Lenders.
m) ENVIRONMENTAL REPORT - The Agent shall have received,
--------------------
environmental audit reports on i) all of the Companies' leasehold and fee
interests, and ii) the Companies' waste disposal practices. The reports must x)
be satisfactory to the
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Agent and y) not disclose or indicate any liability (real or potential) stemming
from the Companies' premises, operations, waste disposal practices or waste
disposal sites used by Companies'.
n) BOARD RESOLUTION - The Agent shall have received a copy of the
----------------
resolutions of the Board of Directors of the Companies and the Guarantors (as
the case may be) authorizing the execution, delivery and performance of (i) this
Financing Agreement, (ii) the Guaranties and (iii) any related agreements, in
each case certified by the Secretary or Assistant Secretary of the Companies and
the Guarantors (as the case may be) as of the date hereof, together with a
certificate of the Secretary or Assistant Secretary of the Companies and the
Guarantors (as the case may be) as to the incumbency and signature of the
officers of the Companies and/or the Guarantors executing such agreements and
any certificate or other documents to be delivered by them pursuant hereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary.
o) CORPORATE ORGANIZATION - The Agent shall have received (i) a copy
----------------------
of the Certificate of Incorporation of the Companies and the Guarantors
certified by the Secretary of State of its incorporation, and (ii) a copy of the
By-Laws (as amended through the date hereof) of the Companies and the Guarantors
certified by the Secretary or Assistant Secretary thereof.
p) OFFICER'S CERTIFICATE - The Agent shall have received an executed
---------------------
Officer's Certificate of the Companies, satisfactory in form and substance to
the Agent, certifying that (i) the representations and warranties contained
herein are true and correct in all material respects on and as of the date
hereof; (ii) the Companies are in compliance with all of the terms and
provisions set forth herein; and (iii) no Default or Event of Default has
occurred.
q) ABSENCE OF DEFAULT - No Default, Event of Default or material
------------------
adverse change in the financial condition, business, prospects, profits,
operations or assets of the Companies shall have occurred.
r) LEGAL RESTRAINTS/LITIGATION - At the date of execution of this
---------------------------
Financing Agreement, there shall be no x) litigation, investigation or
proceeding (judicial or administrative) pending or threatened against the
Companies or the Guarantors or their assets, by any agency, division or
department of any county, city, state or federal government arising out of the
Restructuring or this Financing Agreement, y) injunction, writ or restraining
order restraining or prohibiting the Restructuring or the consummation of the
financing arrangements contemplated under this Financing Agreement or z) to the
best knowledge of the Companies (except as disclosed to the Agent in writing
prior to the date hereof), suit, action, investigation or proceeding (judicial
or administrative) pending or threatened against the Companies or the Guarantors
or their assets, which, in the opinion of the Agent, if adversely determined
could have a material adverse effect on the business, operation, assets,
financial condition or Collateral of the Companies and/or the Guarantors.
s) DISBURSEMENT AUTHORIZATION - The Companies shall have delivered to
--------------------------
the Agent all information necessary for the Agent to issue wire transfer
instructions on
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behalf of the Companies for the initial and subsequent loans and/or advances to
be made under this Agreement including, but not limited to, disbursement
authorizations in form acceptable to the Agent.
t) EXAMINATION & VERIFICATION - The Agent shall have completed to
--------------------------
the satisfaction of the Agent an examination and verification of the Accounts,
Inventory, books and records of the Companies and the Guarantors which
examination shall indicate that, after giving effect to all loans, advances and
extensions of credit to be made at closing, the Companies shall have an opening
additional aggregate Availability of $5,000,000 all as more fully required by
the Commitment Letter. It is understood that such requirement contemplates that
all debts, obligations and payables are current.
u) CASH BUDGET PROJECTIONS - The Agent shall have received, reviewed
-----------------------
and be satisfied with a 12 month cash budget projection prepared by the
Companies in the form provided by the Agent.
v) COLLECTION ACCOUNTS - Within 30 days after the date hereof, the
-------------------
Companies shall have established a system of bank accounts with respect to the
collection of Accounts and the deposit of proceeds of Inventory as shall be
acceptable to the Agent in all respects.
w) EXISTING CREDIT AGREEMENTS - The Companies' existing credit
--------------------------
and/or loan agreements with BankAmerica Business Credit, Inc. and The CIT
Group/Equipment Financing, Inc. (other than that certain CITEF loan dated August
1994 in the original principal amount of $619,002.35) shall be (x) terminated,
(y) all loans and obligations of the Companies and/or the Guarantors thereunder
shall be paid or satisfied in full utilizing the proceeds of the initial
Revolving Loans and Term Loans to be made under this Financing Agreement and (z)
all liens upon or security interests in favor of such existing lender in
connection therewith shall be terminated and/or released upon such payment.
x) REPATRIATION - The Agent's receipt of and satisfaction with
------------
verification that funds can be repatriated from 4MC Asia to the Companies in the
United States.
y) COMMITMENT LETTER - The Companies shall have fully complied, to
-----------------
the satisfaction of the Agent, with all of the terms and conditions of the
Commitment Letter.
Upon the execution of this Financing Agreement and the initial disbursement of
loans hereunder, all of the above Conditions Precedent shall have been deemed
satisfied except as the Company and the Agent shall otherwise agree herein or in
a separate writing.
SECTION 3. REVOLVING LOANS
---------------
1. Upon the Agent's receipt of an executed Revolving Loan Promissory
Note from each of the Companies in the form of Exhibit A hereto the Lenders
agree,
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subject to the terms and conditions of this Financing Agreement from time to
time, and within x) the Availability and y) the Revolving Line of Credit, but
subject to Lenders' right to make "overadvances", to make loans and advances to
each of the Companies on a revolving basis (i.e. subject to the limitations set
forth herein, the Companies may borrow, repay and re-borrow Revolving Loans).
Such loans and advances to each Company shall be in amounts up to the sum of:
a) outstanding Eligible Accounts Receivable of such Company multiplied by the
Accounts Receivable Advance Percentage, plus b) the aggregate value of Eligible
Inventory of such Company as determined at the lower of cost or market
multiplied by the Inventory Advance Percentage. Each request shall constitute,
unless otherwise disclosed in writing to the Agent and the Lenders, a
representation and warranty by the Companies that (i) after giving effect to the
requested advance, no Default or Event of Default has occurred and (ii) such
requested Revolving Loan is within the Line of Credit and Availability. All
requests for loans and advances must be received by an officer of the Agent no
later than 1:00 p.m., New York time, of the day on which such loans and advances
are required. Should the Agent for any reason honor requests for advances in
excess of the limitations set forth herein, such advances shall be considered
"overadvances" and shall be made in the Agent's sole discretion, subject to any
additional terms the Agent deems necessary.
2. In furtherance of the continuing assignment and security interest
in the Companies' Accounts, the Companies will, upon the creation of Accounts,
execute and deliver to the Agent in such form and manner as the Agent may
reasonably require, solely for the Agent's convenience in maintaining records of
collateral, such confirmatory schedules of Accounts as the Agent may reasonably
request, and such other appropriate reports designating, identifying and
describing the Accounts as the Agent may reasonably require. In addition, upon
the Agent's request the Companies shall provide the Agent with copies of
agreements with, or purchase orders from, the Companies' customers, and copies
of invoices to customers, proof of shipment or delivery and such other
documentation and information relating to said Accounts and other collateral as
the Agent may reasonably require. Failure to provide the Agent with any of the
foregoing shall in no way affect, diminish, modify or otherwise limit the
security interests granted herein. The Companies hereby authorize the Agent to
regard the Companies' printed name or rubber stamp signature on assignment
schedules or invoices as the equivalent of a manual signature by one of the
Companies' authorized officers or agents.
3. Each of the Companies hereby represents and warrants that: each
of its Trade Accounts Receivable is based on an actual and bona fide sale and
delivery of goods or rendition of services to customers, made by them in the
ordinary course of their business; the goods and Inventory being sold and the
Trade Accounts Receivable created are their exclusive property and are not and
shall not be subject
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to any lien, consignment arrangement, encumbrance, security interest or
financing statement whatsoever, other than the Permitted Encumbrances; the
invoices evidencing such Trade Accounts Receivable are in their name; and their
customers have accepted the goods or services, owe and are obligated to pay the
full amounts stated in the invoices according to their terms, without dispute,
offset, defense, counterclaim or contra, except for disputes and other matters
arising in the ordinary course of business with respect to which they have
complied with the notification requirements of Paragraph 5 of this Section 3.
Each of the Companies confirms to the Agent that any and all taxes or fees
relating to its business, its sales, the Accounts or goods relating thereto, are
its sole responsibility and that same will be paid by them when due and that
none of said taxes or fees represent a lien on or claim against the Accounts.
Each of the Companies also warrants and represents that it is a duly and validly
existing corporation and is qualified in all states where the failure to so
qualify would have an adverse effect on their business or their ability to
enforce collection of Accounts due from customers residing in that state. Each
of the Companies agrees to maintain such books and records regarding Accounts as
the Agent may reasonably require and agrees that such books and records will
reflect the Agent's interest in the Accounts. All of the books and records of
the Companies will be available to the Agent at normal business hours, including
any records handled or maintained for the Companies by any other company or
entity.
4. Until the Agent has advised the Companies to the contrary after
the occurrence of an Event of Default, the Companies may and will enforce,
collect and receive all amounts owing on the Accounts for the Agent's and
Lenders' benefit and on their behalf, but at the Companies' expense; such
privilege shall terminate automatically upon the institution by or against the
Companies of any proceeding under any bankruptcy or insolvency law or, at the
election of the Agent, upon the occurrence of any other Event of Default and
until such Event of Default is waived in writing by the Agent or cured to the
Agent's satisfaction. Any checks, cash, notes or other instruments or property
received by the Companies with respect to any Accounts shall be held by them in
trust for the Agent for the benefit of the Lenders, separate from their own
property and funds, and immediately turned over to the Agent with proper
assignments or endorsements by deposit to the special depository accounts in the
Companies name designated by the Agent for such purposes, which accounts shall
be subject to blocked account agreements (in form and substance satisfactory to
the Agent) with the institutions maintaining such accounts (the "Depository
Accounts"). Each of the institutions holding Depository Accounts will be
instructed to remit such funds on deposit therein to the Companies' operating
accounts, which shall be accounts (other than payroll accounts) with a financial
institution in the United States. Notwithstanding the foregoing or anything to
the contrary contained herein or in any agreement with any institution holding a
Depository Account, immediately upon the occurrence of any of the following
events: (x) the occurrence of a Default and/or Event of Default
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<PAGE>
hereunder, or (y) 4MC has an Availability (computed on the basis of all of its
debts, obligations and payables being current in accordance with its usual
business practices) hereunder of less than $250,000 for three (3) consecutive
Business Days, or (z) DMC has an Availability (computed on the basis of all of
its debts, obligations and payables being current in accordance with its usual
business practices) hereunder of less than $100,000 for three (3) consecutive
Business Days, then the Agent acting on behalf of the Lenders may notify the
institutions holding Depository Accounts to remit all amounts then or thereafter
on deposit in such Depository Accounts to the Agent to be applied by the Agent
to the reduction of the Obligations, all as more fully set forth in Paragraph 6
of this Section 3. The Agent will immediately rescind such instructions (a)
upon the written waiver by the Lenders of any such Default or Event of Default
and (b) when (i) 4MC has an Availability hereunder of $250,000 or more for three
(3) consecutive Business Days and (ii) DMC has an Availability hereunder of
$100,000 or more for three (3) consecutive Business Days. All such amounts
received by the Agent in payment of Accounts will be credited to the Companies'
appropriate Revolving Loan Account upon the Agent's receipt of "collected funds"
at the Agent's bank account in New York, New York on the Business Day of receipt
if received no later than 1:00 pm or on the next succeeding Business Day if
received after 1:00 pm. No checks, drafts or other instrument received by the
Agent shall constitute final payment to the Agent unless and until such
instruments have actually been collected.
5. Each of the Companies agrees to notify the Agent promptly of any
matters materially affecting the value, enforceability or collectibility of any
Account and of all material customer disputes, offsets, defenses, counterclaims,
returns, rejections and all reclaimed or repossessed merchandise or goods. Each
of the Companies agrees to issue credit memoranda promptly (with duplicates to
the Agent upon request after the occurrence of an Event of Default) upon
accepting returns or granting allowances, and may continue to do so until the
Agent has notified the Companies that an Event of Default has occurred and that
all future credits or allowances are to be made only after the Agent's prior
written approval. Upon the occurrence of an Event of Default and until such time
as such Event of Default is waived in writing by the Agent or cured to the
Agent's satisfaction and on notice from the Agent, the Companies agree that all
returned, reclaimed or repossessed merchandise or goods shall be set aside by
the Companies, marked with the Agent's name and held by the Companies for the
Agent's account as owner and assignee.
6. The Agent shall maintain a separate account on its books in each
of the Companies' names (herein each a "Revolving Loan Account" and collectively
the "Revolving Loan Accounts") in which the Companies will be charged with loans
and advances made by the Agent to them or for their account, and with any other
Obligations, including any and all costs, expenses and reasonable attorney's
fees which the Agent may incur in connection with the exercise by or for the
Agent of
24
<PAGE>
any of the rights or powers herein conferred upon the Agent, or in the
prosecution or defense of any action or proceeding to enforce or protect any
rights of the Agent in connection with this Financing Agreement or the
Collateral assigned hereunder, or any Obligations owing to the Agent and the
Lenders by the Companies. Subject to the provisions of Paragraph 4 of this
Section 3, each of the Companies will be credited with all amounts received by
the Agent and/or the Lenders from them or from others for their account,
including, as above set forth, all amounts received by the Agent in payment of
assigned Accounts and such amounts will be applied to payment of the
Obligations. In no event shall prior recourse to any Accounts or other security
granted to or by the Companies be a prerequisite to the Agent's right to demand
payment of any Obligation. Further, it is understood that the Agent and/or the
Lenders shall have no obligation whatsoever to perform in any respect any of the
Companies' contracts or obligations relating to the Accounts.
7. After the end of each month, the Agent shall promptly send the
Companies a statement showing the accounting for the charges, loans, advances
and other transactions occurring between the Agent and the Companies during that
month. The monthly statements shall be deemed correct and binding upon the
Companies and shall constitute an account stated between the Companies and the
Agent unless the Agent receives a written statement of the exceptions within
thirty (30) days of the date of the monthly statement.
8. In the event that the sum of (i) the outstanding balance of
Revolving Loans and (ii) outstanding balance of Letters of Credit exceeds (x) as
to any Company the maximum amount thereof available to such Company under
Sections 3 and 5 hereof or (y) for all of the Companies the Line of Credit
(herein the amount of any such excess shall be referred to as the "Excess") such
Excess shall be due and payable to the Agent for the benefit of the Lenders
immediately upon the Agent's demand therefor.
SECTION 4. TERM LOANS AND CAPEX TERM LOANS
-------------------------------
TERM LOAN A
-----------
1. 4MC hereby agrees to execute and deliver to the Agent Term Loan
Promissory Note A, in the form of Exhibit B attached hereto, to evidence Term
Loan A to be extended by the Lenders.
2. Upon receipt of such Term Loan Promissory Note A, the Lenders
hereby agree to extend to 4MC Term Loan A in the principal amount of
$13,000,000.
3. The principal amount of Term Loan A shall be repaid to the Agent
for the benefit of the Lenders by 4MC by: (i) eighty-three (83) equal monthly
principal
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<PAGE>
installments of $155,000 each, followed by ii) one (1) installment of $135,000
whereof the first installment shall be due and payable on November 20, 1997 and
the subsequent installments shall be due and payable on the 20th day of each
month thereafter until paid in full.
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<PAGE>
TERM LOAN B
-----------
4. DMC hereby agrees to execute and deliver to the Agent Term Loan
Promissory Note B, in the form of Exhibit C attached hereto, to evidence Term
Loan B to be extended by the Lenders.
5. Upon receipt of such Term Loan Promissory Note B, the Lenders
hereby agree to extend to DMC Term Loan B in the principal amount of $3,000,000.
6. The principal amount of Term Loan B shall be repaid to the Agent
for the benefit of the Lenders by DMC by: i) eighty-three (83) equal monthly
principal installments of $35,000 each, followed by ii) one (1) installment of
$95,000 whereof the first installment shall be due and payable on November 20,
1997 and the subsequent installments shall be due and payable on the 20th day of
each month thereafter until paid in full.
CAPEX TERM LOANS
----------------
7. Within the available and unused CAPEX Term Loan Line of Credit and
upon receipt of a Promissory Note in the form of Exhibit D attached hereto, from
any of the Companies in the amount of the CAPEX Term Loan, the Lenders will
extend to them a CAPEX Term Loan, provided: a) no Default or Event of Default
has occurred or would occur after giving effect to such CAPEX Term Loan, b) all
of the conditions listed below are fulfilled to the sole but reasonable
satisfaction of the Agent.
8. CAPEX Term Loan proceeds: x) are to be used exclusively to pay
for, or reimburse the Companies for, the acquisition by the Companies of newly
acquired Capital Improvements (other than Real Estate) which are not subject to
Purchase Money Liens; and (y) will be disbursed upon completion of the delivery,
assembly and installation of the capital improvement.
9. The Companies must give the Agent ten (10) Business Days prior
written notice of its intention to enter into a CAPEX Term Loan and draw down
the CAPEX Term Loans no later than the close of business on the date occurring
two (2) years from the date hereof.
10. No CAPEX Term Loan may exceed one hundred percent (100%) of the
total invoiced acquisition costs of the Capital Improvements (other than land)
exclusive of assembly costs, installation expenses, maintenance, shipping costs,
taxes and import or custom charges for which the CAPEX Term Loan is sought.
11. The CAPEX Term Loans must be in initial increments of at least
$500,000.00 and multiples of $100,000.00 thereafter.
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<PAGE>
12. Each CAPEX Term Loan will be repaid to the Agent for the benefit
of the Lenders by the Companies in sixty (60) equal monthly installments of
principal commencing on the first Business Day of the month following the
disbursement of such CAPEX Term Loan and each equal to the amount derived by
dividing such CAPEX Term Loan amount by sixty (60). To the extent repaid, CAPEX
Term Loans may not be reborrowed under this Section 4 of this Financing
Agreement and the CAPEX Term Loan Line of Credit shall be permanently reduced by
the amount of any such repayment(s).
ADDITIONAL PROVISIONS FOR TERM LOANS AND CAPEX TERM LOANS
---------------------------------------------------------
14. In the event this Financing Agreement or the Line of Credit is
terminated by either the Lenders acting through the Agent or the Companies for
any reason whatsoever, the Term Loans and CAPEX Term Loans shall become due and
payable on the effective date of such termination notwithstanding any provision
to the contrary in the Promissory Notes or this Financing Agreement.
15. The Companies may prepay at any time, at its option, in whole or
in part, the Term Loans and/or the CAPEX Term Loans, provided that on each such
prepayment, the Companies shall pay: i) accrued interest on the principal so
prepaid to the date of such prepayment and ii) any amount due under Section 8 as
a result of the prepayment of any Treasury Rate Loan or Libor Loan.
16. Each prepayment shall be applied at Agent's discretion, to the
then last maturing installments of principal of either of the Term Loans and/or
the CAPEX Term Loans.
17. Each of the Companies hereby authorizes the Agent to charge its
Revolving Loan Account with the amount of all amounts due under this Section 4
as such amounts become due. Each of the Companies confirms that any charges
which the Agent may so make to its account as herein provided will be made as an
accommodation to the Companies and solely at the Agent's discretion.
SECTION 5. LETTERS OF CREDIT
-----------------
In order to assist the Companies in establishing or opening Letters of
Credit with an Issuing Bank to cover the purchase of inventory, equipment or
otherwise, the Companies have requested the Agent in behalf of the Lenders to
join in the applications for such Letters of Credit, and/or guarantee payment or
performance of such Letters of Credit and any drafts or acceptances thereunder
through the issuance of the Letters of Credit Guaranty, thereby lending the
Agent's and the Lenders' credit to the Companies and the Agent and the Lenders
have agreed to do
28
<PAGE>
so. These arrangements shall be handled by the Agent subject to the terms and
conditions set forth below.
1. Within the Line of Credit and Availability, the Agent and the
Lenders shall assist the Companies in obtaining Letter(s) of Credit in an amount
not to exceed the Letter of Credit Sub-Line in the aggregate outstanding at any
one time. The Agent's and Lenders' assistance for amounts in excess of the
limitation set forth herein shall at all times and in all respects be in the
Agent's sole discretion. It is understood that the form and purpose of each
Letter of Credit must be acceptable to the Agent in its reasonable business
judgment. Any and all outstanding Letters of Credit shall be treated as a
Revolving Loan for Availability purpose. Notwithstanding anything herein to the
contrary, upon the occurrence of a Default and/or Event of Default, the Agent's
assistance in connection with the Letter of Credit Guaranty shall be in the
Agent's sole discretion unless such Default and/or Event of Default is cured to
the Agent's satisfaction or waived by the Agent in writing.
2. The Agent shall have the right, without notice to the Companies,
to charge the Companies' Revolving Loan Accounts on the Agent's books with the
amount of any and all indebtedness, liability or obligation of any kind incurred
by the Agent under the Letters of Credit Guaranty at the earlier of a) payment
by the Agent under the Letters of Credit Guaranty, or b) the occurrence of an
Event of Default. Any amount charged to Companies' Revolving Loan Accounts
shall be deemed a Revolving Loan hereunder and shall incur interest at the rate
provided in Section 8, Paragraph 1 of this Financing Agreement.
3. Each of the Companies jointly and severally unconditionally
indemnifies the Agent and the Lenders and holds the Agent and the Lenders
harmless from any and all loss, claim or liability incurred by the Agent and/or
the Lenders arising from any transactions or occurrences relating to Letters of
Credit established or opened for the Companies' account, the collateral relating
thereto and any drafts or acceptances thereunder, and all Obligations
thereunder, including any such loss or claim due to any action taken by any
Issuing Bank, other than for any such loss, claim or liability arising out of
the gross negligence or willful misconduct by the Agent and/or the Lenders under
the Letters of Credit Guaranty. Each of the Companies further agrees to jointly
and severally hold the Agent and the Lenders harmless from any errors or
omission, negligence or misconduct by the Issuing Bank. The Companies'
unconditional obligation to the Agent and the Lenders hereunder shall not be
modified or diminished for any reason or in any manner whatsoever, other than as
a result of the Agent's gross negligence or willful misconduct. Each of the
Companies agrees that any charges incurred by the Agent and/or the Lenders for
their account by the Issuing Bank shall be conclusive on the Agent and the
Lenders and may be charged to their Revolving Loan Accounts.
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<PAGE>
4. The Agent and/or the Lenders shall not be responsible for: the
existence, character, quality, quantity, condition, packing, value or delivery
of the goods purporting to be represented by any documents; any difference or
variation in the character, quality, quantity, condition, packing, value or
delivery of the goods from that expressed in the documents; the validity,
sufficiency or genuineness of any documents or of any endorsements thereon, even
if such documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; the time, place, manner or order in which
shipment is made; partial or incomplete shipment, or failure or omission to ship
any or all of the goods referred to in the Letters of Credit or documents; any
deviation from instructions; delay, default, or fraud by the shipper and/or
anyone else in connection with the Collateral or the shipping thereof; or any
breach of contract between the shipper or vendors and the Companies.
Furthermore, without being limited by the foregoing, the Agent and/or the
Lenders shall not be responsible for any act or omission with respect to or in
connection with any Collateral.
5. Each of the Companies agrees that any action taken by the Agent
and/or the Lenders, if taken in good faith, or any action taken by any Issuing
Bank, under or in connection with the Letters of Credit, the guarantees, the
drafts or acceptances, or the Collateral, shall be binding on the them and shall
not put the Agent and/or the Lenders in any resulting liability to the
Companies. In furtherance thereof, the Agent shall have the full right and
authority to clear and resolve any questions of non-compliance of documents; to
give any instructions as to acceptance or rejection of any documents or goods;
to execute any and all steamship or airways guaranties (and applications
therefore), indemnities or delivery orders; to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents; and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the applications, Letters of Credit, drafts or acceptances; all in the
Agent's sole name, and the Issuing Bank shall be entitled to comply with and
honor any and all such documents or instruments executed by or received solely
from the Agent, all without any notice to or any consent from the Companies.
6. Without the Agent's express consent and endorsement in writing,
each of the Companies agrees: a) not to execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders; to grant any
extensions of the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances or documents; or to agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letters of Credit, drafts or acceptances;
and b) after the occurrence of an Event of Default which is not cured within any
applicable grace period, if any, or waived by the Agent, not to i) clear and
resolve any questions of
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<PAGE>
non-compliance of documents, or ii) give any instructions as to acceptances or
rejection of any documents or goods.
7. Each of the Companies agrees that any necessary import, export or
other licenses or certificates for the import or handling of the Collateral will
have been promptly procured; all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral, or the
financing thereof will have been promptly and full complied with; and any
certificates in that regard that the Agent may at any time request will be
promptly furnished. In this connection, each of the Companies warrants and
represents that all shipments made under any such Letters of Credit are in
accordance with the laws and regulations of the countries in which the shipments
originate and terminate, and are not prohibited by any such laws and
regulations. The Companies assume all risk, liability and responsibility for,
and agrees to pay and discharge, all present and future local, state, federal or
foreign taxes, duties, or levies. Any embargo, restriction, laws, customs or
regulations of any country, state, city, or other political subdivision, where
the Collateral is or may be located, or wherein payments are to be made, or
wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely the
Companies' risk, liability and responsibility.
8. Upon any payments made to the Issuing Bank under the Letter of
Credit Guaranty, the Agent for the benefit of the Lenders shall acquire by
subrogation, any rights, remedies, duties or obligations granted or undertaken
by the Companies to the Issuing Bank in any application for Letters of Credit,
any standing agreement relating to Letters of Credit or otherwise, all of which
shall be deemed to have been granted to the Agent and apply in all respects to
the Agent for the benefit of the Lenders and shall be in addition to any rights,
remedies, duties or obligations contained herein.
SECTION 6. COLLATERAL
----------
1. As security for the prompt payment in full of all loans and
advances made and to be made to the Companies from time to time by the Agent
and/or the Lenders pursuant hereto, as well as to secure the payment in full of
the other Obligations, each of the Companies hereby pledges and grants to the
Agent for the benefit of the Lenders a continuing general lien upon and security
interest in all of its:
(a) present and hereafter acquired Inventory;
(b) present and hereafter acquired Equipment;
(c) present and future Accounts;
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(d) present and future Documents of Title;
(e) present and future General Intangibles;
(f) Real Estate; and
(g) present and future Other Collateral; provided that the specific
items of Equipment which are subject to filed financing statements
constituting Permitted Encumbrances hereunder shall be excluded from
Collateral hereunder (the "Excluded Collateral") so long as the
granting of a junior lien thereon would constitute a breach of or
default under the Companies' agreement(s) with the secured party/lessor
named in any such financing statement but only until the earlier of (x)
payment of all of the Companies' obligations to such secured
party/lessor or (y) termination and/or release of such financing
statement. Upon the occurrence of either of such events said Excluded
Collateral shall automatically and without any further act or agreement
of the Companies or the Agent (A) become part of the Collateral, (B) be
subject to the security interest granted in favor of the Agent for the
benefit of the Lenders hereunder and (C) constitute Collateral
hereunder for all purposes of this Financing Agreement.
2. The security interests granted hereunder shall extend and attach
to:
(a) All Collateral which is presently in existence and which is owned
by the Companies or in which the Companies have any interest, whether held by
them or others for their account, and, if any Collateral is Equipment, whether
the Companies' interest in such Equipment is as owner or lessee or conditional
vendee;
(b) All Equipment whether the same constitutes personal property or
fixtures, including, but without limiting the generality of the foregoing, all
dies, jigs, tools, benches, tables, accretions, component parts thereof and
additions thereto, as well as all accessories, motors, engines and auxiliary
parts used in connection with or attached to the Equipment; and
(c) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either the Agent or the Companies from the
Companies' customers, as well as to all supplies, goods, incidentals, packaging
materials, labels and any other items which contribute to the finished goods or
products manufactured or processed by the Companies, or to the sale, promotion
or shipment thereof.
3. The Companies agree to safeguard, protect and hold all Inventory
for the Agent's account and make no disposition thereof except in the regular
course of the business of the Companies as herein provided. Until the Agent has
given the
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<PAGE>
Companies notice to the contrary, as provided for below, any Inventory may be
sold and shipped by the Companies to their customers in the ordinary course of
their business, on open account and on terms currently being extended by them to
their customers, provided that all proceeds of all sales (including cash,
accounts receivable, checks, notes, instruments for the payment of money and
similar proceeds) are forthwith transferred, endorsed, and turned over and
delivered to the Agent for the benefit of the Lenders in accordance with Section
3, Paragraph 4 of this Financing Agreement. The Agent shall have the right to
withdraw this permission at any time upon the occurrence of an Event of Default
and until such time as such Event of Default is waived in writing by the Agent
or cured to the Agent's satisfaction, in which event no further disposition
shall be made of the Inventory by the Companies without the Agent's prior
written approval. Cash sales or sales of inventory in which a lien upon, or
security interest in, Inventory is retained by the Companies shall be made by
the Companies only with the approval of the Agent, and the proceeds of such
sales or sales of Inventory for cash shall not be commingled with the Companies'
other property, but shall be segregated, held by the Companies in trust for the
Agent for the benefit of the Lenders as the Agent's exclusive property, and
shall be delivered immediately by the Companies to the Agent in the identical
form received by the Companies by deposit to the Depository Accounts. Upon the
sale, exchange, or other disposition of Inventory, as herein provided, the
security interest in the Companies' Inventory provided for herein shall, without
break in continuity and without further formality or act, continue in, and
attach to, all proceeds, including any instruments for the payment of money,
accounts receivable, contract rights, documents of title, shipping documents,
chattel paper and all other cash and non-cash proceeds of such sale, exchange or
disposition. As to any such sale, exchange or other disposition, the Agent
shall have all of the rights of an unpaid seller, including stoppage in transit,
replevin, rescission and reclamation. Notwithstanding the foregoing the
Companies may make cash sales of Inventory, provided that (i) the aggregate
amount thereof for the Companies during any fiscal year does not exceed
$100,000.00 for such fiscal year and (ii) the proceeds of such sales are turned
over to the Agent by deposit in the Depository Accounts.
4. Each of the Companies agrees at its own cost and expense to keep
the Equipment in as good and substantial repair and condition as the same is now
or at the time the lien and security interest granted herein shall attach
thereto, reasonable wear and tear excepted, making any and all repairs and
replacements when and where necessary. Each of the Companies also agrees to
safeguard, protect and hold all Equipment for the Agent's account and make no
disposition thereof unless they first obtain the prior written approval of the
Agent. Any sale, exchange or other disposition of any Equipment shall only be
made by the Companies with the prior written approval of the Agent, and the
proceeds of any such sales shall not be commingled with the Companies' other
property, but shall be segregated, held by the Companies in trust for the Agent
for the benefit of the
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<PAGE>
Lenders as the Agent's exclusive property, and shall be delivered immediately by
the Companies to the Agent in the identical form received by the Companies by
deposit to the Depository Accounts. Upon the sale, exchange, or other
disposition of the Equipment, as herein provided, the security interest provided
for herein shall, without break in continuity and without further formality or
act, continue in, and attach to, all proceeds, including any instruments for the
payment of money, accounts receivable, contract rights, documents of title,
shipping documents, chattel paper and all other cash and non-cash proceeds of
such sales, exchange or disposition. As to any such sale, exchange or other
disposition, the Agent shall have all of the rights of an unpaid seller,
including stoppage in transit, replevin, rescission and reclamation.
Notwithstanding anything hereinabove contained to the contrary, the Companies
may sell, exchange or otherwise dispose of obsolete Equipment or Equipment no
longer needed in the Companies' operations, provided, however, that (a) the then
book value of the Equipment so disposed of does not exceed $100,000.00 in the
aggregate for the Companies in any fiscal year and (b) the proceeds of such
sales or dispositions in excess of $50,000 are delivered to the Agent in
accordance with the foregoing provisions of this paragraph, except that the
Companies may retain and use such proceeds to purchase forthwith replacement
Equipment which the Companies determine in their reasonable business judgment to
have a collateral value at least equal to the Equipment so disposed of or sold,
provided, however, that the aforesaid right shall automatically cease upon the
occurrence of an Event of Default which is not cured within any applicable grace
period or waived.
5. The rights and security interests granted to the Agent for the
benefit of the Lenders hereunder are to continue in full force and effect,
notwithstanding the termination of this Financing Agreement or the fact that any
account maintained in the Companies' name on the books of the Agent may from
time to time be temporarily in a credit position, until the final payment in
full to the Agent and the Lenders of all Obligations and the termination of this
Financing Agreement. Any delay, or omission by the Agent and/or the Lenders to
exercise any right hereunder, shall not be deemed a waiver thereof, or be deemed
a waiver of any other right, unless such waiver be in writing and signed by the
Agent. A waiver on any one occasion shall not be construed as a bar to or
waiver of any right or remedy on any future occasion.
6. To the extent that the Obligations are now or hereafter secured by
any assets or property other than the Collateral or by the guarantee,
endorsement, assets or property of any other person, then the Agent shall have
the right in its sole discretion to determine which rights, security, liens,
security interests or remedies the Agent shall at any time pursue, foreclose
upon, relinquish, subordinate, modify or take any other action with respect to,
without in any way modifying or affecting any of them, or any of the Agent's or
Lenders' rights hereunder.
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<PAGE>
7. Any reserves or balances to the credit of the Companies and any
other property or assets of the Companies in the possession of the Agent and/or
the Lenders may be held by the Agent as security for any Obligations and applied
in whole or partial satisfaction of such Obligations when due. The liens and
security interests granted herein and any other lien or security interest the
Agent may have in any other assets of the Companies, shall secure payment and
performance of all now existing and future Obligations. The Agent may in its
discretion charge any or all of the Obligations to the Revolving Loan Accounts
of the Companies when due.
8. This Financing Agreement and the obligation of the Companies to
perform all of its covenants and obligations hereunder are further secured by
mortgage(s), deed(s) of trust or assignment(s) on the Real Estate.
9. The Companies shall give to the Agent for the benefit of the
Lenders from time to time such mortgage(s), deed(s) of trust or assignment(s) on
the Real Estate or real estate acquired after the date hereof as the Agent shall
require to obtain a valid first lien thereon subject only to those exceptions of
title as set forth in future title insurance policies that are satisfactory to
the Agent.
10. The Companies shall give to the Agent for the benefit of the
Lenders, and/or shall cause the appropriate party to give to the Agent for the
benefit of the Lenders, from time to time such pledge or security agreements
with respect to General Intangibles and capital stock of the Companies and any
and all of their subsidiaries as the Agent shall require to obtain valid first
liens thereon.
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
1. Each of the Companies hereby warrants and represents and/or
covenants that: i) the book value of its assets exceeds the book value of its
liabilities; ii) it is generally able to pay its debts as they become due and
payable; and iii) it does not have unreasonably small capital to carry on its
business as it is currently conducted absent extraordinary and unforeseen
circumstances. Each of the Companies further warrants and represents that
Schedule 2 hereto correctly and completely sets forth its chief executive office
and all of its Collateral locations; and except for the Permitted Encumbrances,
the security interests granted herein constitute and shall at all times
constitute the first and only liens on the Collateral; that, except for the
Permitted Encumbrances, the Companies are or will be at the time additional
Collateral is acquired by them, the absolute owner of the Collateral with full
right to pledge, sell, consign, transfer and create a security interest therein,
free and clear of any and all claims or liens in favor of others; that the
Companies will at their expense forever warrant and, at the Agent's request,
defend the same from any and all claims and demands of any other person other
than the Permitted Encumbrances; that the Companies will not grant, create or
permit to exist, any lien upon or security interest in the Collateral, or any
proceeds thereof, in favor of
35
<PAGE>
any other person other than the holders of the Permitted Encumbrances; and that
the Equipment does not comprise a part of its Inventory and that the Equipment
is and will only be used by the Companies in their business and will not be held
for sale or lease, or removed from its premises, or otherwise disposed of by the
Companies without the prior written approval of the Agent except as otherwise
permitted in Section 6, Paragraph 4 of this Financing Agreement.
2. The Companies agree to maintain books and records pertaining to
the Collateral in such detail, form and scope as the Agent shall reasonably
require. The Companies agree that the Agent or its agents may enter upon the
Companies' premises at any time during normal business hours, and from time to
time, for the purpose of inspecting the Collateral, and any and all records
pertaining thereto. The Companies agree to afford the Agent prior written notice
of any change in the location of any Collateral, other than to locations, that
as of the date hereof, are known to the Agent and at which the Agent has filed
financing statements and otherwise fully perfected its liens thereon. Each of
the Companies is also to advise the Agent promptly, in sufficient detail, of any
material adverse change relating to the type, quantity or quality of the
Collateral or on the security interests granted to the Agent therein.
3. Each of the Companies agrees to: execute and deliver to the
Agent, from time to time, solely for the Agent's convenience in maintaining a
record of the Collateral, such written statements, and schedules as the Agent
may reasonably require, designating, identifying or describing the Collateral
pledged to the Agent hereunder. The Companies' failure, however, to promptly
give the Agent such statements, or schedules shall not affect, diminish, modify
or otherwise limit the Agent's security interests in the Collateral.
4. The Companies agree to comply with the requirements of all state
and federal laws in order to grant to the Agent valid and perfected first
security interests in the Collateral, subject only to the Permitted
Encumbrances. The Agent is hereby authorized by the Companies to file any
financing statements covering the Collateral whether or not the Companies'
signature appears thereon. The Companies agree to do whatever the Agent may
reasonably request, from time to time, by way of: filing notices of liens,
financing statements, amendments, renewals and continuations thereof;
cooperating with the Agent's custodians; keeping stock records; transferring
proceeds of Collateral to the Agent's possession; and performing such further
acts as the Agent may reasonably require in order to effect the purposes of this
Financing Agreement.
5.(a) The Companies agree to maintain insurance on the Real Estate,
Equipment and Inventory under such policies of insurance, with such insurance
companies, in such reasonable amounts and covering such insurable risks as are
at all times reasonably satisfactory to the Agent. All policies covering the
Real Estate,
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<PAGE>
Equipment and Inventory are, subject to the rights of any holders of Permitted
Encumbrances holding claims senior to the Agent, to be made payable to the Agent
for the benefit of the Lenders, in case of loss, under a standard non-
contributory "mortgagee", "lender" or "secured party" clause and are to contain
such other provisions as the Agent may require to fully protect the Agent's
interest in the Real Estate, Inventory and Equipment and to any payments to be
made under such policies. All original policies or true copies thereof are to
be delivered to the Agent, premium prepaid, with the loss payable endorsement in
the Agent's favor, and shall provide for not less than thirty (30) days prior
written notice to the Agent of the exercise of any right of cancellation. At
the Companies' request, or if the Companies fail to maintain such insurance, the
Agent may arrange for such insurance, but at the Companies' expense and without
any responsibility on the Agent's part for: obtaining the insurance, the
solvency of the insurance companies, the adequacy of the coverage, or the
collection of claims. Upon the occurrence of an Event of Default which is not
waived or cured to the Agent's satisfaction, the Agent shall, subject to the
rights of any holders of Permitted Encumbrances holding claims senior to the
Agent, have the sole right, in the name of the Agent or the Companies, to file
claims under any insurance policies, to receive, receipt and give acquittance
for any payments that may be payable thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other documents
that may be necessary to effect the collection, compromise or settlement of any
claims under any such insurance policies.
(b)(i) In the event of any loss or damage by fire or other casualty,
insurance proceeds relating to Inventory of any Company shall reduce such
Company's Revolving Loans.
ii) In the event any part of a Company's Real Estate or Equipment is
damaged by fire or other casualty and the insurance proceeds for such damage or
other casualty (the "Proceeds") is less than or equal to $100,000.00, the Agent
shall promptly apply such Proceeds to reduce such Company's outstanding balance
in its Revolving Loan Account.
iii) As long as an Event of Default has not occurred (which is not
cured to the Agent's satisfaction), the Companies' have sufficient business
interruption insurance to replace the lost profits of any of the Companies'
facilities, and the Proceeds are in excess of $100,000.00, such Company may
elect (by delivering written notice to the Agent) to replace, repair or restore
such Real Estate or Equipment to substantially the equivalent condition prior to
such fire or other casualty as set forth herein. If the Companies do not, or
cannot, elect to use the Proceeds as set forth above, the Agent may, subject to
the rights of any holders of Permitted Encumbrances holding claims senior to the
Agent, apply the Proceeds to
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<PAGE>
the payment of the Obligations in such manner and in such order as the Agent may
reasonably elect.
iv) If a Company elects to use the Proceeds for the repair,
replacement or restoration of any Real Estate and/or Equipment, and there is
then no Event of Default, i) proceeds of insurance on Real Estate and/or
Equipment in excess of $100,000.00 will be applied to the reduction of the
Revolving Loans of such Company and ii) the Agent may set up a reserve against
Availability for an amount equal to the proceeds referred to in clause i)
hereof. The reserve will be reduced dollar-for-dollar upon receipt of non-
cancelable executed purchase orders, delivery receipts or contracts for the
replacement, repair or restoration of Real Estate and/or Equipment and
disbursements in connection therewith. Prior to the commencement of any
restoration, repair or replacement of Real Estate, the Companies shall provide
the Agent with a restoration plan and a total budget certified by an independent
third party experienced in construction costing. If there are insufficient
Proceeds to cover the cost of restoration as so determined, the Companies shall
be responsible for the amount of any such insufficiency, prior to the
commencement of restoration and shall demonstrate evidence of such before the
reserve will be reduced. Completion of restoration shall be evidenced by a
final, unqualified certification of the design architect employed, if any; an
unconditional Certificate of Occupancy, if applicable; such other certification
as may be required by law; or if none of the above is applicable, a written good
faith determination of completion by the Companies (herein collectively the
"Completion"). Upon Completion, any remaining reserve as established hereunder
will be automatically released.
(v) The Companies agree to pay any reasonable costs, fees or expenses
which the Agent may reasonably incur in connection herewith.
6. Each of the Companies agrees to pay, when due, all taxes,
assessments, claims and other charges (herein "taxes") lawfully levied or
assessed upon the Companies or the Collateral and if such taxes remain unpaid
after the date fixed for the payment thereof unless such taxes are being
diligently contested in good faith by the Companies by appropriate proceedings
or if any lien shall be claimed thereunder x) for taxes due the United States of
America or y) which in the Agent's opinion might create a valid obligation
having priority over the rights granted to the Agent herein, the Agent may, on
the Companies' behalf, pay such taxes, and the amount thereof shall be an
Obligation secured hereby and due to the Agent on demand.
7. Each of the Companies: (a) agrees to comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official, which the failure to comply with would have a material and adverse
impact on the Collateral, or any material part thereof, or on the operation of
the Companies'
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<PAGE>
business; provided that the Companies may contest any acts, rules, regulations,
orders and directions of such bodies or officials in any reasonable manner which
will not, in the Agent's reasonable opinion, materially and adversely effect the
Agent's rights or priority in the Collateral; (b) agrees to comply with all
environmental statutes, acts, rules, regulations or orders as presently existing
or as adopted or amended in the future, applicable to the ownership and/or use
of its real property and operation of its business, which the failure to comply
with would have a material and adverse impact on the Collateral, or any material
part thereof, or on the operation of the business of the Companies. Each of the
Companies hereby jointly and severally indemnifies the Agent and the Lenders and
agrees to defend and hold the Agent and the Lenders harmless from and against
any and all loss, damage, claim, liability, injury or expense which the Agent
and/or the Lenders may sustain or incur (other than as a result of actions of
the Agent and/or the Lenders) in connection with: any claim or expense asserted
against the Agent and/or the Lenders as a result of any environmental
pollution, hazardous material or environmental clean-up of the Companies' real
property; or any claim or expense which results from the Companies' operations
(including, but not limited to, the Companies' off-site disposal practices) and
the Companies further agree that this indemnification shall survive termination
of this Financing Agreement as well as the payment of all Obligations or amounts
payable hereunder; and (c) shall not be deemed to have breached any provision of
this Paragraph 7 if (i) the failure to comply with the requirements of this
Paragraph 7 resulted from good faith error or innocent omission, (ii) the
Companies promptly commence and diligently pursues a cure of such breach and
(iii) such failure is cured within fifteen (15) business days following the
Companies' receipt of notice of such failure.
8. Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Companies agree that, unless
the Agent shall have otherwise consented in writing, the Companies will furnish
to the Agent and each Lender, within ninety (90) days after the end of each
fiscal year of the Companies, an audited Consolidated Balance Sheet and an
audited Consolidating Balance Sheet as at the close of such year, and statements
of profit and loss, cash flow and reconciliation of surplus of Parent, the
Companies and all subsidiaries of each for such year, audited by independent
public accountants selected by the Companies and satisfactory to the Agent;
within sixty (60) days after the end of each fiscal quarter a Consolidated
Balance Sheet and Consolidating Balance Sheet as at the end of such period and
statements of profit and loss, cash flow and surplus of Parent, the Companies
and all subsidiaries of each, certified by an authorized financial or accounting
officer of the Companies; and within thirty (30) days after the end of each
month a Consolidated Balance Sheet as at the end of such period and statements
of profit and loss, cash flow and surplus of the Companies and all subsidiaries
for such period, certified by an authorized financial or accounting officer of
the Companies; and from time to time, such further information regarding the
business affairs and financial condition of the Parent, the
39
<PAGE>
Companies and any subsidiaries thereof as the Agent may reasonably request,
including without limitation (a) the accountant's management practice letter and
(b) annual cash flow projections in form satisfactory to the Agent. Each
financial statement which the Companies are required to submit hereunder must be
accompanied by an officer's certificate, signed by the President, Vice
President, Controller, or Treasurer, pursuant to which any one such officer must
certify that: (i) the financial statement(s) fairly and accurately represent(s)
the Companies' financial condition at the end of the particular accounting
period, as well as the Companies' operating results during such accounting
period, subject to year-end audit adjustments; (ii) during the particular
accounting period: (x) there has been no Default or Event of Default under this
Financing Agreement, provided, however, that if any such officer has knowledge
------------------
that any such Default or Event of Default, has occurred during such period, the
existence of and a detailed description of same shall be set forth in such
officer's certificate; and (y) the Companies have not received any notice of
cancellation with respect to its property insurance policies; and (iii) the
exhibits attached to such financial statement(s) constitute detailed
calculations showing compliance with all financial covenants contained in this
Financing Agreement.
9. Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Companies agree that, without
the prior written consent of the Agent, except as otherwise herein provided, the
Companies will not:
A. Mortgage, assign, pledge, transfer or otherwise permit any lien,
charge, security interest, encumbrance or judgment, (whether as a
result of a purchase money or title retention transaction, or
other security interest, or otherwise) to exist on any of its
assets or goods, whether real, personal or mixed, whether now
owned or hereafter acquired, except for the Permitted
Encumbrances;
B. Incur or create any Indebtedness other than the Permitted
Indebtedness;
C. Borrow any money on the security of the Collateral from sources
other than the Agent and the Lenders;
D. Sell, lease, assign, transfer or otherwise dispose of i)
Collateral, except as otherwise specifically permitted by this
Financing Agreement, or ii) either all or substantially all of
their assets, which do not constitute Collateral;
E. Merge, consolidate or otherwise alter or modify its corporate
name, principal place of business, structure, status or
existence, or enter into or engage in any operation or activity
materially different from that presently being conducted by the
Companies, except that the Companies may (i) merge with each
other and/or (ii) change their corporate name or address;
provided that in any instance under
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<PAGE>
clauses (i) and (ii) (x) the Companies shall give the Agent
thirty (30) days prior written notice thereof and (y) the
Companies shall execute and deliver prior to or simultaneously
with any such action any and all documents and agreements
requested by the Agent (including, without limitation, any and
all U.C.C. financing statements) to confirm (A) the assumption by
the surviving corporation of all Obligations to the Agent and the
Lenders of the other Company so merged, (B) the continuation and
preservation of all security interests and liens granted to the
Agent hereunder and (C) that such surviving corporation adopts,
ratifies and confirms its agreement to be bound by and comply
with this Financing Agreement;
F. Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except by
the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business;
G. Declare or pay any dividend of any kind on, or purchase, acquire,
redeem or retire, any of the capital stock or equity interest, of
any class whatsoever, whether now or hereafter outstanding,
except that the Companies may declare and pay dividends on their
capital stock in an amount sufficient to enable the Parent to a)
redeem the capital stock owned by its retired, deceased or
terminated officers or shareholders which the Parent is
contractually obligated to redeem, provided that in no event
shall the aggregate amount of such dividend under this clause (a)
exceed $100,000.00 in the aggregate in any fiscal year; and b)
pay income or franchise taxes of the Companies due as a result of
the filing of a consolidated, combined or unitary tax return in
which the operations of the Companies are included, provided
that, in any instance under this paragraph G, after giving effect
to such payment, no Default or Event of Default has occurred
hereunder;
H. Make any advance or loan to, or any investment in, any firm,
entity, person or corporation, except loans and advances (i) by
and among the Companies not to exceed $1,000,000.00 in the
aggregate above the outstanding amount of intercompany loans and
advances as shown on the Companies' financial statements as of
August 4, 1996, at any time outstanding and (ii) by the Companies
to 4MC Asia not to exceed $250,000 in the aggregate any time
outstanding above the outstanding amount of loans and advances
made to 4MC Asia by 4MC as of August 4, 1996; or
I. Pay management, consulting or other similar fees to Steinhardt
Group, the Parent or any person, corporation or other entity
affiliated with the Companies.
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<PAGE>
10. Until termination of this Financing Agreement and payment and
satisfaction in full of all Obligations hereunder, the Companies shall:
(a) (i) maintain at all times, tested at the end of each fiscal
quarter, a consolidated Net Worth of the Companies and 4MC Asia of not
less than $19,000,000, (ii) with respect to 4MC, maintain at all times,
tested at the end of each fiscal quarter, a Net Worth of 4MC of not
less than $16,500,000, and (iii) with respect to DMC, maintain at all
times, tested at the end of each fiscal quarter, a Net Worth of DMC of
not less than $2,500,000; and
(b) maintain at all times, tested at the end of each fiscal quarter, a
consolidated Working Capital of the Companies and 4MC Asia of not less
than $5,000,000; and
(c) maintain at the end of each of the periods set forth below
(calculated for such period) a consolidated Fixed Charge Coverage Ratio
of the Companies and 4MC Asia of not less than the ratio set forth below
for the applicable period:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
For the fiscal quarter ended
October 31, 1996, 0.5 to 1.0
For the two consecutive fiscal quarters
ended January 31, 1997 0.5 to 1.0
For the three consecutive fiscal quarters
ended April 30, 1997 0.9 to 1.0
For the four consecutive fiscal quarters
ended July 31, 1997 0.9 to 1.0
For all four consecutive fiscal quarters
thereafter 0.9 to 1.0; and
</TABLE>
(d) maintain at the end of each fiscal quarter a consolidated Leverage
Ratio of the Companies and 4MC Asia of no more than 3.75 to 1.
11. Without the prior written consent of the Agent, the Companies will not:
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<PAGE>
a) enter into any Operating Lease if after giving effect thereto the
aggregate obligations with respect to Operating Leases of the Companies
during any fiscal year would exceed $6,000,000; or
b) contract for, purchase, make expenditures for, lease pursuant to a
Capital Lease or otherwise incur obligations with respect to Capital
Expenditures (whether subject to a security interest or otherwise) during
any period below in the aggregate amount for the Companies in excess of the
amount set forth for said period:
i) $13,000,000 for the fiscal quarter ending October 31, 1996;
ii) $17,000,000 for the two consecutive quarters ending January 31, 1997;
iii) $20,000,000 for the three consecutive fiscal quarters ending April 30,
1997;
iv) $20,000,000 for the four consecutive fiscal quarters ending July 31,
1997, and for each consecutive four quarter period thereafter; or
c) contract for, purchase, make expenditures for, lease pursuant to a
Capital Lease or otherwise incur obligations with respect to Net Capital
Expenditures (whether subject to a security interest or otherwise) during
any period below in the aggregate amount for the Companies in excess of the
amount set forth for said period:
i) $4,500,000 for the fiscal quarter ending October 31, 1996;
ii) $8,250,000 for the two consecutive quarters ending January 31, 1997;
iii) $8,250,000 for the three consecutive fiscal quarters ending April 30,
1997;
iv) $8,250,000 for the four consecutive fiscal quarters ending July 31,
1997, and for each consecutive four quarter period thereafter; or
d) contract for, purchase, make expenditures for, lease pursuant to a
Capital Lease or otherwise incur obligations with respect to Net Capital
Expenditures for each year this Financing Agreement continues in effect in
the aggregate amount for the Companies less than the difference between (i)
$4,000,000 and (ii) the aggregate principal
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<PAGE>
amount the Companies have repaid on the Term Loans during such year.
12. The Companies agree to advise the Agent in writing of: a) all
expenditures (actual or anticipated) in excess of $150,000.00 for x)
environmental clean-up, y) environmental compliance or z) environmental testing
and the impact of said expenses on the Companies' Working Capital; and b) any
notices the Companies receive from any local, state or federal authority
advising the Companies of any environmental liability (real or potential)
stemming from the Companies' operations, premises, waste disposal practices, or
waste disposal sites used by the Companies and to provide the Agent with copies
of all such notices if so required.
13. Without the prior written consent of the Agent, the Companies agree
that they will not enter into any transaction, including, without limitation,
any purchase, sale, lease, loan or exchange of property with the Parent, any of
the Companies or any subsidiary or affiliate of either the Companies or Parent,
except (i) as otherwise permitted in this Financing Agreement, and (ii) that the
Companies may purchase certain goods for 4MC Asia not to exceed $50,000 during
any month, provided that (x) the outstanding unpaid balance thereof together
with all other amounts owing to the Companies from 4MC Asia does not exceed the
maximum amount of permitted intercompany advances by the Companies to 4MC Asia
pursuant to Paragraph 9(H) of this Section 7 and (y) all such transactions under
this clause (ii) shall be on terms no less favorable to the Companies than would
be obtained in an arms length transaction with an unrelated third party.
SECTION 8. INTEREST, FEES AND EXPENSES
---------------------------
1. Interest on the Revolving Loan(s) shall be payable monthly as of the
end of each month and shall be an amount equal to (a) one half of one percent
(1/2 of 1%) plus the Chase Manhattan Bank Rate per annum on the average of the
net balances owing by the Companies to the Agent in the Companies' Revolving
Loan Account(s) at the close of each day during such month on balances other
than Libor Loans and (b) two and one-half percent (2 1/2%) plus the applicable
Libor on any Libor Loan, on a per annum basis, on the average of the net
balances owing by the Companies to the Agent and/or the Lenders in the
Companies' Revolving Loan Account(s) at the close of each day during such month.
In the event of any change in said Chase Manhattan Bank Rate, the rate under
clause (a) above shall change, as of the first of the month following any
change, so as to remain one half of one percent (1/2 of 1%) above the Chase
Manhattan Bank Rate. The rate hereunder shall be calculated based on a 360-day
year. The Agent and the Lenders shall be entitled to charge the Companies'
Revolving Loan Account(s) at the rate provided for herein when due until all
Obligations have been paid in full.
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2. Interest on the Term Loan A shall be payable monthly as of the end of
each month on the unpaid balance or on payment in full prior to maturity in an
amount equal to (a) three quarters of one percent (3/4 of 1%) plus the Chase
Manhattan Bank Rate per annum on balances other than Libor Loans and (b) two and
three quarters percent (2 3/4%) plus the applicable Libor on any Libor Loan, on
a per annum basis, on the average of the net balance of Term Loan A owing by 4MC
to the Agent and/or the Lenders at the close of each day during such month. In
the event of any change in said Chase Manhattan Bank Rate, the rate under clause
(a) above shall change, as of the first of the month following any change, so as
to remain three quarters of one percent (3/4 of 1%) above the Chase Manhattan
Bank Rate. The rate hereunder shall be calculated based on a 360 day year. The
Agent and the Lenders shall be entitled to charge the Companies' Revolving Loan
Account(s) at the rate provided for herein when due until all Obligations have
been paid in full.
3. Interest on the Term Loan B shall be payable monthly as of the end of
each month on the unpaid balance or on payment in full prior to maturity in an
amount equal to (a) three quarters of one percent (3/4 of 1%) plus the Chase
Manhattan Bank Rate per annum on balances other than Libor Loans and (b) two and
three quarters percent (2 3/4%) plus the applicable Libor on any Libor Loan, on
a per annum basis, on the average of the net balance of Term Loan B owing by DMC
to the Agent and/or the Lenders at the close of each day during such month. In
the event of any change in said Chase Manhattan Bank Rate, the rate under clause
(a) above shall change, as of the first of the month following any change, so
as to remain three quarters of one percent (3/4 of 1%) above the Chase Manhattan
Bank Rate. The rate hereunder shall be calculated based on a 360 day year. The
Agent and the Lenders shall be entitled to charge the Companies' Revolving Loan
Account(s) at the rate provided for herein when due until all Obligations have
been paid in full.
4. At the Companies option, to be exercised at any time prior to the
expiration of one (1) year from the Closing Date, so long as no Default and/or
Event of Default has occurred hereunder, upon three (3) Business Days prior to
written notice to the Agent interest on the Term Loan shall be payable monthly
as of the end of each month on the unpaid balance or on payment in full prior to
maturity at a fixed rate of interest in an amount equal to 3.35% plus the
Treasury Rate on a per annum basis, on the average of the net balance of the
Term Loan owing by the Company to the Agent and/or the Lenders at the close of
each day during such month. The rate hereunder shall be calculated based on a
360 day year. The Agent and the Lenders shall be entitled to charge the
Company's Revolving Loan Account at the rate provided for herein when due until
all Obligations have been paid in full. In addition, the Companies hereby
jointly and severally indemnify and shall pay to the Agent for the benefit of
the Lenders, upon the request of the Agent such amount or amounts as shall
compensate the Agent
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and/or the Lenders for any actual loss, costs or expenses incurred by the Agent
and/or the Lenders (as reasonably determined by the Agent and the Lenders) as a
result of: (i) any payment or prepayment on a date other than a scheduled
payment date for any such Treasury Rate Loan, or (ii) any failure of the
Companies to borrow a Treasury Rate Loan on the date for such borrowing
specified in the relevant notice; such compensation to include, without
limitation, an amount equal to any loss or expenses suffered by the Agent and/or
the Lenders during the period from the date of receipt of such payment or
prepayment or the date of such failure to borrow to the scheduled payment
date(s) of such Treasury Rate Loans if the rate of interest obtained by the
Agent and/or the Lenders upon the reemployment of an amount of funds equal to
the amount of such payment, prepayment or failure to borrow is less than the
rate of interest applicable to such Treasury Rate. The determination by the
Agent and/or the Lenders of the amount of any such loss or expense, when set
forth in a written notice to the Companies, containing the Agent's and/or the
Lenders' calculations thereof in reasonable detail, such be conclusive on the
Companies, in the absence of manifest error. Calculation of all amounts payable
to the Agent and/or the Lenders under this paragraph with regard to Treasury
Rate Loans shall be made as though the Agent and/or the Lenders had actually
funded the Treasury Rate Loans through the purchase of deposits in the relevant
market and currency, as the case may be, bearing interest at the rate applicable
to such Treasury Rate Loans in an amount equal to the amount of the Treasury
Rate Loans and having a maturity comparable to the relevant Treasury Rate Loans
provided, however, that the Agent and the Lenders may fund each of the Treasury
- -------- -------
Rate Loans in any manner the Agent and the Lenders see fit and the foregoing
assumption shall be used only for calculation of amounts payable under this
paragraph.
5. Interest on the CAPEX Term Loans shall be payable monthly as of the end
of each month on the unpaid balance or on payment in full prior to maturity in
an amount equal to (a) three quarters of one percent (3/4 of 1%) plus the Chase
Manhattan Bank Rate per annum on balances other than Libor Loans and (b) two and
three quarters percent (2 3/4%) plus the applicable Libor on any Libor Loan, on
a per annum basis, on the average of the net balance of CAPEX Term Loans owing
by the Companies to the Agent and/or the Lenders at the close of each day during
such month. In the event of any change in said Chase Manhattan Bank Rate, the
rate under clause (a) above shall change, as of the first of the month following
any change, so as to remain three quarters of one percent (3/4 of 1%) above the
Chase Manhattan Bank Rate. The rate hereunder shall be calculated based on a
360 day year. The Agent and the Lenders shall be entitled to charge the
Companies' Revolving Loan Account at the rate provided for herein when due until
all Obligations have been paid in full.
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6. The Companies may elect to use Libor as to any outstanding Revolving
Loans, Term Loans and/or CAPEX Term Loans provided A) there is then no Default
or Event of Default, B) the Companies have so advised the Agent of their
election to use Libor and the Libor Period selected no later than three (3)
Business Days preceding the first day of a Libor Period and C) the election of
Libor and the Libor rate shall be effective, provided, there is then no Default
or Event of Default, on the fourth Business Day following said notice. The
Libor elections must be for $1,000,000 or whole multiples thereof. If no such
election is timely made or can be made, or if the Libor rate can not be
determined, then the Agent shall use the Chase Manhattan Bank Rate to compute
interest. In the event the Companies request any Libor election the Companies
shall pay to the Agent a $500 processing fee ("Libor Processing Fee") upon the
effective date of each such Libor election hereunder. In addition, the
Companies shall pay to the Agent for the benefit of the Lenders, upon the
request of the Agent such amount or amounts as shall compensate the Agent and/or
the Lenders for any actual loss, costs or expenses incurred by the Agent and/or
the Lenders (as reasonably determined by the Agent and the Lenders) as a result
of: (i) any payment or prepayment on a date other than the last day of a Libor
Period for such Libor Loan, or (ii) any failure of the Companies to borrow a
Libor Loan on the date for such borrowing specified in the relevant notice; such
compensation to include, without limitation, an amount equal to any loss or
expense suffered by the Agent and/or the Lenders during the period from the date
of receipt of such payment or prepayment or the date of such failure to borrow
to the last day of such Libor Period if the rate of interest obtained by the
Agent and/or the Lenders upon the reemployment of an amount of funds equal to
the amount of such payment, prepayment or failure to borrow is less than the
rate of interest applicable to such Libor Loan for such Libor Period. The
determination by the Agent and/or the Lenders of the amount of any such loss or
expense, when set forth in a written notice to the Companies, containing the
Agent's and/or the Lenders' calculations thereof in reasonable detail, shall be
conclusive on the Company, in the absence of manifest error. Calculation of all
amounts payable to the Agent and/or the Lenders under this paragraph with regard
to Libor Loans shall be made as though the Agent and/or the Lenders had actually
funded the Libor Loans through the purchase of deposits in the relevant market
and currency, as the case may be, bearing interest at the rate applicable to
such Libor Loans in an amount equal to the amount of the Libor Loans and having
a maturity comparable to the relevant interest period provided, however, that
-------- -------
the Agent and the Lenders may fund each of the Libor Loans in any manner the
Agent and the Lenders see fit and the foregoing assumption shall be used only
for calculation of amounts payable under this paragraph. In addition,
notwithstanding anything to the contrary contained herein, the Agent and the
Lenders shall apply all proceeds of Collateral, including the Accounts, and all
other amounts received by it from or on behalf of the Companies (i) initially to
the Chase Manhattan Bank Rate loans and (ii) subsequently to Libor Loans;
provided, however, x) upon the occurrence of an Event of Default or y) in the
- -------- -------
event the aggregate amount of outstanding Libor Rate
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Loans exceeds Availability or the applicable maximum levels set forth therefor,
the Agent and the Lenders may apply all such amounts received by it to the
payment of Obligations in such manner and in such order as the Agent may elect
in its reasonable business judgment. In the event that any such amounts are
applied to Revolving Loans which are Libor Loans, such application shall be
treated as a prepayment of such loans and the Agent and the Lenders shall be
entitled to indemnification hereunder.
7. In consideration of the Letter of Credit Guaranty of the Agent, the
Companies shall jointly and severally pay the Agent for the benefit of the
Lenders the Letter of Credit Guaranty Fee which shall be an amount equal to one
and one half percent (1 and 1/2%) per annum, payable monthly, on the face amount
of each Letter of Credit less the amount of any and all amounts previously drawn
under the Letter of Credit.
8. Any charges, fees, commissions, costs and expenses actually charged to
the Agent and/or the Lenders for the Companies' account by any Issuing Bank in
connection with or arising out of Letters of Credit issued pursuant to this
Financing Agreement or out of transactions relating thereto will be charged to
the Companies' account in full when charged to or paid by the Agent and when
made by any such Issuing Bank shall be conclusive on the Agent.
9. The Companies shall jointly and severally reimburse or pay the Agent,
as the case may be, for: i) all Out-of-Pocket Expenses and ii) any applicable
Documentation Fee.
10. Upon the last Business Day of each month, commencing with the last day
of the month in which this Financing Agreement is executed the Companies shall
jointly and severally pay the Agent for the benefit of the Lenders the Line of
Credit Fee.
11. To induce the Agent and the Lenders to enter into this Financing
Agreement and to extend to the Companies the Revolving Loan, Letters of Credit,
Term Loans and the CAPEX Term Loan, the Companies shall jointly and severally
pay to the Agent for the benefit of the Lenders a Loan Facility Fee in the
amount of $170,000.00 payable upon execution of this Financing Agreement,
provided that the Commitment Fee in the aggregate amount of $150,000.00 paid to
the Agent under the Commitment Letter will be credit against such Loan Facility
Fee.
12. Upon the date hereof and on such annual anniversary hereof the
Companies shall jointly and severally pay to the Agent the Collateral Management
Fee, which shall be fully earned and not refundable or rebateable when due.
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13. The Companies shall jointly and severally pay the Agent's standard
charges for, and the fees and expenses of, the Agent personnel used by the Agent
for reviewing the books and records of the Companies and for verifying, testing
protecting, safeguarding, preserving or disposing of all or any part of the
Collateral provided, however, that the foregoing shall not be payable until the
occurrence of an Event of Default if the Companies are paying a Collateral
Management Fee.
14. Each of the Companies hereby authorizes the Agent to charge its
Revolving Loan Account with the Agent with the amount of all payments due
hereunder as such payments become due. Each of the Companies confirms that any
charges which the Agent may so make to the Companies' account as herein provided
will be made as an accommodation to the Companies and solely at the Agent's
discretion. The Agent may in its sole and absolute discretion allocate any of
the above fees and/or any other payments due under this Financing Agreement to
the Companies' respective Revolving Loan Accounts in any proportion that the
Agent may decide.
SECTION 9. POWERS
------
Each of the Companies hereby constitutes the Agent in behalf of the Lenders
or any person or agent the Agent may designate as its attorney-in-fact, at the
Companies' cost and expense, to exercise all of the following powers, which
being coupled with an interest, shall be irrevocable until all of the Companies'
Obligations to the Agent and the Lenders have been paid in full:
(a) To receive, take, endorse, sign, assign and deliver, all in the name
of the Agent or the Companies, any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to the Companies
and to notify postal authorities to change the address for delivery thereof to
such address as the Agent may designate;
(c) To request from customers indebted on Accounts at any time, in the
name of the Agent or the Companies or that of the Agent's designee, information
concerning the amounts owing on the Accounts;
(d) To transmit to customers indebted on Accounts notice of the Agent's
interest therein and to notify customers indebted on Accounts to make payment
directly to the Agent for the Companies' account; and
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(e) To take or bring, in the name of the Agent or the Companies, all
steps, actions, suits or proceedings deemed by the Agent necessary or desirable
to enforce or effect collection of the Accounts.
Notwithstanding anything hereinabove contained to the contrary, the powers
set forth in (a), (b), (d) and (e) above may only be exercised after the
occurrence of an Event of Default and until such time as such Event of Default
is waived in writing by the Agent or cured to the Agent's satisfaction. In
addition, the powers set forth in (c) above will only be exercised in the name
of the Companies or a certified public accountant designated by the Agent prior
to the occurrence of such Event of Default.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
1. Notwithstanding anything hereinabove to the contrary, the Lenders
acting through the Agent may terminate this Financing Agreement immediately upon
the occurrence of any of the following (herein "Events of Default"):
a) cessation of the business of the Companies, or any one of them, or the
calling of a meeting of the creditors of the Companies, or any one of
them, for purposes of compromising their debts and obligations;
b) the failure of the Companies, or any one of them, to generally meet
debts as they mature;
c) the commencement by or against the Companies, or any one of them, of
any bankruptcy, insolvency, arrangement, reorganization, receivership
or similar proceedings under any federal or state law, provided that
in the event of any involuntary proceeding commenced against the
Companies such proceeding is not dismissed or discharged within thirty
(30) days after commencement thereof;
d) breach by the Companies, or any one of them, of any warranty,
representation or covenant contained herein (other than those referred
to in sub-paragraph e below) or in any other written agreement between
the Companies and the Agent and/or the Lenders executed in connection
with this Financing Agreement, provided that such breach by the
Companies of any of the warranties, representations or covenants
referred in this clause d shall not be deemed to be an Event of
Default unless and until such breach shall remain unremedied to the
Agent's satisfaction for a period of thirty (30) days from the date of
such breach;
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e) breach by the Companies, or any one of them, of any warranty,
representation or covenant of Section 3, Paragraphs 3 (other than
the thirds entence of paragraph 3) and 4; Section 6, Paragraphs 3
and 4 (other than the first sentence of paragraph 4); Section 7,
Paragraphs 1,5,6, and 9 through 11;
f) failure of either of the Companies to pay any of the Obligations
within five (5) Business Days of the due date thereof, provided
that nothing contained herein shall prohibit the Agent from
charging such amounts to the Companies' Revolving Loan Accounts on
the due date thereof;
g) the Companies, or any one of them, shall i) engage in any
"prohibited transaction" as defined in ERISA, ii) have any
"accumulated funding deficiency" as defined in ERISA, iii) have
any Reportable Event as defined in ERISA, iv) terminate any Plan,
as defined in ERISA or v) be engaged in any proceeding in which
the Pension Benefit Guaranty Corporation shall seek appointment,
or is appointed, as trustee or administrator of any Plan, as
defined in ERISA, and with respect to this sub-paragraph h such
event or condition x) remains uncured for a period of thirty (30)
days from date of occurrence and y) could, in the reasonable
opinion of the Agent, subject the Companies to any tax, penalty or
other liability material to the business, operations or financial
condition of the Companies;
h) without the prior written consent of the Agent, the Companies or
the Parent shall x) amend or modify the Subordinated Debt, or y)
make any payment on account of the Subordinated Debt except (i) as
permitted in the Subordination Agreement and (ii) with the
proceeds received by the Companies pursuant to an initial public
offering of the Parent's stock;
i) the occurrence of any default or event of default (after giving
effect to any applicable grace or cure periods) under any
instrument or agreement evidencing (x) Subordinated Debt or (y)
any other Indebtedness of the Companies having a principal amount
in excess of $500,000; , provided that any such default or event
of default under any such other Indebtedness referred to in clause
(y) results in an acceleration of such other Indebtedness;
j) Robert Walston ceases for any reason whatsoever (other than as a
result of death) to be actively engaged in the management of the
Companies; or
k) the stock of the Companies presently held (directly or indirectly)
by Parent is transferred.
2. Upon the occurrence of a Default and/or an Event of Default, the
Agent may (at its option) and shall at the direction of the Required Lenders
declare that, all loans, advances and extensions of credit provided for in
Sections 3, 4 and 5 of this Financing Agreement shall be thereafter in the
Agent's sole discretion and the
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obligation of the Agent and/or the Lenders to make Revolving Loans, open Letters
of Credit, and/or make CAPEX Term Loans shall cease unless such Default or Event
of Default is waived in writing by the Agent or cured to the Agent's
satisfaction, and upon the occurrence of an Event of Default the Agent may (at
its option) and shall at the direction of the Required Lenders declare that: i)
all Obligations shall become immediately due and payable; ii) the Default Rate
of Interest shall be charged on all then outstanding or thereafter incurred
Obligations in lieu of the interest provided for in Section 8 of this Financing
Agreement provided that respect to this clause "ii)" a) the Agent has given the
Companies written notice of the Event of Default, provided, however, that no
notice is required if the Event of Default is the Event listed in paragraph 1(c)
of this Section 10 and b) the Companies have failed to cure the Event of Default
within ten (10) days after x) the Agent deposited such notice in the United
States mail or y) the occurrence of the Event of Default listed in paragraph
1(c) of this Section 10; and iii) this Financing Agreement shall immediately
terminate upon notice to the Companies, provided, however, that no notice of
termination is required if the Event of Default is the Event listed in paragraph
1(c) of this Section 10. The exercise of any option is not exclusive of any
other option which may be exercised at any time by the Agent and/or the Lenders.
3. Immediately upon the occurrence of any Event of Default, the Agent
may and at the request of the Required Lenders shall to the extent permitted by
law: (a) remove from any premises where same may be located any and all
documents, instruments, files and records, and any receptacles or cabinets
containing same, relating to the Accounts, or the Agent may use, at the
Companies' expense, such of the Companies' personnel, supplies or space at the
Companies' places of business or otherwise, as may be necessary to properly
administer and control the Accounts or the handling of collections and
realizations thereon; (b) bring suit, in the name of the Companies or the Agent
in behalf of the Lenders, and generally shall have all other rights respecting
said Accounts, including without limitation the right to: accelerate or extend
the time of payment, settle, compromise, release in whole or in part any amounts
owing on any Accounts and issue credits in the name of the Companies or the
Agent; (c) sell, assign and deliver the Collateral and any returned, reclaimed
or repossessed merchandise, with or without advertisement, at public or private
sale, for cash, on credit or otherwise, at the Agent's sole option and
discretion, and the Agent may bid or become a purchaser at any such sale, free
from any right of redemption, which right is hereby expressly waived by the
Companies; (d) foreclose the security interests created herein by any available
judicial procedure, or to take possession of any or all of the Inventory,
Equipment and/or Other Collateral without judicial process, and to enter any
premises where any Inventory, Equipment and/or Other Collateral may be located
for the purpose of taking possession of or removing the same and (E) exercise
any other rights and remedies provided in law, in equity, by contract or
otherwise. The Agent shall have the right, without notice or advertisement, to
sell, lease, or otherwise dispose
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of all or any part of the Collateral whether in its then condition or after
further preparation or processing, in the name of the Companies or the Agent, or
in the name of such other party as the Agent may designate, either at public or
private sale or at any broker's board, in lots or in bulk, for cash or for
credit, with or without warranties or representations, and upon such other terms
and conditions as the Agent in its sole discretion may deem advisable, and the
Agent shall have the right to purchase at any such sale. If any Inventory and
Equipment shall require rebuilding, repairing, maintenance or preparation, the
Agent shall have the right, at its option, to do such of the aforesaid as is
necessary, for the purpose of putting the Inventory and Equipment in such
saleable form as the Agent shall deem appropriate. The Companies agree, at the
request of the Agent, to assemble the Inventory and Equipment and to make it
available to the Agent at premises of the Companies or elsewhere and to make
available to the Agent the premises and facilities of the Companies for the
purpose of the Agent's taking possession of, removing or putting the Inventory
and Equipment in saleable form. However, if notice of intended disposition of
any Collateral is required by law, it is agreed that ten (10) days notice shall
constitute reasonable notification and full compliance with the law. The net
cash proceeds resulting from the Agent's exercise of any of the foregoing
rights, (after deducting all charges, costs and expenses, including reasonable
attorneys' fees) shall be applied by the Agent to the payment of the Companies'
Obligations, whether due or to become due, in such order as the Agent may elect,
and the Companies shall remain liable to the Agent and the Lenders for any
deficiencies, and the Agent and the Lenders in turn agree to remit to the
Companies or their successors or assigns, any surplus resulting therefrom. The
enumeration of the foregoing rights is not intended to be exhaustive and the
exercise of any right shall not preclude the exercise of any other rights, all
of which shall be cumulative. The mortgage(s), deed(s) of trust and/or
assignment(s) on the Real Estate shall govern the rights and remedies of the
Agent and the Lenders thereto.
SECTION 11. TERMINATION
-----------
Except as otherwise permitted herein, the Companies or any Lender
acting through the Agent may terminate this Financing Agreement and the Line of
Credit only as of the initial or any subsequent Anniversary Date and then only
by giving the other at least sixty (60) days prior written notice of
termination. Notwithstanding the foregoing the Lenders acting through the Agent
may terminate the Financing Agreement immediately upon the occurrence of an
Event of Default, provided, however, that if the Event of Default is an event
listed in paragraph 1(c) of Section 10 of this Financing Agreement, the Agent
and the Lenders may regard the Financing Agreement as terminated and notice to
that effect is not required. This Financing Agreement, unless terminated as
herein provided, shall automatically continue from Anniversary Date to
Anniversary Date. Notwithstanding the foregoing, the Companies may terminate
this Financing Agreement, the Line of
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Credit and the CAPEX Term Loan Line of Credit prior to any applicable
Anniversary Date upon sixty (60) days' prior written notice to the Agent and the
Lenders, provided that the Companies pay to the Agent for the benefit of the
Lenders immediately on demand, an Early Termination Fee and any and all amounts
that may be due under Section 8 hereof as a result of the prepayment of a
Treasury Rate Loan and/or a Libor Loan, if applicable. Termination by any of
the Companies shall constitute termination with respect to all Companies. All
Obligations shall become due and payable as of any termination hereunder or
under Section 10 hereof and, pending a final accounting, the Agent and the
Lenders may withhold any balances in the Companies' accounts (unless supplied
with an indemnity satisfactory to the Agent) to cover all of the Companies'
Obligations, whether absolute or contingent. All of the Agent's and Lenders'
rights, liens and security interests shall continue after any termination until
all Obligations have been paid and satisfied in full.
SECTION 12. MISCELLANEOUS
-------------
1. Each of the Companies hereby waives diligence, demand, presentment
and protest and any notices thereof as well as notice of nonpayment. No delay
or omission of the Agent or the Lenders or the Companies to exercise any right
or remedy hereunder, whether before or after the happening of any Event of
Default, shall impair any such right or shall operate as a waiver thereof or as
a waiver of any such Event of Default. No single or partial exercise by the
Agent or the Lenders of any right or remedy precludes any other or further
exercise thereof, or precludes any other right or remedy.
2. This Financing Agreement and the documents executed and delivered
in connection therewith constitute the entire agreement between the Companies
and the Agent and the Lenders; supersede any prior agreements; and shall bind
and benefit the Companies and the Agent and their respective successors and
assigns. This Financing Agreement can be amended, modified or changed only by a
writing signed by the Companies, the Agent and the Required Lenders (unless the
consent of all Lenders is required pursuant to Section 14, Paragraph 10 hereof).
3. In no event shall the Companies, upon demand by the Agent and/or
the Lenders for payment of any indebtedness relating hereto, by acceleration of
the maturity thereof, or otherwise, be obligated to pay interest and fees in
excess of the amount permitted by law. Regardless of any provision herein or in
any agreement made in connection herewith, the Agent and/or the Lenders shall
never be entitled to receive, charge or apply, as interest on any indebtedness
relating hereto, any amount in excess of the maximum amount of interest
permissible under applicable law. If the Agent and/or the Lenders ever receive,
collect or apply any such excess, it shall be deemed a partial repayment of
principal and treated as
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such; and if principal is paid in full, any remaining excess shall be refunded
to the Companies. This paragraph shall control every other provision hereof and
of any other agreement made in connection herewith.
4. If any provision hereof or of any other agreement made in
connection herewith is held to be illegal or unenforceable, such provision shall
be fully severable, and the remaining provisions of the applicable agreement
shall remain in full force and effect and shall not be affected by such
provision's severance. Furthermore, in lieu of any such provision, there shall
be added automatically as a part of the applicable agreement a legal and
enforceable provision as similar in terms to the severed provision as may be
possible.
5. THE COMPANIES, THE AGENT AND THE LENDERS EACH HEREBY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS
FINANCING AGREEMENT. EACH OF THE COMPANIES HEREBY IRREVOCABLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED.
6. Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be deemed to
have been validly served, given or delivered when hand delivered or sent by
telegram or telex, or three days after deposit in the United State mails, with
proper first class postage prepaid and addressed to the party to be notified as
follows:
(A) if to the Agent, at:
The CIT Group/Business Credit, Inc.
300 South Grand Avenue
Los Angeles, CA 90071
Attn: Jeff Simon, Senior Vice President and Regional Manager
Fax No.: (213) 613-2588
(B) if to CITEF at:
The CIT Group/Equipment Financing, Inc.
300 South Grand Avenue
Los Angeles, CA 90071
Attn: Norman R. Hall, Vice President
Fax No.: (213) 628-7083
(C) if to any other party becoming a Lender hereunder to the
address specified in the Assignment and Transfer Agreement.
55
<PAGE>
(D) if to the Companies at:
2813 West Alameda Avenue
Burbank, CA 91505-4455
Attn: Robert Walston, CEO
Fax No.: (818) 846-5197
or to such other address as any party may designate for itself by like notice.
7. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
SECTION 13. AGREEMENT BETWEEN THE LENDERS
- ----------- -----------------------------
1. a) The Agent, for the account of the Lenders, shall disburse all
loans and advances to the Companies and shall handle all collections of
Collateral and repayment of Obligations. It is understood that for purposes of
advances to the Companies and for purposes of this Section 13 the Agent is using
the funds of the Agent.
b) Unless the Agent shall have been notified in writing by any
Lender prior to any advance to the Companies that such Lender will not make the
amount which would constitute its share of the borrowing on such date available
to the Agent, the Agent may assume that such Lender shall make such amount
available to the Agent on a Settlement Date, and the Agent may, in reliance upon
such assumption, make available to the Companies a corresponding amount. A
certificate of the Agent submitted to any Lender with respect to any amount
owing under this subsection shall be conclusive, absent manifest error. If such
Lender's share of such borrowing is not in fact made available to the Agent by
such Lender on the Settlement Date, the Agent shall be entitled to recover such
amount with interest thereon at the rate per annum applicable to Revolving Loans
hereunder, on demand, from the Companies without prejudice to any rights which
the Agent may have against such Lender hereunder. Nothing contained in this
subsection shall relieve any Lender which has failed to make available its
ratable portion of any borrowing hereunder from its obligation to do so in
accordance with the terms hereof. Nothing contained herein shall be deemed to
obligate the Agent to make available to the Companies the full amount of a
requested advance when the Agent has any notice (written or otherwise) that any
of the Lenders will not advance its ratable portion thereof.
56
<PAGE>
2. On the Settlement Date, the Agent and the Lenders shall each remit
to the other, in immediately available funds, all amounts necessary so as to
ensure that, as of the Settlement Date, the Lenders shall have their
proportionate share of all outstanding Obligations.
3. The Agent shall forward to each Lender, at the end of each month,
a copy of the account statement rendered by the Agent to the Companies.
4. The Agent shall, after receipt of any interest and fees earned
under this Financing Agreement, promptly remit to the Lenders: a) their pro
rata portion of all fees, provided, however, that the Lenders (other than CITBC
in its role as the Agent) shall x) not share in the Collateral Management Fee or
Documentation Fees or the Libor Processing Fee or the fees provided for in
Section 8, Paragraph 13; and y) receive their share of the Loan Facility Fee in
accordance with their respective agreements with the Agent; b) interest computed
at the rate and as provided for in the Assignment and Transfer Agreement on all
outstanding amounts advanced by the Lenders on each Settlement Date, prior to
adjustment, that are subsequent to the last remittance by the Agent to the
Lenders of the Companies's interest; c) its pro rata portion of all principal
repaid on the Term Loans and/or Capex Term Loans; and d) interest on the Term
Loans and Capex Term Loans computed at the rate and as provided for in the
Assignment and Transfer Agreement.
5. (a) The Companies acknowledge that the Lenders may sell
participation in the loans and extensions of credit made and to be made to the
Companies hereunder. The Companies further acknowledge that in doing so, the
Lenders may grant to such participants certain rights which would require the
participant's consent to certain waivers, amendments and other actions with
respect to the provisions of this Financing Agreement, provided that the consent
of any such participant shall not be required except for matters requiring the
consent of all Lenders hereunder as set forth in Section 14, Paragraph 10
hereof.
(b) The Companies authorize each Lender to disclose to any
participant or purchasing lender (each, a "Transferee") and any prospective
----------
Transferee any and all financial information in such Lender's possession
concerning the Companies and their affiliates which has been delivered to such
Lender by or on behalf of the Companies pursuant to this Agreement or which has
been delivered to such Lender by or on behalf of the Companies in connection
with such Lender's credit evaluation of the Companies and their affiliates prior
to entering into this Agreement.
6. The Companies hereby agree that each Lender is solely responsible
for its portion of the Line of Credit and that neither the Agent nor any Lender
shall be responsible for, nor assume any obligations for the failure of any
Lender to make available its portion of the Line of Credit. Further, should any
Lender refuse to
57
<PAGE>
make available its portion of the Line of Credit, then the other Lender may, but
without obligation to do so, increase, unilaterally, its portion of the Line of
Credit in which event the Companies are so obligated to that other Lender.
7. In the event that the Agent, the Lenders or any one of them is
sued or threatened with suit by the Companies or any one of them, or by any
receiver, trustee, creditor or any committee of creditors on account of any
preference, voidable transfer or lender liability issue, alleged to have
occurred or been received as a result of, or during the transactions
contemplated under this Financing Agreement, then in such event any money paid
in satisfaction or compromise of such suit, action, claim or demand and any
expenses, costs and attorneys' fees paid or incurred in connection therewith,
whether by the Agent, the Lenders or any one of them, shall be shared
proportionately by the Lenders. In addition, any costs, expenses, fees or
disbursements incurred by outside agencies or attorneys retained by the Agent to
effect collection or enforcement of any rights in the Collateral, including
enforcing, preserving or maintaining rights under this Financing Agreement shall
be shared proportionately between and among the Lenders to the extent not
reimbursed by the Companies or from the proceeds of Collateral. The provisions
of this paragraph shall not apply to any suits, actions, proceedings or claims
that x) predate the date of this Financing Agreement or y) are based on
transactions, actions or omissions that predate the date of this Financing
Agreement.
8. Each of the Lenders agrees with each other Lender that any money
or assets of the Companies held or received by such Lender, no matter how or
when received, shall be applied to the reduction of the Obligations (to the
extent permitted hereunder) after x) the occurrence of an Event of Default and
y) the election by the Required Lenders to accelerate the Obligations. In
addition, the Companies authorize, and the Lenders shall have the right,
without notice, upon any amount becoming due and payable hereunder, to set-off
and apply against any and all property held by, or in the possession of such
Lender the Obligations due such Lenders.
9. CITBC shall have the right at any time to assign to one or more
commercial banks, commercial finance lenders or other financial institutions all
or a portion of its rights and obligations under this Financing Agreement
(including, without limitation, its obligations under the Line of Credit, Term
Loans, Capex Term Loans, the Revolving Loans and its rights and obligations with
respect to Letters of Credit). Upon execution of an Assignment and Transfer
Agreement, (i) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such assignment, have the rights and obligations of CITBC as the case may be
hereunder and (ii) CITBC shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such assignment, relinquish its
rights and be released from its
58
<PAGE>
obligations under this Financing Agreement. The Companies shall, if necessary,
execute any documents reasonably required to effectuate the assignments. No
other Lender may assign its interest in the loans and advances and extensions of
credit hereunder without the prior written consent of the Agent.
SECTION 14. AGENCY
------
1. Each Lender hereby irrevocably designates and appoints CITBC as
the Agent for the Lenders under this Financing Agreement and any ancillary loan
documents and irrevocably authorizes CITBC as the Agent for such Lender, to take
such action on its behalf under the provisions of this Financing Agreement and
all ancillary documents and to exercise such powers and perform such duties as
are expressly delegated to the Agent by the terms of this Financing Agreement
and all ancillary documents together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Financing Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into
Financing Agreement and the ancillary documents or otherwise exist against the
Agent.
2. The Agent may execute any of its duties under this Financing
Agreement and all ancillary documents by or through agents or attorneys-in-fact
and shall be entitled to the advice of counsel concerning all matters pertaining
to such duties.
3. Neither the Agent nor any of its officers, directors, employees,
agents, or attorneys-in-fact shall be (i) liable to any Lender for any action
lawfully taken or omitted to be taken by it or such person under or in
connection with this Financing Agreement and all ancillary documents (except for
its or such person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Companies or any officer thereof
contained in this Financing Agreement and all ancillary documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Financing Agreement
and all ancillary documents or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Financing Agreement and all
ancillary documents or for any failure of the Companies to perform their
obligations thereunder. The Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Financing Agreement and all
ancillary documents or to inspect the properties, books or records of the
Companies.
59
<PAGE>
4. The Agent shall be entitled to rely, and shall be fully protected
in relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper person or
persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Companies), independent accountants and other experts
selected by the Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Financing Agreement and all ancillary documents
unless it shall first receive such advice or concurrence of the Lenders, or the
Required Lenders, as the case may be, as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Financing Agreement and all
ancillary documents in accordance with a request of the Lenders, or the Required
Lenders, as the case may be, and such request and any action taken or failure to
act pursuant thereto shall be binding upon all the Lenders.
5. The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless the Agent has
received notice from a Lender or the Companies describing such Default or Event
of Default. In the event that the Agent receives such a notice, the Agent shall
promptly give notice thereof to the Lenders. The Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Lenders, or Required Lenders, as the case may be; provided that unless
--------
and until the Agent shall have received such direction, the Agent may in the
interim (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable and in the best interests of the Lenders.
6. Each Lender expressly acknowledges that neither the Agent nor any
of its officers, directors, employees, agents or attorneys-in-fact has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Companies shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Companies and made its own decision to enter into this
Financing Agreement. Each Lender also represents that it will, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under the Financing
60
<PAGE>
Agreement and to make such investigation as it deems necessary to inform itself
as to the business, operations, property, financial and other condition or
creditworthiness of the Companies. The Agent, however, shall provide the
Lenders with copies of all financial statements, projections and business plans
which come into the possession of the Agent or any of its officers, employees,
agents or attorneys-in-fact.
7. The Lenders agree to indemnify the Agent in its capacity as such
(to the extent not reimbursed by the Companies and without limiting the
obligation of the Companies to do so), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever (including negligence on the
part of the Agent) which may at any time be imposed on, incurred by or asserted
against the Agent in anyway relating to or arising out of this Financing
Agreement or any ancillary documents or any documents contemplated by or
referred to herein or the transactions contemplated hereby or any action taken
or omitted by the Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
- --------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Agent's gross
negligence or willful misconduct. The agreements in this paragraph shall survive
the payment of the obligations.
8. The Agent may make loans to, and generally engage in any kind of
business with the Companies as though the Agent were not the Agent hereunder.
With respect to its loans made or renewed by it or loan obligations hereunder as
Lender, the Agent shall have the same rights and powers, duties and liabilities
under this Financing Agreement as any Lender and may exercise the same as though
it was not the Agent and the terms "Lender" and "Lenders" shall include the
Agent in its individual capacities.
9. The Agent may resign as the Agent upon 30 days' notice to the
Lenders and such resignation shall be effective upon the appointment of a
successor Agent. If the Agent shall resign as Agent, then the Lenders shall
appoint a successor Agent for the Lenders whereupon such successor Agent shall
succeed to the rights, powers and duties of the Agent and the term "the Agent"
shall mean such successor Agent effective upon its appointment, and the former
Agent's rights, powers and duties as the Agent shall be terminated, without any
other or further act or deed on the part of such former Agent or any of the
parties to this Financing Agreement. After any retiring Agent's resignation
hereunder as the Agent the provisions of this Section 14 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was the
Agent.
10. Notwithstanding anything contained in this Financing Agreement to
the contrary, the Agent will not, without the prior written consent of all
Lenders: a)
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<PAGE>
amend the Financing Agreement to t) increase the Accounts Receivable Advance
Percentage; u) increase the Inventory Advance Percentage; v) increase the Line
of Credit; w) reduce the interest rates; x) reduce or waive i) any fees in which
the Lenders share hereunder; or ii) the repayment of any Obligations due the
Lenders; y) extend the maturity of the Obligations; or z) alter or amend 1) this
Paragraph 10 or 2) the definitions of Eligible Accounts Receivable, Eligible
Inventory, Collateral or Required Lenders, or the Agent's criteria for
determining compliance with such definitions of eligibility; b) release
Collateral in bulk without a corresponding reduction in the Obligations to the
Lenders, or c) intentionally make any Revolving Loan or assist in opening any
Letter of Credit hereunder if after giving effect thereto the total of Revolving
Loans and Letters of Credit hereunder for the Companies would exceed one
hundred and ten percent (110%) of the maximum amount available under Sections 3
and 5 hereof. In all other respects the Agent is authorized to take such
actions or fail to take such actions if the Agent, in its reasonable discretion,
deems such to be advisable and in the best interest of the Lenders, including,
but not limited to, the making of an overadvance or the termination of the
Financing Agreement upon the occurrence of an Event of Default unless it is
specifically instructed to the contrary by the Required Lenders.
11. In the event any Lender's consent is required pursuant to the
provisions of this Financing Agreement and such Lender does not respond to any
request by the Agent for such consent within 10 days after such request is made
to such Lender, such failure to respond shall be deemed a consent. In addition,
in the event that any Lender declines to give its consent to any such request,
it is hereby mutually agreed that the Agent and/or any other Lender shall have
the right (but not the obligation) to purchase such Lender's share of the Loans
for the full amount thereof together with accrued interest thereon to the date
of such purchase.
12. Each Lender agrees that notwithstanding the provisions of Section
11 of this Financing Agreement any Lender may terminate this Financing
Agreement, the Line of Credit and the CAPEX Term Loan Line of Credit only as of
the initial or any subsequent Anniversary Date and then only by giving the Agent
90 days prior written notice thereof. Within 30 days after receipt of any such
termination notice, the Agent shall, at its option, either (i) give notice of
termination to the Companies hereunder or (ii) purchase the Lender's share of
the Obligations hereunder for the full amount thereof plus accrued interest
thereon. Unless so terminated this Financing Agreement and the Line of Credit
shall be automatically extended from Anniversary Date to Anniversary Date.
62
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be executed and delivered by their proper and duly authorized
officers as of the date set forth above. This Financing Agreement shall take
effect as of the date set forth above after being accepted below by an officer
of the Agent and the Lenders after which, the Agent shall forward to the
Companies a fully executed original for their files.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC., as Agent and Lender
By: /s/ Gary Fuchs
__________________________________________
Vice President
THE CIT GROUP/EQUIPMENT
FINANCING, INC. as Lender
By: /s/ Walt R. Impey
__________________________________________
Title: SVP
Read and Agreed to:
4MC-BURBANK, INC.
By: /s/ John Sabin
________________________
Title: Vice President & CFO
DIGITAL MAGIC COMPANY
By: /s/ John Sabin
________________________
Title: Vice President & CFO
63
<PAGE>
EXHIBIT A
---------
REVOLVING LOAN PROMISSORY NOTE
------------------------------
__________, 1996
$__________________________
FOR VALUE RECEIVED, the undersigned, _____________________________, a
_______________________________ corporation (the "Company"), promises to pay to
the order of THE CIT GROUP/BUSINESS CREDIT, INC. (herein "CITBC") as Agent for
the Lenders under a certain Financing Agreement of even date herewith between
CITBC as Agent and Lender, other Lenders parties thereto and the Company (herein
the "Financing Agreement") at its office located at
__________________________________________________________, in lawful money of
the United States of America and in immediately available funds, the principal
amount of _____________________________________________ ($_____________), or
such other principal amount advanced pursuant to Section 3, Paragraph 1 of the
Financing Agreement. The balance of such Revolving Loan will fluctuate as a
result of the daily application of the proceeds of collections of the Accounts
and the making of additional Revolving Loans as described in Section 3. The
Revolving Loans may be borrowed, repaid and reborrowed by the Company. A final
payment in an amount equal to the outstanding aggregate balance of principal and
interest remaining unpaid, if any, under this Revolving Loan Promissory Note as
shown on the books and records of the Agent shall be due and payable upon any
termination of the Financing Agreement.
All capitalized terms used herein shall have the meaning provided therefor in
the Financing Agreement, unless otherwise defined herein.
The Company further promises to pay interest at such office, in like money, on
the unpaid principal amount owing hereunder from time to time from the date
hereof on the dates and at the applicable rates specified in Section 8 of the
Financing Agreement.
If any payment on this Revolving Loan Promissory Note becomes due and payable on
a day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day, and with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
This Revolving Loan Promissory Note is the Revolving Loan Promissory Note
referred to in the Financing Agreement, and is subject to, and entitled to, all
64
<PAGE>
provisions and benefits thereof and is subject to optional and mandatory
prepayment, in whole or in part, as provided therein.
The date and amount of the advance(s) made hereunder may be recorded on the
schedule which is attached hereto and hereby made part of this Note or the
separate ledgers maintained by the Agent, provided that any failure to record
any such information on such schedule shall not in any manner affect the
obligation of the Company to make payments of principal and interest in
accordance with the terms of this Revolving Loan Promissory Note. The aggregate
unpaid principal amount of all advances made pursuant hereto may be set forth in
the balance column on said schedule or such ledgers maintained by the Agent.
All such advances, whether or not so recorded, shall be due as part of this
Revolving Loan Promissory Note.
The Company confirms that any amount received by or paid to the Agent in
connection with the Financing Agreement and/or any balances standing to its
credit on any of its accounts on the Agent's books under the Financing Agreement
may in accordance with the terms of the Financing Agreement be applied in
reduction of this Revolving Loan Promissory Note, but no balance or amounts
shall be deemed to effect payment in whole or in part of this Revolving Loan
Promissory Note unless the Agent shall have actually charged such account or
accounts for the purposes of such reduction or payment of this Revolving Loan
Promissory Note.
Upon the occurrence of any one or more of the Events of Default specified in the
Financing Agreement or upon termination of the Financing Agreement, all amounts
then remaining unpaid on this Revolving Loan Promissory Note may become, or be
declared to be, immediately due and payable as provided in the Financing
Agreement.
The Company and any and all guarantors, sureties and endorsers jointly and
severally waive grace, demand, presentment for payment, notice of dishonor or
default, notice of intent to accelerate, notice of acceleration, protest and
diligence in collecting.
65
<PAGE>
This Revolving Loan Promissory Note shall be governed by, and construed in
accordance with, the laws of the state of California and the applicable federal
laws of the United States.
__________________________________________
By:_______________________________________
Title:
66
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE TO GRID
====================================================================================
Date Loan Payment Balance
____________________________________________________________________________________
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
====================================================================================
</TABLE>
67
<PAGE>
EXHIBIT B
---------
TERM LOAN PROMISSORY NOTE A
---------------------------
October _____, 1996
$13,000,000
FOR VALUE RECEIVED, the undersigned, 4MC - Burbank, Inc., a Delaware corporation
(the "Company"), promises to pay to the order of THE CIT GROUP/BUSINESS CREDIT,
INC. (herein "CITBC") as Agent for the Lenders under a certain Financing
Agreement of even date herewith between CITBC, as Agent and Lender, The CIT
Group/Equipment Financing, Inc., as Lender and the Company (herein the
"Financing Agreement") at its office located at 300 South Grand Avenue, Los
Angeles, CA 90071, in lawful money of the United States of America and in
immediately available funds, the principal amount of Thirteen Million Dollars
($13,000,000) as follows: 1) eighty-three (83) equal monthly principal
installments of $155,000 each, followed by 2) one (1) final principal
installment of $135,000, whereof the first such installment shall be due and
payable on November 20, 1997 and subsequent installments shall be due and
payable on the 20th day of each month thereafter until this Note is paid in
full.
Capitalized terms used herein and defined in the Financing Agreement shall have
the same meanings as set forth therein unless otherwise specifically defined
herein.
The Company further agrees to pay interest at said office, in like money, on the
unpaid principal amount owing hereunder from time to time from the date hereof
on the date and at the applicable rate specified in Section 8 of the Financing
Agreement.
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is Term Loan Promissory Note A referred to in the Financing
Agreement, evidences Term Loan A thereunder, and is subject to, and entitled to,
all provisions and benefits thereof and is subject to optional and mandatory
prepayment, in whole or in part, as provided therein.
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<PAGE>
Upon the occurrence of any one or more of the Events of Default specified in the
Financing Agreement or upon termination of the Financing Agreement, all amounts
then remaining unpaid on this Note may become, or be declared to be, at the
sole election of the Agent, immediately due and payable as provided in the
Financing Agreement.
4MC - BURBANK, INC.
By:_____________________________
Title:
69
<PAGE>
EXHIBIT C
---------
TERM LOAN PROMISSORY NOTE B
---------------------------
October ______, 1996
$3,000,000
FOR VALUE RECEIVED, the undersigned, Digital Magic Company, a Delaware
corporation (the "Company"), promises to pay to the order of THE CIT
GROUP/BUSINESS CREDIT, INC. (herein "CITBC") as Agent for the Lenders under a
certain Financing Agreement of even date herewith between CITBC, as Agent and
Lender, The CIT Group/Equipment Financing, Inc., as Lender and the Company
(herein the "Financing Agreement") at its office located at 300 South Grand
Avenue, Los Angeles, CA 90071, in lawful money of the United States of America
and in immediately available funds, the principal amount of Three Million
Dollars ($3,000,000) as follows: 1) eighty-three (83) equal monthly principal
installments of $35,000 each, followed by 2) one (1) final principal installment
of $95,000, whereof the first such installment shall be due and payable on
November 20, 1997 and subsequent installments shall be due and payable on the
20th day of each month thereafter until this Note is paid in full.
Capitalized terms used herein and defined in the Financing Agreement shall have
the same meanings as set forth therein unless otherwise specifically defined
herein.
The Company further agrees to pay interest at said office, in like money, on the
unpaid principal amount owing hereunder from time to time from the date hereof
on the date and at the applicable rate specified in Section 8 of the Financing
Agreement.
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is Term Loan Promissory Note B referred to in the Financing Agreement,
evidences Term Loan B thereunder, and is subject to, and entitled to, all
provisions and benefits thereof and is subject to optional and mandatory
prepayment, in whole or in part, as provided therein.
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<PAGE>
Upon the occurrence of any one or more of the Events of Default specified in the
Financing Agreement or upon termination of the Financing Agreement, all amounts
then remaining unpaid on this Note may become, or be declared to be, at the sole
election of the Agent, immediately due and payable as provided in the Financing
Agreement.
DIGITAL MAGIC COMPANY
By:_____________________________
Title:
71
<PAGE>
EXHIBIT D
---------
CAPEX TERM LOAN PROMISSORY NOTE
--------------------------------
____________, 1996
$_________________
FOR VALUE RECEIVED, the undersigned, ______________________________, a Delaware
corporation (the "Company"), promises to pay to the order of THE CIT
GROUP/BUSINESS CREDIT, INC. (herein "CITBC") as Agent for the Lenders under a
certain Financing Agreement dated _______________________, 19___ between CITBC,
as Agent and Lender, _____________________, as Lender and the Company (herein
the "Financing Agreement") at its office located at
_______________________________________, in lawful money of the United States of
America and in immediately available funds, the principal amount of
_________________________ ($______________.00) as follows: 1) _________________
( ) equal _______________ principal installments of $______________.00 each,
followed by 2) one (1) final principal installment of $_______________.00,
whereof the first such installment shall be due and payable on _______________,
199___ and subsequent installments shall be due and payable on the first
Business Day of each month thereafter until this Note is paid in full.
Capitalized terms used herein and defined in the Financing Agreement shall have
the same meanings as set forth therein unless otherwise specifically defined
herein.
The Company further agrees to pay interest at said office, in like money, on the
unpaid principal amount owing hereunder from time to time from the date hereof
on the date and at the applicable rates specified in Section 8 of the Financing
Agreement.
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is a Capex Term Loan Promissory Note referred to in the Financing
Agreement, evidences a CAPEX Term Loan thereunder, and is subject to, and
entitled to, all provisions and benefits thereof and is subject to optional and
mandatory prepayment, in whole or in part, as provided therein.
72
<PAGE>
Upon the occurrence of any one or more of the Events of Default specified in the
Financing Agreement or upon termination of the Financing Agreement, all amounts
then remaining unpaid on this Note may become, or be declared to be, at the sole
election of the Agent, immediately due and payable as provided in the Financing
Agreement.
________________________________
By:_____________________________
Title:
73
<PAGE>
EXHIBIT E - ASSIGNMENT AND TRANSFER AGREEMENT
---------------------------------------------
Dated: ________________, 199______
Reference is made to the Financing Agreement dated as of September _____, 1996,
(as amended, modified, supplemented and in effect from time to time, the
"Financing Agreement"), among 4MC - Burbank, Inc. and Digital Magic Company
(collectively the "Company"), the Lenders named therein, and The CIT
Group/Business Credit, Inc., as Agent (the "Agent"). Capitalized terms used
herein and not otherwise defined shall have the meanings assigned to such terms
in the Financing Agreement. This Assignment and Transfer Agreement, between the
Assignor (as defined and set forth on Schedule 1 hereto and made a part hereof)
and the Assignee (as defined and set forth on Schedule 1 hereto and made a part
hereof) is dated as of Effective Date (as set forth on Schedule 1 hereto and
made a part hereof).
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date, an undivided interest (the "Assigned Interest") in and to all
the Assignor's rights and obligations under the Financing Agreement respecting
those, and only those, financing facilities contained in the Financing Agreement
as are set forth on Schedule 1 (collectively, the "Assigned Facilities" and
individually, an "Assigned Facility"), in a principal amount for each Assigned
Facility as set forth on Schedule 1.
2. The Assignor (i) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Financing Agreement or any other instrument,
document or agreement executed in conjunction therewith (collectively the
"Ancillary Documents") or the execution, legality, validity, enforceability,
genuiness, sufficiency or value of the Financing Agreement, any Collateral
thereunder or any of the Ancillary Documents furnished pursuant thereto, other
than that it is the legal and beneficial owner of the interest being assigned by
it hereunder and that such interest is free and clear of any adverse claim and
(ii) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Company or any guarantor or the
performance or observance by the Company or any guarantor of any of its
respective obligations under the Financing Agreement or any of the Ancillary
Documents furnished pursuant thereto.
3. The Assignee (i) represents and warrants that it is legally
authorized to enter into this Assignment and Transfer Agreement; (ii) confirms
that it has
74
<PAGE>
received a copy of the Financing Agreement, together with the copies of the most
recent financial statements of the Company, and such other documents and
information as it has deemed appropriate to make its own credit analysis; (iii)
agrees that it will, independently and without reliance upon the Agent, the
Assignor or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Financing Agreement; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the Financing Agreement as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
(v) agrees that it will be bound by the provisions of the Financing Agreement
and will perform in accordance with its terms all the obligations which by the
terms of the Financing Agreement are required to be performed by it as Lender;
and (vi) if the Assignee is organized under the laws of a jurisdiction outside
the United States, attaches the forms prescribed by the Internal Revenue Service
of the United States certifying as to the Assignee's exemption from United
States withholding taxes with respect to all payments to be made to the Assignee
under the Financing Agreement or such other documents as are necessary to
indicate that all such payments are subject to such tax at a rate reduced by an
applicable tax treaty.
4. Following the execution of this Assignment and Transfer Agreement,
such agreement will be delivered to the Agent for acceptance by it and the
Company, effective as of the Effective Date.
5. Upon such acceptance, from and after the Effective Date, the Agent
shall make all payments in respect of the assigned interest (including payments
of principal, interest, fees and other amounts) to the Assignee, whether such
amounts have accrued prior to the Effective Date or accrue subsequent to the
Effective Date. The Assignor and Assignee shall make all appropriate
adjustments in payments for periods prior to the Effective Date made by the
Agent or with respect to the making of this assignment directly between
themselves.
6. From and after the Effective Date, (i) the Assignee shall be a
party to the Financing Agreement and, to the extent provided in this Assignment
and Transfer Agreement, have the rights and obligations of a Lender thereunder,
and (ii) the Assignor shall, to the extent provided in this Assignment and
Transfer Agreement, relinquish its rights and be released from its obligations
under the Financing Agreement.
7. THIS ASSIGNMENT AND TRANSFER AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
75
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective duly authorized officers on
Schedule 1 hereto.
SCHEDULE 1 TO ASSIGNMENT AND TRANSFER AGREEMENT
1. Name of Assignor: ___________________________________
2. Name of Assignee: ___________________________________
3. Effective Date of Assignment: _________________, 199 _____
4. Assigned Interest (inclusive of Letter of Credit
Sub-limit Assigned Interest): $_________________________
Percentage Assigned (Shown as a percentage
of aggregate original principal amount of
all Lenders): __________________________ %
5. Letter of Credit Sub-limit Assigned Interest: $_________________________
Percent Assigned (Shown as a percentage
of aggregate face amount of all Lenders): __________________________%
6. Total Financing Agreement Line of Credit for
All Lenders (inclusive of Letter of Credit Sub-
---
limit for All Lenders) as of Effective Date of
---
Assignment: $________________________
7. Total Financing Agreement Letter of Credit
sub-limit for All Lenders as of Effective
---
Date of Assignment: $________________________
8. Fees to be paid to Assignee:
a) Closing Fee to be paid on Effective Date
of Assignment: $________________________
B) A share of Letter of Credit Guaranty Fee: _________________________
9. Assignee's share of Revolving Loans outstanding will bear interest as the
rates provided for in the Financing Agreement.
[Signature Page to Follow]
76
<PAGE>
Accepted:
THE CIT GROUP/BUSINESS
CREDIT, INC., AS AGENT ______________________________________
as Assignor
By:_______________________________ By:___________________________________
Title: ___________________________ Title: _______________________________
4MC-BURBANK, INC. ______________________________________
DIGITAL MAGIC COMPANY as Assignee
By:______________________________ By:___________________________________
Title: __________________________ Title: _______________________________
77
<PAGE>
SCHEDULE 1 - EXISTING LIENS
----------
FILING FILING SECURED
LOCATION DEBTOR NUMBER DATE PARTY COLLATERAL
- -------- ------ ------ ---- ----- ----------
ALL LIENS REVEALED BY UCC, TAX AND JUDGMENT LIEN SEARCHES CONDUCTED BY NATIONAL
CODE CORPORATION AND DELIVERED TO THE AGENT PRIOR TO THE DATE OF THIS FINANCING
AGREEMENT (EXCEPT LIENS IN FAVOR OF SECURITY PACIFIC BUSINESS CREDIT, INC. AND
THE CIT GROUP/EQUIPMENT FINANCING, INC. OTHER THAN THE LIENS ON CERTAIN
EQUIPMENT SECURING A CERTAIN CITEF LOAN DATED AUGUST 1994 IN THE ORIGINAL
PRINCIPAL AMOUNT OF $619,002.35) AND THE LIENS ON THE SPECIFIC ITEMS OF
EQUIPMENT COVERED BY THE LEASES ATTACHED HERETO.
78
<PAGE>
SCHEDULE 2 - COLLATERAL LOCATIONS AND CHIEF EXECUTIVE OFFICE
----------
CHIEF EXECUTIVE OFFICE (4MC)
- ----------------------
2813 West Alameda Avenue
Burbank, CA 91505-4455
COLLATERAL LOCATIONS (4 MC)
- --------------------
2813 West Alameda Avenue
Burbank, CA 91505-4455
2130 Hollywood Way
Burbank, CA 91505
2901 West Alameda Avenue
Burbank, CA 91505
2820 Olive Avenue
Burbank, CA 91505
1611 San Fernando Blvd.
Burbank, CA 91505
CHIEF EXECUTIVE OFFICE AND COLLATERAL LOCATIONS (DMC)
- -----------------------------------------------
3000 West Olympic Blvd.
Santa Monica, CA 90404
79
<PAGE>
SCHEDULE 3 - PERMITTED INDEBTEDNESS
-----------------------------------
See Attached
80
<PAGE>
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
--------------------
This Agreement, dated as of October 1, 1996, is entered into by and between
Four Media Company, a Delaware corporation (the "Company"), and John H. Donlon
("Executive").
INTRODUCTION
------------
The Company and its operating subsidiaries ("Affiliates") are engaged in
the business of providing technical and creative services to the entertainment
industry. The Company desires to employ Executive, and Executive desires to
accept such employment, under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
---------
EMPLOYMENT; TERM; DUTIES
------------------------
1.1 Employment. Upon the terms and conditions hereinafter set forth, the
----------
Company hereby employs Executive, and Executive hereby accepts employment, as
President of the Company.
1.2 Term. Subject to Section 4.1, Executive's employment hereunder shall
----
be for a term of three (3) years commencing on the date hereof and expiring at
the close of business on the day prior to the third anniversary of the date
hereof (the "Initial Term"). The Initial Term shall be automatically extended
for successive three-year terms (each such extension referred to as a "Renewal
Term") unless either party gives the other party written notice of its or his
desire to terminate, which notice of termination shall be given not less than
six months prior to the expiration of the Initial Term or any Renewal Term, as
the case may be. Notwithstanding the foregoing, Executive shall be obligated to
deliver a written reminder (the "Reminder Notice") to the Company respecting
such termination notice, which Reminder Notice shall be delivered no earlier
than eight months prior to the expiration of the Initial Term or any Renewal
Term, as the case may be, and no later than six and one-half months prior to the
expiration of the Initial Term or any Renewal Term, as the case may be. If
Executive fails to timely deliver the Reminder Notice, then the Initial Term or
any Renewal Term, as the case may be, shall not be automatically
<PAGE>
extended for an additional three-year period even if the Company fails to timely
deliver a notice of termination to Executive.
1.3 Duties. During the Initial Term or any Renewal Term (sometimes
------
collectively referred to as the "Term"), Executive shall perform such executive
duties for the Company and/or its Affiliates, consistent with his position
hereunder, as may be assigned to him from time to time by the Board of
Directors. Executive shall devote his entire productive business time,
attention and energies to the performance of his duties hereunder. Executive
shall use his best efforts to advance the interests and business of the Company
and its Affiliates. Executive shall abide by all rules, regulations and
policies of the Company, as may be in effect from time to time. Notwithstanding
the foregoing, Executive may act for his own account in passive-type investments
as provided in Section 5.3, or as a member of other boards of directors, where
the time allocated for those activities does not materially interfere with or
create a conflict of interest with the discharge of his duties for the Company.
1.4 Reporting. Executive shall report directly to the Chief Executive
---------
Officer of the Company.
1.5 Exclusive Agreement. Executive represents and warrants to the Company
-------------------
that there are no agreements or arrangements, whether written or oral, in effect
which would prevent Executive from rendering his exclusive services to the
Company during the Term.
ARTICLE II
----------
COMPENSATION
------------
2.1 Compensation. For all services rendered by Executive hereunder and
------------
all covenants and conditions undertaken by him pursuant to this Agreement, the
Company shall pay, and Executive shall accept, as full compensation, the amounts
set forth in this Article II.
2.2 Base Salary. The base salary shall be an annual salary of $252,000
-----------
("Base Salary"), payable by the Company in accordance with the Company's normal
payroll practices.
2.3 Bonus. In addition to the Base Salary, the Company may make
-----
discretionary bonus payments to Executive, under such terms, conditions and
requirements as may be established by the Company's Board of Directors in its
sole discretion.
2.4 Deductions. The Company shall deduct from the compensation described
----------
in Sections 2.2 and 2.3 any federal, state or local withholding taxes, social
security contributions and any
2
<PAGE>
other amounts which may be required to be deducted or withheld by the Company
pursuant to any federal, state or local laws, rules or regulations.
2.5 Disability Adjustment. Any compensation otherwise payable to
---------------------
Executive pursuant to Sections 2.2 and 2.3 in respect of any period during which
Executive is disabled (as contemplated in Section 4.3) shall be reduced by any
amounts payable to Executive for loss of earnings or the like under any
insurance plan or policy sponsored by the Company.
ARTICLE III
-----------
BENEFITS; EXPENSES
------------------
3.1 Benefits. During the Term, Executive shall be entitled to participate
--------
in such group life, health, accident, disability or hospitalization insurance
plans, pension plans and retirement plans as the Company may make available to
its other executive employees as a group, subject to the terms and conditions of
any such plans.
3.2 Expenses. The Company agrees that Executive is authorized to incur
--------
reasonable expenses in the performance of his duties hereunder and in promoting
the business of the Company. The Company shall from time to time pay or
reimburse Executive for the reasonable and necessary expenses incurred by
Executive in connection with the performance of his duties hereunder if such
expenses have been previously approved by the Company or if reimbursement is
otherwise appropriate in accordance with the Company's established policies and
if the Company receives such verification thereof as the Company may require in
order to qualify such expenses as deductible business expenses.
3.3 Vacation. Executive shall accrue, on a daily basis, a total of four
--------
(4) work weeks of vacation per year following the date of this Agreement. If
Executive's earned but unused vacation time reaches six (6) work weeks,
Executive will not continue to accrue additional vacation time until he uses
enough vacation to fall below this maximum amount. Thereafter, Executive will
start earning vacation benefits again until the six (6) work week maximum is
again reached. Any accrued but unused vacation time will be paid to Executive
on a pro rata basis at termination of employment.
3.4 Key Man Insurance. The Company may secure in its own name or
-----------------
otherwise, and at its own expense, life, health, accident and other insurance
covering Executive alone or with others, and Executive shall not have any right,
title or interest in or to such insurance other than as expressly provided
herein. Executive agrees to assist the Company in procuring such insurance by
submitting to the usual and customary medical and other
3
<PAGE>
examinations to be conducted by such physicians as the Company or such insurance
company may designate and by signing such applications and other written
instruments as may be required by the insurance companies to which application
is made for such insurance. Executive's failure to submit to such usual and
customary medical and other examinations shall be deemed a material breach of
this Agreement.
ARTICLE IV
----------
TERMINATION; DEATH; DISABILITY
------------------------------
4.1 Termination of Employment With Cause. In addition to any other
------------------------------------
remedies available to the Company at law, in equity or as set forth in this
Agreement, the Company shall have the right, upon written notice to Executive,
to immediately terminate his employment hereunder without any further liability
or obligation to him in respect of his employment (other than its obligation to
pay Base Salary accrued but unpaid as of the date of termination) if Executive:
(a) breaches any material provision of this Agreement and, if such breach is
curable, in the sole judgment of the Company, such breach is not cured within
ten (10) days after written notice thereof from the Company; or (b) has
committed an act of gross misconduct in connection with the performance of his
duties hereunder, as determined in good faith by the Board of Directors; or (c)
demonstrates habitual negligence in the performance of his duties, as determined
by the Board of Directors; or (d) is convicted of or pleads nolo contendere to
---- ----------
any misdemeanor involving moral turpitude or to any felony; or (e) has committed
any act of fraud, misappropriation of funds or embezzlement in connection with
his employment hereunder (a "Termination With Cause").
4.2 Termination of Employment Without Cause. During the Term, the Company
---------------------------------------
may at any time, in its sole discretion, terminate the employment of Executive
hereunder without cause by written notice to him. In such event, the Company
shall pay Executive an amount equal to the sum of the following:
(a) any Base Salary accrued but unpaid as of the date of termination;
(b) an amount equal to Executive's monthly Base Salary in effect on
the date of termination for the remainder of the Term, payable as and when
such amounts would have been due and payable hereunder had such termination
not occurred (the "Severance Period"); and
(c) any reimbursement for expenses incurred in accordance with Section
3.2.
4
<PAGE>
In addition, the Company shall use its best efforts to arrange for the
continuation, through the Severance Period, of such health and/or medical
benefits or plans as are in effect as of the date of termination, if and only if
permissible under such plans. If not so permissible, the Company shall pay to
Executive an amount sufficient to enable Executive to arrange for substantially
equivalent health and/or medical coverage during the Severance Period.
Executive acknowledges that the payments and benefits referred to in
this Section 4.2, together with any rights or benefits under any written plan or
agreement which have vested on or prior to the termination date of Executive's
employment under this Section 4.2, constitute the only payments to which
Executive shall be entitled to receive from the Company hereunder in the event
of any termination of his employment pursuant to this Section 4.2, and that
except for such payments or benefits the Company shall have no further liability
or obligation to him hereunder or otherwise in respect of his employment.
If Executive's employment is terminated under this Section 4.2,
Executive shall use all reasonable efforts to obtain other employment or become
self-employed as promptly as possible. If Executive secures other employment or
becomes self-employed during the Severance Period, the Company's obligations
under this Section 4.2 shall be reduced by the earnings from such employment or
self-employment received by Executive. During the Severance Period, Executive
will notify the Company in writing of any offer of employment within 10 days of
Executive's receipt of same. In addition, Executive will immediately notify the
Company in writing if Executive becomes employed or self-employed during the
Severance Period.
4.3 Death; Disability. In the event that Executive dies or becomes
-----------------
Disabled (as defined herein), Executive's employment shall terminate when such
death or Disability occurs and the Company shall pay Executive (or his legal
representative, as the case may be) as follows:
(a) any Base Salary accrued but unpaid as of the date of death or
termination for Disability;
(b) any reimbursement for expenses incurred in accordance with Section
3.2.; and
(c) an amount equal to Executive's monthly Base Salary in effect on
such termination date for the lesser of (i) six months or (ii) the remainder of
the Term, payable as and when such amounts would have been due and payable
hereunder had such termination not occurred. The monthly Base Salary with
respect to any period during which Executive is Disabled shall be reduced by
amounts payable to him under any insurance plan sponsored by the Company,
5
<PAGE>
provided that Executive's aggregate compensation during the period of Disability
shall be equal to 100% of his monthly Base Salary then in effect.
For the purposes of this Agreement, Executive shall be deemed to be
"Disabled" or have a "Disability" if, because of Executive's physical or mental
disability, (a) he has been substantially unable to perform his duties
hereunder for twelve (12) work weeks in any twelve (12)-month period, and (b) he
has utilized any and all benefits available to him under state and federal laws
and is either (i) unable to reasonably and effectively carry out his duties with
reasonable accommodations by the Company or (ii) unable to reasonably and
effectively carry out his duties because any reasonable accommodation which may
be required would cause the Company undue hardship. In the event of a
disagreement concerning Executive's perceived Disability, Executive shall submit
to such examinations as are deemed appropriate by three practicing physicians
specializing in the area of Executive's Disability, one selected by Executive,
one selected by the Company, and one selected by both such physicians. The
majority decision of such three physicians shall be final and binding on the
parties. Nothing in this paragraph is intended to limit the Company's right to
invoke the provisions of this paragraph with respect to any perceived Disability
of Executive.
Executive acknowledges that the payments referred to in this Section
4.3, together with any rights or benefits under any written plan or agreement
which have vested on or prior to the termination date of Executive's employment
under this Section 4.3, constitute the only payments to which Executive (or his
legal representative, as the case may be) shall be entitled to receive from the
Company hereunder in the event of a termination of his employment for death or
Disability, and that except for such payments the Company shall have no further
liability or obligation to him (or his legal representatives, as the case may
be) hereunder or otherwise in respect of his employment.
4.4 Continued Compliance. The amounts or benefits payable by the Company
--------------------
under Sections 4.2(b) and 4.3(c) are subject to Executive's continued compliance
with the provisions of Article V below. If Executive violates the provisions of
Article V, then the Company will have no obligation to make any of the payments
that remain payable by the Company under Sections 4.2(b) and 4.3(c) on or after
the date of such violation.
6
<PAGE>
ARTICLE V
---------
OWNERSHIP OF PROCEEDS OF EMPLOYMENT; NON-DISCLOSURE;
----------------------------------------------------
NON-COMPETITION
---------------
5.1 Ownership of Proceeds of Employment. The Company shall be the sole
-----------------------------------
and exclusive owner throughout the universe in perpetuity of all of the results
and proceeds of Executive's services, work and labor during the Term in
connection with Executive's employment by the Company, free and clear of any and
all claims, liens or encumbrances. All results and proceeds of Executive's
services, work and labor during the Term shall be deemed to be works-made-for-
hire for the Company within the meaning of the copyright laws of the United
States and the Company shall be deemed to be the sole author thereof in all
territories and for all purposes.
5.2 Non-Disclosure of Confidential Information. As used herein,
------------------------------------------
"Confidential Information" means any and all information affecting or relating
to the business of the Company and its Affiliates, including without limitation,
financial data, customer lists and data, licensing arrangements, business
strategies, pricing information, product development, intellectual, artistic,
literary, dramatic or musical rights, works, or other materials of any kind or
nature (whether or not entitled to protection under applicable copyright laws,
or reduced to or embodied in any medium or tangible form), including without
limitation, all copyrights, patents, trademarks, service marks, trade secrets,
contract rights, titles, themes, stories, treatments, ideas, concepts,
technologies, art work, logos, hardware, software, and may be embodied in any
and all computer programs, tapes, diskettes, disks, mailing lists, lists of
actual or prospective customers and/or suppliers, notebooks, documents,
memoranda, reports, files, correspondence, charts, lists and all other written,
printed or otherwise recorded material of any kind whatsoever and any other
information, whether or not reduced to writing, including "know-how", ideas,
concepts, research, processes, and plans. "Confidential Information" does not
include information that is in the public domain, information that is generally
known in the trade, or information that Executive can prove he acquired wholly
independently of his employment with the Company. Executive shall not, at any
time during the Term or thereafter, directly or indirectly, disclose or furnish
to any other person, firm or corporation any Confidential Information, except in
the course of the proper performance of his duties hereunder or as required by
law (in which event Executive shall give prior written notice to Company and
shall cooperate with Company and Company's counsel in complying with such legal
requirements). Promptly upon the expiration or termination of Executive's
employment hereunder for any reason or whenever the Company so requests,
Executive shall surrender to the Company all documents, drawings, work papers,
lists, memoranda, records and
7
<PAGE>
other data (including all copies) constituting or pertaining in any way to any
of the Confidential Information.
5.3 Non-Competition. Executive shall not, for so long as he is entitled
---------------
to compensation under or pursuant to this Agreement (whether or not he is
actively employed by the Company hereunder), directly or indirectly: (a) compete
with the Company; or (b) be interested in, employed by, engaged in or
participate in the ownership, management, operation or control of, or act in any
advisory or other capacity for, any Competing Entity which conducts its business
within the Territory (as such terms are hereinafter defined); provided, however,
-------- -------
that notwithstanding the foregoing, Executive may make solely passive
investments in any Competing Entity the common stock of which is "publicly
held," and of which Executive shall not own or control, directly or indirectly,
in the aggregate securities which constitute more than one (1%) percent of the
voting rights or equity ownership of such Competing Entity; or (c) solicit or
divert any business or any customer from the Company or assist any person, firm
or corporation in doing so or attempting to do so; or (d) cause or seek to cause
any person, firm or corporation to refrain from dealing or doing business with
the Company or assist any person, firm or corporation in doing so or attempting
to do so.
For purposes of this Section 5.3, (i) the term "Competing Entity"
shall mean any entity which presently or during the period referred to above
engages in any business activity the Company is then engaged in or proposes to
be engaged in; and (ii) the term "Territory" shall mean any geographic area in
which the Company conducts business during such period.
5.4 Non-Solicitation. Executive shall not, for a period of two (2) years
----------------
from the date of any termination or expiration of his employment hereunder,
directly or indirectly: (a) solicit or hire, or attempt to solicit or hire, any
employee of the Company, or assist any person, firm or corporation in doing so
or attempting to do so; or (b) plan for, acquire any financial interest in or
perform any services for himself or any other entity in connection with a
business in which Executive's interest, duties or activities would inherently
require Executive to reveal any Confidential Information; or (c) solicit or
cause to be solicited the disclosure of or disclose any Confidential Information
for any purpose whatsoever or for any other party.
5.5 Breach of Provisions. In the event that Executive shall breach any of
--------------------
the provisions of this Article V, or in the event that any such breach is
threatened by Executive, in addition to and without limiting or waiving any
other remedies available to the Company at law or in equity, the Company shall
be entitled to immediate injunctive relief in any court, domestic or foreign,
having the capacity to grant such relief, without the necessity of posting a
bond, to restrain any such breach or threatened breach
8
<PAGE>
and to enforce the provisions of this Article V. Executive acknowledges and
agrees that there is no adequate remedy at law for any such breach or threatened
breach and, in the event that any action or proceeding is brought seeking
injunctive relief, Executive shall not use as a defense thereto that there is an
adequate remedy at law.
5.6 Reasonable Restrictions. The parties acknowledge that the foregoing
-----------------------
restrictions, the duration and the territorial scope thereof as set forth in
this Article V, are under all of the circumstances reasonable and necessary for
the protection of the Company and its business.
5.7 Definition. For purposes of this Article V, the term "Company" shall
----------
be deemed to include any subsidiary of, affiliate of, predecessor to, or
successor of the Company.
ARTICLE VI
----------
MISCELLANEOUS
-------------
6.1 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective legal representatives, heirs,
distributees, successors and assigns; provided that the rights and obligations
--------
of Executive hereunder shall not be assignable by him.
6.2 Notices. Any notice provided for herein shall be in writing and shall
-------
be deemed to have been given or made when personally delivered or three (3) days
following deposit for mailing by first class registered or certified mail,
return receipt requested, or if delivered by facsimile transmission, upon
confirmation of receipt of the transmission, to the address of the other party
set forth below or to such other address as may be specified by notice given in
accordance with this Section 6.2:
(a) If to the Company:
Four Media Company
2813 W. Alameda Avenue
Burbank, CA 91505
Attention: Robert T. Walston, C.E.O.
Fax No.: (818) 846-5197
9
<PAGE>
With a copy to:
Greenberg Glusker Fields Claman
& Machtinger LLP
1900 Avenue of the Stars, #2100
Los Angeles, CA 90067
Attention: Jill A. Cossman, Esq.
Fax No.: (310) 553-0687
(b) If to Executive:
John H. Donlon
____________________________
____________________________
With a copy to:
_______________________________
_______________________________
_______________________________
_______________________________
Fax No.:
6.3 Severability. If any provision of this Agreement, or portion thereof,
------------
shall be held invalid or unenforceable by a court of competent jurisdiction,
such invalidity or unenforceability shall attach only to such provision or
portion thereof, and shall not in any manner affect or render invalid or
unenforceable any other provision of this Agreement or portion thereof, and this
Agreement shall be carried out as if any such invalid or unenforceable provision
or portion thereof were not contained herein. In addition, any such invalid or
unenforceable provision or portion thereof shall be deemed, without further
action on the part of the parties hereto, modified, amended or limited to the
extent necessary to render the same valid and enforceable.
6.4 Confidentiality. The parties hereto agree that they will not, during
---------------
the Term or thereafter, disclose to any other person or entity the terms or
conditions of this Agreement (excluding the financial terms hereof) without the
prior written consent of the other party or as required by law, regulatory
authority or as necessary for either party to obtain personal loans or
financing. Approval of the Company and of Executive shall be required with
respect to any press releases regarding this Agreement and the activities of
Executive contemplated hereunder.
6.5 Arbitration. Any controversy, claim or dispute arising out of or in
-----------
any way relating to this Agreement, the alleged breach thereof, and/or
Executive's employment with the Company or
10
<PAGE>
termination therefrom, including without limitation, any and all claims for
employment discrimination or harassment, shall be determined by binding
arbitration administered by the American Arbitration Association under its
National Rules for Resolution of Employment Disputes ("Rules") which are in
effect at the time of the arbitration or the demand therefor. The Rules are
hereby incorporated by reference. California Code of Civil Procedure
(S)1283.05, which provides for certain discovery rights, shall apply to any such
arbitration, and said code section is also hereby incorporated by reference. In
reaching a decision, the arbitrator shall have no authority to change, extend,
modify or suspend any of the terms of this Agreement. The arbitration shall be
commenced and heard in Los Angeles County, California. The arbitrator(s) shall
apply the substantive law (and the law of remedies, if applicable) of California
or federal law, or both, as applicable to the claim(s) asserted. Judgment on
the award may be entered in any court of competent jurisdiction, even if a party
who received notice under the Rules fails to appear at the arbitration
hearing(s). The parties may seek, from a court of competent jurisdiction,
provisional remedies or injunctive relief in support of their respective rights
and remedies hereunder without waiving any right to arbitration. However, the
merits of any action that involves such provisional remedies or injunctive
relief, including, without limitation, the terms of any permanent injunction,
shall be determined by arbitration under this paragraph.
6.6 Waiver. No waiver by a party hereto of a breach or default hereunder
------
by the other party shall be considered valid unless in writing signed by such
first party, and no such waiver shall be deemed a waiver of any subsequent
breach or default of the same or any other nature.
6.7 Controlling Nature of Agreement. To the extent any terms of this
-------------------------------
Agreement are inconsistent with the terms or provisions of the Company's
Employee Manual or any other personnel policy statements or documents, the terms
of this Agreement shall control. To the extent that any terms and conditions of
Executive's employment are not covered in this Agreement, the terms and
conditions set forth in the Employee Manual or any similar document shall
control such terms.
6.8 Entire Agreement. This Agreement sets forth the entire agreement
----------------
between the parties with respect to the subject matter hereof, and supersedes
any and all prior agreements or understanding between the Company and Executive,
whether written or oral, fully or partially performed relating to any or all
matters covered by and contained or otherwise dealt with in this Agreement.
This Agreement does not constitute a commitment of the Company with regard to
Executive's employment, express or implied, other than to the extent expressly
provided for herein.
11
<PAGE>
6.9 Amendment. No modification, change or amendment of this Agreement or
---------
any of its provisions shall be valid unless in writing and signed by the party
against whom such claimed modification, change or amendment is sought to be
enforced.
6.10 Authority. The parties each represent and warrant that they have the
---------
power, authority and right to enter into this Agreement and to carry out and
perform the terms, covenants and conditions hereof.
6.11 Applicable Law. This Agreement, and all of the rights and obligations
--------------
of the parties in connection with the employment relationship established
hereby, shall be governed by and construed in accordance with the substantive
laws of the State of California without giving effect to principles relating to
conflicts of law.
6.12 Counterparts. Thus Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY"
FOUR MEDIA COMPANY
By: /s/ Robert Walston
______________________________
Name: /s/ Robert Walston
____________________________
Title: CEO
___________________________
"EXECUTIVE"
/s/ J H Donlon
__________________________________
John H. Donlon
12
<PAGE>
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
--------------------
This Agreement, dated as of October 1, 1996, is entered into by and between
Four Media Company, a Delaware corporation (the "Company"), and John H. Sabin
("Executive").
INTRODUCTION
------------
The Company and its operating subsidiaries ("Affiliates") are engaged in
the business of providing technical and creative services to the entertainment
industry. The Company desires to employ Executive, and Executive desires to
accept such employment, under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
---------
EMPLOYMENT; TERM; DUTIES
------------------------
1.1 Employment. Upon the terms and conditions hereinafter set forth, the
----------
Company hereby employs Executive, and Executive hereby accepts employment, as
Vice President and Chief Financial Officer of the Company.
1.2 Term. Subject to Section 4.1, Executive's employment hereunder shall
----
be for a term of three (3) years commencing on the date hereof and expiring at
the close of business on the day prior to the third anniversary of the date
hereof (the "Initial Term"). The Initial Term shall be automatically extended
for successive three-year terms (each such extension referred to as a "Renewal
Term") unless either party gives the other party written notice of its or his
desire to terminate, which notice of termination shall be given not less than
six months prior to the expiration of the Initial Term or any Renewal Term, as
the case may be. Notwithstanding the foregoing, Executive shall be obligated to
deliver a written reminder (the "Reminder Notice") to the Company respecting
such termination notice, which Reminder Notice shall be delivered no earlier
than eight months prior to the expiration of the Initial Term or any Renewal
Term, as the case may be, and no later than six and one-half months prior to the
expiration of the Initial Term or any Renewal Term, as the case may be. If
Executive fails to timely deliver the Reminder Notice, then the Initial Term or
any Renewal Term, as the case may be, shall not be automatically
<PAGE>
extended for an additional three-year period even if the Company fails to
timely deliver a notice of termination to Executive.
1.3 Duties. During the Initial Term or any Renewal Term (sometimes
------
collectively referred to as the "Term"), Executive shall perform such executive
duties for the Company and/or its Affiliates, consistent with his position
hereunder, as may be assigned to him from time to time by the Board of
Directors. Executive shall devote his entire productive business time,
attention and energies to the performance of his duties hereunder. Executive
shall use his best efforts to advance the interests and business of the Company
and its Affiliates. Executive shall abide by all rules, regulations and
policies of the Company, as may be in effect from time to time. Notwithstanding
the foregoing, Executive may act for his own account in passive-type investments
as provided in Section 5.3, or as a member of other boards of directors, where
the time allocated for those activities does not materially interfere with or
create a conflict of interest with the discharge of his duties for the Company.
1.4 Reporting. Executive shall report directly to the Chief Executive
---------
Officer of the Company.
1.5 Exclusive Agreement. Executive represents and warrants to the Company
-------------------
that there are no agreements or arrangements, whether written or oral, in effect
which would prevent Executive from rendering his exclusive services to the
Company during the Term.
ARTICLE II
----------
COMPENSATION
------------
2.1 Compensation. For all services rendered by Executive hereunder and
------------
all covenants and conditions undertaken by him pursuant to this Agreement, the
Company shall pay, and Executive shall accept, as full compensation, the amounts
set forth in this Article II.
2.2 Base Salary. The base salary shall be an annual salary of $175,000
-----------
("Base Salary"), payable by the Company in accordance with the Company's normal
payroll practices.
2.3 Bonus. In addition to the Base Salary, the Company may make
-----
discretionary bonus payments to Executive, under such terms, conditions and
requirements as may be established by the Company's Board of Directors in its
sole discretion.
2.4 Deductions. The Company shall deduct from the compensation described
----------
in Sections 2.2 and 2.3 any federal, state or local withholding taxes, social
security contributions and any
2
<PAGE>
other amounts which may be required to be deducted or withheld by the Company
pursuant to any federal, state or local laws, rules or regulations.
2.5 Disability Adjustment. Any compensation otherwise payable to
---------------------
Executive pursuant to Sections 2.2 and 2.3 in respect of any period during which
Executive is disabled (as contemplated in Section 4.3) shall be reduced by any
amounts payable to Executive for loss of earnings or the like under any
insurance plan or policy sponsored by the Company.
ARTICLE III
-----------
BENEFITS; EXPENSES
------------------
3.1 Benefits. During the Term, Executive shall be entitled to participate
--------
in such group life, health, accident, disability or hospitalization insurance
plans, pension plans and retirement plans as the Company may make available to
its other executive employees as a group, subject to the terms and conditions of
any such plans.
3.2 Expenses. The Company agrees that Executive is authorized to incur
--------
reasonable expenses in the performance of his duties hereunder and in promoting
the business of the Company. The Company shall from time to time pay or
reimburse Executive for the reasonable and necessary expenses incurred by
Executive in connection with the performance of his duties hereunder if such
expenses have been previously approved by the Company or if reimbursement is
otherwise appropriate in accordance with the Company's established policies and
if the Company receives such verification thereof as the Company may require in
order to qualify such expenses as deductible business expenses.
3.3 Vacation. Executive shall accrue, on a daily basis, a total of four
--------
(4) work weeks of vacation per year following the date of this Agreement. If
Executive's earned but unused vacation time reaches six (6) work weeks,
Executive will not continue to accrue additional vacation time until he uses
enough vacation to fall below this maximum amount. Thereafter, Executive will
start earning vacation benefits again until the six (6) work week maximum is
again reached. Any accrued but unused vacation time will be paid to Executive
on a pro rata basis at termination of employment.
3.4 Key Man Insurance. The Company may secure in its own name or
-----------------
otherwise, and at its own expense, life, health, accident and other insurance
covering Executive alone or with others, and Executive shall not have any right,
title or interest in or to such insurance other than as expressly provided
herein. Executive agrees to assist the Company in procuring such insurance by
submitting to the usual and customary medical and other examinations to be
conducted by such physicians as the Company or
3
<PAGE>
such insurance company may designate and by signing such applications and other
written instruments as may be required by the insurance companies to which
application is made for such insurance. Executive's failure to submit to such
usual and customary medical and other examinations shall be deemed a material
breach of this Agreement.
ARTICLE IV
----------
TERMINATION; DEATH; DISABILITY
------------------------------
4.1 Termination of Employment With Cause. In addition to any other
------------------------------------
remedies available to the Company at law, in equity or as set forth in this
Agreement, the Company shall have the right, upon written notice to Executive,
to immediately terminate his employment hereunder without any further liability
or obligation to him in respect of his employment (other than its obligation to
pay Base Salary accrued but unpaid as of the date of termination) if Executive:
(a) breaches any material provision of this Agreement and, if such breach is
curable, in the sole judgment of the Company, such breach is not cured within
ten (10) days after written notice thereof from the Company; or (b) has
committed an act of gross misconduct in connection with the performance of his
duties hereunder, as determined in good faith by the Board of Directors; or (c)
demonstrates habitual negligence in the performance of his duties, as determined
by the Board of Directors; or (d) is convicted of or pleads nolo contendere to
---- ----------
any misdemeanor involving moral turpitude or to any felony; or (e) has committed
any act of fraud, misappropriation of funds or embezzlement in connection with
his employment hereunder (a "Termination With Cause").
4.2 Termination of Employment Without Cause. During the Term, the Company
---------------------------------------
may at any time, in its sole discretion, terminate the employment of Executive
hereunder without cause by written notice to him. In such event, the Company
shall pay Executive an amount equal to the sum of the following:
(a) any Base Salary accrued but unpaid as of the date of termination;
(b) an amount equal to Executive's monthly Base Salary in effect on
the date of termination for the remainder of the Term, payable as and when
such amounts would have been due and payable hereunder had such termination
not occurred (the "Severance Period"); and
(c) any reimbursement for expenses incurred in accordance with Section
3.2.
4
<PAGE>
In addition, the Company shall use its best efforts to arrange for the
continuation, through the Severance Period, of such health and/or medical
benefits or plans as are in effect as of the date of termination, if and only if
permissible under such plans. If not so permissible, the Company shall pay to
Executive an amount sufficient to enable Executive to arrange for substantially
equivalent health and/or medical coverage during the Severance Period.
Executive acknowledges that the payments and benefits referred to in
this Section 4.2, together with any rights or benefits under any written plan or
agreement which have vested on or prior to the termination date of Executive's
employment under this Section 4.2, constitute the only payments to which
Executive shall be entitled to receive from the Company hereunder in the event
of any termination of his employment pursuant to this Section 4.2, and that
except for such payments or benefits the Company shall have no further liability
or obligation to him hereunder or otherwise in respect of his employment.
If Executive's employment is terminated under this Section 4.2,
Executive shall use all reasonable efforts to obtain other employment or become
self-employed as promptly as possible. If Executive secures other employment or
becomes self-employed during the Severance Period, the Company's obligations
under this Section 4.2 shall be reduced by the earnings from such employment or
self-employment received by Executive. During the Severance Period, Executive
will notify the Company in writing of any offer of employment within 10 days of
Executive's receipt of same. In addition, Executive will immediately notify the
Company in writing if Executive becomes employed or self-employed during the
Severance Period.
4.3 Death; Disability. In the event that Executive dies or becomes
-----------------
Disabled (as defined herein), Executive's employment shall terminate when such
death or Disability occurs and the Company shall pay Executive (or his legal
representative, as the case may be) as follows:
(a) any Base Salary accrued but unpaid as of the date of death or
termination for Disability;
(b) any reimbursement for expenses incurred in accordance with Section
3.2.; and
(c) an amount equal to Executive's monthly Base Salary in effect on
such termination date for the lesser of (i) six months or (ii) the remainder of
the Term, payable as and when such amounts would have been due and payable
hereunder had such termination not occurred. The monthly Base Salary with
respect to any period during which Executive is Disabled shall be reduced by
amounts payable to him under any insurance plan sponsored by the Company,
5
<PAGE>
provided that Executive's aggregate compensation during the period of Disability
shall be equal to 100% of his monthly Base Salary then in effect.
For the purposes of this Agreement, Executive shall be deemed to be
"Disabled" or have a "Disability" if, because of Executive's physical or mental
disability, (a) he has been substantially unable to perform his duties
hereunder for twelve (12) work weeks in any twelve (12)-month period, and (b) he
has utilized any and all benefits available to him under state and federal laws
and is either (i) unable to reasonably and effectively carry out his duties with
reasonable accommodations by the Company or (ii) unable to reasonably and
effectively carry out his duties because any reasonable accommodation which may
be required would cause the Company undue hardship. In the event of a
disagreement concerning Executive's perceived Disability, Executive shall submit
to such examinations as are deemed appropriate by three practicing physicians
specializing in the area of Executive's Disability, one selected by Executive,
one selected by the Company, and one selected by both such physicians. The
majority decision of such three physicians shall be final and binding on the
parties. Nothing in this paragraph is intended to limit the Company's right to
invoke the provisions of this paragraph with respect to any perceived Disability
of Executive.
Executive acknowledges that the payments referred to in this Section
4.3, together with any rights or benefits under any written plan or agreement
which have vested on or prior to the termination date of Executive's employment
under this Section 4.3, constitute the only payments to which Executive (or his
legal representative, as the case may be) shall be entitled to receive from the
Company hereunder in the event of a termination of his employment for death or
Disability, and that except for such payments the Company shall have no further
liability or obligation to him (or his legal representatives, as the case may
be) hereunder or otherwise in respect of his employment.
4.4 Continued Compliance. The amounts or benefits payable by the Company
--------------------
under Sections 4.2(b) and 4.3(c) are subject to Executive's continued compliance
with the provisions of Article V below. If Executive violates the provisions of
Article V, then the Company will have no obligation to make any of the payments
that remain payable by the Company under Sections 4.2(b) and 4.3(c) on or after
the date of such violation.
6
<PAGE>
ARTICLE V
---------
OWNERSHIP OF PROCEEDS OF EMPLOYMENT; NON-DISCLOSURE;
----------------------------------------------------
NON-COMPETITION
---------------
5.1 Ownership of Proceeds of Employment. The Company shall be the sole
-----------------------------------
and exclusive owner throughout the universe in perpetuity of all of the results
and proceeds of Executive's services, work and labor during the Term in
connection with Executive's employment by the Company, free and clear of any and
all claims, liens or encumbrances. All results and proceeds of Executive's
services, work and labor during the Term shall be deemed to be works-made-for-
hire for the Company within the meaning of the copyright laws of the United
States and the Company shall be deemed to be the sole author thereof in all
territories and for all purposes.
5.2 Non-Disclosure of Confidential Information. As used herein,
------------------------------------------
"Confidential Information" means any and all information affecting or relating
to the business of the Company and its Affiliates, including without limitation,
financial data, customer lists and data, licensing arrangements, business
strategies, pricing information, product development, intellectual, artistic,
literary, dramatic or musical rights, works, or other materials of any kind or
nature (whether or not entitled to protection under applicable copyright laws,
or reduced to or embodied in any medium or tangible form), including without
limitation, all copyrights, patents, trademarks, service marks, trade secrets,
contract rights, titles, themes, stories, treatments, ideas, concepts,
technologies, art work, logos, hardware, software, and may be embodied in any
and all computer programs, tapes, diskettes, disks, mailing lists, lists of
actual or prospective customers and/or suppliers, notebooks, documents,
memoranda, reports, files, correspondence, charts, lists and all other written,
printed or otherwise recorded material of any kind whatsoever and any other
information, whether or not reduced to writing, including "know-how", ideas,
concepts, research, processes, and plans. "Confidential Information" does not
include information that is in the public domain, information that is generally
known in the trade, or information that Executive can prove he acquired wholly
independently of his employment with the Company. Executive shall not, at any
time during the Term or thereafter, directly or indirectly, disclose or furnish
to any other person, firm or corporation any Confidential Information, except in
the course of the proper performance of his duties hereunder or as required by
law (in which event Executive shall give prior written notice to Company and
shall cooperate with Company and Company's counsel in complying with such legal
requirements). Promptly upon the expiration or termination of Executive's
employment hereunder for any reason or whenever the Company so requests,
Executive shall surrender to the Company all documents, drawings, work papers,
lists, memoranda, records and
7
<PAGE>
other data (including all copies) constituting or pertaining in any way to any
of the Confidential Information.
5.3 Non-Competition. Executive shall not, for so long as he is entitled
---------------
to compensation under or pursuant to this Agreement (whether or not he is
actively employed by the Company hereunder), directly or indirectly: (a) compete
with the Company; or (b) be interested in, employed by, engaged in or
participate in the ownership, management, operation or control of, or act in any
advisory or other capacity for, any Competing Entity which conducts its business
within the Territory (as such terms are hereinafter defined); provided, however,
-------- -------
that notwithstanding the foregoing, Executive may make solely passive
investments in any Competing Entity the common stock of which is "publicly
held," and of which Executive shall not own or control, directly or indirectly,
in the aggregate securities which constitute more than one (1%) percent of the
voting rights or equity ownership of such Competing Entity; or (c) solicit or
divert any business or any customer from the Company or assist any person, firm
or corporation in doing so or attempting to do so; or (d) cause or seek to cause
any person, firm or corporation to refrain from dealing or doing business with
the Company or assist any person, firm or corporation in doing so or attempting
to do so.
For purposes of this Section 5.3, (i) the term "Competing Entity"
shall mean any entity which presently or during the period referred to above
engages in any business activity the Company is then engaged in or proposes to
be engaged in; and (ii) the term "Territory" shall mean any geographic area in
which the Company conducts business during such period.
5.4 Non-Solicitation. Executive shall not, for a period of two (2) years
----------------
from the date of any termination or expiration of his employment hereunder,
directly or indirectly: (a) solicit or hire, or attempt to solicit or hire, any
employee of the Company, or assist any person, firm or corporation in doing so
or attempting to do so; or (b) plan for, acquire any financial interest in or
perform any services for himself or any other entity in connection with a
business in which Executive's interest, duties or activities would inherently
require Executive to reveal any Confidential Information; or (c) solicit or
cause to be solicited the disclosure of or disclose any Confidential Information
for any purpose whatsoever or for any other party.
5.5 Breach of Provisions. In the event that Executive shall breach any of
--------------------
the provisions of this Article V, or in the event that any such breach is
threatened by Executive, in addition to and without limiting or waiving any
other remedies available to the Company at law or in equity, the Company shall
be entitled to immediate injunctive relief in any court, domestic or foreign,
having the capacity to grant such relief, without the necessity of posting a
bond, to restrain any such breach or threatened breach
8
<PAGE>
and to enforce the provisions of this Article V. Executive acknowledges and
agrees that there is no adequate remedy at law for any such breach or threatened
breach and, in the event that any action or proceeding is brought seeking
injunctive relief, Executive shall not use as a defense thereto that there is an
adequate remedy at law.
5.6 Reasonable Restrictions. The parties acknowledge that the foregoing
-----------------------
restrictions, the duration and the territorial scope thereof as set forth in
this Article V, are under all of the circumstances reasonable and necessary for
the protection of the Company and its business.
5.7 Definition. For purposes of this Article V, the term "Company" shall
----------
be deemed to include any subsidiary of, affiliate of, predecessor to, or
successor of the Company.
ARTICLE VI
----------
MISCELLANEOUS
-------------
6.1 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective legal representatives, heirs,
distributees, successors and assigns; provided that the rights and obligations
--------
of Executive hereunder shall not be assignable by him.
6.2 Notices. Any notice provided for herein shall be in writing and shall
-------
be deemed to have been given or made when personally delivered or three (3) days
following deposit for mailing by first class registered or certified mail,
return receipt requested, or if delivered by facsimile transmission, upon
confirmation of receipt of the transmission, to the address of the other party
set forth below or to such other address as may be specified by notice given in
accordance with this Section 6.2:
(a) If to the Company:
Four Media Company
2813 W. Alameda Avenue
Burbank, CA 91505
Attention: Robert T. Walston, C.E.O.
Fax No.: (818) 846-5197
9
<PAGE>
With a copy to:
Greenberg Glusker Fields Claman
& Machtinger LLP
1900 Avenue of the Stars, #2100
Los Angeles, CA 90067
Attention: Jill A. Cossman, Esq.
Fax No.: (310) 553-0687
(b) If to Executive:
John H. Sabin
4428 Guild Hall Ct
_______________________________
Westlake Village, CA 91361
_______________________________
With a copy to:
_______________________________
_______________________________
_______________________________
_______________________________
Fax No.:
6.3 Severability. If any provision of this Agreement, or portion thereof,
------------
shall be held invalid or unenforceable by a court of competent jurisdiction,
such invalidity or unenforceability shall attach only to such provision or
portion thereof, and shall not in any manner affect or render invalid or
unenforceable any other provision of this Agreement or portion thereof, and this
Agreement shall be carried out as if any such invalid or unenforceable provision
or portion thereof were not contained herein. In addition, any such invalid or
unenforceable provision or portion thereof shall be deemed, without further
action on the part of the parties hereto, modified, amended or limited to the
extent necessary to render the same valid and enforceable.
6.4 Confidentiality. The parties hereto agree that they will not, during
---------------
the Term or thereafter, disclose to any other person or entity the terms or
conditions of this Agreement (excluding the financial terms hereof) without the
prior written consent of the other party or as required by law, regulatory
authority or as necessary for either party to obtain personal loans or
financing. Approval of the Company and of Executive shall be required with
respect to any press releases regarding this Agreement and the activities of
Executive contemplated hereunder.
6.5 Arbitration. Any controversy, claim or dispute arising out of or in
-----------
any way relating to this Agreement, the alleged breach thereof, and/or
Executive's employment with the Company or
10
<PAGE>
termination therefrom, including without limitation, any and all claims for
employment discrimination or harassment, shall be determined by binding
arbitration administered by the American Arbitration Association under its
National Rules for Resolution of Employment Disputes ("Rules") which are in
effect at the time of the arbitration or the demand therefor. The Rules are
hereby incorporated by reference. California Code of Civil Procedure
(S)1283.05, which provides for certain discovery rights, shall apply to any such
arbitration, and said code section is also hereby incorporated by reference. In
reaching a decision, the arbitrator shall have no authority to change, extend,
modify or suspend any of the terms of this Agreement. The arbitration shall be
commenced and heard in Los Angeles County, California. The arbitrator(s) shall
apply the substantive law (and the law of remedies, if applicable) of California
or federal law, or both, as applicable to the claim(s) asserted. Judgment on
the award may be entered in any court of competent jurisdiction, even if a party
who received notice under the Rules fails to appear at the arbitration
hearing(s). The parties may seek, from a court of competent jurisdiction,
provisional remedies or injunctive relief in support of their respective rights
and remedies hereunder without waiving any right to arbitration. However, the
merits of any action that involves such provisional remedies or injunctive
relief, including, without limitation, the terms of any permanent injunction,
shall be determined by arbitration under this paragraph.
6.6 Waiver. No waiver by a party hereto of a breach or default hereunder
------
by the other party shall be considered valid unless in writing signed by such
first party, and no such waiver shall be deemed a waiver of any subsequent
breach or default of the same or any other nature.
6.7 Controlling Nature of Agreement. To the extent any terms of this
-------------------------------
Agreement are inconsistent with the terms or provisions of the Company's
Employee Manual or any other personnel policy statements or documents, the terms
of this Agreement shall control. To the extent that any terms and conditions of
Executive's employment are not covered in this Agreement, the terms and
conditions set forth in the Employee Manual or any similar document shall
control such terms.
6.8 Entire Agreement. This Agreement sets forth the entire agreement
----------------
between the parties with respect to the subject matter hereof, and supersedes
any and all prior agreements or understanding between the Company and Executive,
whether written or oral, fully or partially performed relating to any or all
matters covered by and contained or otherwise dealt with in this Agreement.
This Agreement does not constitute a commitment of the Company with regard to
Executive's employment, express or implied, other than to the extent expressly
provided for herein.
11
<PAGE>
6.9 Amendment. No modification, change or amendment of this Agreement or
---------
any of its provisions shall be valid unless in writing and signed by the party
against whom such claimed modification, change or amendment is sought to be
enforced.
6.10 Authority. The parties each represent and warrant that they have the
---------
power, authority and right to enter into this Agreement and to carry out and
perform the terms, covenants and conditions hereof.
6.11 Applicable Law. This Agreement, and all of the rights and obligations
--------------
of the parties in connection with the employment relationship established
hereby, shall be governed by and construed in accordance with the substantive
laws of the State of California without giving effect to principles relating to
conflicts of law.
6.12 Counterparts. Thus Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY"
FOUR MEDIA COMPANY
By: /s/ Robert Walston
____________________________
Name: Robert Walston
__________________________
Title: CEO
_________________________
"EXECUTIVE"
/s/ John Sabin
________________________________
John H. Sabin
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EXHIBIT 10.26
EMPLOYMENT AGREEMENT
--------------------
This Agreement, dated as of October 1, 1996, is entered into by and between
Four Media Company, a Delaware corporation (the "Company"), and Robert Bailey
("Executive").
INTRODUCTION
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The Company and its operating subsidiaries ("Affiliates") are engaged in
the business of providing technical and creative services to the entertainment
industry. The Company desires to employ Executive, and Executive desires to
accept such employment, under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
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EMPLOYMENT; TERM; DUTIES
------------------------
1.1 Employment. Upon the terms and conditions hereinafter set forth, the
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Company hereby employs Executive, and Executive hereby accepts employment, as
Vice President and Director of Marketing of the Company.
1.2 Term. Subject to Section 4.1, Executive's employment hereunder shall
----
be for a term of three (3) years commencing on the date hereof and expiring at
the close of business on the day prior to the third anniversary of the date
hereof (the "Initial Term"). The Initial Term shall be automatically extended
for successive three-year terms (each such extension referred to as a "Renewal
Term") unless either party gives the other party written notice of its or his
desire to terminate, which notice of termination shall be given not less than
six months prior to the expiration of the Initial Term or any Renewal Term, as
the case may be. Notwithstanding the foregoing, Executive shall be obligated to
deliver a written reminder (the "Reminder Notice") to the Company respecting
such termination notice, which Reminder Notice shall be delivered no earlier
than eight months prior to the expiration of the Initial Term or any Renewal
Term, as the case may be, and no later than six and one-half months prior to the
expiration of the Initial Term or any Renewal Term, as the case may be. If
Executive fails to timely deliver the Reminder Notice, then the Initial Term or
any Renewal Term, as the case may be, shall not be automatically
<PAGE>
extended for an additional three-year period even if the Company fails to timely
deliver a notice of termination to Executive.
1.3 Duties. During the Initial Term or any Renewal Term (sometimes
------
collectively referred to as the "Term"), Executive shall perform such executive
duties for the Company and/or its Affiliates, consistent with his position
hereunder, as may be assigned to him from time to time by the Board of
Directors. Executive shall devote his entire productive business time,
attention and energies to the performance of his duties hereunder. Executive
shall use his best efforts to advance the interests and business of the Company
and its Affiliates. Executive shall abide by all rules, regulations and
policies of the Company, as may be in effect from time to time. Notwithstanding
the foregoing, Executive may act for his own account in passive-type investments
as provided in Section 5.3, or as a member of other boards of directors, where
the time allocated for those activities does not materially interfere with or
create a conflict of interest with the discharge of his duties for the Company.
1.4 Reporting. Executive shall report directly to the President of the
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Company.
1.5 Exclusive Agreement. Executive represents and warrants to the Company
-------------------
that there are no agreements or arrangements, whether written or oral, in effect
which would prevent Executive from rendering his exclusive services to the
Company during the Term.
ARTICLE II
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COMPENSATION
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2.1 Compensation. For all services rendered by Executive hereunder and
------------
all covenants and conditions undertaken by him pursuant to this Agreement, the
Company shall pay, and Executive shall accept, as full compensation, the amounts
set forth in this Article II.
2.2 Base Salary. The base salary shall be an annual salary of $175,000
-----------
("Base Salary"), payable by the Company in accordance with the Company's normal
payroll practices.
2.3 Bonus. In addition to the Base Salary, the Company may make
-----
discretionary bonus payments to Executive, under such terms, conditions and
requirements as may be established by the Company's Board of Directors in its
sole discretion.
2.4 Deductions. The Company shall deduct from the compensation described
----------
in Sections 2.2 and 2.3 any federal, state or local withholding taxes, social
security contributions and any
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other amounts which may be required to be deducted or withheld by the Company
pursuant to any federal, state or local laws, rules or regulations.
2.5 Disability Adjustment. Any compensation otherwise payable to
---------------------
Executive pursuant to Sections 2.2 and 2.3 in respect of any period during which
Executive is disabled (as contemplated in Section 4.3) shall be reduced by any
amounts payable to Executive for loss of earnings or the like under any
insurance plan or policy sponsored by the Company.
ARTICLE III
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BENEFITS; EXPENSES
------------------
3.1 Benefits. During the Term, Executive shall be entitled to participate
--------
in such group life, health, accident, disability or hospitalization insurance
plans, pension plans and retirement plans as the Company may make available to
its other executive employees as a group, subject to the terms and conditions of
any such plans.
3.2 Expenses. The Company agrees that Executive is authorized to incur
--------
reasonable expenses in the performance of his duties hereunder and in promoting
the business of the Company. The Company shall from time to time pay or
reimburse Executive for the reasonable and necessary expenses incurred by
Executive in connection with the performance of his duties hereunder if such
expenses have been previously approved by the Company or if reimbursement is
otherwise appropriate in accordance with the Company's established policies and
if the Company receives such verification thereof as the Company may require in
order to qualify such expenses as deductible business expenses.
3.3 Vacation. Executive shall accrue, on a daily basis, a total of four
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(4) work weeks of vacation per year following the date of this Agreement. If
Executive's earned but unused vacation time reaches six (6) work weeks,
Executive will not continue to accrue additional vacation time until he uses
enough vacation to fall below this maximum amount. Thereafter, Executive will
start earning vacation benefits again until the six (6) work week maximum is
again reached. Any accrued but unused vacation time will be paid to Executive
on a pro rata basis at termination of employment.
3.4 Key Man Insurance. The Company may secure in its own name or
-----------------
otherwise, and at its own expense, life, health, accident and other insurance
covering Executive alone or with others, and Executive shall not have any right,
title or interest in or to such insurance other than as expressly provided
herein. Executive agrees to assist the Company in procuring such insurance by
submitting to the usual and customary medical and other examinations to be
conducted by such physicians as the Company or
3
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such insurance company may designate and by signing such applications and other
written instruments as may be required by the insurance companies to which
application is made for such insurance. Executive's failure to submit to such
usual and customary medical and other examinations shall be deemed a material
breach of this Agreement.
ARTICLE IV
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TERMINATION; DEATH; DISABILITY
------------------------------
4.1 Termination of Employment With Cause. In addition to any other
------------------------------------
remedies available to the Company at law, in equity or as set forth in this
Agreement, the Company shall have the right, upon written notice to Executive,
to immediately terminate his employment hereunder without any further liability
or obligation to him in respect of his employment (other than its obligation to
pay Base Salary accrued but unpaid as of the date of termination) if Executive:
(a) breaches any material provision of this Agreement and, if such breach is
curable, in the sole judgment of the Company, such breach is not cured within
ten (10) days after written notice thereof from the Company; or (b) has
committed an act of gross misconduct in connection with the performance of his
duties hereunder, as determined in good faith by the Board of Directors; or (c)
demonstrates habitual negligence in the performance of his duties, as determined
by the Board of Directors; or (d) is convicted of or pleads nolo contendere to
---- ----------
any misdemeanor involving moral turpitude or to any felony; or (e) has committed
any act of fraud, misappropriation of funds or embezzlement in connection with
his employment hereunder (a "Termination With Cause").
4.2 Termination of Employment Without Cause. During the Term, the Company
---------------------------------------
may at any time, in its sole discretion, terminate the employment of Executive
hereunder without cause by written notice to him. In such event, the Company
shall pay Executive an amount equal to the sum of the following:
(a) any Base Salary accrued but unpaid as of the date of termination;
(b) an amount equal to Executive's monthly Base Salary in effect on
the date of termination for the remainder of the Term, payable as and when
such amounts would have been due and payable hereunder had such termination
not occurred (the "Severance Period"); and
(c) any reimbursement for expenses incurred in accordance with Section
3.2.
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In addition, the Company shall use its best efforts to arrange for the
continuation, through the Severance Period, of such health and/or medical
benefits or plans as are in effect as of the date of termination, if and only if
permissible under such plans. If not so permissible, the Company shall pay to
Executive an amount sufficient to enable Executive to arrange for substantially
equivalent health and/or medical coverage during the Severance Period.
Executive acknowledges that the payments and benefits referred to in
this Section 4.2, together with any rights or benefits under any written plan or
agreement which have vested on or prior to the termination date of Executive's
employment under this Section 4.2, constitute the only payments to which
Executive shall be entitled to receive from the Company hereunder in the event
of any termination of his employment pursuant to this Section 4.2, and that
except for such payments or benefits the Company shall have no further liability
or obligation to him hereunder or otherwise in respect of his employment.
If Executive's employment is terminated under this Section 4.2,
Executive shall use all reasonable efforts to obtain other employment or become
self-employed as promptly as possible. If Executive secures other employment or
becomes self-employed during the Severance Period, the Company's obligations
under this Section 4.2 shall be reduced by the earnings from such employment or
self-employment received by Executive. During the Severance Period, Executive
will notify the Company in writing of any offer of employment within 10 days of
Executive's receipt of same. In addition, Executive will immediately notify the
Company in writing if Executive becomes employed or self-employed during the
Severance Period.
4.3 Death; Disability. In the event that Executive dies or becomes
-----------------
Disabled (as defined herein), Executive's employment shall terminate when such
death or Disability occurs and the Company shall pay Executive (or his legal
representative, as the case may be) as follows:
(a) any Base Salary accrued but unpaid as of the date of death or
termination for Disability;
(b) any reimbursement for expenses incurred in accordance with Section
3.2.; and
(c) an amount equal to Executive's monthly Base Salary in effect on
such termination date for the lesser of (i) six months or (ii) the remainder of
the Term, payable as and when such amounts would have been due and payable
hereunder had such termination not occurred. The monthly Base Salary with
respect to any period during which Executive is Disabled shall be reduced by
amounts payable to him under any insurance plan sponsored by the Company,
5
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provided that Executive's aggregate compensation during the period of Disability
shall be equal to 100% of his monthly Base Salary then in effect.
For the purposes of this Agreement, Executive shall be deemed to be
"Disabled" or have a "Disability" if, because of Executive's physical or mental
disability, (a) he has been substantially unable to perform his duties
hereunder for twelve (12) work weeks in any twelve (12)-month period, and (b) he
has utilized any and all benefits available to him under state and federal laws
and is either (i) unable to reasonably and effectively carry out his duties with
reasonable accommodations by the Company or (ii) unable to reasonably and
effectively carry out his duties because any reasonable accommodation which may
be required would cause the Company undue hardship. In the event of a
disagreement concerning Executive's perceived Disability, Executive shall submit
to such examinations as are deemed appropriate by three practicing physicians
specializing in the area of Executive's Disability, one selected by Executive,
one selected by the Company, and one selected by both such physicians. The
majority decision of such three physicians shall be final and binding on the
parties. Nothing in this paragraph is intended to limit the Company's right to
invoke the provisions of this paragraph with respect to any perceived Disability
of Executive.
Executive acknowledges that the payments referred to in this Section
4.3, together with any rights or benefits under any written plan or agreement
which have vested on or prior to the termination date of Executive's employment
under this Section 4.3, constitute the only payments to which Executive (or his
legal representative, as the case may be) shall be entitled to receive from the
Company hereunder in the event of a termination of his employment for death or
Disability, and that except for such payments the Company shall have no further
liability or obligation to him (or his legal representatives, as the case may
be) hereunder or otherwise in respect of his employment.
4.4 Continued Compliance. The amounts or benefits payable by the Company
--------------------
under Sections 4.2(b) and 4.3(c) are subject to Executive's continued compliance
with the provisions of Article V below. If Executive violates the provisions of
Article V, then the Company will have no obligation to make any of the payments
that remain payable by the Company under Sections 4.2(b) and 4.3(c) on or after
the date of such violation.
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ARTICLE V
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OWNERSHIP OF PROCEEDS OF EMPLOYMENT; NON-DISCLOSURE;
----------------------------------------------------
NON-COMPETITION
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5.1 Ownership of Proceeds of Employment. The Company shall be the sole
-----------------------------------
and exclusive owner throughout the universe in perpetuity of all of the results
and proceeds of Executive's services, work and labor during the Term in
connection with Executive's employment by the Company, free and clear of any and
all claims, liens or encumbrances. All results and proceeds of Executive's
services, work and labor during the Term shall be deemed to be works-made-for-
hire for the Company within the meaning of the copyright laws of the United
States and the Company shall be deemed to be the sole author thereof in all
territories and for all purposes.
5.2 Non-Disclosure of Confidential Information. As used herein,
------------------------------------------
"Confidential Information" means any and all information affecting or relating
to the business of the Company and its Affiliates, including without limitation,
financial data, customer lists and data, licensing arrangements, business
strategies, pricing information, product development, intellectual, artistic,
literary, dramatic or musical rights, works, or other materials of any kind or
nature (whether or not entitled to protection under applicable copyright laws,
or reduced to or embodied in any medium or tangible form), including without
limitation, all copyrights, patents, trademarks, service marks, trade secrets,
contract rights, titles, themes, stories, treatments, ideas, concepts,
technologies, art work, logos, hardware, software, and may be embodied in any
and all computer programs, tapes, diskettes, disks, mailing lists, lists of
actual or prospective customers and/or suppliers, notebooks, documents,
memoranda, reports, files, correspondence, charts, lists and all other written,
printed or otherwise recorded material of any kind whatsoever and any other
information, whether or not reduced to writing, including "know-how", ideas,
concepts, research, processes, and plans. "Confidential Information" does not
include information that is in the public domain, information that is generally
known in the trade, or information that Executive can prove he acquired wholly
independently of his employment with the Company. Executive shall not, at any
time during the Term or thereafter, directly or indirectly, disclose or furnish
to any other person, firm or corporation any Confidential Information, except in
the course of the proper performance of his duties hereunder or as required by
law (in which event Executive shall give prior written notice to Company and
shall cooperate with Company and Company's counsel in complying with such legal
requirements). Promptly upon the expiration or termination of Executive's
employment hereunder for any reason or whenever the Company so requests,
Executive shall surrender to the Company all documents, drawings, work papers,
lists, memoranda, records and
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other data (including all copies) constituting or pertaining in any way to any
of the Confidential Information.
5.3 Non-Competition. Executive shall not, for so long as he is entitled
---------------
to compensation under or pursuant to this Agreement (whether or not he is
actively employed by the Company hereunder), directly or indirectly: (a)
compete with the Company; or (b) be interested in, employed by, engaged in or
participate in the ownership, management, operation or control of, or act in any
advisory or other capacity for, any Competing Entity which conducts its business
within the Territory (as such terms are hereinafter defined); provided, however,
-------- -------
that notwithstanding the foregoing, Executive may make solely passive
investments in any Competing Entity the common stock of which is "publicly
held," and of which Executive shall not own or control, directly or indirectly,
in the aggregate securities which constitute more than one (1%) percent of the
voting rights or equity ownership of such Competing Entity; or (c) solicit or
divert any business or any customer from the Company or assist any person, firm
or corporation in doing so or attempting to do so; or (d) cause or seek to cause
any person, firm or corporation to refrain from dealing or doing business with
the Company or assist any person, firm or corporation in doing so or attempting
to do so.
For purposes of this Section 5.3, (i) the term "Competing Entity"
shall mean any entity which presently or during the period referred to above
engages in any business activity the Company is then engaged in or proposes to
be engaged in; and (ii) the term "Territory" shall mean any geographic area in
which the Company conducts business during such period.
5.4 Non-Solicitation. Executive shall not, for a period of two (2) years
----------------
from the date of any termination or expiration of his employment hereunder,
directly or indirectly: (a) solicit or hire, or attempt to solicit or hire, any
employee of the Company, or assist any person, firm or corporation in doing so
or attempting to do so; or (b) plan for, acquire any financial interest in or
perform any services for himself or any other entity in connection with a
business in which Executive's interest, duties or activities would inherently
require Executive to reveal any Confidential Information; or (c) solicit or
cause to be solicited the disclosure of or disclose any Confidential Information
for any purpose whatsoever or for any other party.
5.5 Breach of Provisions. In the event that Executive shall breach any of
--------------------
the provisions of this Article V, or in the event that any such breach is
threatened by Executive, in addition to and without limiting or waiving any
other remedies available to the Company at law or in equity, the Company shall
be entitled to immediate injunctive relief in any court, domestic or foreign,
having the capacity to grant such relief, without the necessity of posting a
bond, to restrain any such breach or threatened breach
8
<PAGE>
and to enforce the provisions of this Article V. Executive acknowledges and
agrees that there is no adequate remedy at law for any such breach or threatened
breach and, in the event that any action or proceeding is brought seeking
injunctive relief, Executive shall not use as a defense thereto that there is an
adequate remedy at law.
5.6 Reasonable Restrictions. The parties acknowledge that the foregoing
-----------------------
restrictions, the duration and the territorial scope thereof as set forth in
this Article V, are under all of the circumstances reasonable and necessary for
the protection of the Company and its business.
5.7 Definition. For purposes of this Article V, the term "Company" shall
----------
be deemed to include any subsidiary of, affiliate of, predecessor to, or
successor of the Company.
ARTICLE VI
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MISCELLANEOUS
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6.1 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective legal representatives, heirs,
distributees, successors and assigns; provided that the rights and obligations
--------
of Executive hereunder shall not be assignable by him.
6.2 Notices. Any notice provided for herein shall be in writing and shall
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be deemed to have been given or made when personally delivered or three (3) days
following deposit for mailing by first class registered or certified mail,
return receipt requested, or if delivered by facsimile transmission, upon
confirmation of receipt of the transmission, to the address of the other party
set forth below or to such other address as may be specified by notice given in
accordance with this Section 6.2:
(a) If to the Company:
Four Media Company
2813 W. Alameda Avenue
Burbank, CA 91505
Attention: Robert T. Walston, C.E.O.
Fax No.: (818) 846-5197
9
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With a copy to:
Greenberg Glusker Fields Claman
& Machtinger LLP
1900 Avenue of the Stars, #2100
Los Angeles, CA 90067
Attention: Jill A. Cossman, Esq.
Fax No.: (310) 553-0687
(b) If to Executive:
Robert Bailey
4230 Coloma Avenue
____________________________
Woodland Hills, CA 91364
____________________________
With a copy to:
Arter & Hadden
_______________________________
5959 Topanga Canyon Blvd., #244
_______________________________
attn: Christopher Husa, Eq.
_______________________________
_______________________________
Fax No.: (818) 346-6502
6.3 Severability. If any provision of this Agreement, or portion thereof,
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shall be held invalid or unenforceable by a court of competent jurisdiction,
such invalidity or unenforceability shall attach only to such provision or
portion thereof, and shall not in any manner affect or render invalid or
unenforceable any other provision of this Agreement or portion thereof, and this
Agreement shall be carried out as if any such invalid or unenforceable provision
or portion thereof were not contained herein. In addition, any such invalid or
unenforceable provision or portion thereof shall be deemed, without further
action on the part of the parties hereto, modified, amended or limited to the
extent necessary to render the same valid and enforceable.
6.4 Confidentiality. The parties hereto agree that they will not, during
---------------
the Term or thereafter, disclose to any other person or entity the terms or
conditions of this Agreement (excluding the financial terms hereof) without the
prior written consent of the other party or as required by law, regulatory
authority or as necessary for either party to obtain personal loans or
financing. Approval of the Company and of Executive shall be required with
respect to any press releases regarding this Agreement and the activities of
Executive contemplated hereunder.
6.5 Arbitration. Any controversy, claim or dispute arising out of or in
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any way relating to this Agreement, the alleged breach thereof, and/or
Executive's employment with the Company or
10
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termination therefrom, including without limitation, any and all claims for
employment discrimination or harassment, shall be determined by binding
arbitration administered by the American Arbitration Association under its
National Rules for Resolution of Employment Disputes ("Rules") which are in
effect at the time of the arbitration or the demand therefor. The Rules are
hereby incorporated by reference. California Code of Civil Procedure
(S)1283.05, which provides for certain discovery rights, shall apply to any such
arbitration, and said code section is also hereby incorporated by reference. In
reaching a decision, the arbitrator shall have no authority to change, extend,
modify or suspend any of the terms of this Agreement. The arbitration shall be
commenced and heard in Los Angeles County, California. The arbitrator(s) shall
apply the substantive law (and the law of remedies, if applicable) of California
or federal law, or both, as applicable to the claim(s) asserted. Judgment on
the award may be entered in any court of competent jurisdiction, even if a party
who received notice under the Rules fails to appear at the arbitration
hearing(s). The parties may seek, from a court of competent jurisdiction,
provisional remedies or injunctive relief in support of their respective rights
and remedies hereunder without waiving any right to arbitration. However, the
merits of any action that involves such provisional remedies or injunctive
relief, including, without limitation, the terms of any permanent injunction,
shall be determined by arbitration under this paragraph.
6.6 Waiver. No waiver by a party hereto of a breach or default hereunder
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by the other party shall be considered valid unless in writing signed by such
first party, and no such waiver shall be deemed a waiver of any subsequent
breach or default of the same or any other nature.
6.7 Controlling Nature of Agreement. To the extent any terms of this
-------------------------------
Agreement are inconsistent with the terms or provisions of the Company's
Employee Manual or any other personnel policy statements or documents, the terms
of this Agreement shall control. To the extent that any terms and conditions of
Executive's employment are not covered in this Agreement, the terms and
conditions set forth in the Employee Manual or any similar document shall
control such terms.
6.8 Entire Agreement. This Agreement sets forth the entire agreement
----------------
between the parties with respect to the subject matter hereof, and supersedes
any and all prior agreements or understanding between the Company and Executive,
whether written or oral, fully or partially performed relating to any or all
matters covered by and contained or otherwise dealt with in this Agreement.
This Agreement does not constitute a commitment of the Company with regard to
Executive's employment, express or implied, other than to the extent expressly
provided for herein.
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6.9 Amendment. No modification, change or amendment of this Agreement or
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any of its provisions shall be valid unless in writing and signed by the party
against whom such claimed modification, change or amendment is sought to be
enforced.
6.10 Authority. The parties each represent and warrant that they have the
---------
power, authority and right to enter into this Agreement and to carry out and
perform the terms, covenants and conditions hereof.
6.11 Applicable Law. This Agreement, and all of the rights and obligations
--------------
of the parties in connection with the employment relationship established
hereby, shall be governed by and construed in accordance with the substantive
laws of the State of California without giving effect to principles relating to
conflicts of law.
6.12 Counterparts. Thus Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY"
FOUR MEDIA COMPANY
By: /s/ Robert Walston
____________________________
Name:__________________________
Title: CEO
_________________________
"EXECUTIVE"
/s/ Robert Bailey
________________________________
Robert Bailey
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EXHIBIT 10.28
MTV ASIA LDC
8 Shenton Way #01-01
Treasury Building
Republic of Singapore 0106
August 1, 1996
Four Media Company Asia PTE Ltd.
30 Choon Guan Street #04-00
City South Telephone Exchange
Republic of Singapore 079809
Re: Agreement Dated As Of February 13, 1995 Between
MTV Asia LDC and Four Media Company Asia
PTE Ltd. - "MTV India" and "MTV Mandarin Opt-Out" Services
----------------------------------------------------------
Ladies and Gentlemen:
Reference is hereby made to that certain Agreement dated as of February 13,
1995 between MTV Asia LDC ("MTVA") and Four Media Company Asia PTE Ltd. ("4MCA")
(the "Agreement"), as amended from time to time. This letter sets forth the
understanding between 4MCA and MTVA relating to 4MCA's provision of certain "MTV
India" and "MTV Mandarin opt-out" services to MTVA under the Agreement and shall
amend the Agreement accordingly. All capitalized terms used herein and not
defined herein shall have the meanings set forth in the Agreement.
1. SERVICES. The services to be provided by 4MCA to MTVA pursuant to the
--------
Agreement shall include "MTV India" and "MTV Mandarin opt-out" services. Such
services shall include 4MCA's installation, operation and maintenance of
necessary systems, and 4MCA's development, staffing and performance of necessary
procedures, in order to provide an "MTV India" service. Such services shall
include an independent MTV India program feed and an MTV Mandarin "opt-out"
program segment. Such services are further and more comprehensively described
in the "MTV India Specification" attached hereto as Exhibit "A" and incorporated
herein by reference, and shall be collectively referred to herein as the
"Services."
2. ADDITIONAL CREW. 4MCA shall initially supplement the Origination Crew
---------------
with two additional Crew members. On the third month anniversary from the
commencement date
<PAGE>
Four Media Company Asia PTE Ltd.
August 1, 1996
Page 2
of the Services, MTVA and 4MCA shall review the need for the second additional
Crew member. 4MCA shall perform the Services in the event of staff absences,
including without limitation, termination, illness, personal leave, National
Service and similar absences, at no additional cost to MTVA.
3. EQUIPMENT. 4MCA shall acquire, install and maintain additional
---------
Equipment as specified in the list attached hereto as Exhibit "B" and
incorporated herein by reference.
4. COMMENCEMENT DATE. The parties acknowledge and agree that 4MCA shall
-----------------
commence the acquisition of Equipment, hiring of the additional Crew members and
other similar preparatory activities no later than August 1, 1996. The parties
further agree that the commencement date for the performance of the Services
shall be October 15, 1996, except that during the period from October 15, 1996
to no later than November 15, 1996, the Services shall not include (a) "local
avails" insertions and (b) a S-VHS "back-up". From and after November 15, 1996,
the Services shall include the items described in subparagraphs (a) and (b) of
the prior sentence.
5. CONSIDERATION. In consideration for 4MCA's performance of the
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Services, the Monthly Base Fee shall be increased by an amount equal to [*]
Singapore Dollars [(*)] (the "Monthly Fee Increase"). Such increase shall become
effective on October 1, 1996 or the commencement date of the Services, whichever
is earlier, prorated as applicable for a partial month. The Monthly Fee Increase
shall be increased annually in accordance with the provisions of Paragraph
6.1(b) of the Agreement.
6. EQUIPMENT FAILURE; TERMINATION; CREDIT OFFSET. To reflect the added
---------------------------------------------
complexity of the Services described herein, MTVA acknowledges and agrees that
MTVA's termination rights as described in Paragraphs 9.1(b), (c) and (d) of the
Agreement shall not apply in the event of a Default and loss of origination
signals caused by: (a) the failure of Equipment associated with the Services;
or (b) the failure of the Master Control One Sony LMS 1000 and associated
videotape machines in connection with the provision of the Services; or (c) the
interruption of any aspect of the Origination Services which is a consequence of
the failure of Equipment associated with the Services. Notwithstanding with
foregoing, upon any Default and loss of origination signals in respect of the
Services only, 4MCA shall grant to MTVA a prorated credit of the Monthly Fee
Increase, to be calculated using the following standards:
(a) Any interruption of a period of 60 seconds or more within a period
of five consecutive minutes shall be treated as an interruption of five
minutes; and
<PAGE>
Four Media Company Asia PTE Ltd.
August 1, 1996
Page 3
(b) Two or more interruptions of any length occurring during any period
of five consecutive minutes shall be treated as one interruption of
five minutes.
In order to calculate the amount of the credit in any given month, the amount of
the Monthly Fee Increase shall be multiplied by a fraction, the numerator of
which is the number of minutes of interruption of the Services in such month and
the denominator of which is the total number of minutes of the Services in such
month. The parties acknowledge and agree that 4MCA shall not be required to
grant to MTVA any credit with respect to performance of the Services during the
period from October 15, 1996 to and including January 15, 1997 in order to
provide 4MCA with a "grace period" to allow the Services to become fully
operational.
7. CANCELLATION. If MTVA exercises the Cancellation Option, then in
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addition to the Cancellation Fee described in Paragraph 2.2(b) of the Agreement,
4MCA shall pay an additional Cancellation Fee in an amount equal to [*]
Singapore Dollars [(*)].
8. GUARANTEE. MTVA's obligations hereunder shall be guaranteed by Viacom
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International Inc. and Polygram N.V. pursuant to the terms of the Guaranty in
the form attached hereto as Exhibit "C" and incorporated herein by the
reference.
Unless otherwise specifically set forth herein, all of the terms and
provisions of the Agreement applicable to the Services to be provided by 4MCA to
MTVA thereunder shall apply with respect to the Services to be provided by 4MCA
hereunder.
If this letter reflects your understanding with respect to the subject
matter contained herein, please indicate your acknowledgment and agreement of
the terms hereof by signing this letter in the space provided below.
Very truly yours,
MTV ASIA LDC
By: /s/ P. Jamison
---------------------------------
Name: P. Jamison
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Its: President
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[SIGNATURES CONTINUED ON PAGE 4]
<PAGE>
Four Media Company Asia PTE Ltd.
August 1, 1996
Page 4
ACKNOWLEDGED AND AGREED:
FOUR MEDIA COMPANY ASIA PTE LTD.
By: /s/ John H. Sabin
------------------------------------
Name: John H. Sabin
----------------------------------
Its: Exec. Vice-President
-----------------------------------
