<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1996
REGISTRATION NO. 333-13891
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE TODD-AO CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7819 13-1679856
(State or other (Primary Standard Industrial (I.R.S. Employer ID
jurisdiction of Classification Code No.) No.)
incorporation or
organization)
</TABLE>
172 GOLDEN GATE AVENUE
SAN FRANCISCO, CALIFORNIA 94102
(415) 928-3200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
SALAH M. HASSANEIN
900 NORTH SEWARD STREET
HOLLYWOOD, CALIFORNIA 90038
(213) 962-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
Copies to:
PAULA J. PETERS, ESQ. MICHAEL J. FAIRCLOUGH, ESQ.
MICHAEL V. BALES, ESQ. RICHARD A. BOEHMER, ESQ.
Greenberg Glusker Fields O'Melveny & Myers LLP
Claman & Machtinger LLP 400 South Hope Street
1900 Avenue of the Stars, Suite 2100 Los Angeles, CA 90071
Los Angeles, CA 90067 (213) 669-6000
(310) 553-3610 (213) 669-6407 (fax)
(310) 553-0687 (fax)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE 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, 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. / /
--------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
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.
<PAGE>
DATED OCTOBER 24, 1996
[LOGO]
2,500,000 SHARES
THE TODD-AO CORPORATION
CLASS A COMMON STOCK
------------------
ALL OF THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY (THE "SHARES") ARE
BEING OFFERED BY
THE TODD-AO CORPORATION (THE "COMPANY" OR "TODD-AO").
------------------------
THE CLASS A COMMON STOCK IS INCLUDED IN THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "TODDA." ON OCTOBER 22, 1996, THE LAST REPORTED SALES PRICE FOR THE CLASS
A COMMON STOCK ON THE NASDAQ NATIONAL MARKET WAS $10.50 PER SHARE. SEE "PRICE
RANGE OF COMMON STOCK AND DIVIDENDS."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
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.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
PER SHARE $ $ $
TOTAL (3) $ $ $
</TABLE>
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE SEVERAL UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $500,000.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
AN ADDITIONAL 375,000 SHARES OF CLASS A COMMON STOCK TO COVER
OVER-ALLOTMENTS, IF ANY. IF ALL SUCH SHARES ARE PURCHASED, THE TOTAL PRICE
TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS, AND PROCEEDS TO COMPANY
WILL BE $ , $ , AND $ , RESPECTIVELY. SEE "UNDERWRITING."
------------------------
THE SHARES ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED HEREIN WHEN, AS AND
IF RECEIVED AND ACCEPTED BY THEM, SUBJECT TO THEIR RIGHT TO REJECT ANY ORDER IN
WHOLE OR IN PART AND SUBJECT TO CERTAIN OTHER CONDITIONS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE IN NEW YORK, NEW YORK, ON OR ABOUT
, 1996.
------------------------
DEAN WITTER REYNOLDS INC. BREAN MURRAY & CO., INC.
<PAGE>
, 1996
<PAGE>
ARTWORK CONSISTS OF FIVE PICTURES. ONE PICTURE, CAPITONED ABOVE: STAGE 1,
TODD-AO STUDIOS, HOLLYWOOD, CA, DEPICTS AN EMPTY SOUND STAGE. ONE PICTURE,
CAPTIONED ABOVE: WORKSTATION, TODD-AO DIGITAL IMAGES, HOLLYWOOD, DEPICTS A
GENTLEMAN SEATED AT A COMPUTER DESIGNING SPECIAL EFFECTS. ONE PICTURE, CAPTIONED
ABOVE: CHRYSALIS/TODD-AO EUROPE, LONDON, SHOWS A FOUR-STORY BUILDING. ONE
PICTURE, CAPTIONED ABOVE: TODD-AO SCORING STAGE, STUDIO CITY, CA, DEPICTS AN
ORCHESTRA ENGAGED IN A SCORING SESSION ON A SCORING STAGE. ONE PICTURE,
CAPTIONED ABOVE: TELECINE BAY, TODD-AO VIDEO SERVICES, HOLLYWOOD, DEPICTS A
GENTLEMAN SEATED AT A TELECINE CONSOLE PERFORMING TELECINING.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SEE
"UNDERWRITING."
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>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. 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 ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 8
The Company............................................................... 11
Recent Developments....................................................... 11
Use of Proceeds........................................................... 12
Price Range of Common Stock and Dividends................................. 13
Capitalization............................................................ 14
Selected Consolidated Financial Data...................................... 15
Unaudited Pro Forma Condensed Consolidated Information.................... 16
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 21
Business.................................................................. 26
Management................................................................ 37
Principal Shareholders.................................................... 42
Description of Capital Stock.............................................. 44
Shares Eligible for Future Sale........................................... 45
Underwriting.............................................................. 47
Legal Matters............................................................. 48
Experts................................................................... 48
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act") with respect to
the Class A Common Stock offered hereby. This Prospectus, which constitutes part
of the Registration Statement, omits certain information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and regulations of the
Commission thereunder. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and, in
each instance, reference is made to the contract or document filed as an exhibit
to the Registration Statement and incorporated by reference herein. The Company
is subject to the information requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and in accordance therewith files reports,
proxy statements and other information with the Commission (collectively,
"Exchange Act Filings"). The Registration Statement, including exhibits and
schedules thereto, as well as the Company's Exchange Act Filings may be obtained
from the Commission's principal office at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven World
Trade Center, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
public reference section of the Commission at its Washington address upon
payment of the fees prescribed by the Commission, or may be examined without
charge at the offices of the Commission, or accessed through the Commission's
Internet address at http://www.sec.gov.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS THE CONTEXT OTHERWISE REQUIRES,
REFERENCES IN THIS PROSPECTUS TO THE COMPANY OR TODD-AO INCLUDE THE TODD-AO
CORPORATION AND ITS SUBSIDIARIES.
THE COMPANY
Todd-AO provides sound, video and ancillary post production and distribution
services to the motion picture and television industries in the United States
and Europe. The Company believes that it is one of the largest independent
providers of combined sound studio and video services in the world with
facilities located in Los Angeles, New York, London and Atlanta. Sound services
include music recording, sound editing and enhancement and the mixing of
dialogue, music and sound effects. Todd-AO's principal video services include
film-to-video transfer (telecine), mastering and duplication of professional
videotape formats, transmission for satellite broadcast, videotape editing,
audio post production, and visual effects and graphics. Todd-AO provides these
sound and video services to over 500 clients, including the major motion picture
studios and television production companies such as The Walt Disney Company
("Disney"), Paramount Pictures Corporation ("Paramount"), Turner Broadcasting
System, Inc. ("Turner"), Sony Pictures Entertainment ("Sony"), Warner Bros.
Studios Inc. ("Warner Bros.") and Spelling Entertainment Group, Inc.
("Spelling"). The Company believes that its principal strengths include the
depth and continuity of its creative and artistic talent, the quality and scope
of its facilities, a tradition of providing quality services to its clients and
a history of technological innovation. Since its inception in 1952, the Company
and its employees have been nominated for 31 Academy
Awards-Registered Trademark- and have won 18.
Demand for the Company's services and facilities is principally derived from
the production of new motion pictures, television programs and television
commercials, as well as the distribution of previously released motion pictures
and television programming through distribution channels such as television
syndication, home video, cable and satellite. Historically, its clients have
outsourced, and are expected by the Company to continue to outsource, many
services required for production, post production, and distribution of film and
television programming. The Company believes that trends toward digitalization
and globalization in the entertainment and media industries are increasing the
quality, variety and number of post production services required by customers.
The Company believes that the worldwide market penetration of distribution
channels such as home video and digital satellite broadcast is contributing to a
growing demand for original and reissued programming, American product in
particular, which in turn should increase demand for the Company's services.
The Company's objective is to be the leading worldwide independent provider
of sound and video post production services. Since 1994, the Company has
implemented a strategy to achieve this objective and to capitalize on the
movement towards digitalization and globalization in the motion picture and
television industries by expanding its range of services through strategic
acquisitions, internal growth and strategic alliances. The Company believes that
in the future, U.S. and international entertainment and media companies will
demand a broader range of sound and video post production services and are
likely to prefer a single-source service provider. This strategy was formulated
by the Company and is being executed under the leadership of Salah M. Hassanein,
who became President in 1994. Mr. Hassanein has spent his entire career in the
entertainment and media industry and has garnered both international experience
and mergers and acquisitions expertise with United Artists Theatre Circuit, Inc.
and Time Warner International Theatres, where he was responsible for development
and expansion of Warner Bros.' overseas theater operations. To implement its
strategy, the Company has assembled a senior management team experienced in the
industry.
4
<PAGE>
The Company entered the video services business in 1994 through its
acquisition of Film Video Masters, renamed Todd-AO Video Services. In 1995, the
Company expanded its sound studio business through the acquisition of Skywalker
Sound South, renamed Todd-AO Studios West, with sound studios and facilities
located in the West Los Angeles area. Also in 1995, the Company expanded its
operations into Europe through the acquisition of Chrysalis Television
Facilities, Ltd. ("Chrysalis"), which augmented the Company's video services
capabilities to include the collation of television programming for satellite
broadcast. The purchase of Filmatic Laboratories ("Filmatic") in 1996 enlarged
Todd-AO's video services capabilities in London and added film processing
capability. In August 1996, the Company acquired Edit Acquisition LLC
("Editworks"), located in Atlanta, Georgia, which specializes in providing video
services to the advertising industry. As a result of these transactions, the
Company has expanded its client base, increased its range of services and
broadened its global market coverage.
Largely as a result of efforts implementing its strategy, the Company's
annual sales have grown in the past three years at an annual compounded rate of
32% from $27.4 million in fiscal 1993 to $62.9 million in fiscal 1996. Net
income has grown in the same period at an annual compounded rate of 62% from
$1.14 million in fiscal 1993 to $4.84 million in fiscal 1996.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered................................ 2,500,000 shares of Class A Common
Stock
Common Stock Outstanding After the Offering......... 9,055,640 shares of Class A Common
Stock and 1,747,181 shares of Class
B Common Stock (1)
Use of Proceeds..................................... For possible future acquisitions,
temporary repayment of amounts under
credit facility, working capital
requirements and general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market Symbol....................... "TODDA"
</TABLE>
- ------------------------
(1) Excludes 660,000, 330,000 and 770,000 shares of Class A Common Stock
reserved for issuance under the Company's 1986 Stock Option Plan, 1994 Stock
Option Plan, and 1995 Stock Option Plan (the "Stock Option Plans"),
respectively, of which options for an aggregate of 1,008,645 shares of Class
A Common Stock were issued and outstanding as of August 31, 1996 and options
for an aggregate of 514,677 shares of Class A Common Stock were exercisable
as of August 31, 1996. See "Management--Stock Options."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31, NINE MONTHS ENDED MAY 31,
-------------------------------------------- ---------------------------------
1995 1996
---------------------- ----------------------
PRO PRO
1993 1994 ACTUAL FORMA(1) 1995 ACTUAL FORMA(1)
--------- --------- --------- ----------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues............................. $ 27,402 $ 32,892 $ 50,003 $ 53,194 $ 37,125 $ 48,140 $ 51,445
--------- --------- --------- ----------- --------- --------- -----------
Costs and expenses:
Operating costs and other
expenses......................... 22,641 27,021 39,867 42,126 29,405 37,231 39,345
Depreciation and amortization...... 2,412 2,603 3,917 4,526 3,014 3,967 4,480
Interest expense................... 17 24 581 874 320 531 780
Equipment lease expense, net....... -- -- 593 593 371 415 415
Other (income) expense, net........ (483) (773) (290) (315) (223) (554) (600)
--------- --------- --------- ----------- --------- --------- -----------
Total costs and expenses......... 24,587 28,875 44,668 47,804 32,887 41,590 44,420
--------- --------- --------- ----------- --------- --------- -----------
Income before loss from joint venture
and provision for income taxes..... 2,815 4,017 5,335 5,390 4,238 6,550 7,025
Loss from joint venture.............. (1,014) (1,215) (249) (249) (167) (117) (117)
--------- --------- --------- ----------- --------- --------- -----------
Income before provision for income
taxes.............................. 1,801 2,802 5,086 5,141 4,071 6,433 6,908
Provision for income taxes........... 664 1,022 1,711 1,731 1,452 2,371 2,542
--------- --------- --------- ----------- --------- --------- -----------
Net income........................... $ 1,137 $ 1,780 $ 3,375 $ 3,410 $ 2,619 $ 4,062 $ 4,366
--------- --------- --------- ----------- --------- --------- -----------
--------- --------- --------- ----------- --------- --------- -----------
Net income per common share and
common share equivalents(2)........ $ 0.14 $ 0.22 $ 0.40 $ 0.40 $ 0.31 $ 0.46 $ 0.49
--------- --------- --------- ----------- --------- --------- -----------
--------- --------- --------- ----------- --------- --------- -----------
Weighted average shares
outstanding(2)..................... 8,279 8,196 8,399 8,466 8,352 8,805 8,872
--------- --------- --------- ----------- --------- --------- -----------
--------- --------- --------- ----------- --------- --------- -----------
OTHER FINANCIAL DATA:
Capital expenditures................. $ 393 $ 1,404 $ 3,345 $ 3,848 $ 2,638 $ 3,317 $ 3,950
EBITDA(3)............................ 5,244 6,644 9,833 10,790 7,572 11,048 12,285
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1996
-----------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(4) ADJUSTED(5)
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 3,263 $ 3,274 $ 18,749
Working capital................................................................ 11,181 11,012 26,487
Total assets................................................................... 57,684 64,469 79,944
Long-term debt, net of current portion......................................... 6,065 10,945 2,508
Stockholders' equity........................................................... 34,594 35,564 59,476
</TABLE>
(FOOTNOTES BEGIN ON NEXT PAGE)
6
<PAGE>
(1) The Company purchased substantially all of the assets and certain
liabilities of Editworks for cash and the Company's Class A Common Stock as
of August 15, 1996. The pro forma summary financial data gives effect to the
acquisition of Editworks as if it had occurred as of September 1, 1994. Such
pro forma consolidated financial information is not necessarily indicative
of the financial position or results of operations as they may be in the
future or as they might have been had the acquisition been effected on the
assumed date. See "Unaudited Pro Forma Condensed Consolidated Information."
(2) Such amounts represent net income per common share and common share
equivalents, pro forma, to give effect to the 66,863 shares of the Company's
Class A Common Stock issued as part of the purchase of Editworks. The net
income per common share and common share equivalent is computed based upon
the weighted average number of shares of common stock and common stock
equivalents, including the number of shares of common stock issued in
connection with the purchase of Editworks, and includes common share
equivalents arising from the assumed conversion of any outstanding dilutive
stock options. All share and per share data has been adjusted to give effect
to the 10% stock dividends paid in August 1995.
(3) EBITDA, defined as earnings before interest expense, income taxes,
depreciation and amortization and loss from joint venture, is not intended
to represent an alternative to net income (as determined in accordance with
generally accepted accounting principles) as a measure of performance and is
also not intended to represent an alternative to cash flow from operating
activities as a measure of liquidity. Rather, it is included herein because
management believes that it provides an important additional perspective on
the Company's operating results and the Company's ability to service its
long-term debt and to fund the Company's continuing operations.
(4) Adjusted to give effect to the Editworks acquisition, consummated in the
fourth quarter of 1996, as if the acquisition was consummated as of May 31,
1996.
(5) Adjusted to give effect to (i) the sale of 2,500,000 shares of Class A
Common Stock offered hereby by the Company at an assumed offering price to
the public of $10.50 per share, net of underwriting discounts and commission
and estimated expenses of the offering, (ii) the Editworks acquisition as if
it occurred as of May 31, 1996, and (iii) the anticipated use of the
estimated net proceeds of the offering. See "Unaudited Pro Forma Condensed
Consolidated Information" and "Use of Proceeds."
7
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS,
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN EVALUATING
AN INVESTMENT IN THE SHARES OFFERED HEREBY. THIS PROSPECTUS CONTAINS CERTAIN
STATEMENTS OF A FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR THE FUTURE
FINANCIAL PERFORMANCE OF THE COMPANY. PROSPECTIVE INVESTORS ARE CAUTIONED THAT
SUCH STATEMENTS ARE ONLY PREDICTIONS AND THAT ACTUAL EVENTS OR RESULTS MAY
DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD
SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS PROSPECTUS,
INCLUDING THE MATTERS SET FORTH BELOW, WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends in large part
upon the continued service of its key management, especially the Company's
President and Chief Executive Officer, Salah M. Hassanein, and of its skilled
technicians and artists, for whose services competition is intense. See
"Management." Mr. Hassanein's international experience and his expertise in
mergers and acquisitions is critical to the development and implementation of
the Company's business strategy. The Company has no employment agreement with
Mr. Hassanein; however, it does have employment agreements with Christopher D.
Jenkins, Senior Vice President of the Company and the President of Todd-AO
Studios, J.R. DeLang, Senior Vice President of the Company and Executive Vice
President of Todd-AO Studios, as well as with 58 of its other key management,
creative and technical personnel. See "Management--Employment Agreements."
Todd-AO does not maintain "key man" life insurance for any of its employees. The
loss of Mr. Hassanein or any significant number of other key managers, skilled
technicians or artists or a significant labor strike or work stoppage could have
a material adverse effect on the Company.
FLUCTUATION IN QUARTERLY RESULTS. The demand for the Company's core motion
picture services has historically been seasonal, with higher demand in the fall
(first fiscal quarter) and spring (third fiscal quarter) preceding the Christmas
holiday season and summer theatrical releases, respectively. Demand has been
lower in the winter and summer, corresponding to the Company's second and fourth
fiscal quarters, respectively. Accordingly, the Company has historically
experienced, and expects to continue to experience, quarterly fluctuations in
revenue and net income.
The majority of the services performed by the Company are provided on a
non-contractual basis. Clients may desire to accelerate, postpone or cancel
previously scheduled services prior to the commencement of the project. As a
result, the Company is susceptible to scheduling changes or cancellations by
customers and may not be able to reschedule or secure additional work to replace
previously scheduled projects. The post production services normally provided by
the Company for a major motion picture may occur over a period of several weeks.
The rescheduling or cancellation of such a project may have a material affect on
the quarterly and/or annual operating results of the Company.
Certain major motion picture projects may result in significant
unanticipated additional revenues due to substantial overtime services provided
by the Company. These additional revenues may be material to the Company's
results of operations; however, their occurrence or probability cannot be
predicted. As a result, the occurrence of these additional revenues in a
particular fiscal period may materially affect the comparability of operating
results for equivalent reporting periods.
As a result of the factors described above, there can be no assurance that
results of operations will not fluctuate significantly from period to period. In
addition, results of operations for any fiscal period are not necessarily
indicative of results of operations for any future fiscal period.
CAPACITY UTILIZATION. Todd-AO's sound studio business operates at or near
effective capacity. The effective utilization of the Company's sound studios
depends on motion picture producers and, to a lesser extent, television
producers maintaining production at or above recent levels, and on no major
production interruptions due to work stoppages or other crises. The Company
believes that there will not be a substantial increase, and there may be a
decrease, in the current production of feature films and television programming,
which could have a material adverse effect on the Company.
8
<PAGE>
COMPETITION. The businesses in which the Company competes are highly
competitive and service-oriented. The Company has few long-term or exclusive
service agreements with its customers. Business generation is based primarily on
customer satisfaction with reliability, timeliness, quality and price. Some of
the Company's competitors have greater financial, technical and marketing
resources. There is no assurance that the Company will be able to compete
effectively against these competitors. The Company's primary competitors in the
studio sound services area are the motion picture studios, many of which perform
these services "in-house." The motion picture studios with in-house post
production capabilities generally operate at or near capacity, and therefore
outsource some of their requirements, usually to independent providers such as
the Company, but sometimes to other studios with in-house capability. The
Company's studio sound business is derived primarily from the major studios'
periodic lack of capacity or the ability of the film director or other key
creative personnel to select the post production provider, even when the film is
produced or distributed by a studio with in-house capabilities. In addition,
many of the major studios without full in-house post production capabilities
evaluate from time-to-time whether to perform in-house certain of the services
provided by the Company. If there were a significant decline in the number of
motion pictures or the amount of original television programming produced, or if
the studios or other clients of the Company either established in-house post
production facilities or significantly expanded their in-house capabilities, the
Company's operations could be materially and adversely affected.
CUSTOMER CONCENTRATION. Although the Company serviced over 500 customers
during the nine months ended May 31, 1996, the ten largest customers accounted
for approximately 50% of the Company's revenues and the single largest customer,
Disney, accounted for approximately 12% of revenues during the period. The loss
of, or the failure to replace, any significant portion of the services provided
to any significant customer could have a material adverse effect on the Company.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company
intends to continue making capital expenditures to fund technological
development, acquire complementary businesses and introduce additional services.
Based on current plans and assumptions relating to its operations, the Company
anticipates that the net proceeds of this offering, together with its existing
capital, credit facility and cash from operations, will be adequate to satisfy
its capital requirements through at least the end of 1997. There can be no
assurance, however, that the net proceeds of this offering and such other
sources of funding will be sufficient to satisfy the Company's future capital
requirements or that the Company will not require additional capital sooner than
currently anticipated. In addition, the Company cannot predict the precise
amount of future capital that it will require, and there can be no assurance
that any additional financing will be available to the Company on acceptable
terms, or at all. The inability to obtain required financing would have a
material adverse effect on the Company.
RISKS RELATED TO GROWTH THROUGH ACQUISITIONS. The Company's strategy for
growth includes expanding the range of post production services it provides to
existing clients and increasing its customer base through strategic
acquisitions, internal growth and strategic alliances. There can be no assurance
that the Company will be able to acquire or profitably manage suitable
acquisition candidates or successfully integrate them into its operations
without substantial costs, delays or other problems. In addition, there can be
no assurance that any businesses acquired will be profitable at the time of its
acquisition or will achieve sales and profitability that justify the investment
therein or that the Company will be able to realize expected operating and
economic efficiencies following such acquisitions. Acquisitions may involve a
number of special risks, including adverse effects on the Company's reported
operating results, diversion of management's attention, increased burdens on the
Company's management resources and financial controls, dependence on retention
and hiring of key personnel, risks associated with unanticipated problems or
legal liabilities, and amortization of acquired intangible assets, some or all
of which could have a material adverse effect on the Company. Competition for
acquisition opportunities from the Company's competitors, which may have greater
financial resources than the Company, could increase purchase prices and related
costs of potential acquisitions and result in fewer acquisitions by the Company,
which could adversely affect the Company. There can be no assurance that the
Company will be able to successfully
9
<PAGE>
implement its growth strategy, and if not, the prospects of the Company may be
adversely affected. See "Business--Strategy."
CONTROL BY PRINCIPAL SHAREHOLDERS; POTENTIAL ISSUANCE OF PREFERRED STOCK;
ANTI-TAKEOVER PROVISIONS. Upon completion of this offering, and assuming no
exercise of the Underwriters' over-allotment option, Marshall Naify, Robert A.
Naify, various members of their families, and trusts for the benefit of such
members (collectively, the "Naify Interests") will own shares representing 75.7%
of the voting power of the Company. By virtue of this stock ownership, the Naify
Interests will be able to determine the outcome of substantially all matters
required to be submitted to a vote of shareholders, including (i) the election
of the board of directors, (ii) amendments to the Company's Amended and Restated
Certificate of Incorporation, and (iii) approval of mergers and other
significant corporate transactions. The foregoing may have the effect of
discouraging, delaying or preventing certain types of transactions involving an
actual or potential change of control of the Company, including transactions in
which the holders of Class A Common Stock might otherwise receive a premium for
their shares over current market prices. In addition, the Company's Board of
Directors has the authority to issue up to 1,000,000 shares of Preferred Stock
and to determine the price, rights, preferences, privileges and restrictions
thereof, including voting rights, without any further vote or action by the
Company's shareholders. Although the Company has no current plans to issue any
shares of Preferred Stock, the rights of the holders of Common Stock would be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. Issuance of Preferred Stock
could have the effect of discouraging, delaying or preventing a change in
control of the Company. Furthermore, certain provisions of the Company's Amended
and Restated Certificate of Incorporation and By-laws and of Delaware law also
could have the effect of discouraging, delaying or preventing a change in
control of the Company. See "Principal Shareholders" and "Description of Capital
Stock."
BROAD DISCRETION AS TO USE OF PROCEEDS. The Company intends to use the net
proceeds from the sale of the Class A Common Stock offered hereby for general
corporate purposes, including, temporary repayment of indebtedness, potential
acquisitions of businesses complementary to the Company's operations and capital
expenditures. In the ordinary course of business, the Company actively explores
acquisition opportunities and has had discussions with a number of potential
acquisition candidates. However, the Company does not have any agreement,
understanding or commitment to acquire any particular business or repay any
indebtedness, nor has it identified particular capital expenditure projects. The
Company's management will therefore have broad discretion as to the use of the
proceeds of this offering and there is no assurance that the Company will be
able to consummate acquisitions or identify and initiate projects that meet the
Company's requirements. See "Use of Proceeds" and "Business-- Strategy."
FOREIGN MARKETS. The Company's growth strategy provides for increased
services to foreign customers and to domestic customers distributing programming
to the international market. Accordingly, the Company will be increasingly
subject to the risks generally associated with marketing products or services
abroad, such as currency fluctuation, political instability and the political,
legislative and regulatory environment in foreign countries. The Company does
not believe any of such risks have had a material impact on its business
operations or financial condition, but there can be no assurance as to whether
such risks will have a material impact in the future.
LIMITED FLOAT AND LIQUIDITY; POSSIBLE VOLATILITY OF STOCK PRICE. There has
been limited public trading of the Class A Common Stock. During the 12-month
period ended August 31, 1996, the average daily trading volume of shares of the
Company's Class A Common Stock on the Nasdaq National Market was 11,739 shares.
Furthermore, at times the Class A Common Stock has experienced price and volume
fluctuations caused by matters unrelated, as well as related, to the Company's
business and results of operations. Although the number of outstanding shares of
Class A Common Stock will increase by 2,500,000 (2,875,000 if the underwriters'
over-allotment option is exercised) upon the closing of the offering, there
10
<PAGE>
can be no assurance that increased trading activity will develop or be sustained
or that market price volatility will diminish.
RISK OF LOSS FROM EARTHQUAKES, FIRE OR OTHER CATASTROPHIC EVENTS. The
Company is subject to the risk of loss from earthquakes, fires and other
catastrophic events due to the dependence of its services on specially equipped,
acoustically designed facilities. Due to the extensive amount of specialized
equipment incorporated into the specially designed recording and scoring stages,
editorial suites and mixing rooms, the Company's operations cannot be
temporarily relocated to mitigate the occurrence of a catastrophic event.
Consequently, the Company carries insurance for property loss and business
interruption resulting from such events, other than earthquake, subject to
deductibles. The Company does not carry earthquake insurance due to the
unavailability of comprehensive coverage and the prohibitive cost of the
coverage that is available. Although the Company believes it has adequate
insurance coverage relating to damage to its property and the disruption of its
business from casualties such as fire, there can be no assurance that such
insurance would be sufficient to cover all costs or damages suffered by the
Company or the loss of income resulting from the Company's inability to provide
services for an extended period of time.
THE COMPANY
Todd-AO provides sound, video and ancillary post production and distribution
services to the motion picture and television industries in the United States
and Europe. The Company believes that it is one of the largest independent
providers of combined sound studio and video services in the world with
facilities located in Los Angeles, New York, London and Atlanta. Sound services
include music recording, sound editing and enhancement, mixing of music, sound
effects and dialogue and narration. Todd-AO's principal video services include
film-to-video transfer (telecine), mastering and duplication of professional
videotape formats, transmission for satellite broadcast, videotape editing,
audio post production, and visual effects and graphics. Todd-AO provides these
sound and video services to over 500 clients, including the major motion picture
studios and television production companies such as Disney, Paramount, Turner,
Sony, Warner Bros. and Spelling. The Company believes that its principal
strengths include the depth and continuity of its creative and artistic talent,
the quality and scope of its facilities, a tradition of providing quality
services to its clients, and a history of technological innovation. Since its
inception in 1952, the Company and its employees have been nominated for 31
Academy Awards-Registered Trademark- and have won 18.
The Company was incorporated in Delaware in 1952. The Company's principal
executive offices are located at 172 Golden Gate Avenue, San Francisco,
California 94102, and its telephone number is (415) 928-3200.
RECENT DEVELOPMENTS
Consolidated revenues for fiscal 1996 totaled $62.920 million compared to
$50.003 million in fiscal 1995, an increase of 26%. Fiscal 1996 net income
increased to $4.844 million, or $0.55 per share from $3.375 million or $0.40 per
share in the prior year, an increase in earnings per share of 37%. These
improvements were due primarily to the acquisitions of Todd-AO Studios West in
February 1995 and Chrysalis in March 1995. Fiscal 1996 revenue increases for
these subsidiaries were $4.663 million and $5.839 million, respectively, which
represent twelve months of operations versus partial periods in fiscal 1995.
Consolidated revenues for the fourth quarter ended August 31, 1996 totaled
$14.780 million compared to $12.878 million for the similar period in the prior
year, an increase of 15%. Fourth quarter profit before taxes increased 17% from
$1.015 million to $1.193 million. Net income increased from $756 thousand in
fiscal 1995 to $782 thousand in the current quarter, despite favorable year-end
tax adjustments of approximately $200 thousand in the prior year. Fourth quarter
earnings per share of $0.09 remained unchanged from a year ago.
11
<PAGE>
Revenue gains in the fourth quarter were attributable to strong summer
activity at the Todd-AO Studios East and Todd-AO Studios West subsidiaries,
including work on major motion pictures, RANSOM and COURAGE UNDER FIRE,
respectively. Contributions to revenue growth were also made by the Company's
video services operations, specifically Todd-AO Video Services, whose revenues
increased over 20% due to increased capacity, and the inclusion of Filmatic,
acquired in April 1996.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,500,000 shares of Class A Common Stock offered by the Company at the offering
price set forth on the cover page of this Prospectus after deducting
underwriting discounts and commissions and estimated expenses of the offering
payable by the Company are approximately $23.912 million (approximately $27.574
million if the Underwriters' over-allotment option is exercised in full). The
net proceeds to the Company from this offering will be used for possible future
acquisitions, possible temporary repayment of indebtedness under the Company's
long-term credit facility, of which $8.4 million at an approximate aggregate
interest rate of 7.5% was outstanding at August 31, 1996, working capital
requirements and other general corporate purposes. The Company may use a portion
of the proceeds, as well as borrowings under the Company's long-term credit
facility or other debt financing, for investment in or the acquisition of
complementary businesses. In the ordinary course of business, the Company
actively explores acquisition opportunities and has had discussions with a
number of potential acquisition candidates. However, the Company does not have
any agreement, understanding or commitment with respect to any such investment
or acquisition. Pending application of the net proceeds of this offering as
described above, the Company may invest the proceeds in short-term and
medium-term, investment grade, interest-bearing obligations.
12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Class A Common Stock is traded on the Nasdaq National Market
System under the symbol "TODDA." The following table sets forth, for the periods
indicated, the high and low sales prices (without adjustment to reflect the 10%
stock dividend paid on September 29, 1995) for the Class A Common Stock as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- ---
<S> <C> <C>
FISCAL YEAR 1995
First Quarter........................... 6 1/2 5
Second Quarter.......................... 6 4
Third Quarter........................... 6 3/8 5
Fourth Quarter.......................... 11 1/2 5 5/8
FISCAL YEAR 1996
First Quarter........................... 11 7
Second Quarter.......................... 9 3/4 7 1/8
Third Quarter........................... 19 1/4 8 3/4
Fourth Quarter.......................... 17 8 1/2
FISCAL YEAR 1997
First Quarter (through October 22)...... 14 3/4 10
</TABLE>
On October 22, 1996, the last reported sale price for the Company's Class A
Common Stock on the Nasdaq National Market was $10.50 per share. As of October
22, 1996, there were approximately 1,300 and seven holders of record of Class A
and Class B Common Stock, respectively. The number of holders of Class A Common
Stock does not include an indeterminate number of shareholders whose shares are
held by brokers in "street name."
The holders of Class A Common Stock are entitled to cumulative cash
dividends at an annual rate of $.045 per share before any cash dividends may be
declared or paid on the Class B Common Stock. Holders of Class B Common Stock
are entitled to cash dividends equal to 90% of the cash dividends paid on the
Class A Common Stock.
The Company paid cash dividends of $.06 per Class A share for the fiscal
years 1995 and 1996. On August 11, 1995, a 10% stock dividend was declared for
holders of Class A and Class B stock payable on September 29, 1995 to
shareholders of record on September 8, 1995.
The Company intends to retain all earnings in excess of mandated dividends
for the operation and expansion of its business. The payment of any additional
dividends in the future will be at the discretion of the Board of Directors and
will depend upon, among other things, future earnings, results of operations,
capital requirements, the general financial condition of the Company and general
business conditions, as well as such other factors as the Board of Directors may
deem relevant. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of May 31, 1996 (i) on an actual basis, (ii) on a pro forma basis to
give effect to the acquisition of Editworks (see "Unaudited Pro Forma Condensed
Consolidated Information"), and (iii) as adjusted to give effect to the sale of
the Shares being offered hereby and the use of the estimated net proceeds
therefrom. This table should be read in conjunction with the Consolidated
Financial Statements and related notes thereto, "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Pro Forma Condensed Consolidated Information" and the other financial
information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MAY 31, 1996
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt:
Long-term debt, net of current portion..................................... $ 6,065 $ 10,945 $ 2,508(1)
Capitalized lease obligations.............................................. 68 68 68
--------- ----------- -----------
Total long-term debt..................................................... 6,133 11,013 2,576
--------- ----------- -----------
Stockholders' equity:
Preferred Stock: authorized 1,000,000 shares of $0.25 par value; none
issued actual, pro forma, or pro forma as adjusted....................... -- -- --
Common Stock:
Class A: authorized 30,000,000 shares of $0.25 par value; 6,488,727
shares issued and outstanding, 6,555,590 shares issued and outstanding
pro forma, and 9,055,590 shares issued and outstanding, as adjusted
(2)...................................................................... 1,622 1,639 2,264
Class B: authorized 6,000,000 shares of $0.25 par value; 1,747,181 shares
issued and outstanding................................................... 437 437 437
Additional capital......................................................... 20,985 21,938 45,225
Retained earnings.......................................................... 11,605 11,605 11,605
Unrealized gains on marketable securities and long-term investments........ 204 204 204
Cumulative foreign currency translation adjustment......................... (259) (259) (259)
--------- ----------- -----------
Total stockholders' equity............................................... 34,594 35,564 59,476
--------- ----------- -----------
Total capitalization................................................. $ 40,727 $ 46,577 $ 62,052
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) Reflects repayment of $8,437 of outstanding borrowings, the amount
outstanding under the Company's revolving credit facility as of August 31,
1996, with a portion of the net proceeds from the offering. See "Use of
Proceeds."
(2) Excludes 660,000, 330,000, and 770,000 shares of Class A Common Stock
reserved for issuance under the Company's 1986 Stock Option Plan, 1994 Stock
Option Plan, and 1995 Stock Option Plan, respectively, of which options for
an aggregate of 1,018,695 shares of Class A Common Stock were issued and
outstanding as of May 31, 1996 and options for an aggregate of 524,727
shares of Class A Common Stock were exercisable as of May 31, 1996. See
"Management--Stock Options."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for each
of the six years in the period ended August 31, 1995, and for the nine month
period ended May 31, 1996 have been derived from the Consolidated Financial
Statements, which statements have been audited by Deloitte & Touche LLP,
independent auditors. The consolidated financial data for the nine months ended
May 31, 1995 has been derived from the unaudited financial statements of the
Company. The unaudited financial data includes all adjustments, consisting only
of normal recurring adjustments, which are necessary for a fair presentation of
the operations of the Company. The results of operations for the nine months
ended May 31, 1996 are not necessarily indicative of the results for the full
year. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the notes thereto included elsewhere
in this Prospectus and "Unaudited Pro Forma Condensed Consolidated Information."
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED AUGUST 31, ENDED MAY 31,
---------------------------------------------------- ----------------
1990 1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues................................ $24,021 $28,526 $28,150 $27,402 $32,892 $50,003 $37,125 $48,140
------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Operating costs and other expenses.... 19,744 21,311 22,532 22,641 27,021 39,867 29,405 37,231
Depreciation and amortization......... 2,964 2,605 2,087 2,412 2,603 3,917 3,014 3,967
Interest expense...................... 645 247 (34) 17 24 581 320 531
Equipment lease expense, net.......... -- -- -- -- -- 593 371 415
Other (income) expense, net........... 166 11 122 (483) (773) (290) (223) (554)
------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses............ 23,519 24,174 24,707 24,587 28,875 44,668 32,887 41,590
------- ------- ------- ------- ------- ------- ------- -------
Income before loss from joint venture
and provision for income taxes........ 502 4,352 3,443 2,815 4,017 5,335 4,238 6,550
Loss from joint venture................. -- -- (87) (1,014) (1,215) (249) (167) (117)
------- ------- ------- ------- ------- ------- ------- -------
Income before provision for income
taxes................................. 502 4,352 3,356 1,801 2,802 5,086 4,071 6,433
Provision for income taxes.............. 221 1,707 1,227 664 1,022 1,711 1,452 2,371
------- ------- ------- ------- ------- ------- ------- -------
Net income.............................. $ 281 $ 2,645 $ 2,129 $ 1,137 $ 1,780 $ 3,375 $ 2,619 $ 4,062
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Net income per common share and common
share equivalents(1).................. $ 0.03 $ 0.31 $ 0.25 $ 0.14 $ 0.22 $ 0.40 $ 0.31 $ 0.46
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Weighted average number of shares
outstanding(1)........................ 8,857 8,444 8,351 8,279 8,196 8,399 8,352 8,805
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
OTHER FINANCIAL DATA:
Capital expenditures.................... $ 1,407 $ 1,418 $ 4,434 $ 393 $ 1,404 $ 3,345 $ 2,638 $ 3,317
EBITDA(2)............................... 4,111 7,204 5,496 5,244 6,644 9,833 7,572 11,048
<CAPTION>
AUGUST 31, MAY 31,
---------------------------------------------------- ----------------
1990 1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............... $ 138 $ 2,969 $ 106 $ 2,289 $ 606 $ 5,278 $ 4,934 $ 3,263
Working capital......................... 1,236 1,212 2,277 4,140 5,360 11,041 11,941 11,181
Total assets............................ 31,756 32,946 31,892 31,834 36,728 57,198 59,516 57,684
Long-term debt, net of current
portion............................... 3,550 800 1,750 -- 600 7,707 9,099 6,065
Stockholders' equity.................... 23,277 24,792 24,484 26,860 27,948 31,198 30,551 34,594
</TABLE>
- ------------------------------
(1) The net income per common share and common share equivalent is computed
based upon the weighted average number of shares of common stock and common
stock equivalents and includes common share equivalents arising from the
assumed conversion of any outstanding dilutive stock options.
(2) EBITDA, defined as earnings before interest expense, income taxes,
depreciation and amortization and loss from joint venture, is not intended
to represent an alternative to net income (as determined in accordance with
generally accepted accounting principles) as a measure of performance and is
also not intended to represent an alternative to cash flow from operating
activities as a measure of liquidity. Rather, it is included herein because
management believes that it provides an important additional perspective on
the Company's operating results and the Company's ability to service its
long-term debt and to fund the Company's continuing operations.
15
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INFORMATION
Todd-AO purchased substantially all of the assets and certain liabilities of
Editworks for cash and Class A Common Stock as of August 15, 1996. The following
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of May 31, 1996 is
adjusted to give effect to the acquisition of Editworks as if that transaction
had occurred on May 31, 1996. The following Unaudited Pro Forma Condensed
Consolidated Statements of Income for the year ended August 31, 1995 and for the
nine month period ended May 31, 1996 give effect to the acquisition of Editworks
as if such transaction had occurred on September 1, 1994. The Unaudited Pro
Forma Condensed Consolidated Financial Statements should be read in conjunction
with the Consolidated Financial Statements and notes thereto and the financial
statements of Editworks and the notes thereto included elsewhere in this
Prospectus.
The Unaudited Pro Forma Condensed Consolidated Statements of Income are not
necessarily indicative of the operating results that would have been achieved
had the acquisition of Editworks actually occurred on September 1, 1994, nor do
they purport to indicate the results of future operations.
The Unaudited Pro Forma Condensed Consolidated Statements of Income combine
the Company's Consolidated Statements of Operations with the historical
operations of Editworks prior to the date the Company made such acquisition.
16
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MAY 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACQUISITION AFTER
COMPANY (A) EDITWORKS (B) ADJUSTMENTS ACQUISITION
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 3,263 $ 11 $ 3,274
Marketable securities........................... 2,685 -- 2,685
Trade receivables, net.......................... 11,043 632 11,675
Inventories..................................... 661 6 667
Other........................................... 1,357 117 1,474
----------- ------ ------ -----------
Total current assets........................ 19,009 766 19,775
Investments....................................... 1,336 -- 1,336
Property and equipment, net....................... 35,226 2,437 $ (422)(c) 37,241
Goodwill, net..................................... 1,738 -- 4,000(d) 5,738
Other assets...................................... 375 4 379
----------- ------ ------ -----------
Total assets................................ $ 57,684 $ 3,207 $3,578 $ 64,469
----------- ------ ------ -----------
----------- ------ ------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........ $ 5,900 $ 363 $ 50(d) $ 6,313
Current maturities of long-term debt............ 615 515 1,130
Capitalized lease obligations--current.......... 867 -- 867
Other........................................... 446 7 453
----------- ------ ------ -----------
Total current liabilities................... 7,828 885 50 8,763
Long-term debt.................................... 6,065 1,200 3,680(e) 10,945
Capitalized lease obligations..................... 68 -- 68
Deferred compensation............................. 265 -- 265
Deferred gain on sale of equipment................ 5,277 -- 5,277
Deferred income taxes............................. 3,587 -- 3,587
----------- ------ ------ -----------
Total liabilities........................... 23,090 2,085 3,730 28,905
----------- ------ ------ -----------
Stockholders' equity:
Preferred Stock: authorized 1,000,000 shares of
$0.25 par value; none issued.................. -- -- --
Common Stock:
Class A: authorized 30,000,000 shares of $0.25
par value; 6,488,727 shares issued and
outstanding actual, 6,555,590 shares issued
and outstanding pro forma................... 1,622 -- 17(f) 1,639
Class B: authorized 6,000,000 shares of $0.25
par value; 1,747,181 shares issued and
outstanding................................. 437 437
Additional capital.............................. 20,985 1,122 (169)(f)(g) 21,938
Retained earnings............................... 11,605 11,605
Unrealized gains on marketable securities and
long-term investments......................... 204 -- 204
Cumulative foreign currency translation
adjustment.................................... (259 ) -- (259 )
----------- ------ ------ -----------
Total stockholders' equity.................. 34,594 1,122 (152) 35,564
----------- ------ ------ -----------
Total liabilities and stockholders'
equity.................................... $ 57,684 $ 3,207 $3,578 $ 64,469
----------- ------ ------ -----------
----------- ------ ------ -----------
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
17
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995
-------------------------------------------------------
PRO FORMA PRO FORMA
ACQUISITION AFTER
COMPANY(A) EDITWORKS(H) ADJUSTMENTS ACQUISITION
------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues.................................................. $ 50,003 $ 3,191 $ 53,194
------------ ------ ----- -----------
Costs and expenses:
Operating costs and other expenses...................... 39,867 2,259 42,126
Depreciation and amortization........................... 3,917 342 $ 267(i) 4,526
Interest................................................ 581 124 169(j) 874
Equipment lease expense, net............................ 593 -- 593
Other (income) expense, net............................. (290) (25) (315)
------------ ------ ----- -----------
Total costs and expenses.............................. 44,668 2,700 436 47,804
------------ ------ ----- -----------
Income before loss from joint venture and provision for
income taxes............................................. 5,335 491 (436) 5,390
Loss from joint venture................................... (249) (249)
------------ ------ ----- -----------
Income before provision for income taxes.................. 5,086 491 (436) 5,141
Provision for income taxes................................ 1,711 -- 20(k) 1,731
------------ ------ ----- -----------
Net income................................................ $ 3,375 $ 491 $ (456) $ 3,410
------------ ------ ----- -----------
------------ ------ ----- -----------
Net income per common share and common share
equivalents.............................................. $ 0.40 $ 0.40
------------ -----------
------------ -----------
Weighted average shares outstanding....................... 8,399 67(l) 8,466
------------ ----- -----------
------------ ----- -----------
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
18
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31, 1996
-------------------------------------------------------
PRO FORMA PRO FORMA
ACQUISITION AFTER
COMPANY(A) EDITWORKS(H) ADJUSTMENTS ACQUISITION
------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues.................................................. $ 48,140 $ 3,305 $ 51,445
------------ ------ ----- -----------
Costs and expenses:
Operating costs and other expenses...................... 37,231 2,114 39,345
Depreciation and amortization........................... 3,967 313 $ 200(i) 4,480
Interest................................................ 531 122 127(j) 780
Equipment lease expense, net............................ 415 -- 415
Other (income) expense, net............................. (554) (46) (600)
------------ ------ ----- -----------
Total costs and expenses.............................. 41,590 2,503 327 44,420
------------ ------ ----- -----------
Income before loss from joint venture and provision for
income taxes............................................. 6,550 802 (327) 7,025
Loss from joint venture................................... (117) -- -- (117)
------------ ------ ----- -----------
Income before provision for income taxes.................. 6,433 802 -- 6,908
Provision for income taxes................................ 2,371 -- 171(k) 2,542
------------ ------ ----- -----------
Net income................................................ $ 4,062 $ 802 $ (498) $ 4,366
------------ ------ ----- -----------
------------ ------ ----- -----------
Net income per common share and common share
equivalents.............................................. $ 0.46 $ 0.49
------------ -----------
------------ -----------
Weighted average shares outstanding....................... 8,805 67(l) 8,872
------------ ----- -----------
------------ ----- -----------
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
19
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A description of the adjustments included in the Pro Forma Condensed
Consolidated Financial Statements are as follows (dollars in thousands, unless
otherwise noted):
(a) Condensed from audited financial statements of the Company for the year
ended August 31, 1995 and for the nine months ended May 31, 1996 included
elsewhere in this Prospectus.
(b) Condensed from Editworks' unaudited June 30, 1996 balance sheet.
(c) To reflect purchase accounting writedown of Editworks equipment to fair
market value.
(d) To recognize goodwill arising from the purchase of Editworks, including
estimated legal, accounting, audit and other acquisition related costs
($50).
(e) The net bank borrowings to acquire Editworks, including an additional $500
due upon completion of certain conditions.
(f) To record 66,863 shares of Class A Common Stock at $14.50 per share issued
as part of the total purchase price of Editworks ($17 common stock; $953
additional capital).
(g) Elimination of Editworks' equity.
(h) Twelve month information is condensed from Editworks audited and unaudited
income statements for the year ended December 31, 1994 less the nine months
ended September 30, 1994 plus the nine months ended September 30, 1995. Nine
month information is condensed from Editworks audited and unaudited income
statements for the year ended December 31, 1995 less the nine months ended
September 30, 1995 plus the six months ended June 30, 1996.
(i) To adjust amortization for excess purchase costs over 15 years.
(j) To adjust interest for borrowings to pay a portion of the purchase price of
Editworks ($3,680 estimated at 8 1/2% for 5 years).
(k) To adjust income taxes for income resulting from the inclusion of Editworks
net income in the consolidated net income of the Company, net of the
pro-forma adjustments noted above.
(l) To increase average shares outstanding for the 66,863 shares of Class A
Common Stock issued as part of the purchase.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
GENERAL
The Company derives its revenue primarily from sound and video services to
the motion picture and television industries.
Over the past decade, the Company provided sound services exclusively until
the August 1994 acquisition of Todd-AO Video Services. This acquisition
represented a fundamental shift in management's vision of the Company's future.
Prior to fiscal 1995, the core sound business had grown from $14,000 in revenues
in 1986 to almost $33,000 in fiscal 1994, but profitability was volatile and
inherently subject to scheduling conflicts, unpredictable overtime revenues and
seasonality.
Beginning in fiscal 1995, the Company pursued a strategy of diversifying its
operations by acquiring or establishing complementary service companies in the
production and post production markets. This diversification is not only
functional but geographical, as represented by the acquisitions in March 1995 of
Chrysalis in London and in August 1996 of Editworks in Atlanta. The Company also
acquired Todd-AO Studios West in 1995 and Filmatic and Editworks in 1996.
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's results of
operations and should be read in conjunction with the Consolidated Financial
Statements and related notes thereto and the Unaudited Pro Forma Condensed
Consolidated Financial Information appearing elsewhere in this Prospectus. The
operating results for the periods presented were not significantly affected by
inflation.
The following sets forth, for the periods indicated, certain information
relating to the Company's operations expressed as a percentage of the Company's
revenues:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED AUGUST 31, MAY 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
Costs and expenses:
Operating costs and other expenses............... 82.6 82.2 79.7 79.2 77.3
Depreciation and amortization.................... 8.8 7.9 7.8 8.1 8.2
Interest......................................... -- -- 1.2 0.9 1.1
Equipment lease expense, net..................... -- -- 1.2 1.0 0.9
Other (income) expense, net...................... (1.7) (2.3) (0.6) (0.6) (1.1)
--------- --------- --------- --------- ---------
Total costs and expenses....................... 89.7 87.8 89.3 88.6 86.4
--------- --------- --------- --------- ---------
Income before loss from joint venture and provision
for income taxes................................. 10.3 12.2 10.7 11.4 13.6
Loss from joint venture............................ (3.7) (3.7) (0.5) (0.4) (0.2)
--------- --------- --------- --------- ---------
Income before provision for income taxes........... 6.6 8.5 10.2 11.0 13.4
Provision for income tax........................... 2.4 3.1 3.5 3.9 5.0
--------- --------- --------- --------- ---------
Net income......................................... 4.2% 5.4% 6.7% 7.1% 8.4%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
21
<PAGE>
NINE MONTHS ENDED MAY 31, 1996 COMPARED TO NINE MONTHS ENDED MAY 31, 1995
Revenues increased $11,015 or 29.7% from $37,125 to $48,140 due primarily to
the acquisitions of Todd-AO Studios West in February 1995, Chrysalis in March
1995 and Filmatic in April 1996. The 1996 revenue increases for these new
subsidiaries were $4,241, $5,643 and $338, respectively. These increases
represent nine months of operations for Todd-AO Studios West and Chrysalis in
1996 versus a partial period in 1995. Two months of Filmatic's operations are
included in 1996. The revenue increase for the remaining divisions was $793 or
2.7%.
Operating costs and other expenses increased $7,826 or 26.6% from $29,405 to
$37,231 due primarily to the acquisitions described above. While operating costs
and other expenses increased in absolute dollars, they decreased as a percentage
of revenue from 79.2% to 77.3%. This reduction was primarily the result of
improved profit margins for a full nine month period realized from Todd-AO
Studios West and Chrysalis and the consolidation of certain corporate overhead
costs associated with these acquisitions.
Depreciation and amortization increased $953 or 31.6% primarily due to the
acquisitions but did not materially change as a percentage of revenue for the
comparative periods. Interest expense, equipment lease expense and other income
did not materially change in dollars or as a percentage of revenues for the
comparative periods.
As a result of the above, income before taxes increased $2,362 from $4,071
to $6,433 and net income increased $1,443 from $2,619 (7.1% of revenue) to
$4,062 (8.4% of revenue).
FISCAL YEAR ENDED AUGUST 31, 1995 AS COMPARED TO FISCAL YEAR ENDED AUGUST
31, 1994
Total revenues increased $17,111 or 52.0% from $32,892 to $50,003. This
increase is the result of the organization and acquisition of new operations in
fiscal 1994 and 1995.
Sound studio revenues increased $7,703 due to the acquisition of Skywalker
Sound South by Todd-AO Studios West in February 1995. Todd-AO Studios West
provides post production sound services for the film and television industries
on the westside of Los Angeles. This increase in sound studio revenues was
offset by a $3,583 or 10.8% decrease at the Los Angeles and New York studios due
to reduced feature film dubbing bookings. These reduced bookings were primarily
the result of a threatened strike in Los Angeles which caused scheduling
irregularities through December 1994, and a feature film stage which was closed
for remodeling through January 1995.
Video services revenues increased $12,691 due to the inclusion of Todd-AO
Video Services ($6,504), Todd-AO Digital Images ("TDI")($1,253) and Chrysalis
($4,934) in fiscal 1995. Todd-AO Video Services, which acquired certain assets
and liabilities of Film Video Masters, Inc. on August 30, 1994, provides post
production video services to the film and television industries. TDI, which was
formed in the latter half of fiscal 1994, provides visual effects services to
the same industries. Todd-AO Europe Holding Co. Ltd., a wholly owned subsidiary
of the Company, acquired all of the outstanding shares of Chrysalis in March
1995. Both corporations are based in London and organized under the laws of the
United Kingdom. Chrysalis specializes in the collation of television programming
for satellite broadcast and also provides post production video services.
Operating costs and other expenses increased $12,846 or 47.5% from $27,021
to $39,867 due primarily to the acquisitions described above. Operating costs
and other expenses decreased as a percentage of revenue from 82.2% to 79.7%.
This improvement is primarily the result of increased profit margins realized
from Todd-AO Studios West and Chrysalis and the consolidation of certain
corporate overhead costs associated with the acquisitions.
Depreciation and amortization increased $1,314 or 50.5% due to the
acquisitions described above but did not significantly change as a percentage of
revenue between fiscal 1994 and 1995.
22
<PAGE>
Interest expense increased from $24 in fiscal 1994 to $581 in fiscal 1995
primarily due to institutional borrowings of $7,726 in connection with the
acquisition of Chrysalis in March 1995. In fiscal 1995, the Company also
incurred equipment lease expense (net of deferred gain on sale of equipment) of
$593 in connection with a December 1994 sale/leaseback agreement with its
institutional lender.
Other (income) expense, net declined by $483 in fiscal 1995 primarily due to
current year research and development costs and non-recurring severance costs.
Losses from the Company's entertainment project development joint venture
declined from $1,215 (3.7% of revenue) in fiscal 1994 to $249 (0.5% of revenue)
in fiscal 1995 due to the termination of the development phase of the venture
early in fiscal 1995.
As a result of the above, income before taxes increased $2,284 from $2,802
to $5,086 and net income increased $1,595 from $1,780 (5.4% of revenue) to
$3,375 (6.7% of revenue).
FISCAL YEAR ENDED AUGUST 31, 1994 AS COMPARED TO FISCAL YEAR ENDED AUGUST
31, 1993
Revenues increased $5,490 or 20.0% from $27,402 in 1993 to $32,892 in 1994.
This increase is primarily the result of an increase in the number of feature
films serviced due to an increase in feature film product released by the major
studios and an increase in aggregate overtime work required for these films.
Scoring revenues increased $551 or 33% as the Todd-AO scoring stage completed
its second full year of operation. In addition, all other ancillary services
experienced revenue increases.
Operating costs and other expenses increased $4,380 or 19.4% from $22,641 to
$27,021 due to the revenue increases described above and a stock appreciation
rights provision related to the increase in the Company's stock price. Operating
costs and other expenses as a percentage of revenue remained consistent in the
two years (82.2% versus 82.6%).
Depreciation and amortization, while increasing $191 due primarily to
equipment additions for Todd-AO Digital Images, a new visual effects facility
created during the year, decreased as a percentage of revenue from 8.8% to 7.9%.
Other (income) expense, net increased $290 due to realized gains from the sale
of certain investments.
As a result of the above, income before taxes increased $1,001 from $1,801
to $2,802 and net income increased $643 from $1,137 (4.2% of revenue) to $1,780
(5.4% of revenue).
23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected unaudited quarterly financial
information for each of the eight quarters ended May 31, 1996, both in dollars
and as a percentage of total revenues. In the opinion of the Company's
management, this information includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the selected
quarterly information when read in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus. The Company
has historically experienced, and expects to continue to experience, quarterly
fluctuations in operating performance. As a result, the operating results for
any quarter are not necessarily indicative of results for any future period or
for the full year. In particular, the operating results for the third quarter of
fiscal 1995 and the first quarter of fiscal 1996 were favorably impacted by
additional revenue due to substantial overtime services provided by the Company
for certain major motion picture projects. The Company does not currently
anticipate that substantial overtime services will be provided by the Company in
the first quarter of fiscal 1997. See "Risk Factors--Fluctuations in Quarterly
Results."
<TABLE>
<CAPTION>
1994
FISCAL
QUARTER 1995 FISCAL QUARTERS 1996 FISCAL QUARTERS
------------------------------------------ -------------------------------
FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues............................... $ 6,892 $ 8,778 $ 10,057 $ 18,290 $ 12,878 $ 18,140 $ 13,199 $ 16,801
--------- --------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Operating costs and other expenses... 6,934 8,136 8,541 12,872 10,318 13,023 11,256 12,952
Depreciation and amortization........ 715 830 740 1,444 903 1,266 1,322 1,379
Interest expense..................... 17 46 54 220 261 202 184 145
Equipment lease expense, net......... -- -- 149 222 222 212 132 71
Other (income) expense, net.......... (103) (415) 319 (271) 77 198 (573) (179)
--------- --------- --------- --------- --------- --------- --------- ---------
Total costs and expenses........... 7,563 8,597 9,803 14,487 11,781 14,901 12,321 14,368
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before loss from joint
venture and provision for income
taxes................................ (671) 181 254 3,803 1,097 3,239 878 2,433
Loss from joint venture................ (368) (55) (54) (58) (82) (55) (62) --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes......................... (1,039) 126 200 3,745 1,015 3,184 816 2,433
Provision (benefit) for income taxes... (566) (50) 86 1,416 259 1,201 309 861
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)...................... $ (473) $ 176 $ 114 $ 2,329 $ 756 $ 1,983 $ 507 $ 1,572
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
(EXPRESSED AS A PERCENTAGE OF REVENUES)
Revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Operating costs and other expense.... 100.6 92.7 84.9 70.4 80.1 71.8 85.2 77.1
Depreciation and amortization........ 10.4 9.5 7.4 7.9 7.0 7.0 10.0 8.2
Interest expense..................... 0.2 0.5 0.5 1.2 2.0 1.1 1.4 0.9
Equipment lease expense, net......... -- -- 1.5 1.2 1.8 1.1 1.0 0.4
Other (income) expense, net.......... (1.5) (4.7) 3.2 (1.5) 0.6 1.1 (4.3) (1.1)
--------- --------- --------- --------- --------- --------- --------- ---------
Total costs and expenses........... 109.7 98.0 97.5 79.2 91.5 82.1 93.3 85.5
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before loss from joint
venture and provision for income
taxes................................ (9.7) 2.0 2.5 20.8 8.5 17.9 6.7 14.5
Loss from joint venture................ (5.4) (0.6) (0.5) (0.3) (0.6) (0.3) (0.5) --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes......................... (15.1) 1.4 2.0 20.5 7.9 17.6 6.2 14.5
Provision (benefit) for income taxes... 8.2 (0.6) 0.9 7.8 2.0 6.7 2.4 5.1
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)...................... (6.9)% 2.0% 1.1% 12.7% 5.9% 10.9% 3.8% 9.4%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In December 1994, the Company signed agreements with its bank to implement
the sale/leaseback of certain equipment and a long-term credit facility. An
aggregate of $11,218 of sound studio equipment was sold and leased back on
December 30, 1994. The sale/leaseback agreement terminates on December 30, 1999.
Under the credit facility, including amendments in 1995 and 1996, the Company
may borrow up to $20,000 and L5,000 in revolving loans until February 28, 2000.
On that date and quarterly thereafter until the expiration of the agreement on
November 30, 2003, the revolving loan commitment will reduce by 5% of the
original loan commitment. These credit facilities are available for general
corporate purposes, capital expenditures and acquisitions. Management believes
that funds generated from operations, the proceeds from this offering, the
proceeds from the sale/leaseback and the borrowings available under the credit
facility will be sufficient to meet the needs of the Company at least through
the end of 1997. See "Risk Factors--Future Capital Needs; Uncertainty of
Additional Funding."
In February 1995, the Company used $6,878 of the proceeds from the
sale/leaseback agreement to acquire substantially all of the property, equipment
and inventory of Skywalker Sound South, renamed Todd-AO Studio West. In March
1995, the Company used $7,726 under the credit facility in connection with the
acquisition of Chrysalis. In August 1996, the Company used $4,280 under the
credit facility in connection with the acquisition of Editworks. As of August
31, 1996, the Company had $8,437 outstanding under the credit facility.
The Company expects capital expenditures of approximately $12,000 for its
Los Angeles, New York City, Atlanta and London facilities in fiscal 1997. These
capital expenditures will be financed by credit facilities and internally
generated funds.
25
<PAGE>
BUSINESS
Todd-AO provides sound, video and ancillary post production and distribution
services to the motion picture and television industries in the United States
and Europe. The Company believes that it is one of the largest independent
providers of combined sound studio and video services in the world, with
facilities located in Los Angeles, New York, London and Atlanta. Sound services
include music recording, sound editing and enhancement and the mixing of
dialogue, music and sound effects. Todd-AO's principal video services include
film-to-video transfer (telecine), mastering and duplication of professional
videotape formats, transmission for satellite broadcast, videotape editing,
audio post production, and visual effects and graphics. Todd-AO provides these
sound and video services to over 500 clients, including the major motion picture
studios and television production companies such as Disney, Paramount, Turner,
Sony, Warner Bros. and Spelling. The Company believes that its principal
strengths include the depth and continuity of its creative and artistic talent,
the quality and scope of its facilities, a tradition of providing quality
services to its clients, and a history of technological innovation. Since its
inception in 1952, the Company and its employees have been nominated for 31
Academy Awards-Registered Trademark- and have won 18.
Demand for the Company's services and facilities is principally derived from
the production of new motion pictures, television programs and television
commercials, as well as the distribution of previously released motion picture
and television programming through distribution channels such as television
syndication, home video, cable and satellite. Historically, its clients have
outsourced, and are expected by the Company to continue to outsource, many
services required for production, post production, and distribution of film and
television programming. The Company believes that trends toward digitalization
and globalization in the entertainment and media industries are increasing the
quality, variety and number of post production services required by customers.
The Company believes that the worldwide market penetration of distribution
channels such as home video and digital satellite broadcast is contributing to a
growing demand for original and reissued programming, American product in
particular, which in turn should increase demand for the Company's services.
The Company's objective is to be the leading worldwide independent provider
of sound and video post production services. Since 1994, the Company has
implemented a strategy to achieve this objective and to capitalize on the
movement towards digitalization and globalization in the motion picture and
television industries by expanding its range of services through strategic
acquisitions, internal growth and strategic alliances. The Company believes that
in the future, U.S. and international entertainment and media companies will
demand a broader range of sound and video post production services and are
likely to prefer a single-source provider. This strategy was formulated by the
Company and is being executed under the leadership of Salah M. Hassanein, who
became President in 1994. Mr. Hassanein has spent his entire career in the
entertainment and media industry and has garnered significant international
experience and mergers and acquisitions expertise with United Artists Theatre
Circuit, Inc. and Time Warner International Theatres, where he was responsible
for development and expansion of theater operations. To implement its strategy,
the Company has assembled a senior management team experienced in the industry.
The Company entered the video services business in 1994 through its
acquisition of Todd-AO Video Services. In 1995, the Company expanded its sound
studio business through the acquisition of Todd-AO Studios West with sound
studios and facilities located in the West Los Angeles area. Also, in 1995, the
Company expanded its operations into Europe through the acquisition of Chrysalis
in London, which also augmented the Company's video services capabilities to
include the collation of television programming for satellite broadcast. The
purchase of Filmatic in 1996 enlarged Todd-AO's video services capabilities in
London and added film processing capability. In August 1996, the Company
acquired Editworks in Atlanta, which specializes in providing video services to
the advertising industry. As a result of these transactions, the Company has
expanded its client base, increased its range of services and broadened its
global market coverage.
26
<PAGE>
Largely as a result of efforts implementing its strategy, the Company's
annual sales have grown in the past three years at an annual compounded rate of
32% from $27.4 million in fiscal 1993 to $62.9 million in fiscal 1996. Net
income has grown in the same period at an annual compounded rate of 62% from
$1.14 million in fiscal 1993 to $4.84 million in fiscal 1996.
INDUSTRY OVERVIEW
Weinstock Media Analysis, in its December 1995 report, estimated the size of
the 1994 U.S. audio and video post production services market at $4.8 billion,
with average annual revenue growth of approximately 10% projected from 1996
through 1999. Total 1994 U.S. audio and video post production services provided
by independent facilities was estimated to be $1.2 billion.
The creation of feature films and television programs is traditionally
divided into distinct but interrelated phases: production, post production,
distribution and exhibition. Production is the actual recording of visual images
on film or videotape which generally takes place on a physical set or location.
Post production has been generally defined as the various activities required to
prepare a product for commercial release which occur subsequent to production.
Distribution is the process whereby the finished product is delivered, either
physically or electronically, to the specific medium which will exhibit the
product to the consumer, such as a movie theater, television network, cable
channel or prerecorded videotape retailer.
With the proliferation in the past two decades of entertainment media such
as cable, satellite, laser disc, VCRs and DAT machines and the globalization of
product distribution, the demarcation points between the four industry phrases
have begun to blur. Technological advances in production and post production
equipment, especially in the realm of computer technology, have increased the
quality, variety and number of video post production services provided to
customers. For example, technological innovations in interactive television,
digital video compression, computerized video editing equipment, computer
generated special effects and graphics, as well as other contemporary post
production techniques, have become an integral part of the production of motion
pictures, television programs and television commercials. In addition, the
after-markets for original programming are growing at such a rapid rate that the
scope of post production services now extends far beyond a product's original
exhibition.
Traditionally, American film and television production has been accomplished
by outsourcing services to an array of small, talented providers, augmenting
studio in-house operations. These businesses are generally specialized and
highly fragmented, and often have limited capital resources to cope with ever-
changing technological developments. The increasing sophistication and
complexity of creating, preparing and distributing programming have prompted
some post production service providers to seek both horizontal and vertical
business integration as a means of better serving their clients.
The two principal sources of post production work are new production, which
is produced for initial and after-market exhibition, and existing libraries,
which are continually reprocessed and reformatted for new markets or media. In
the case of new production, a variety of services are generally required. After
the picture has been photographed, it is edited using film, videotape and
computers. Dialogue is enhanced or replaced, music and special effects are
added, and the sound track and picture are synchronized to produce the master
video and audio elements or film negative created for a specific market and a
specific territory. Throughout the process, electronic images are transferred
and copied. The technique of editing and finishing product in a computer
environment is becoming the standard procedure for television and feature film
production. Subsequent to initial release, programs are often modified and
reformatted for use in other markets, media or territories. New languages
substituted for the original language and subtitles or closed captioning may
have to be added. Different record and playback technologies may be integrated
and new versions created to comply with local censorship restrictions. Each of
these versions requires the creation of a separate master element.
27
<PAGE>
The vast program libraries of major U.S. film and television companies
provide a major source of ongoing programming. These libraries, which are
constantly expanding, must be continually remastered, augmented, restored,
converted, reformatted and preserved by post production companies for use or
reuse in new or existing markets or media. For example, a vintage television
series such as I LOVE LUCY is remastered using the latest digital equipment to
enhance the picture and audio quality. It is then formatted for video, pay TV,
cable, U.S. television syndication, foreign television syndication, satellite or
other uses. The Company believes that, as the worldwide growth in networks and
channels accelerates, these libraries will provide much of the distributed
programming.
Potential technological developments which may impact future worldwide
product distribution and exhibition are digital television and advanced
television systems. Digital television represents the digitization of picture
and audio targeted for the new multimedia formats (Digital Video Discs, CD-I,
CD-ROM, 3DO, etc.), the Internet, and the interactive television systems being
developed by TCI, Bell Atlantic, US West, Hughes DBS and others. Advanced
television systems are new high-resolution imaging systems being developed for
the exhibition of motion pictures and television programs. To accommodate these
new digital systems, the Company believes the industry will require various post
production services, which may include compression, digital conversion and
remastering.
COMPANY HISTORY
The Todd-AO Corporation was founded in 1952 by legendary showman, Mike Todd
("Todd"), George Skouras of the Magna Theatre Corporation and Dr. Brian O'Brien
of the American Optical Company ("AO") to develop and market a new process in
the photography and projection of motion pictures. The new system resulted in a
70mm film format projected on a curved, wide screen with 6-track stereo sound.
Rodgers and Hammerstein's OKLAHOMA! was the first feature presentation to be
released using the new Todd-AO technology, and received the 1955 Academy
Award-Registered Trademark- for Best Sound. The Todd-AO system was recognized
with a Scientific Achievement Award from the Academy of Motion Picture Arts and
Sciences in 1957.
Expanding on its successful introduction of 6-channel theatrical sound, the
Company focused its efforts on recording sound services and innovative
technological advances in the development of the moviegoer's audio experience.
Todd-AO continued to flourish in the 1950s and 1960s, with its creative
personnel winning several Academy Awards-Registered Trademark- for Best Sound
for SOUTH PACIFIC, THE ALAMO, WEST SIDE STORY and THE SOUND OF MUSIC. The 1970s
and 1980s brought continued success with Academy Awards-Registered Trademark-
for Best Sound for CABARET, THE EXORCIST, E.T.-THE EXTRA-TERRESTRIAL and OUT OF
AFRICA.
In addition to the Company's reputation for excellence in the feature film
business, the Company developed a presence in television, providing sound
services for a number of prime time TV programs beginning with BURNS AND ALLEN,
MR. ED, THE ADDAMS FAMILY, THE BEVERLY HILLBILLIES, PETTICOAT JUNCTION and GREEN
ACRES, and which continues today with BEVERLY HILLS 90210, MELROSE PLACE, NEWS
RADIO, DANGEROUS MINDS, THE PRETENDER and TRACEY TAKES ON.
Todd-AO secured its position as the leading independent provider of post
production sound services with the 1986 acquisition of Glen Glenn Sound, a
pioneer in television sound. In 1951, Glen Glenn teamed with Lucille Ball and
Desi Arnaz on an experimental new situation comedy entitled I LOVE LUCY. In
return for a reduced rate, Glen Glenn contracted all future sound services for
Desilu, Lucy and Desi's production company. I LOVE LUCY established Glen Glenn
Sound as a leader in television sound production and the company went on to
provide sound services to some of the most memorable shows on television,
including THE DICK VAN DYKE SHOW, BONANZA, GUNSMOKE, MAYBERRY RFD, GOMER PYLE,
MY THREE SONS, MISSION IMPOSSIBLE, GET SMART and WILD, WILD WEST.
Glen Glenn Sound was responsible for numerous technical innovations in sound
recording, including the development and application of Automated Dialogue
Replacement ("ADR") in 1964. First used on the TV series I SPY, ADR is now a
standard process for virtually every film and long form television project in
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the world today. Glen Glenn Sound received Technical Achievement Awards from the
Academy of Motion Picture Arts and Sciences in 1974 and 1978.
A year after the purchase of Glen Glenn Sound, the Company acquired
TransAudio in New York, renamed Todd-AO Studios East. This acquisition gave the
Company its first geographic presence outside of the Hollywood community and,
with the addition of sound stages on the CBS lot in Studio City, California in
1988 and the construction of the Todd-AO scoring stage in 1992, contributed to
the Company's revenue growth from approximately $14 million in 1986 to over $32
million by fiscal 1994.
With the election of Salah M. Hassanein as President in 1994, the Company
embarked on a strategy to grow the Company by expanding its service offerings,
extending its geographic reach and increasing its customer base through the
acquisition and creation of complementary businesses, in part intended to lessen
the Company's dependence on the motion picture production cycles. In addition to
the knowledge of the Company which he has acquired as a Director since 1962, Mr.
Hassanein has extensive international experience in building businesses through
acquisitions and internal development. During his tenure at United Artists
Theatre Circuit, Inc. and Warner Bros. International Theatres, Mr. Hassanein was
responsible for development and expansion of these organizations' theater
circuits.
With the acquisition of Todd-AO Video Services in 1994, the Company entered
the video services business. In 1995 and 1996, Todd-AO entered the European
market through its London acquisitions of Chrysalis and Filmatic, respectively.
These acquisitions not only gave the Company a presence in Europe but also
expanded its video services capabilities to include collation of television
programming for satellite broadcast and film processing capability. Also in
1996, the Company acquired Editworks which expanded Todd-AO's video services to
Atlanta and provided the Company with a presence in the commercial and
advertising market.
STRATEGY
The Company's objective is to be the leading worldwide independent provider
of sound and video post production services. Since 1994, the Company has
implemented a strategy to achieve this objective and to capitalize on the
movement toward digitalization and globalization in the motion picture and
television industries by expanding its range of services through strategic
acquisitions, internal growth and strategic alliances. The key elements of the
Company's strategy are as follows:
-STRATEGIC ACQUISITIONS. The Company is continually searching for and
evaluating possible acquisitions in order to expand its range of services,
complement its existing business, extend its geographic reach and increase its
customer base. The Company believes that there are significant opportunities in
this area due to the historic fragmentation of the post production services
business and the current and projected capital requirements all companies must
face to support technological change.
With the acquisition of Todd-AO Video Services in 1994, the Company entered
the video services business. The acquisition of Todd-AO Studios West in 1995
provided Todd-AO with sound studios and facilities in the West Los Angeles area,
a location experiencing rapid growth in the entertainment industry. Todd-AO made
its first entry into the European market by acquiring Chrysalis in 1995 while at
the same time expanding its video services capabilities to include collation of
television programming for satellite broadcast. The purchase of Filmatic in 1996
expanded Todd-AO's video services capabilities in London and added film
processing capability. The addition of Editworks in August 1996 expanded
Todd-AO's video services to Atlanta and established the Company's presence in
the commercial and advertising market. See "Risk Factors - Risks Related to
Growth Through Acquisitions."
-INTERNAL GROWTH. The Company seeks to identify and develop additional
services that will complement its existing business, to increase the capacity
for existing services through capital expenditures and to
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expand and develop the services offered by acquired businesses. For example, in
1994, Todd-AO established Todd-AO Digital Images to provide computerized visual
special effects for motion pictures and television.
-STRATEGIC ALLIANCES. The Company believes that there may be opportunities
to partner with other companies in the industry to achieve business goals that
it could not accomplish alone. In 1996, Todd-AO organized a limited liability
company with Chace Productions, Inc. to provide sound preservation and other
ancillary services. Todd-AO has also entered into a joint venture with United
Artists Theatre Circuit, Inc. to create and promote a new film print process,
known as Compact Distribution Print, or "CDP". See "Other Services" below.
The Company's operational philosophy is essential to its long-term success
and profitability. This philosophy involves the decentralization of day-to-day
operational decision making, while maintaining centralized control of overall
strategic vision and strict financial control over capital expenditures. The
managers of Todd-AO's divisions and subsidiaries, most of whom have managed
their businesses for many years, are given substantial day-to-day operational
control of their businesses. In evaluating acquisition candidates, the Company
generally gives substantial weight to the quality of existing management and its
potential to contribute to the future of Todd-AO both on a divisional and
corporate level. The Company is also committed to maintaining its long-standing
global reputation for quality, which the Company believes is based principally
on the abilities of its key management and creative personnel and their long
association with Todd-AO and its customers. From its beginnings in the 1950's,
the Company has trained most of its creative and artistic personnel in-house to
maintain its quality standards. The Company believes that its long history of
quality services and stability greatly enhance its ability to attract customers.
SOUND STUDIO OPERATIONS
Todd-AO performs post production sound services primarily for theatrical
feature films, television series, television specials, movies-of-the-week,
trailers and commercials. Sound services include music recording, sound editing
and enhancement, mixing of music, sound effects, and dialogue and narration.
After picture editing, the soundtrack becomes the primary focus of the
production process. Feature film and television producers utilize the Company's
studio facilities and highly skilled sound engineers to mix (rerecord) the basic
elements of a soundtrack--dialogue (or narration), music ("score") and all other
recorded sounds referred to collectively as "sound effects." A number of
ancillary services derive from this core activity, including sound effects
editing, film-to-tape and tape-to-tape transfers and duplication, automated
dialogue replacement ("ADR"), live recorded sound effects ("Foley"), equipment
rental, edit room rental and sale of film and tape stock ("rawstock").
The soundtrack of a major motion picture or television show is broken down
into three key elements: dialogue or narration, music and sound effects. The
dialogue track is created by production field recording. This is the on-set
recording of the actors, completed in conjunction with the filming.
Occasionally, problems will occur during the recording of the production track,
ranging from jet noise above a Western set to electrical lighting hum during a
close-up. These tracks will be replaced by a sound recording process known as
ADR. The actor is brought to a sound stage to redo or "loop" the lines that need
replacing. ADR is usually performed after the picture has finished shooting and
just prior to the rerecording or the "mix" of the show.
The music track or score plays a significant role in the creative process. A
composer is provided with the edited version of the film and writes music to
accompany the picture. It is not uncommon for the Company to have on its scoring
stage an orchestra in excess of 100 pieces playing in synchronization with the
picture under the guidance of the composer. Such orchestrations, along with
"canned" or "library" music, make up the music track for motion pictures today.
The music accompanying the picture is used primarily for mood setting, theme and
pacing of the film. At Todd-AO, the focus is on the original recording of the
orchestra and its subsequent mix into the final soundtrack of the film.
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The sound effects tracks, similar to the dialogue and music tracks, play a
significant role in the overall sound of a motion picture. The elements that
make up the sound effects tracks come from four primary sources: (i) sound
effects recorded during the filming or taping of the production, (ii) original
recordings of naturally occurring sounds created by the production mixer or
specialist, (iii) sound effects from existing libraries of generic or
commonplace sounds, and (iv) a stage recording process referred to as "Foley"
during which original effects such as footsteps, body movements, and various
customized sounds are recorded live in synchronization with the film or tape.
Upon completion of all the dialogue, music and effects recording, the
materials are edited in total synchronization with the picture. The sound mixing
process is generally completed in a large stage atmosphere with three mixers or
engineers, one specializing in dialogue, one in effects, the third in music,
working in tandem under the film's director. The process is a very creative one
and calls for the blending of sounds to support and enhance the visual action on
the screen. Upon completion of the mix, an optical negative sound track is shot
containing the entire mixed track. This negative element is sent to the film
laboratory to be developed. The sound and picture negatives are then printed
together to make a composite print. This print is distributed to the theaters
for exhibition.
Currently, the Company offers 26 acoustically designed sound stages equipped
with modern sound recording equipment, providing a broad range of sound services
for both film and video tape. Todd-AO's scoring stage can accommodate up to 150
musicians for live sound recording. The mixing (rerecording) stages provide
premium services including stereo sound in both 35mm and 70mm formats. Each of
the Company's major feature stages has the capability to create soundtracks
utilizing any of the current digital release formats. In order to emulate the
movie theater environment, the Company's film recording stages are of
significant size. The Company believes that its scoring stage is one of the
largest in the world. In total, the Company has over 69,000 square feet of stage
space.
Todd-AO's facilities are conveniently located and readily accessible to the
film making and television community, with locations in Hollywood, the San
Fernando Valley, Los Angeles' westside and New York.
Todd-AO has a long history and tradition of providing quality sound
services, starting with the theatrical release of OKLAHOMA! in 1955. Equally
important as the Company's technical facilities is the talented staff of
associated recording mixers. The Company's mixing teams have won numerous
Academy Awards-Registered Trademark- and Emmys, including a Lifetime Achievement
Award for Fred Hynes, who was a sound mixer of the Company for over 30 years.
This long tradition of sound recording excellence continues today. The Company's
employees have received eight Academy Award-Registered Trademark- nominations
for Best Sound in the last nine years and two Academy
Awards-Registered Trademark- for Best Sound in the last four years. A list of
some of Todd-AO's 1996 credits include: A TIME TO KILL, COURAGE UNDER FIRE, THE
CABLE GUY, MISSION IMPOSSIBLE, FLED, and THE CHAMBER.
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The Academy Awards-Registered Trademark- and nominations for Best Sound
received by the Company or its creative personnel are described below (with
Academy Award-Registered Trademark- winners shown in bold):
<TABLE>
<CAPTION>
YEAR MOVIE(S) YEAR MOVIE(S)
- --------- -------------------------------- --------- ---------------------------------------------------
<S> <C> <C> <C>
1995 APOLLO 13, Braveheart 1977 Close Encounters of the Third Kind, Sorcerer
1994 Legends of the Fall 1976 A Star Is Born
1993 Schindler's List 1973 THE EXORCIST
1992 LAST OF THE MOHICANS 1972 CABARET
1990 Dick Tracy 1965 THE SOUND OF MUSIC
1988 Who Framed Roger Rabbit 1963 Cleopatra
1987 Empire of the Sun 1961 WEST SIDE STORY
1985 OUT OF AFRICA 1960 THE ALAMO
1982 E.T. - THE EXTRA-TERRESTRIAL 1959 Porgy and Bess
1979 1941 1958 SOUTH PACIFIC
1978 Hooper 1955 OKLAHOMA!
</TABLE>
Other Academy Awards-Registered Trademark- received:
<TABLE>
<CAPTION>
YEAR ACCOMPLISHMENT
- --------- ---------------------------------------------------------------------
<S> <C>
1995 Scientific/Technical Achievement Award
1994 Scientific/Technical Achievement Award
1987 Gordon E. Sawyer Lifetime Achievement Award (Fred Hynes)
1980 Honorary Award (Fred Hynes)
1973 Scientific/Technical Achievement Award
1968 Scientific/Technical Achievement Award
1957 Scientific/Technical Achievement Award
</TABLE>
Todd AO's customer base for sound services has two components, feature film
and television. The majority of Todd-AO's customers for feature films are
independent production companies or studio in-house producers, each of whom
distribute their product through one of the seven major studios-- Paramount,
Warner Bros., Sony(Tri-Star Pictures, Inc./Columbia Pictures), Disney, Universal
Pictures (Universal), Twentieth Century Fox Film Corp. (Fox), and
Metro-Goldwyn-Mayer, Inc. (MGM). The major studios provide the majority of
Todd-AO's work. Approximately 75% of the Company's feature film work results
from relationships with creative personnel. Often, a director, producer, or film
editor will request a specific mixer or sound supervisor to work on his or her
film. The remaining 25% of feature film work results from overflow from the
major studios when they are unable to service their product in-house. Paramount
has been the Company's largest supplier of product over the past three years.
However, any one of the major studios may be the largest customer for a
particular year based upon the number of films completed for that studio.
Todd-AO prices and bills each feature film on an hourly or daily basis, charging
for actual services rendered and time expended. Todd-AO's pricing varies for
each project depending on the required personnel and facilities.
The client base for television services is much more diverse. Todd-AO's
major television clients include Spelling, MTM Entertainment, Inc. (MTM),
DreamWorks SKG and Home Box Office, Inc. (HBO). Television pricing is generally
based on a full complement of services. Movies-of-the-week, one hour dramas and
half hour comedies are all priced and billed on a per show or episode basis.
VIDEO SERVICES
Todd-AO, through its various subsidiaries and divisions in Los Angeles, New
York, London and Atlanta, provides video services (electronic post production
services) principally to the worldwide motion picture, television, home video
and advertising industries. Video post production is provided by skilled
technicians using sophisticated electronic equipment and computers to process
images and sound from
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film, videotape and computers onto a master element from which distribution and
broadcast materials are created for worldwide markets. These markets include
theatrical releases, home video, cable, pay television, syndication, network,
satellite, multimedia and advertising. Todd-AO provides its video services to
over 150 customers including the major motion picture and television studios,
independent producers, advertising agencies, television networks, cable program
suppliers and television program syndicators. Projects on which the Company has
performed video services in the past 12 months include: A FEW GOOD MEN, SENSE
AND SENSIBILITY, THE INDIAN IN THE CUPBOARD, REMAINS OF THE DAY, THE AMERICAN
PRESIDENT, SISTER ACT II, MUCH ADO ABOUT NOTHING, THE JOY LUCK CLUB,
PHILADELPHIA, LIKE WATER FOR CHOCOLATE, PULP FICTION, THE NET and FORREST GUMP.
Todd-AO's principal video and related services are as follows:
-FILM-TO-VIDEO TRANSFER (TELECINE). All feature films and most television
programming and advertising are produced on film but viewed (except in movie
theaters) on an electronic medium such as a television screen. Todd-AO transfers
the film to a video master in a frame-by-frame process in which skilled
personnel use specialized equipment to accurately render the proper tone, color
and lighting from the film original to the video master.
-MASTERING AND DUPLICATION OF PROFESSIONAL FORMAT VIDEOTAPE. Todd-AO
receives original master elements from a program provider such as a motion
picture, television, commercial production, or home video company and duplicates
the master for broadcast use in a variety of professional formats. Duplicates
are used by television stations, home video duplicators, cable systems
operators, cable program suppliers, TV networks, pay-per-view and satellite
distribution companies to exhibit programs and commercials. Airlines use
duplicates to exhibit in-flight movies.
-TRANSMISSION. Chrysalis transmits television channels for satellite and
cable broadcasters by providing services to generate video and audio signals
which are passed on to the uplink provider for distribution by satellite.
Clients provide details of each program and its exact duration. Each day, the
client supplies a computerized playlist detailing the next 24 hours of network
programming. This playlist is input into dedicated technology which
consecutively plays each program at the correct time, thereby creating the
continuous network output. To provide such transmission services (often on a 24
hours a day, 7 days a week basis), Chrysalis provides the technology,
operational staff, physical library, database services, engineering support and
emergency power (in case of electrical failure).
-VIDEOTAPE EDITING. Editing entails the electronic transfer of video or
audio information from one or more sources to a new master element. Editing is a
highly creative service with individual editors often attaining star status and
receiving screen credits.
-AUDIO POST PRODUCTION. The Company provides services referred to as audio
layback and audio augmentation. Layback is the process by which the sound and
picture are synchronized and is frequently provided with telecine. The final
soundtracks for feature films often include foreign languages for international
release and are usually prepared separately for synchronization to match the
various versions of the picture. Audio augmentation or "sweetening" is the
process used to restore or modify existing sound or create new sound. Sweetening
allows for the addition of music or sound effects, and eliminates unwanted
portions of previously recorded sound.
-VISUAL EFFECTS AND GRAPHICS. The Company provides visual effects and
graphics services using modern computer imaging systems such as Silicon Graphics
workstations. Visual effects for motion pictures and television include anything
from a simple "fade to black" to the intricate "special effects" common in
today's feature films. Graphic services entail the creating and melding of
computer-generated images, video and audio, into programming, including
commercial advertising, television music videos, and corporate video.
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-BROADCAST STANDARDS CONVERSION. Several technically incompatible video
standards for broadcasting are in use throughout the world. The Company converts
feature films and television programs to or from any global standard, depending
on the intended market.
-CLOSED CAPTIONING/SUBTITLING. The vast majority of programming is closed
captioned (for the hearing impaired) or subtitled for foreign languages. The
Company electronically applies captions and subtitles onto the program.
-PRODUCT EVALUATION/QUALITY ASSURANCE. The Company provides comprehensive
evaluation and quality control for video and audio products. Todd-AO has
consulted with several of the major entertainment and equipment manufacturing
companies to develop post production specifications, equipment and processes.
-VAULTING/STORAGE. Todd-AO provides storage for up to 100,000 units in its
environmentally controlled and secured vaults. The Company also offers database
and tracking services, 24-hour shipping and delivery services and element
disposal.
Todd-AO's ten largest video service customers account for over 75% of the
division's total revenues.
Except in connection with transmission services, long-term or exclusive
contracts with customers are unusual in the post production industry. Customers
generally do not make arrangements with the Company until shortly before its
facilities and services are required. While Todd-AO does not ordinarily have
long-term arrangements with customers, it may commit specific facilities, e.g.,
telecine suites, to certain major customers for specified periods of time.
Typically, these customers do not have an obligation to pay for the facilities
unless they are utilized. However, major customers typically inform the Company
of their expected needs and receive pricing based on anticipated volumes.
Transmission services, which are highly specialized and capital intensive, are
generally provided to customers under contracts of two to three years in length.
Video services provided for production of film and television programming
are generally priced on an hourly basis, and services provided for distribution
are generally priced on a per product basis. A majority of the Company's
business is priced on an hourly basis.
OTHER SERVICES
-PRESERVATION. Todd-AO has organized a limited liability company with Chace
Productions, Inc. for the protection, preservation, storage and retrieval of
motion picture and television sound tracks. Todd-AO/ Chace is a vertically
integrated company, providing a full range of sound preservation, media
management services including data collection, transfer, protection and
hierarchical storage. In addition to sound track preservation, Todd-AO/Chace
intends to provide complete library services. These include client/server
access, cataloguing, data base creation and entry, custom transfer services and
audition libraries.
-FILM PROCESSING. Filmatic provides film laboratory services including film
developing, printing, cleaning and negative film cutting. Established in 1935,
Filmatic is widely considered to be one of England's premier specialty film
laboratories, providing its services to over 1,000 customers, including
colleges, universities, corporate and training companies, film and video
libraries, independent production companies and broadcast television. Currently,
the British Broadcasting Corp represents 20% of Filmatic's business.
-COMPACT DISTRIBUTION PRINT. CDP Limited Liability Company, a joint venture
of Todd-AO and United Artists Theatre Circuit, Inc., has created a new print
process, known as Compact Distribution Print or CDP. The CDP process reduces the
length of feature release prints without affecting picture or sound quality by
eliminating 37% of interframe waste in standard prints, an inefficiency which
has existed since the 1950s. In addition to potential savings realized from
reduced film stock footage and developing costs, a compact print can generally
be distributed on a single reel, thereby reducing shipping and handling
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costs. Opportunities for the implementation of CDP are currently being explored.
The joint venture has received no firm commitments for the application of CDP,
and there are no assurances that film distributors will choose to implement CDP.
SALES AND MARKETING
Todd-AO has traditionally obtained new business based on its long history of
reliable delivery of quality services and its relationships with the motion
picture studios, many of which are its major clients. The Company receives new
projects based on the desire of creative personnel to work with Todd-AO's
skilled technicians and artists and from the clients' need for a reliable
provider of quality services. Studio sound services are generally ordered on an
individual project basis, with the production company booking studio time and
often specifying the sound mixers with whom it wishes to work.
With its entry into the video services business, the Company has attempted
to expand its relationships with the major studios to become a corporate
strategic partner, rather than simply a project vendor. The Company believes
that it has the expertise and management skills to address the needs of its
customers on a full service basis, not just on specific projects, and to offer
new services and to expand into new markets and territories in response to its
customers needs.
COMPETITION
The Company encounters intense competition in each of the markets that it
serves. The Company competes on the basis of quality, service, capacity,
technical capability and price. Although price is an important competitive
factor, the lowest price is seldom the sole determining factor. The cost of the
Company's services is generally low in relation to the overall budget or
anticipated revenues of the project. Quality, capacity and service remain the
critical competitive factors in providing post production services.
The Company's sound studio operations compete in both the feature film and
television markets. In the film market, competition for sound services is
predominantly driven by the skill and creativity of sound mixers. The Company
does not believe that it has a major independent competitor for feature films in
the Los Angeles marketplace. However, on a wider basis, LucasFilm in Marin
County, California, Sound One in New York and certain London post production
sound facilities compete with the Company for motion picture studio clientele.
In the television market, the competition is intense and television pricing is
constantly under pressure. In addition to competing with the major studios, the
Company also competes with a wide array of independent post production sound
facilities. The Company believes that its major competitors are Larson Sound,
Four Media Company ("4MC"), West Productions, Echo Sound and Digital Sound and
Picture.
With respect to video services, a variety of other companies offer special
effects, post production video and transmission services similar to those
provided by Todd-AO. Many of these competitors are larger and have greater
financial resources than the Company. Competition for video services within a
geographical region tends to be highly fragmented with a few larger full service
companies and numerous small firms specializing in only one or two services.
Most small operations are centered around key personnel who serve one or two
clients based on long-standing relationships.
The Company believes its major direct competitors in the Los Angeles market
for distribution, telecine and professional duplication work are 4MC, Modern
Videofilm, Vidfilm, Fototronics and All Post. These companies all currently
provide a significantly larger and more complete array of services and
facilities than Todd-AO.
The Company believes its major direct competition in the London market for
transmission are Molinare, Oasis, Telecine and TVP. All provide a mixture of
services for both large and small media clients across the broadcast sector, and
are conveniently located in the prime vendor area in London's Soho district,
close to many of the customers' offices. The Company believes its major
competition in the
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London market for film laboratory services are Rank, Technicolor, Metrocolor,
Soho Images, Colour Film Services and Buck Laboratories. The Company believes
its major direct competition in the Atlanta market for editing and graphics are
Crawford Communications, Inc., Video Tape Associates, Inc. ("VTA") and Peachtree
Post. Crawford Communications and VTA are both considerably larger and currently
offer a more complete array of services and facilities than does Editworks.
PROPERTIES
Sound studio operations are conducted in various owned, leased or licensed
premises in the Los Angeles area, New York City, Atlanta and London. The
Company's facilities are adequate to support its anticipated business.
The Company owns approximately 147,000 sq. ft. of building space in Los
Angeles. In addition, approximately 127,000 sq. ft. of building space are
subject to lease or license agreements. In London,
Todd-AO owns the underlying freehold of 17,600 sq. ft. of building space. It
leases this area to a third party under a lease agreement which expires in
December 2042 and subleases the same area from its tenant under a lease
agreement which expires in March 2008. Todd-AO also leases an additional 3,500
sq. ft. of its owned London property to a third party under a lease agreement
which expires in June 2009. The Company also owns two undeveloped parcels of
land in Killeen, Texas.
The Company's Los Angeles sound studio facilities include premises licensed
from Radford Studio Center under agreements expiring in 2003, each of which can
be extended for an additional five years at the Company's option. The New York
sound studio facilities operate under a lease agreement which expires in
December 2002 and which can be extended for an additional eight years at the
Company's option. The New York lease agreement can be terminated by the Company
at any time upon six months' written notice to the landlord.
The Company's Los Angeles post production video service facility operates
under a lease agreement for approximately 20,000 square feet which expires in
August 1999 and which can be extended for two additional five-year terms or
terminated on 90 days' written notice at the Company's option.
The newly acquired Atlanta post production facility operates under a lease
agreement for approximately 12,600 square feet which expires in December 2001
and which can be extended for two additional five-year terms.
A portion of the London post production video and transmission facility is
subject to a lease agreement which expires in March 2008.
EMPLOYEES
Todd-AO employs approximately 500 employees, some on a project-by-project
basis. The Company has employment agreements with 60 of its key management,
creative and technical personnel. The Company's sound studio creative and
technical personnel are subject to a collective bargaining agreement with the
International Association of Theatrical and Stage Employees. The Company has
never experienced a work stoppage and considers relations with its employees to
be excellent.
LEGAL PROCEEDINGS
The Company is involved in litigation and similar claims incidental to the
conduct of its business. None of the pending actions is likely to have a
material adverse impact on the Company's financial statements.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE* POSITION WITH COMPANY
- -------------------------------------- ----- -------------------------------------------------------------------
<S> <C> <C>
Salah M. Hassanein (1)................ 75 President, Chief Executive Officer and Director
Silas R. Cross........................ 57 Vice President, Treasurer and Assistant Secretary
Clay M. Davis......................... 50 Vice President
J.R. DeLang........................... 40 Senior Vice President and Director
Graham Hall........................... 38 Managing Director of Chrysalis/Todd-AO Europe, Ltd.
Coburn T. Haskell..................... 44 Vice President and Controller
Richard C. Hassanein.................. 45 Vice President and Director
Christopher D. Jenkins................ 41 Senior Vice President and Director
Dan Malstrom.......................... 45 Secretary
Marshall Naify (1).................... 76 Co-Chairman of the Board of Directors
Robert A. Naify (1)................... 74 Co-Chairman of the Board of Directors
Richard O'Hare........................ 43 President of Todd-AO Video Services
A.C. Childhouse (2)................... 86 Director
David Haas............................ 55 Director
Herbert L. Hutner (2)................. 87 Director
Robert I. Knudson..................... 71 Director
Michael S. Naify...................... 34 Director
A. Frank Pierce....................... 66 Director
Zelbie Trogden (2).................... 60 Director
</TABLE>
- ------------------------
* As of October 1, 1996.
(1) Member of the Executive Committee.
(2) Member of the Audit and Compensation Committee.
Certain officers and directors of the Company were formerly associated in
various capacities with United Artists Communications, Inc. ("UACI"), now known
as United Artists Theatre Circuit, Inc., a motion picture theater company. UACI
owned approximately 85% of the Company's common stock until 1986.
Salah M. Hassanein was elected as a Director in 1962. In July 1996, Mr.
Hassanein was appointed the President and Chief Executive Officer of the
Company. From 1994 to 1996, he served as President and Chief Operating Officer.
Prior to 1994, Mr. Hassanein was the Company's Senior Executive Vice President.
Mr. Hassanein also served as President of Warner Bros. International Theatres
Co. from 1988 to June 30, 1994, and is presently a consultant to Warner Bros.
Mr. Hassanein previously served as Executive Vice President of UACI and
President and director of United Artists Eastern Theatres, Inc. Mr. Hassanein is
a principal of SMH Entertainment, Inc. and a director of Software Technologies
Corporation.
Silas R. Cross became Vice President and Controller of the Company in 1988.
In 1995, he was appointed Treasurer and Assistant Secretary. Mr. Cross
previously served as Assistant Treasurer of UACI, and has served the Company in
various capacities since 1965.
Clay M. Davis was appointed a Vice President of the Company in 1996. Mr.
Davis previously served as Vice President of Engineering of the Todd-AO Studios
since 1989.
J.R. DeLang was elected a Director in 1993. He has been the Senior Vice
President of the Company and the Executive Vice President of the Company's
Todd-AO Studios division since 1993. Mr. DeLang previously served as Vice
President of Sales and Marketing of Todd-AO Studios from 1988 to 1993 and
Director of Sales and Marketing from 1987 to 1988.
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Graham Hall was appointed Managing Director of Chrysalis in March 1990. From
1982 to 1990, Mr. Hall was employed by Rank Video Services where he held various
engineering positions, ultimately advancing to Technical Development Manager.
Coburn T. Haskell has served as Vice President and as Controller of the
Company since 1995. Prior thereto, he served as Controller of Todd-AO Studios
from 1994 to 1995. Mr. Haskell joined the Company in 1990 as Assistant
Controller of Todd-AO Studios, having received his CPA certification while
employed by KPMG Peat Marwick from 1988 to 1990. Previously, Mr. Haskell was
Controller of American Fiber Optics Corporation.
Richard C. Hassanein has served as Vice President of the Company and
Director since 1993 and served as Executive Vice President of the Company's
subsidiary, Todd-AO Studios West, since 1995. Previously, he served as Executive
Vice President of the Company's subsidiary, Todd-AO Studios East, from 1991 to
1995. Prior to 1991, Mr. Hassanein was an independent representative for film
and television producers. Previously, he was President of United Film
Distribution Co., Inc. Mr. Hassanein is the son of Salah M. Hassanein.
Christopher D. Jenkins has been a Senior Vice President and Director of the
Company since 1987. He was appointed President of Todd-AO Studios in 1990 and
served as Vice President from 1987 to 1990. Mr. Jenkins is currently a lead
sound mixer for the Company, and has won two Academy
Awards-Registered Trademark- for sound.
Dan Malstrom is an attorney in private practice and has served as the
Company Secretary since 1987.
Marshall Naify was elected a Director in 1964, and currently serves as
Co-Chairman of the Board. He served as Chairman of the Board during the period
of 1990 until July 1996. From 1995 until July 1996, he also served as Co-Chief
Executive Officer. Mr. Naify previously served as Chairman of the Board and Co-
Chief Executive Officer of UACI. Mr. Naify is an investor. He is the brother of
Robert A. Naify.
Robert A. Naify was elected a Director in 1959 and currently serves as
Co-Chairman of the Board. Mr. Naify served as Co-Chairman and Co-Chief Executive
Officer from 1995 until July 1996. He previously served as President and Chief
Executive Officer during the period of 1990 until 1994. Mr. Naify also served as
President and Co-Chief Executive Officer of UACI. Mr. Naify is an investor and
is a director of Tele-Communications, Inc. He is the brother of Marshall Naify.
Richard O'Hare has served as President of Todd-AO Video Services since 1994
and previously served as the President of Film Video Masters, its predecessor,
from 1988 until its acquisition by the Company in 1994. Previously, Mr. O'Hare
was Vice President of Twentieth Century Fox Film Corporation.
A.C. Childhouse was elected a Director in 1964. He previously served as a
Senior Vice President and Director of UACI. Mr. Childhouse is an investor.
David Haas was elected a Director in October 1996. Mr. Haas has been a
financial consultant since 1995, and has assisted clients in the negotiation and
structuring of acquisitions. From 1990 to 1994, Mr. Haas served as Senior Vice
President and Controller of Time Warner Inc.
Herbert L. Hutner was elected as a Director in 1987. He is an investor and a
financial consultant.
Robert I. Knudson was elected as a Director in 1983, and currently serves as
a consultant to the Company. He was previously an Executive Vice President of
the Company and served as President of Todd-AO Studios from 1981 until 1990.
During his tenure as a lead sound mixer for the Company, Mr. Knudson won three
Academy Awards-Registered Trademark- for sound.
Michael S. Naify was elected a Director in 1993. He was previously Vice
President of the Company, serving in that capacity from 1993 to 1994. He is the
son of Marshall Naify.
A. Frank Pierce was elected as a Director in October 1996. Mr. Pierce
currently acts as an international consultant providing services related to
motion picture distribution. From January 1993 to June 1996, Mr. Pierce served
as Senior Vice President of Europe Theatrical Distribution for Time Warner
Entertainment. From 1972 to 1993, he served as Vice President of Europe
Theatrical Distribution for Time Warner Entertainment. From 1955 to 1972, Mr.
Pierce served in numerous international positions within
38
<PAGE>
the motion picture industry including Managing Director of Italy for Paramount
Pictures International and management positions in four Latin American countries
for Columbia Pictures International.
Zelbie Trogden was elected a Director in 1994. He has been a financial
consultant and a director of Citadel Holding Corporation and Fidelity Federal
Bank since 1993. Prior thereto, he held various executive positions with Bank of
America and Security Pacific National Bank from 1960 to 1993.
COMMITTEES OF THE BOARD
The Company has an Executive Committee composed of Messrs. Salah Hassanein,
Marshall Naify and Robert A. Naify. The functions of the Executive Committee
include acting on matters which by reason of time limitations cannot be acted
upon by the Board of Directors and studying matters which are anticipated to be
considered by the Board in the future.
The Company also has Compensation and Audit Committees, each consisting of
Messrs Childhouse, Hutner and Trogden. The principal functions of the
Compensation Committees are to review and make recommendations to the Board of
Directors concerning executive compensation. The Audit Committee makes
recommendations to the Board concerning the engagement of independent auditors,
reviews the auditing engagement, its results and the Company's internal
accounting controls, and directs investigations into matters within the scope of
its functions. A Committee consisting of Messrs. Childhouse and Hutner
administers the Company's Stock Option Plans.
EXECUTIVE COMPENSATION
All applicable share and per share data for periods included in the
compensation tables set forth below have been adjusted to retroactively reflect
a 10% stock dividend paid on September 29, 1995.
SUMMARY COMPENSATION TABLE. Directors receive no cash compensation for
their services as directors. The following table shows, for the years ended
August 31, 1996, 1995 and 1994 all forms of compensation for the Chief Executive
Officer and each of the most highly compensated executive officers of the
Company whose total annual salary and bonus exceeded $100,000 for the year ended
August 31, 1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION(1) NO. OF
--------------------------- SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) OPTIONS COMPENSATION($)
- ------------------------------------------------------- ----------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Salah M. Hassanein 1996 $ 100,000(2) -- $ --
President and Chief Executive Officer 1995 100,001(2) 66,000 --
The Todd-AO Corporation 1994 100,000(2) 110,000 --
J.R. DeLang 1996 335,442 -- 15,000(3)
Executive Vice-President 1995 293,942 -- 19,168(3)
Todd-AO Studios 1994 203,876 -- 3,073(3)
Christopher D. Jenkins 1996 575,631(4) -- 3,460(4)
President 1995 465,981(4) -- 3,385(4)
Todd-AO Studios 1994 471,920(4) -- 4,146(4)
Clay M. Davis 1996 176,546 -- 3,460(5)
Vice President 1995 151,575 16,500 3,385(5)
Todd-AO Studios 1994 151,231 -- 3,385(5)
Richard O'Hare 1996 173,695 -- 17,228(6)
President Todd-AO Video Services 1995 176,491 11,000 --
1994 -- -- --
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
39
<PAGE>
- ------------------------
(1) The columns for "Bonus" and "Other Annual Compensation" have been omitted
because there is no compensation required to be reported in such columns.
The aggregate amount of perquisites and other personal benefits provided to
each officer listed above is less than 10% of the total annual salary of
such officer.
(2) Amounts shown as salary include professional fees of $80,000 for 1996, 1995
and 1994.
(3) Amounts shown as "All Other Compensation" represent contributions made by
the Company to its 401(k) Plan for 1996 and 1995 and under a collective
bargaining agreement to the Motion Picture Industry Pension Plan for 1994 on
Mr. DeLang's behalf.
(4) Amounts shown as salary include compensation of $475,631, $365,981 and
$388,586 for 1996, 1995 and 1994, respectively, attributable to services as
a sound mixer. Amounts shown as "All Other Compensation" represent
contributions made by the Company under a collective bargaining agreement to
the Motion Picture Industry Pension Plan on Mr. Jenkin's behalf.
(5) Amounts shown as "All Other Compensation" represent contributions made by
the Company under a collective bargaining agreement to the Motion Picture
Industry Pension Plan on Mr. Davis' behalf.
(6) Amounts shown as "All Other Compensation" represent contributions made by
the Company to its 401(k) Plan on Mr. O'Hare's behalf.
OPTION EXERCISES AND VALUE TABLE. No stock options were granted by the
Company during the fiscal year ended August 31, 1996 to the executive officers
named in the Summary Compensation Table. The following table shows each exercise
of stock options during the fiscal year ended August 31, 1996 by each of the
executive officers named in the Summary Compensation Table, together with
respective aggregate values of unexercised options as at August 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
VALUE AT AUGUST 31, 1996 AT AUGUST 31, 1996
SHARES ACQUIRED REALIZED -------------------------- --------------------------
NAME ON EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Salah M. Hassanein......... -- -- 110,000 66,000 $ 924,880 $ 626,208
J.R. DeLang................ -- -- 52,800 13,200 463,331 105,930
Christopher D. Jenkins..... -- -- 59,400 6,000 524,964 52,965
Clay M. Davis.............. -- -- 20,900 6,600 195,569 52,965
Rick O'Hare................ -- -- 6,600 4,400 50,741 33,827
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. Jenkins, DeLang and
O'Hare. Under Mr. Jenkins' agreement (expiring December 31, 2000), compensation
for sound mixing services is paid on an hourly basis at four times the minimum
supervisor union rate. Mr. Jenkins receives an additional $100,000 per year for
management and administrative services. The agreement with Mr. DeLang (expiring
September 30, 1997) provides for a salary of $285,000 for the twelve months
ending September 30, 1995, $300,000 for the twelve months ending September 30,
1996 and $320,000 for the twelve months ending September 30, 1997. Mr. O'Hare's
agreement (expiring August 31, 1997) provides for a salary of $153,016, $168,000
and $203,000 for the twelve months ending August 31, 1995, 1996, and 1997,
respectively.
None of the foregoing agreements include any termination or
change-in-control payments. The Company's stock option plans provide that the
unvested portion of the awards will become vested and exercisable in connection
with a change-in-control.
40
<PAGE>
STOCK OPTIONS
The Company presently has three stock option plans (the 1986 Stock Option
Plan, the 1994 Stock Option Plan and the 1995 Stock Option Plan). All plans
relate solely to shares of Class A Common Stock.
1986 STOCK OPTION PLAN
The Company's 1986 Stock Option Plan (the "1986 Plan") was approved by the
shareholders in July 1987. The 1986 Plan provides for the grant of incentive
stock options (at not less than 100% of fair market value on the date of the
grant), non-qualified stock options (at not less than 85% of fair market value
on the date of the grant) or a combination thereof. An aggregate of 660,000
shares of Class A Common Stock was originally reserved for issuance under the
1986 Plan, which is administered by the Stock Option Committee of the Board of
Directors. Options to purchase an aggregate of 290,735 shares were outstanding
under the 1986 Plan at August 31, 1996 as incentive and non-qualified options at
exercise prices ranging from $2.03 to $5.06 per share. On February 7, 1995, the
shareholders approved an extension of the termination date of the 1986 Plan
until August 31, 2004 with respect to options for an aggregate of 213,675 shares
granted on September 26, 1994. Nonqualified options to purchase an aggregate of
163,560 shares are fully vested and were scheduled to expire on August 31, 1996.
The termination date of the 1986 Plan with respect to these options was extended
as to 50% of the shares, until August 31, 1997 and, as to the remaining 50% of
the shares, August 31, 1998, by the shareholders at the annual meeting held on
March 27, 1996.
1994 STOCK OPTION PLAN
The Company's 1994 Stock Option Plan (the "1994 Plan") was approved by the
shareholders in August 1994. The 1994 Plan provides for the grant of incentive
stock options (at not less than 100% of fair market value on the date of the
grant), non-qualified stock options (at not less than 85% of fair market value
on the date of the grant) or a combination thereof. An aggregate of 330,000
shares has been reserved for issuance under the 1994 Plan. All of those shares
have been awarded to Salah Hassanein (at an exercise price of $3.26 per share)
and Marshall Naify and Robert A. Naify (at an exercise price of $3.59 per share)
as incentive options to purchase 110,000 shares of Class A Common Stock each.
The options vest over a five-year period commencing on September 1, 1994 and
once vested terminate on August 31, 2003 (in the case of Mr. Hassanein) and June
23, 1999 (in the case of Messrs. Marshall Naify and Robert Naify). As of August
31, 1996, there were no options available for grant under the 1994 Plan and
absent forfeitures, it is not expected that any additional options will be
awarded. The 1994 Plan is administered by the Stock Option Committee.
1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "1995 Plan") was approved by the
shareholders in February 1995. The 1995 Plan provides for the grant of incentive
stock options (at not less than 100% of fair market value on the date of the
grant), non-qualified stock options (at not less than 85% of fair market value
on the date of the grant) or a combination thereof. An aggregate of 770,000
shares is reserved for issuance under the 1995 Plan. Options to purchase an
aggregate of 387,910 shares were outstanding under the 1995 Plan at August 31,
1996 as incentive and non-qualified options at exercise prices ranging from
$4.50 to $7.125 per share. The options vest over a five year period commencing
on or near the date of grant and once vested terminate on August 31, 2004. As of
August 31, 1996, there were 337,390 shares available for future grant of options
under the 1995 Plan. The 1995 Plan is administered by the Stock Option
Committee.
41
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of August 31, 1996 by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock, (ii) each director or executive officer
of the Company who beneficially owns any shares, and (iii) all directors and
executive officers of the Company as a group. Except as otherwise indicated, the
persons listed below have sole voting and investment power with respect to all
shares of Common Stock owned by them, except to the extent such power may be
shared with a spouse.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY PERCENT BEFORE OFFERING PERCENT AFTER OFFERING
OWNED (2) (2)
----------------------------- ------------------------ ------------------------
NAME(1) CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
- -------------------------------------- ----------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
A.C. Childhouse....................... 41,087 -- .63% --% .45% --%
Clay M. Davis......................... 20,900(3) -- .32 -- .23 --
J.R. DeLang........................... 52,800(3) -- .80 -- .58 --
Heine Securities Corporation(4)....... 652,442 -- 9.95 -- 7.20 --
Richard C. Hassanein.................. 15,400(3) -- .23 -- .17 --
Salah M. Hassanein.................... 517,143(3) -- 7.76 -- 5.64 --
Herbert L. Hutner..................... 19,210 -- .29 -- .21 --
Christopher D. Jenkins................ 59,400(3) -- .90 -- .65 --
Robert I. Knudson..................... 72,789(3) -- 1.10 -- .80 --
Marshall Naify(7)..................... 1,138,369 (3)(5 678,839 17.23 38.85 12.50 38.85
Michael S. Naify(7)................... 72,834 -- 1.11 -- .80 --
Robert A. Naify(7).................... 1,065,914 (3)(6 906,290 16.14 51.87 11.71 51.87
Other Naify Interests(7).............. 775,855 118,510 11.84 6.78 8.57 6.79
Zelbie Trogden........................ 4,400(3) -- .07 -- .05 --
All directors and current executive
officers as a group (18 persons)..... 3,108,346(3) 1,585,129 47.01 90.72 34.11 90.72
</TABLE>
- ------------------------
(1) The address of each of the beneficial owners identified is 172 Golden Gate
Avenue, San Francisco, California 94102, except for Heine Securities
Corporation whose address is 51 JFK Parkway, Short Hills, New Jersey 07078.
(2) Based on 6,555,640 shares of Class A Common Stock and 1,747,181 shares of
Class B Common Stock outstanding at August 31, 1996 and 9,055,640 shares of
Class A Common Stock after consummation of this offering. Pursuant to the
rules of the Commission, certain shares of Common Stock which a person has
the right to acquire within 60 days of the date hereof pursuant to the
exercise of stock options are deemed to be outstanding for the purpose of
computing the percentage ownership of such person but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(3) Includes options exercisable within 60 days by Messrs. Davis, DeLang, R.
Hassanein, S.M. Hassanein, Jenkins, Knudson, M. Naify, R.A. Naify, Trogden,
and all directors and current executive officers as a group to purchase,
respectively, 20,900, 52,800, 14,300, 110,000, 59,400, 40,700, 50,050,
50,050, 4,400 and 421,300 shares of Class A Common Stock.
(4) Schedule 13G filed on February 10, 1996 by Heine Securities Corporation and
Michael F. Price indicates that Heine Securities Corporation has sole
investment discretion and voting authority with respect to the shares of
Class A Common Stock, which are legally owned by one or more of its
investment advisory clients.
(FOOTNOTES CONTINUED ON NEXT PAGE)
42
<PAGE>
(5) Includes 98,067 Class A shares held in the name of Marshall Naify as trustee
for one of his children and 30,166 shares of Class A Common Stock held by a
trust for which Mr. Naify is both trustee and beneficiary. Excludes 106,092
shares of Class A Common Stock held by an independent trustee for the
benefit of three of Mr. Naify's children. Mr. Naify disclaims beneficial
ownership of the shares held by the independent trustee.
(6) Excludes 461,473 shares of Class A Common Stock held of record or
beneficially by Mr. Naify's adult children and grandchildren as to which he
disclaims beneficial ownership.
(7) The Naify Interests (consisting of Marshall Naify, Robert A. Naify, various
members of their families and trusts for the benefit of such members) may be
deemed to constitute a "group" for purposes of Sections 13(d) and 13(g) of
the Securities Exchange Act of 1934. The total Class A and B Stock
beneficially owned by The Naify Interests as of August 31, 1996 is 3,052,972
(46.32%) and 1,703,639 (97.51%), respectively before and percentages of
33.58% and 97.51%, respectively after.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Class A Common Stock, $.01 par value, 6,000,000 shares of Class B Common Stock,
$.01 par value, and 1,000,000 shares of Preferred Stock, $.01 par value. The par
value for all classes was changed from $.25 to $.01 in July 1996.
COMMON STOCK
VOTING RIGHTS. Holders of Class A Common Stock and Class B Common Stock are
entitled to one vote and ten votes per share, respectively, on all matters
submitted to a vote of shareholders, including the election of directors. With
certain exceptions, and except as otherwise required by law the holders of Class
A Common Stock and Class B Common Stock vote together as a single class, subject
to any voting rights which may be granted to holders of Preferred Stock. Since
the Common Stock does not have cumulative voting rights, the holders of a
majority of the outstanding shares voting for election of directors can elect
all members of the Board of Directors. However, if and whenever and for so long
as dividends accrued and unpaid on the outstanding Class A Common Stock equal or
exceed an amount equal to eight (8) full quarterly dividends on all shares of
Class A Common Stock then outstanding, then, until all dividends in default on
the Class A Common Stock shall have been paid, or declared and set aside, the
holders of the Class A Common Stock, voting together as one class are entitled
to elect two directors, and the remaining members of the Board of Directors are
to be elected by the holders of the Class A Common Stock and the Class B Common
Stock voting together, as a single class, subject to any voting rights which may
be granted to the holders of Preferred Stock. Except as provided in the next
sentence, a majority vote is also sufficient for other actions that require the
vote or concurrence of shareholders. The Company may not merge or consolidate
with or into any other corporation in which the Company is not the surviving
corporation; sell, lease exchange or otherwise dispose of all or substantially
all of its assets; or dissolve; unless and until such transaction is authorized
by the vote, if any, required by applicable law and the provisions of any
Preferred Stock then outstanding; and unless and until such transaction is
authorized by a majority of the shares voting of Class A Common Stock and of
Class B Common Stock, each voting separately as a class, unless a greater vote
is required by Delaware law. The Company may not effect the issuance of any
additional shares of Class B Common Stock (except in connection with stock
splits and stock dividends) unless and until such issuance is authorized by the
holder of a majority of the outstanding shares of the Class B Common Stock. See
"Principal Shareholders."
DIVIDEND RIGHTS. Subject to the rights of the holders of Preferred Stock,
holders of Class A Common Stock are entitled to receive out of funds legally
available therefor, cumulative cash dividends at an annual rate of $.045 per
share per year (subject to adjustment for stock splits and stock dividends)
payable quarterly at dates fixed by the Board of Directors, before any cash
dividend may be declared or paid on the Class B Common Stock. Dividends on the
Class A Common Stock are cumulative. Accumulations of dividends do not bear
interest. If cash dividends are paid on the Class A Common Stock in excess of
the minimum dividend specified, the excess of all such dividends (computed with
respect to dividends paid after the date on which dividends begin to accumulate)
over such minimum rate is to be applied to future periods to reduce the amount
of any dividend which must be paid in such future period on the Class A Common
Stock before cash dividends can be declared or paid on the Class B Common Stock.
Subject to the rights of the holders of Preferred Stock, and to holders of Class
A Common Stock, Class B Common Stock is entitled to receive such dividends and
other distributions in cash, stock or property of the Company as may be declared
thereon by the Board of Directors from time to time out of assets or funds of
the Company legally available therefor, provided that if at any time a cash
dividend is paid on the Class A Common Stock (including dividends on the Class A
Common Stock at the minimum rate), a cash dividend must also be paid on the
Class B Common Stock equal to 90% of the amount of the dividend paid on the
Class A Common Stock. In the case of dividends or other distributions payable in
stock of the Company other than Preferred Stock, including distributions
pursuant to stock splits or divisions of stock of the Company other than
Preferred Stock, only shares of Class A Common Stock may be distributed with
44
<PAGE>
respect to Class A Common Stock and only shares of Class B Common Stock in an
amount per share equal to the amount per share paid with respect to the Class A
Common Stock may be distributed with respect to Class B Common Stock, and that,
in the case of any combination or reclassification of the Class A Common Stock,
the shares of Class B Common Stock will also be combined or reclassified so that
the number of shares of Class B Common Stock outstanding immediately following
such combination or reclassification bear the same relationship to the number os
shares outstanding immediately prior to such combination or reclassification as
the number of shares of Class A Common Stock outstanding immediately following
such combination or reclassification bears to the number of shares of Class A
Common Stock outstanding immediately prior to such combination or
reclassification. See "Price Range of Common Stock and Dividends."
LIQUIDATION RIGHTS. After provision for the holders of any Preferred Stock,
holders of Common Stock will be entitled to share ratably in the assets of the
Company legally available for distribution to shareholders in the event of
liquidation or dissolution.
OTHER RIGHTS. Transfer of the Class B Common Stock is limited to certain
permitted classes of transferees. Upon a disqualifying disposition or upon the
election of the holder, Class B Common Stock may be converted into Class A
Common Stock on a one-for-one basis. The holders of Class A Common Stock have no
conversion rights. The holders of Class A and Class B Common Stock have no
preemptive rights.
The shares of Class A Common Stock offered hereby will be, when issued and
paid for, fully paid and not liable for further call or assessment.
PREFERRED STOCK
Although the Company has no present plans to issue shares of Preferred
Stock, Preferred Stock may be issued from time to time in one or more classes or
series with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as may be fixed by the Company's Board of
Directors. The Board of Directors, without obtaining shareholder approval, could
issue the Preferred Stock with voting or conversion rights and thereby dilute
the voting power and equity of the holders of Common Stock and adversely affect
the market price of such stock. See "Risk Factors--Control by Principal
Shareholders; Potential Issuance of Preferred Stock; Anti-Takeover Provisions."
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, acquisitions and employee benefit
plans.
TRANSFER AGENT
The transfer agent and registrar of the Class A Common Stock is Continental
Stock Transfer and Trust Co., New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 9,055,640 shares of
Class A Common Stock outstanding (9,430,640 shares if the Underwriters'
over-allotment option is exercised in full) and 1,747,181 shares of Class B
Common Stock outstanding, based upon the number of shares outstanding as of
August 31, 1996. Of these shares, the 2,500,000 shares sold in this offering
(2,875,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable without restriction or
45
<PAGE>
further registration under the Securities Act, except for any shares purchased
by "affiliates" of the Company, as that term is defined under the Securities Act
("Affiliates").
SALES OF RESTRICTED SHARES
There are 66,863 shares of Class A Common Stock which are deemed "restricted
securities" under Rule 144 under the Securities Act and may not be sold unless
they are registered under the Securities Act or unless an exemption, such as the
exemption provided by Rule 144, is available. None of these restricted shares
are currently eligible for sale in the public market in accordance with Rule
144. Certain security holders have the right to have their restricted shares
registered by the Company under the Securities Act as described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least two years, is entitled to sell within any
three-month period, a number of such shares that does not exceed the greater of
(i) one percent of the then outstanding shares of Common Stock (approximately
90,556 shares after this offering) or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the date on which
notice of such sale is filed with the Commission. In addition, under Rule
144(k), a person who is not an Affiliate and has not been an Affiliate for at
least three months prior to the sale and who has beneficially owned the
restricted shares for at least three years may resell such shares without
compliance with the foregoing requirements. In meeting the two and three year
holding periods described above, a holder of restricted shares can include the
holding periods of a prior owner who was not an affiliate.
OPTIONS
As of August 31, 1996, options to purchase a total of 1,008,645 shares of
Class A Common Stock were outstanding, of which options for an aggregate of
514,677 shares of Class A Common Stock were exercisable. Of the exercisable
options, 421,300 shares are subject to Lock-up Agreements. The Company has filed
one or more registration statements on Form S-8 under the Securities Act to
register all shares of Common Stock subject to then outstanding stock options
and Class A Common Stock issuable pursuant to the Company's 1986 and 1995 Stock
Option Plans. The shares registered pursuant to these registration statements
will, once exercisable, be eligible for sale in the public markets, subject to
the Lock-up Agreements, to the extent applicable. See "Management."
LOCK-UP AGREEMENTS
Pursuant to the Lock-up Agreements, holders of 5,063,654 shares of Common
Stock outstanding immediately prior to this offering and options to purchase an
aggregate of 210,100 shares of Common Stock have agreed for a period of 180 days
after the date of this Prospectus, and holders of 102,886 shares of Common Stock
outstanding immediately prior to this Offering and options to purchase 211,200
shares of Common Stock have agreed for a period of 90 days after the date of
this Prospectus, that they will not, without the prior written consent of Dean
Witter Reynolds Inc. (i) sell, offer to sell, grant any option for the sale of,
or otherwise dispose of or transfer, any shares of Common Stock beneficially
owned by such person or any securities convertible into or exchangeable or
exercisable for Common Stock, whether then owned or hereafter acquired by such
person or with respect to which such person has or hereafter acquires the power
of disposition, or file any registration statement under the Securities Act with
respect to any of the foregoing, or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock, whether
any such swap or transaction is to be settled by delivery of Common Stock or the
securities, in cash or otherwise.
46
<PAGE>
REGISTRATION RIGHTS
Certain shareholders (collectively, the "Rights Holders") will be entitled
to require the Company to register under the Securities Act a total of
approximately 66,863 shares of outstanding Class A Common Stock (the
"Registrable Shares"). The agreement affording these rights provides that under
certain circumstances and subject to certain limitations the Rights Holders may
require the Company on or after February 13, 1997 to file a registration
statement under the Securities Act with respect to the Registrable Shares and
the Company must use all commercially reasonable efforts to effect such
registration; provided however, that the Company is not required to file such a
registration statement which would become effective within six months following
the effective date of a registration statement for an underwritten public
offering of securities for cash for the Company's account.
UNDERWRITING
The Underwriters named below, for whom Dean Witter Reynolds Inc. and Brean
Murray & Co., Inc. are acting as representatives (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement (a copy of which has been filed as an exhibit to the Registration
Statement), to purchase from the Company the number of shares of Class A Common
Stock set forth opposite their respective names in the table below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Dean Witter Reynolds Inc...................................................
Brean Murray & Co., Inc....................................................
-----------------
Total.................................................................... 2,500,000
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they must purchase all of the shares (other than those
subject to the over-allotment option) if any are purchased.
The Underwriters have advised the Company that they propose to offer the
shares of Class A Common Stock directly to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers (who
may include the Underwriters) at such public offering price less a concession
not to exceed $ per share. Such dealers may reallow a concession not to
exceed $ per share to other dealers. After the public offering, the public
offering price may be reduced and concessions and reallowances to dealers may be
changed by the Underwriters. The Underwriters have informed the Company that
they do not intend to confirm sales to any account over which they exercise
discretionary authority. The Underwriters intend to make a market in the Common
Stock after completion of this offering.
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 an
additional 375,000 shares of Class A Common Stock at the public offering price,
less underwriting discounts and commissions to cover over-allotments, if any.
After commencement of this offering, the Underwriters may confirm sales subject
to the over-allotment option.
The Company has 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, Salah M. Hassanein, Marshall Naify, Robert A. Naify and the
Other Naify Interests have agreed for a period of 180 days after the date of
this Prospectus, and all other executive officers and directors of the Company
have agreed for a period of 90 days after the date of this Prospectus that,
without the prior written consent of Dean Witter Reynolds Inc., they will not
(i) sell, offer to sell, grant any option
47
<PAGE>
for the sale of, or otherwise dispose of or transfer, any shares of Common Stock
beneficially owned by such person or any securities convertible into or
exchangeable or exercisable for Common Stock, whether then owned or hereafter
acquired by such person or with respect to which such person has or hereafter
acquires the power of disposition, or file any registration statement under the
Securities Act with respect to any of the foregoing, or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Common
Stock, whether any such swap or transaction is to be settled by delivery of
Common Stock or the securities, in cash or otherwise.
In connection with this offering, the Underwriters and other selling group
members may engage in passive market making transactions in the Class A Common
Stock on the Nasdaq National Market in accordance with Rule 10b-6A under the
Exchange Act. Passive market making consists of displaying bids on the Nasdaq
National Market limited by the prices of independent market makers and effecting
purchases limited by such prices and in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Class A Common Stock
during a specified prior period and must be discontinued when such limit is
reached. Passive market making may stabilize the market price of the Class A
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Greenberg Glusker Fields Claman & Machtinger LLP,
Los Angeles, California. Certain legal matters relating to the Offering will be
passed upon for the Underwriters by O'Melveny and Myers LLP, Los Angeles,
California.
EXPERTS
The consolidated balance sheets of the Company at August 31, 1994 and 1995
and May 31, 1996 and the consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended August 31, 1995
and for the nine-month period ended May 31, 1996, included in this Prospectus
and Registration Statement, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
The balance sheet of Edit Acquisition LLC d/b/a Editworks as of December 31,
1995 and the statements of income and changes in members equity and cash flows
for the year then ended, which are included in this Prospectus and Registration
Statement, have been included herein in reliance on the report of Gifford,
Hillegass & Ingwersen, P.C., given on the authority of that firm as experts in
accounting and auditing.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE TODD-AO CORPORATION
Report of Deloitte & Touche LLP, Independent Auditors..................... F-2
Consolidated Balance Sheets as of August 31, 1994 and 1995, and May 31,
1996.................................................................... F-3
Consolidated Statements of Income for the years ended August 31, 1993,
1994 and 1995, and the nine months ended May 31, 1995 (unaudited) and
May 31, 1996............................................................ F-5
Consolidated Statements of Stockholders' Equity for the years ended August
31, 1993, 1994 and 1995, and the nine months ended May 31, 1996......... F-6
Consolidated Statements of Cash Flows for the years ended August 31, 1993,
1994 and 1995, and the nine months ended May 31, 1995 (unaudited) and
May 31, 1996............................................................ F-7
Notes to Consolidated Financial Statements................................ F-10
EDIT ACQUISITION LLC
Report of Gifford, Hillegass & Ingwersen, P.C., Independent Auditors...... F-20
Balance Sheets at December 31, 1995 and 1994.............................. F-21
Statements of Income for the year ended December 31, 1995 and the ten
months ended December 31, 1994.......................................... F-22
Statements of Changes In Members' Equity for the year ended December 31,
1995 and the ten months ended December 31, 1994......................... F-23
Statements of Cash Flows for the year ended December 31, 1995 and the ten
months ended December 31, 1994.......................................... F-24
Notes to Financial Statements............................................. F-25
Balance Sheet at June 30, 1996 (unaudited)................................ F-27
Statements of Income for the six months ended June 30, 1996 and 1995
(unaudited)............................................................. F-28
Statements of Cash Flows for the six months ended June 30, 1996 and 1995
(unaudited)............................................................. F-29
Notes to Financial Statements............................................. F-30
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
The Todd-AO Corporation:
We have audited the accompanying consolidated balance sheets of The Todd-AO
Corporation and subsidiaries (the "Company") as of August 31, 1994, August 31,
1995 and May 31, 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended August 31, 1995 and the nine months ended May 31, 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of August 31,
1994, August 31, 1995 and May 31, 1996 and the results of its operations and its
cash flows for each of the three years in the period ended August 31, 1995 and
the nine months ended May 31, 1996 in conformity with generally accepted
accounting principles.
By /s/ DELOITTE & TOUCHE LLP
------------------------------------
DELOITTE & TOUCHE LLP
Los Angeles, California
August 23, 1996
F-2
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
---------------------- MAY 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents..................................................... $ 606 $ 5,278 $ 3,263
Marketable securities......................................................... 3,880 3,484 2,685
Trade receivables
(net of allowance for doubtful accounts of $408, $828 and $663 at August 31,
1994, 1995 and May 31, 1996, respectively).................................. 4,278 6,787 11,043
Inventories (first-in first-out basis)........................................ 374 484 661
Prepaid income taxes.......................................................... 148 727 --
Deferred income taxes......................................................... 563 924 805
Other......................................................................... 195 565 552
---------- ---------- ----------
Total current assets.......................................................... 10,044 18,249 19,009
---------- ---------- ----------
INVESTMENTS................................................................... 1,270 1,656 1,336
---------- ---------- ----------
PROPERTY AND EQUIPMENT--At Cost:
Land.......................................................................... 3,487 4,270 4,270
Buildings..................................................................... 8,201 10,762 10,773
Leasehold improvements........................................................ 5,569 6,802 6,802
Lease acquisition costs....................................................... 2,187 2,187 2,187
Equipment..................................................................... 27,031 23,392 27,373
Equipment under capital leases................................................ 886 3,163 3,163
Construction in progress...................................................... 57 -- 122
---------- ---------- ----------
Total......................................................................... 47,418 50,576 54,690
Accumulated depreciation and amortization..................................... (22,083) (15,613) (19,464)
---------- ---------- ----------
Property and equipment--net................................................... 25,335 34,963 35,226
---------- ---------- ----------
GOODWILL
(net of accumulated amortization of $63 at August 31, 1995 and $157 at May
31, 1996)................................................................... -- 1,832 1,738
---------- ---------- ----------
OTHER ASSETS.................................................................. 79 498 375
---------- ---------- ----------
TOTAL......................................................................... $ 36,728 $ 57,198 $ 57,684
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 31,
-------------------- MAY 31,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................................................. $ 684 $ 1,784 $ 2,517
Accrued liabilities:
Payroll and related taxes...................................................... 2,518 1,975 1,918
Interest....................................................................... 10 179 129
Equipment lease................................................................ -- 396 300
Other.......................................................................... 452 515 382
Income taxes payable........................................................... -- -- 654
Current maturities of long-term debt............................................. 150 759 615
Capitalized lease obligations--current........................................... 708 897 867
Deferred income.................................................................. 162 703 446
--------- --------- ---------
Total current liabilities........................................................ 4,684 7,208 7,828
--------- --------- ---------
LONG-TERM DEBT................................................................... 600 7,707 6,065
CAPITALIZED LEASE OBLIGATIONS.................................................... 867 620 68
DEFERRED COMPENSATION............................................................ 565 401 265
DEFERRED GAIN ON SALE/LEASEBACK.................................................. -- 6,381 5,277
DEFERRED INCOME TAXES............................................................ 2,064 3,683 3,587
--------- --------- ---------
Total liabilities................................................................ 8,780 26,000 23,090
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares of $0.25 par value; issued and
outstanding 6,377,721 at August 31, 1994, 6,403,021 at August 31, 1995 and
6,488,727 at May 31, 1996...................................................... 1,594 1,600 1,622
Class B; authorized 6,000,000 shares of $0.25 par value; issued and outstanding
1,747,181 at August 31, 1994, 1995 and May 31, 1996............................ 437 437 437
Additional capital............................................................... 20,953 21,048 20,985
Retained earnings................................................................ 4,964 7,904 11,605
Unrealized gains on marketable securities and long-term investments.............. -- 473 204
Cumulative foreign currency translation adjustment............................... -- (264) (259)
--------- --------- ---------
Total stockholders' equity....................................................... 27,948 31,198 34,594
--------- --------- ---------
TOTAL............................................................................ $ 36,728 $ 57,198 $ 57,684
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED AUGUST 31, MAY 31,
--------------------------------------------- -----------------------------
1993 1994 1995 1996
------------- ------------- ------------- 1995 -------------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES......................................... $ 27,402 $ 32,892 $ 50,003 $ 37,125 $ 48,140
------------- ------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Operating costs and other expenses............... 22,641 27,021 39,867 29,405 37,231
Depreciation and amortization.................... 2,412 2,603 3,917 3,014 3,967
Interest......................................... 17 24 581 320 531
Equipment lease expense--net..................... -- -- 593 371 415
Other (income) expense--net...................... (483) (773) (290) (223) (554)
------------- ------------- ------------- ------------- -------------
Total............................................ 24,587 28,875 44,668 32,887 41,590
------------- ------------- ------------- ------------- -------------
INCOME BEFORE LOSS FROM JOINT VENTURE AND
PROVISION FOR INCOME TAXES..................... 2,815 4,017 5,335 4,238 6,550
LOSS FROM JOINT VENTURE.......................... (1,014) (1,215) (249) (167) (117)
------------- ------------- ------------- ------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES......... 1,801 2,802 5,086 4,071 6,433
PROVISION FOR INCOME TAXES....................... 664 1,022 1,711 1,452 2,371
------------- ------------- ------------- ------------- -------------
NET INCOME....................................... $ 1,137 $ 1,780 $ 3,375 $ 2,619 $ 4,062
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
NET INCOME PER COMMON SHARE AND COMMON SHARE
EQUIVALENTS.................................... $ 0.14 $ 0.22 $ 0.40 $ 0.31 $ 0.46
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
WEIGHTED AVERAGE SHARES OUTSTANDING.............. 8,278,932 8,195,678 8,399,462 8,351,588 8,805,359
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1993, 1994, 1995 AND
FOR THE NINE MONTHS ENDED MAY 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------
CLASS A
--------------------- CLASS B ADDITIONAL
SHARES AMOUNT AMOUNT CAPITAL
----------- ------- -------- -----------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 1, 1992...................... 5,708,328 $1,431 $ 397 $ 14,925
Stock Dividend (10%) in 1995...................... 570,833 143 40 5,938
Purchase of treasury shares....................... (61,600) -- -- --
Treasury shares cancellation...................... -- (20) -- (269)
Unrealized loss on investment securities.......... -- -- -- --
Exercise of stock options......................... 213,950 54 -- 610
Cash dividends:
Class A ($.06) per share........................ -- -- -- --
Class B ($.054) per share....................... -- -- -- --
Net income...................................... -- -- -- --
----------- ------- -------- -----------
BALANCE AT AUGUST 31, 1993........................ 6,431,511 1,608 437 21,204
Purchase of treasury shares....................... (143,000) -- -- --
Treasury shares cancellation...................... -- (36) -- (476)
Exercise of stock options......................... 89,210 22 -- 225
Cash dividends:
Class A ($.06) per share........................ -- -- -- --
Class B ($.054) per share....................... -- -- -- --
Net income...................................... -- -- -- --
----------- ------- -------- -----------
BALANCE AT AUGUST 31, 1994........................ 6,377,721 1,594 437 20,953
Exercise of stock options......................... 25,300 6 -- 95
Unrealized gain on investment securities.......... -- -- -- --
Loss on foreign currency translation.............. -- -- -- --
Cash dividends:
Class A ($.06) per share........................ -- -- -- --
Class B ($.054) per share....................... -- -- -- --
Net income...................................... -- -- -- --
----------- ------- -------- -----------
BALANCE AT AUGUST 31, 1995........................ 6,403,021 1,600 437 21,048
Exercise of stock options......................... 142,550 36 -- 482
Unrealized gain on investment securities.......... -- -- -- --
Loss on foreign currency translation.............. -- -- -- --
Cash dividends:
Class A ($.045) per share....................... -- -- -- --
Class B ($.04) per share........................ -- -- -- --
Net income........................................ -- -- -- --
Treasury shares................................... (56,844) (14) -- (545)
----------- ------- -------- -----------
BALANCE AT MAY 31, 1996........................... 6,488,727 $1,622 $ 437 $ 20,985
----------- ------- -------- -----------
----------- ------- -------- -----------
<CAPTION>
UNREALIZED
GAIN (LOSS) FOREIGN
RETAINED TREASURY ON INVESTMENT CURRENCY
EARNINGS SHARES SECURITIES TRANSLATION
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 1, 1992...................... $ 9,029 $ (64) $ (1,234) $ --
Stock Dividend (10%) in 1995...................... (6,123) -- -- --
Purchase of treasury shares....................... -- (223) -- --
Treasury shares cancellation...................... -- 287 -- --
Unrealized loss on investment securities.......... -- -- 1,234 --
Exercise of stock options......................... -- -- -- --
Cash dividends:
Class A ($.06) per share........................ (346) -- -- --
Class B ($.054) per share....................... (85) -- -- --
Net income...................................... 1,137 -- -- --
---------- ---------- ------------- ------
BALANCE AT AUGUST 31, 1993........................ 3,612 -- -- --
Purchase of treasury shares....................... -- (509) -- --
Treasury shares cancellation...................... -- 509 -- --
Exercise of stock options......................... -- -- -- --
Cash dividends:
Class A ($.06) per share........................ (342) -- -- --
Class B ($.054) per share....................... (86) -- -- --
Net income...................................... 1,780 -- -- --
---------- ---------- ------------- ------
BALANCE AT AUGUST 31, 1994........................ 4,964 -- -- --
Exercise of stock options......................... -- -- -- --
Unrealized gain on investment securities.......... -- -- 473 --
Loss on foreign currency translation.............. -- -- -- (264)
Cash dividends:
Class A ($.06) per share........................ (349) -- -- --
Class B ($.054) per share....................... (86) -- -- --
Net income...................................... 3,375 -- -- --
---------- ---------- ------------- ------
BALANCE AT AUGUST 31, 1995........................ 7,904 -- 473 (264)
Exercise of stock options......................... -- -- -- --
Unrealized gain on investment securities.......... -- -- (269) --
Loss on foreign currency translation.............. -- -- -- 5
Cash dividends:
Class A ($.045) per share....................... (290) -- -- --
Class B ($.04) per share........................ (71) -- -- --
Net income........................................ 4,062 -- -- --
Treasury shares................................... -- -- -- --
---------- ---------- ------------- ------
BALANCE AT MAY 31, 1996........................... $ 11,605 $ -- $ 204 $ (259)
---------- ---------- ------------- ------
---------- ---------- ------------- ------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31, NINE MONTHS ENDED MAY 31,
------------------------------------------ ---------------------------
1993 1994 1995 1996
------------ ------------ ------------ 1995 ------------
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................ $ 1,137 $ 1,780 $ 3,375 $ 2,619 $ 4,062
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 2,412 2,603 3,917 3,014 3,967
Deferred income taxes............................. (186) (386) 1,258 845 23
Loss from joint venture........................... 1,014 1,215 249 167 117
Deferred compensation............................. (27) (119) (164) (107) (136)
Amortization of deferred gain on sale/leaseback
transaction..................................... -- -- (964) (612) (1,104)
(Gain) loss on sale of marketable securities and
investments..................................... (325) (342) (127) 29 42
Changes in assets and liabilities:
Trade receivables............................... 679 (894) (739) (4,459) (4,022)
Income taxes receivable......................... 268 -- -- -- --
Inventories and other current assets............ (24) 38 (266) (222) (16)
Accounts payable and accrued liabilities........ (629) 1,249 138 1,233 103
Accrued equipment lease......................... -- -- 396 394 (96)
Income taxes payable............................ 62 (210) (670) 433 1,212
Deferred income................................. 146 (93) 560 347 (257)
------------ ------------ ------------ ------------ ------------
Net cash provided by operating activities:.......... 4,527 4,841 6,963 3,681 3,895
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and
investments..................................... (750) (3,050) (996) (489) (73)
Proceeds from sale of marketable securities and
investments..................................... 1,653 921 1,606 1,159 881
Capital expenditures.............................. (393) (1,404) (3,345) (2,638) (3,317)
Contributions to joint venture.................... (985) (900) (249) (167) (117)
Purchase of Paskal Video.......................... -- (1,150) -- -- --
Purchase of Skywalker Sound South................. -- -- (6,966) (6,966) --
Purchase of Chrysalis............................. -- -- (8,333) (8,002) --
Other assets...................................... (74) (155) (1) 1 128
------------ ------------ ------------ ------------ ------------
Net cash flows (used in) investing activities:...... $ (549) $ (5,738) $ (18,284) $ (17,102) $ (2,498)
------------ ------------ ------------ ------------ ------------
</TABLE>
F-7
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
YEARS ENDED AUGUST 31,
------------------------------------------ ---------------------------
1993 1994 1995 1996
------------ ------------ ------------ ------------
1995
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt...................... $ 1,000 $ -- $ 7,722 $ 7,714 $ 2,175
Payments on long-term debt........................ (2,800) -- (1,467) (84) (4,516)
Payments on capital lease obligations............. -- (94) (1,108) (820) (669)
Proceeds from sale/leaseback transaction.......... -- -- 11,218 11,218 --
Proceeds from issuance of common stock............ 659 245 101 60 518
Treasury stock transactions....................... (223) (509) -- -- (559)
Dividends paid.................................... (431) (428) (435) (326) (361)
------------ ------------ ------------ ------------ ------------
Net cash flows provided by (used in) financing
activities:....................................... (1,795) (786) 16,031 17,762 (3,412)
Effect of exchange rate changes on cash........... -- -- (38) (13) --
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 2,183 (1,683) 4,672 4,328 (2,015)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.......................................... 106 2,289 606 606 5,278
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.......................................... $ 2,289 $ 606 $ 5,278 $ 4,934 $ 3,263
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--
Cash paid during the year for:
Interest.......................................... $ 80 $ 19 $ 408 $ 117 $ 581
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Income taxes...................................... $ 553 $ 1,563 $ 1,413 $ 675 $ 2,495
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES:
1995
a) On February 15, 1995, the Company acquired substantially all of the
property, equipment and inventory of Skywalker Sound South (See Note 2). In
connection with this acquisition, the Company paid cash as follows:
<TABLE>
<S> <C>
Assets acquired:
Land.............................................................. $ 783
Buildings and improvements........................................ 844
Equipment......................................................... 5,032
Other assets...................................................... 307
---------
Cash paid in acquisition............................................ $ 6,966
---------
---------
</TABLE>
F-8
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
b) On March 16, 1995, the Company acquired all of the outstanding shares of
Chrysalis Television Facilities, Ltd. (See Note 2). In connection with this
acquisition, the Company paid cash as follows:
<TABLE>
<S> <C>
Assets acquired:
Property and equipment........................................... $ 7,599
Goodwill......................................................... 1,963
Accounts receivable.............................................. 1,815
Other assets..................................................... 339
Liabilities assumed:
Accounts payable and accrued expenses............................ (798)
Capitalized lease obligations.................................... (1,072)
Real estate mortgage payable..................................... (149)
Long-term debt issued to seller.................................... (1,364)
---------
Cash paid in acquisition........................................... $ 8,333
---------
---------
</TABLE>
1994:
a) On August 31, 1994, the Company acquired substantially of all the assets and
certain of the liabilities of Paskal Video (See Note 2). In connection with
this acquisition, the Company paid cash as follows:
<TABLE>
<S> <C>
Assets acquired:
Property and equipment............................................ $ 2,030
Accounts receivable............................................... 860
Other assets...................................................... 121
Liabilities assumed:
Accounts payable and accrued expenses............................. (329)
Capitalized lease obligations..................................... (782)
Long-term debt issued to seller..................................... (750)
---------
Cash paid in acquisition............................................ $ 1,150
---------
---------
</TABLE>
b) During the year ended August 31, 1994, TDI entered into a capital lease
obligation in the amount of $886.
See notes to consolidated financial statements.
F-9
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
OWNERSHIP AND BUSINESS--At May 31, 1996, Robert Naify, Marshall Naify, and
certain members of their families and various trusts for the benefit of family
members (the "Naify Interests") owned over 58% of the outstanding shares of the
Company, representing approximately 84% of the total voting power.
BASIS OF PRESENTATION--The consolidated financial statements include the
Company and its wholly owned subsidiaries Todd-AO Studios East, Inc. ("Todd-AO
East"), Todd-AO Productions, Inc., Todd-AO Digital Images, Inc. ("TDI"), Todd-AO
Video Services, Inc. ("TVS"), Todd-AO Studios West ("TSW") and Todd-AO Europe
Holding Ltd. ("TAO Europe")(See Note 2). All significant intercompany balances
and transactions have been eliminated.
CASH AND CASH EQUIVALENTS--The Company considers investments with original
purchased maturities of three months or less to be cash equivalents.
MARKETABLE SECURITIES AND INVESTMENTS--Marketable securities consist
primarily of corporate preferred stocks and bonds. Management has classified all
investment securities as available-for-sale. As a result, securities are
reported at fair value with net unrealized holding gains and losses excluded
from earnings and reported in stockholders' equity. Fair value is based upon
quoted market prices using the specific identification method. Investments
include stock and other investments which management intends to hold for more
than one year.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization are computed at
straight line rates based upon the estimated useful lives of the various classes
of assets. The principal rates are as follows: buildings, 3-5% per annum;
equipment, 10-20% per annum; leaseholds, leasehold improvements, and lease
acquisition costs over the term of the lease.
GOODWILL--Goodwill represents the excess purchase price paid over the net
asset value of Chrysalis (See Note 2) and is being amortized on a straight-line
basis over 15 years.
The Company assesses the recoverability of its intangible assets by
determining whether the amortization of the intangible asset balance over its
remaining life can be recovered through projected non-discounted future cash
flows over the remaining amortization period. If projected future cash flows
indicate that the unamortized intangible asset balances will not be recovered,
an adjustment is made to reduce the net intangible asset to an amount consistent
with projected future cash flows discounted at the Company's incremental
borrowing rate.
FOREIGN CURRENCY TRANSLATION--The Company's foreign subsidiary's functional
currency is its local currency. Assets and liabilities of foreign operations are
translated into U.S. dollars using current exchange rates, and revenues and
expenses are translated into U.S. dollars using average exchange rates. The
effects of the foreign currency translation adjustments are deferred and are
included as a component of stockholders' equity.
NET INCOME PER COMMON SHARE--Net income per common share is computed based
on the weighted average number of common and common equivalent shares
outstanding for each of the periods presented including common share equivalents
arising from the assumed conversion of any outstanding dilutive stock options.
F-10
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS--Statement of Financial and Accounting
Standard ("SFAS") No. 107 requires disclosures of fair value information about
financial instruments, whether or not recognized in the balance sheet, for which
it is practicable to estimate fair value. Management believes that the book
value approximates fair value of the Company's financial instrument because of
the short-term nature of accounts receivable and variable interest rates
associated with long-term debt.
CONCENTRATION OF CREDIT RISK--The Company's accounts receivable are related
primarily to the entertainment industry and are unsecured. The Company's ten
largest customers account for approximately 50% of revenues and for the nine
months ended May 31, 1996, one customer accounted for approximately 12% of
revenues.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of certain assets and
liabilities and disclosure of contingent assets and liabilities. Actual results
could differ from those estimates.
RECLASSIFICATIONS--Certain 1995 financial statement captions have been
reclassified in order to conform to 1996 presentation.
2. ACQUISITIONS
On August 31, 1994, TVS (a wholly owned subsidiary of the Company) acquired
certain of the assets and liabilities of Film Video Masters ("Paskal"). TVS
provides post production video services to the film and television industries.
In consideration of the purchase, TVS paid Paskal $1,150 in cash and issued a
note in the amount of $750.
On February 15, 1995, TSW (a wholly owned subsidiary of the Company)
acquired substantially all of the property, equipment and inventory of Kaytea
Rose, Inc. (dba Skywalker Sound South)("SSS"). TSW provides post production
sound services to the film and television industries. In consideration of the
purchase, TSW paid $6,966 in cash. TSW is included in the Company's results of
operations from February 1995.
On March 16, 1995 TAO Europe (formerly FCB 1120, Ltd.)(a wholly owned
subsidiary of the Company) acquired all of the outstanding shares of
Chrysalis/Todd-AO Europe Ltd. ("Chrysalis")(formerly Chrysalis Television
Facilities, Ltd.) from Chrysalis Holdings Ltd. ("CHL"). TAO Europe, Chrysalis
and CHL are all corporations organized under the laws of the United Kingdom and
headquartered in London. Chrysalis specializes in the collation of television
programming for satellite broadcast and also provides post production video and
other services to a variety of clients. In consideration of the purchase, TAO
Europe paid CHL $1,966 in cash at closing and issued a note in the amount of
$1,364. An additional cash settlement of $220 was paid in June 1995.
Concurrently with the acquisition, TAO Europe advanced and paid on behalf of
Chrysalis its intercompany debt to CHL in the amount of $4,585. Subsequent to
the acquisition, TAO Europe advanced and paid on behalf of Chrysalis other debt
in the amount of $1,562. TAO Europe and Chrysalis consolidated are included in
the Company's results of operations from March 1995.
On August 15, 1996, the Company purchased substantially all of the assets
and certain liabilities of Edit Acquisition LLC ("Editworks"). Editworks
provides video post production services to broadcasters,
F-11
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)
2. ACQUISITIONS (CONTINUED)
advertising agencies and other businesses. At the closing, the Company paid
Editworks $3,180 in cash and $970 in Todd-AO common stock. An additional $500 in
cash is due upon completion of certain conditions.
The acquisitions are being accounted for under the purchase method of
accounting. The following unaudited pro forma consolidated financial information
is presented as if the acquisitions had occurred on September 1, 1994. Pro forma
adjustments for TSW are primarily to operating expenses related to nonapplicable
allocations made by the parent corporation of SSS, depreciation expense relating
to the acquisition of assets, interest expense on borrowings in connection with
the acquisition and income taxes. Pro forma adjustments for TAO Europe are
primarily to amortization expense relating to allocation of the purchase price,
interest expense on borrowings in connection with the acquisition and income
taxes. Pro forma adjustments for Editworks are primarily to amortization of
goodwill, interest expense on borrowings in connection with the acquisition, and
income taxes.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
AUGUST 31, ENDED
1995 MAY 31, 1996
----------- ------------
<S> <C> <C>
Revenues........................................................... $ 62,293 $ 51,445
----------- ------------
----------- ------------
Net income......................................................... $ 3,515 $ 4,366
----------- ------------
----------- ------------
Net income per common share........................................ $ 0.42 $ 0.49
----------- ------------
----------- ------------
</TABLE>
3. SALE/LEASEBACK
In December 1994 the Company signed an agreement with its bank to implement
the sale/leaseback of certain equipment for up to $15,000. The agreement
terminates on December 30, 1999 and is being treated as an operating lease for
financial statement purposes. On December 30, 1994 an aggregate of $11,218 in
equipment was sold and leased back to the Company. The total deferred gain on
the transaction to be amortized over five years is $7,345.
The net equipment lease expense for the periods ended August 31, 1995 and
May 31, 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Equipment lease costs..................................................... $ 1,557 $ 1,518
Amortization of deferred gain on sale of equipment........................ (964) (1,103)
--------- ---------
Equipment lease expense, net.............................................. $ 593 $ 415
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)
4. LONG-TERM DEBT
Long-term debt outstanding as of August 31, 1994, 1995 and May 31, 1996 was
as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revolving credit facility--pound sterling credit line............. $ -- $ 6,391 $ 5,127
Revolving credit facility--other.................................. -- -- 200
Note payable--Paskal Video acquisition............................ 750 613 500
Note payable--Chrysalis acquisition............................... -- 1,318 853
Chrysalis mortgage note........................................... -- 144 --
--------- --------- ---------
Total............................................................. 750 8,466 6,680
Less: current maturities.......................................... (150) (759) (615)
--------- --------- ---------
Total long-term debt.............................................. $ 600 $ 7,707 $ 6,065
--------- --------- ---------
--------- --------- ---------
</TABLE>
In December 1994 the Company signed a long-term credit agreement with its
bank which was amended in March 1995, April 1996 and June 1996. Under the
agreement the Company may borrow up to $28,000 in revolving loans until February
28, 2000. On that date and quarterly thereafter until the expiration of the
agreement on November 30, 2003, the revolving loan commitment shall reduce by 5%
of the original loan commitment. Approximately $8,000 of the available credit is
restricted to pound sterling borrowings. The agreement provides for interest at
1/2% plus reference rate; 1 1/2% plus offshore rates ("Libor") and 1 5/8% plus
certificate of deposit rates ("CD")(Libor and CD minimum borrowings $1,000 or
500). These rates increase by 1/2% if certain financial ratios are exceeded. The
pound sterling borrowings are restricted to Libor and CD options. The agreement
contains various restrictive provisions, including investment, capital
expenditure, cash dividends and borrowing limitations. As of May 31, 1996 the
Company has not exceeded the interest rate financial ratios and is in compliance
with the various restrictive provisions of the agreement.
In connection with the acquisition of Paskal Video (See Note 2), the Company
issued a promissory note. The note is payable in 60 monthly installments of $13
plus interest at the prime rate.
In connection with the acquisition of Chrysalis (See Note 2), TAO Europe
issued a note. The note is payable over a three year period in two installments
of $465 and one installment of $388. Each installment bears interest at 1 1/2%
above the prime rate of the National Westminster Bank in London. A mortgage note
in the amount of $144 with interest at 10 3/4% was also assumed at the
acquisition. In accordance with the provisions of the mortgage note, the Company
elected to pay off the entire balance in November 1995.
5. CAPITALIZED LEASE OBLIGATIONS
In 1994, the Company entered into lease obligations for equipment which have
been capitalized. In addition, the Company acquired leases on certain other
equipment with the Paskal and Chrysalis acquisitions (See Note 2). The leases
have implicit interest rates ranging from 7 1/2% to 11 1/2% and are secured by
the related equipment.
F-13
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)
5. CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
Capitalized lease obligations at August 31, 1995 mature as follows:
<TABLE>
<S> <C>
1996................................................................ $ 966
1997................................................................ 655
1998................................................................ 12
---------
1,633
Less amounts representing interest.................................. 116
---------
$ 1,517
---------
---------
</TABLE>
6. INCOME TAXES
The Company's effective income tax rate differs from the federal statutory
income tax rate due to the following:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31, 1993 1994 1995
- --------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Federal statutory income tax rate.................................... 35.0% 35.0% 35.0%
Adjust to actual Company rate........................................ (1.0) (1.0) (1.0)
--- --- ---
Adjusted federal statutory income tax rate........................... 34.0 34.0 34.0
State taxes, net of federal benefit.................................. 4.6 6.6 0.8
Other, net........................................................... (1.7) (4.1) (1.2)
--- --- ---
Total................................................................ 36.9% 36.5% 33.6%
--- --- ---
--- --- ---
</TABLE>
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future.
Such deferred income tax asset and liability computations are based on enacted
tax laws and rates applicable to periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
F-14
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)
6. INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Current Asset:
Accounts receivable reserves........................................... $ 172 $ 329
Vacation pay accruals.................................................. 260 359
State income taxes..................................................... 131 151
Other.................................................................. -- 85
--------- ---------
TOTAL CURRENT ASSET...................................................... $ 563 $ 924
--------- ---------
--------- ---------
Long-Term Asset:
Deferred compensation.................................................. $ 238 $ 160
Stock appreciation rights.............................................. 347 12
Equity in loss of Venture.............................................. 415 85
California depreciation adjustment..................................... 277 6
--------- ---------
Total long-term asset.................................................... 1,277 263
--------- ---------
Long-Term Liabilities:
Depreciation........................................................... (1,464) (1,986)
Deferred gains on property............................................. (1,762) (1,843)
Other.................................................................. (115) (117)
--------- ---------
Total long-term liability................................................ (3,341) (3,946)
--------- ---------
NET LONG-TERM LIABILITY.................................................. $ (2,064) $ (3,683)
--------- ---------
--------- ---------
</TABLE>
Components of the income tax provisions are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current provisions--domestic..................................... $ 850 $ 1,408 $ 274
Current provisions--foreign...................................... -- -- 180
Deferred provisions--domestic.................................... (186) (386) 1,231
Deferred provisions--foreign..................................... -- -- 26
--------- --------- ---------
Total............................................................ $ 664 $ 1,022 $ 1,711
--------- --------- ---------
--------- --------- ---------
Components of pre-tax income are as follows:
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic......................................................... $ 1,801 $ 2,802 $ 4,347
Foreign.......................................................... -- -- 739
--------- --------- ---------
Total............................................................ $ 1,801 $ 2,802 $ 5,086
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)
7. STOCKHOLDERS' EQUITY
The Company has 1,000,000 shares of $.25 par value preferred stock
authorized. As of May 31, 1996 no shares of preferred stock have been issued or
were outstanding.
The Class B stock is convertible at the option of the holder into Class A
stock and is automatically converted to Class A stock under certain
circumstances; holders have ten votes per share; transferability is restricted;
and dividends are limited to 90% of any dividends paid on Class A stock.
The Company has a stock repurchase program under which 1,300,000 shares may
be purchased from time to time in the open market or in private transactions. As
of May 31, 1996, 795,146 shares had been repurchased. All of these shares have
been cancelled and returned to authorized but unissued status.
8. STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS
STOCK OPTION PLANS
The Company has three stock option plans: The 1986, 1994 and the 1995 Stock
Option Plans. These plans provide for the granting of either non-qualified or
incentive stock options at not less than 85% and 100% of the market value of the
stock on the date of the grant, respectively. Options generally become
exercisable in installments commencing as of the beginning of a fiscal year near
the date of grant.
The following summarizes stock option activity for the three years and nine
months ended May 31, 1996:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
------------ --------------
<S> <C> <C>
Options outstanding, September 1, 1992............ 538,120 $ 2.03 - $4.50
Exercised......................................... (213,950) 2.03 - 2.93
Forfeited......................................... (5,500) 2.93
------------ --------------
Options outstanding, August 31, 1993.............. 318,670 2.03 - 4.50
Awarded........................................... 330,000 3.26
Exercised......................................... (89,210) 2.03 - 2.93
------------ --------------
Options outstanding, August 31, 1994.............. 559,460 2.03 - 4.50
Awarded........................................... 638,165 4.50 - 5.29
Exercised......................................... (25,300) 2.03 - 5.06
Forfeited......................................... (11,000) 4.50
------------ --------------
Options outstanding, August 31, 1995.............. 1,161,325 2.03 - 5.29
Awarded........................................... 14,500 7.13
Exercised......................................... (142,550) 2.03 - 7.13
Forfeited......................................... (14,580) 5.06 - 5.63
------------ --------------
Options outstanding, May 31, 1996................. 1,018,695 $ 2.03 - $7.13
------------ --------------
------------ --------------
</TABLE>
As of May 31, 1996, 70,125 shares and 337,390 shares were available for
grant under the 1986 and 1995 plans respectively. All authorized options under
the 1994 Plan have been granted. As of May 31, 1996, 524,727 options were
exercisable.
F-16
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)
8. STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS (CONTINUED)
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was
issued. The Company does not intend to adopt the statement's fair value
provisions except for disclosure and will continue to use the intrinsic method
allowed by APB25.
STOCK APPRECIATION RIGHTS PLAN
The 1991 Stock Appreciation Rights Plan (the "SAR Plan") was adopted by the
Company effective February 6, 1991. The SAR Plan provided for the granting of
stock appreciation rights which entitled the grantee to receive cash equal to
the difference between the fair market value and the appreciation base of the
Class A common stock when the rights were exercised.
During 1995 the Company implemented a program to encourage the holders under
the 1991 SAR Plan to exchange their SARs for stock options.
Under the program, each SAR holder who exercised the vested portion of a SAR
award during the April-May window period was entitled to exchange the entire SAR
award for a replacement stock option under the 1995 Stock Option Plan. The
replacement options were issued at exercise prices equal to the fair market
value of the Class A stock on the respective dates of the SAR exercises, with an
expiration date of August 31, 2004 (instead of the August 31, 2000 expiration
date applicable to SAR awards) and with vesting restrictions no more favorable
to the holder than those applicable to the exchanged SAR.
Of the SARs outstanding under the 1991 Plan, all but 11,000 were exercised,
resulting in a cash payment of $579. An aggregate of 303,367 incentive stock
options and 82,623 nonqualified stock options were issued at exercise prices
ranging from $4.50 to $5.06.
The remaining 11,000 SARs were exercised in January 1996, terminating the
SAR Plan.
9. COMMITMENTS
OPERATING LEASES--Rent expense for noncancellable operating leases for real
property and equipment was $3,363, $4,045, $1,034, and $915 for the nine months
ended May 31, 1996 and for the years ended August 31, 1995, 1994, and 1993,
respectively. Minimum rentals for operating leases for years ending after August
31, 1995 are as follows: 1996, $4,549; 1997, $4,379; 1998, $4,104; 1999, $4,048;
2000, $8,308; and $19,327, thereafter. Some of the leases have options to extend
terms and are subject to escalation clauses and one lease is subject to
additional rent based on revenue.
EMPLOYMENT AGREEMENTS--At May 31, 1996, the Company is committed to
compensation under long-term employment agreements with certain of its officers
and key employees as follows: $1,680 in 1996, $1,208 in 1997 and $95 in 1998.
10. PENSION PLAN
Certain officers and employees of the Company are eligible for participation
in the "Motion Picture Industry Pension Plan", a multi-employer defined benefit
pension plan. The Plan is funded by employer and employee contributions. Total
pension plan expense was $364, $395, and $446 for the years ended August 31,
1993, 1994, and 1995 respectively and $379 for the nine months ended May 31,
1996.
F-17
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)
11. JOINT VENTURE
During 1992, Todd-AO Productions, Inc., a wholly owned subsidiary of the
Company, entered into a Joint Venture Agreement with Trans-Atlantic Enterprises,
Inc., for the development of motion picture and television projects. The Joint
Venture was dissolved during fiscal 1996. In the event that certain projects
developed by the Venture are ultimately produced or otherwise commercialized, a
portion of the proceeds is payable to Todd-AO Productions.
12. CONTINGENCIES
The Company is involved in litigation and similar claims incidental to the
conduct of its business. In management's opinion, none of the pending actions is
likely to have a material adverse impact on the Company's financial statements.
13. BUSINESS SEGMENT INFORMATION
The Company does business in one industry segment. Information as to the
Company's operations in different geographic areas is as follows for the year
ended August 31, 1995 and the nine months ended May 31, 1996.
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
REVENUES:
United States......................................................... $ 45,069 $ 39,936
Europe................................................................ 4,934 8,474
--------- ---------
Total................................................................. $ 50,003 $ 48,410
--------- ---------
--------- ---------
NET INCOME:
United States......................................................... $ 2,842 $ 3,270
Europe................................................................ 533 792
--------- ---------
Total................................................................. $ 3,375 $ 4,062
--------- ---------
--------- ---------
ASSETS:
United States......................................................... $ 45,074 $ 44,764
Europe................................................................ 12,124 12,920
--------- ---------
Total................................................................. $ 57,198 $ 57,684
--------- ---------
--------- ---------
</TABLE>
There were no foreign operations in 1994 and 1993.
F-18
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
EARNINGS
GROSS NET (LOSS) PER
TOTAL PROFIT INCOME COMMON SHARE
1994 REVENUES (LOSS) (LOSS) OUTSTANDING
- ------------------------------------------------- --------- --------- --------- --------------
<S> <C> <C> <C> <C>
First Quarter.................................... $ 8,975 $ (1,501) $ 924 $ .11
Second Quarter................................... 7,471 685 341 .04
Third Quarter.................................... 9,554 1,839 988 .12
Fourth Quarter................................... 6,892 (757) (473) (.06)
--------- --------- --------- -----
TOTAL............................................ $ 32,892 $ 3,268 $ 1,780 $ .22(a)
--------- --------- --------- -----
--------- --------- --------- -----
<CAPTION>
GROSS EARNINGS PER
TOTAL PROFIT NET COMMON SHARE
1995 REVENUES (LOSS) INCOME OUTSTANDING
- ------------------------------------------------- --------- --------- --------- --------------
<S> <C> <C> <C> <C>
First Quarter.................................... $ 8,778 $ (188) $ 176 $ .02
Second Quarter................................... 10,057 627 114 .01
Third Quarter.................................... 18,290 3,752 2,329 .28
Fourth Quarter................................... 12,878 1,435 756 .09
--------- --------- --------- -----
TOTAL............................................ $ 50,003 $ 5,626 $ 3,375 $ .40(a)
--------- --------- --------- -----
--------- --------- --------- -----
<CAPTION>
GROSS EARNINGS PER
TOTAL PROFIT NET COMMON SHARE
1996 REVENUES (LOSS) INCOME OUTSTANDING
- ------------------------------------------------- --------- --------- --------- --------------
<S> <C> <C> <C> <C>
First Quarter.................................... $ 18,140 $ 3,639 $ 1,983 $ .23
Second Quarter................................... 13,199 489 507 .06
Third Quarter.................................... 16,801 2,399 1,572 .18
--------- --------- --------- -----
TOTAL............................................ $ 48,140 $ 6,527 $ 4,062 $ .46(a)
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
- ------------------------
(a) Aggregate per share amounts for each quarter may differ from annual totals
as each is independently calculated.
F-19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Members
Edit Acquisition LLC
d/b/a Editworks
We have audited the accompanying balance sheets of Edit Acquisition LLC (a
Georgia Limited Liability Company) as of December 31, 1995 and 1994, and the
related statements of income, changes in members' equity, and cash flows for the
year ended December 31,1995 and the ten months ended December 31, 1994. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 of the financial statements provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Edit Acquisition LLC as of
December 31, 1995 and 1994, and the results of its operations, changes in
members' equity and cash flows for the year ended December 31, 1995 and the ten
months ended December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ GIFFORD, HILLEGASS & INGWERSEN,
P.C.
--------------------------------------
Gifford, Hillegass & Ingwersen, P.C.
January 26, 1996
F-20
<PAGE>
EDIT ACQUISITION LLC
D/B/A EDITWORKS
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................................... $ 199,214 $ 56,314
Accounts receivable (Note A)........................................................ 419,230 403,322
Work in process..................................................................... 9,431 19,404
Other receivables and prepaid expenses.............................................. 35,101 10,593
Videotape inventory................................................................. 14,630 18,405
------------- -------------
Total current assets............................................................ 677,606 508,038
------------- -------------
PROPERTY AND EQUIPMENT (Notes A and B)
Leasehold improvements.............................................................. 66,177 37,814
Furniture and fixtures.............................................................. 57,771 41,581
Video and computer equipment........................................................ 2,465,534 2,015,300
------------- -------------
2,589,482 2,094,695
Less accumulated depreciation....................................................... (533,475) (198,258)
------------- -------------
Net property and equipment...................................................... 2,056,007 1,896,437
------------- -------------
OTHER ASSETS
Deposits............................................................................ 116 11,836
Loan closing costs.................................................................. 3,753 5,022
------------- -------------
3,869 16,858
------------- -------------
TOTAL ASSETS.................................................................... $ 2,737,482 $ 2,421,333
------------- -------------
------------- -------------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................................................... $ 30,282 $ 29,147
Prebilled work in process........................................................... 7,485 4,077
Accrued payroll taxes............................................................... 12,622 9,389
Accrued salaries and bonuses........................................................ 197,857 147,820
Accrued expenses.................................................................... 67,351 29,228
Other payables...................................................................... 5,373 7,784
Current portion of long-term debt (Note B).......................................... 373,030 233,172
------------- -------------
Total current liabilities....................................................... 694,000 460,617
LONG-TERM DEBT, net of current portion (Note B)....................................... 1,001,712 949,664
------------- -------------
Total liabilities............................................................... 1,695,712 1,410,281
MEMBERS' EQUITY....................................................................... 1,041,770 1,011,052
------------- -------------
TOTAL LIABILITIES AND MEMBERS' EQUITY........................................... $ 2,737,482 $ 2,421,333
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
EDIT ACQUISITION LLC
D/B/A EDITWORKS
STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
TWELVE TEN
MONTHS 1995 MONTHS 1994
------------ ------------
<S> <C> <C>
Net sales............................................................................. $ 3,449,411 $ 2,155,561
Direct production costs............................................................... 300,051 240,116
------------ ------------
CONTRIBUTION MARGIN............................................................... 3,149,360 1,915,445
------------ ------------
Selling and marketing expenses........................................................ 234,898 133,948
General and administrative............................................................ 1,778,930 1,207,373
------------ ------------
Total operating expenses.......................................................... 2,013,828 1,341,321
------------ ------------
NET INCOME FROM OPERATIONS BEFORE DEPRECATION AND AMORTIZATION.................. 1,135,532 574,124
Depreciation and amortization......................................................... 353,296 211,456
------------ ------------
NET INCOME FROM OPERATIONS........................................................ 782,236 362,668
------------ ------------
OTHER INCOME (EXPENSES)
Interest income..................................................................... 2,191 2,678
Other income........................................................................ 20,254 15,757
Interest expense.................................................................... (143,963) (50,443)
------------ ------------
TOTAL OTHER INCOME (EXPENSE)...................................................... (121,518) (32,008)
------------ ------------
NET INCOME...................................................................... $ 660,718 $ 330,660
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
EDIT ACQUISITION LLC
D/B/A EDITWORKS
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
TWELVE TEN
MONTHS 1995 MONTHS 1994
------------ ------------
<S> <C> <C>
Members' equity at beginning of year.................................................. $ 1,011,052 $ --
Capital contributions............................................................... -- 980,392
Net income.......................................................................... 660,718 330,660
Distributions....................................................................... (630,000) (300,000)
------------ ------------
Members' equity at end of year........................................................ $ 1,041,770 $ 1,011,052
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
EDIT ACQUISITION LLC
D/B/A EDITWORKS
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
TWELVE TEN MONTHS
MONTHS 1995 1994
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income........................................................................... $ 660,718 $ 330,660
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization...................................................... 353,296 211,456
Decrease (increase) in:
Accounts receivable.............................................................. (15,908) (275,519)
Work in process.................................................................. 9,974 63,020
Other assets..................................................................... (24,789) (7,555)
Increase (decrease) in:
Accounts payable and accrued expenses............................................ 93,525 6,164
------------ -----------
Net cash provided by operating activities.......................................... 1,076,816 328,226
------------ -----------
INVESTING ACTIVITIES:
Additions to property and equipment.................................................. (502,692) (839,209)
Net proceeds from sale of equipment.................................................. 6,870 --
------------ -----------
Net cash used by investing activities.............................................. (495,822) (839,209)
------------ -----------
FINANCING ACTIVITIES:
Principal paid on closing............................................................ -- (73,867)
Net payments on notes payable........................................................ -- (601,671)
Proceeds from long-term financing.................................................... 500,000 1,309,622
Principal payments on long-term debt................................................. (308,094) (167,111)
Members' distribution................................................................ (630,000) (300,000)
Loan closing costs................................................................... -- (5,075)
------------ -----------
Net cash provided (used) by financing activities................................... (438,094) 161,898
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................................... 142,900 (349,085)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................................... 56,314 405,399
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................. $ 199,214 $ 56,314
------------ -----------
------------ -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest........................................................................... $ 143,963 $ 50,443
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
EDIT ACQUISITION LLC
D/B/A EDITWORKS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: Edit Acquisition LLC is a limited liability company formed on
March 1, 1994.
BUSINESS COMBINATION: On March 1, 1994, Edit Acquisition LLC acquired
substantially all the assets, and assumed certain liabilities of Editworks, Inc.
The total purchase price was $1,517,536. As part of the purchase agreement, Edit
Acquisition LLC agreed to indemnify Editworks, Inc. against certain potential
contingencies arising subsequent to the sale. At this time, management is not
aware of any unpaid potential liabilities which may arise.
FINANCIAL STATEMENT PRESENTATION: The financial statements are presented on
a comparative basis. Special attention should be given when analyzing the
financial statements for comparative purposes since 1995 reflects twelve months
of operations and 1994 reflects only ten months of operations.
CASH AND CASH EQUIVALENTS: The company considers cash and money market
accounts to be cash and cash equivalents. At certain times during the year,
balances in the bank accounts exceeded those limits insured by the FDIC.
ACCOUNTS RECEIVABLE: Accounts receivable at December 31, 1995 and 1994, are
net of an allowance for doubtful accounts of approximately $18,000 and $10,000,
respectively.
VIDEOTAPE INVENTORY: The videotape inventory consists of the archive
library of videotapes that are expected to provide economic benefit in the
future. The original cost is being amortized over a two-year period, beginning
March 1, 1994. The value of the inventory is adjusted annually based on
estimates.
FURNITURE, FIXTURES, AND EQUIPMENT: Furniture, fixtures and equipment are
carried at cost. The balances at March 1, 1994 were derived from an allocation
of the purchase price based on appraised fair market values at the date of
acquisition. Acquisitions since inception are carried at cost. Depreciation is
calculated using the straight line method over estimated economic useful lives.
NOTE B--LONG-TERM DEBT AND NOTES PAYABLE
<TABLE>
<S> <C>
Note payable to Lyon Credit Corporation; dated
December 13, 1994; bearing interest at 11.01%,
monthly principal and interest payments of
$31,095 maturing December, 1998, secured by
equipment....................................... $ 927,282
Note payable to Lyon Credit Corporation; dated
April 19, 1995; bearing interest at 9.95%,
monthly principal and interest payments of
$7,602 maturing April, 1999, secured by
equipment....................................... 257,880
Note payable to Lyon Credit Corporation; dated
September 20, 1995; bearing interest at 9.43%,
monthly principal and interest payments of
$5,018 maturing September, 1999, secured by
equipment....................................... 189,580
--------------
1,374,742
Less current portion.............................. (373,030)
--------------
$ 1,001,712
--------------
--------------
</TABLE>
F-25
<PAGE>
EDIT ACQUISITION LLC
D/B/A EDITWORKS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE B--LONG-TERM DEBT AND NOTES PAYABLE (CONTINUED)
As of December 31, 1995, future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 373,030
1997............................................................ 439,645
1998............................................................ 488,843
1999............................................................ 73,224
---------
$1,374,742
---------
---------
</TABLE>
Edit Acquisition LLC also has a line of credit with SouthTrust Bank in the
amount of $350,000, which bears interest at prime plus 1 %. There was no balance
due on this line at December 31, 1995 or 1994. The line of credit is secured by
accounts receivable and work in process and has personal guarantees from K.
Robert Draughon and Robert M. Martin.
NOTE C--LEASE COMMITMENTS
The company has an operating lease for office space which expires December
2001. Rent expense for the ten months ended December 31, 1994 was $147,431 and
for the year ended December 31, 1995 was $186,472. Annual rent payments of
$224,307 are required for the years 1996 through 2001.
NOTE D--MEMBERS' EQUITY
Edit Group, LP's initial equity interest consisted of a cash contribution of
$400,000 and a debt assumption which was converted to equity of $100,000 for an
initial equity amount of $500,000. Margie Furlong's initial equity interest
consisted of a debt assumption which was converted to equity of $480,392. Total
initial equity for the Company at inception was $980,392.
Effective January 1, 1995, Margie Furlong gifted an interest amounting to
10% of the Company's total equity to Patrick Furlong. For the year ended
December 31, 1995, income and distributions were allocated 51% to Edit Group,
L.P., 39% to Margie Furlong and 10% to Patrick Furlong.
NOTE E--RELATED PARTY TRANSACTIONS
Reference should be made to Notes A and D regarding transactions with
related parties.
NOTE F--INCOME TAXES
As a limited liability company formed under the partnership provisions of
the Internal Revenue Code, the income of Edit Acquisition LLC is taxed to its
members based on their proportionate ownership; therefore, no provision or
liability has been included for income taxes on these financial statements.
NOTE G--CONTINGENCIES
As part of the purchase of the assets of Editworks, Inc., Edit Acquisition
LLC agreed to indemnify certain shareholders of the seller against potential
claims of certain creditors. At this time, management is not aware of any unpaid
potential liabilities which may arise.
NOTE H--ECONOMIC DEPENDENCY
The company has four major customers which comprised total sales of over
$2,310,000 and $1,061,000, or 66% and 49% of the total sales of the company for
the periods ended December 31, 1995 and 1994, respectively.
F-26
<PAGE>
EDIT ACQUISITION LLC
D/B/A EDITWORKS
CONDENSED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents..................................................... $ 11,133
Accounts receivable........................................................... 632,629
Prepaid expenses and other.................................................... 122,782
--------------
Total current assets.................................................... 766,544
--------------
PROPERTY AND EQUIPMENT
Leasehold improvements........................................................ 82,314
Furniture and fixtures........................................................ 74,138
Video and computer equipment.................................................. 3,011,107
--------------
3,167,559
Less accumulated depreciation................................................. (730,364)
--------------
Net property and equipment.............................................. 2,437,195
--------------
OTHER ASSETS.................................................................... 4,245
--------------
TOTAL ASSETS............................................................ $ 3,207,984
--------------
--------------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities...................................... $ 326,924
Current portion of long-term debt............................................. 558,137
--------------
Total current liabilities............................................... 885,061
LONG-TERM DEBT, net of current portion.......................................... 1,199,505
--------------
Total liabilities....................................................... 2,084,566
--------------
MEMBERS' EQUITY................................................................. 1,123,418
--------------
TOTAL LIABILITIES AND MEMBERS' EQUITY................................... $ 3,207,984
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
EDIT ACQUISITION LLC
D/B/A EDITWORKS
CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Net sales............................................................................. $ 2,352,816 $ 1,634,817
Direct production costs............................................................... 169,152 145,217
-------------- --------------
CONTRIBUTION MARGIN................................................................. 2,183,664 1,489,600
Selling, general and administrative................................................... 1,312,749 949,519
-------------- --------------
NET INCOME FROM OPERATIONS BEFORE DEPRECIATION AND AMORTIZATION..................... 870,915 540,081
Depreciation and amortization......................................................... 217,688 165,844
-------------- --------------
NET INCOME FROM OPERATIONS.......................................................... 653,227 374,237
-------------- --------------
OTHER INCOME (EXPENSE)
Interest income..................................................................... 711 914
Other income........................................................................ 40,719 9,204
Interest expense.................................................................... (83,009) (68,960)
-------------- --------------
TOTAL OTHER INCOME (EXPENSE)...................................................... (41,579) (58,842)
-------------- --------------
NET INCOME.................................................................... $ 611,648 $ 315,395
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
EDIT ACQUISITION LLC
D/B/A EDITWORKS
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income............................................................................ $ 611,648 $ 315,395
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization....................................................... 217,688 165,844
Increase in:
Accounts receivable--trade........................................................ (203,968) (57,388)
Prepaid expenses and other current assets......................................... (81,439) (27,430)
Decrease in:
Accounts payable and accrued expenses............................................. (20,619) (41,143)
Other current liabilities......................................................... 26,575 4,293
----------- -----------
Net cash provided by operating activities........................................... 549,885 359,571
----------- -----------
INVESTING ACTIVITIES:
Additions to property and equipment................................................... (633,068) (302,206)
Net proceeds from sale of equipment................................................... 43,212 7,103
Other assets.......................................................................... (1,010) (3,157)
----------- -----------
Net cash used by investing activities............................................... (590,866) (298,260)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from long-term financing..................................................... 593,500 300,000
Principal payments on long-term debt.................................................. (210,600) (134,547)
Members' distribution................................................................. (530,000) (270,000)
----------- -----------
Net cash used by financing activities............................................... (147,100) (104,547)
DECREASE IN CASH AND CASH EQUIVALENTS................................................... (188,081) (43,236)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................................ 199,214 56,316
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............................................. $ 11,133 $ 13,080
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................................ $ 83,009 $ 68,961
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
EDIT ACQUISITION LLC
D/B/A EDITWORKS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
If complete notes were to accompany these statements, they would be
substantially in the same form as those to the Company's Financial Statements
for the Year Ended December 31, 1995. In addition, the following notes are
applicable:
A. In the opinion of management for the Company, all adjustments (which comprise
only normal recurring accruals) necessary for a fair presentation of the
results of operations have been included.
B. Accounts receivable at June 30, 1996 are net of an allowance for doubtful
accounts of approximately $26,000.
C. On March 1, 1994, the Company acquired substantially all the assets, and
assumed certain liabilities of Editworks, Inc. The total purchase price was
$1,517,536. As part of the purchase agreement, the Company agreed to
indemnify Editworks, Inc. against certain potential contingencies arising
subsequent to the sale. At this time, management is not aware of any unpaid
potential liabilities which may arise.
D. The Company has four major customers which comprised total sales of over
$1,688,000 and $1,074,000, or 72% and 66% of the total sales of the Company,
for the six month periods ended June 30, 1996 and 1995, respectively.
E. Subsequent Event: On August 13, 1996 the Company and its Members entered
into an agreement with The Todd-AO Corporation, a Delaware corporation, to
sell substantially all of its assets and certain liabilities for an
aggregate consideration of $4,650,000. Of the total, $3,180,487 was paid in
cash and $969,513 in Todd-AO Class A Common Stock at the closing on August
15, 1996. An additional $500,000 is due upon completion of certain
conditions.
F-30
<PAGE>
[INSIDE BACK COVER]
Chronological chart, captioned Academy Awards-Registered Trademark- and
Academy Awards-Registered Trademark- Nominations for Best Sound received by
Todd-AO personnel since the Company's inception in 1992, showing the Academy
Awards-Registered Trademark- Nominations and Academy Awards-Registered
Trademark- received from 1955 to 1995 which are as follows:
Awards: 1955 Oklahoma!, 1958 South Pacific, 1960 The Alamo, 1961 West Side
Story, 1965 The Sound of Music, 1972 Cabaret, 1973 The Exorcist, 1982 E.T.--The
Extra-Terrestrial, 1985 Out of Africa, 1992 Last of the Mohicans, 1995 Apollo
13.
Nominations: 1959 Porgy and Bess, 1963 Cleopatra, 1976 A Star is Born, 1977
Close Encounters of the Third Kind and Sorcerer, 1978 Hooper, 1979 1941, 1987
Empire of the Sun, 1988 Who Framed Roger Rabbit?, 1990 Dick Tracy, 1993
Schindler's List, 1994 Legends of the Fall, 1995 Braveheart.
<PAGE>
THE TODD-AO
CORPORATION
[LOGO]
2,500,000 SHARES
CLASS A COMMON STOCK
PROSPECTUS
DEAN WITTER REYNOLDS INC.
BREAN MURRAY & CO., INC.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting discounts and commissions) payable by the
Registrant in connection with the issuance and distribution of the securities
registered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $11,221.20
NASD filing fee................................................ 4,203.00
Nasdaq National Market listing fee............................. 17,500.00
Printing and engraving......................................... 80,000.00
Accountants' fees and expenses................................. 75,000.00
Blue sky fees and expenses..................................... 15,000.00
Counsel fees and expenses...................................... 275,000.00
Transfer Agent's fees.......................................... 2,000.00
Miscellaneous.................................................. 20,075.80
----------
Total...................................................... $500,000.00
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the General Corporation Law of the State of Delaware provides
for the indemnification of officers and directors under certain circumstances
against expenses incurred in successfully defending against a claim, and
authorizes Delaware corporations to indemnify their officers and directors under
certain circumstances against expenses and liabilities incurred in legal
proceedings involving such persons because of their being or having been an
officer or director. The Bylaws of the registrant provide for indemnification of
its officers and directors to the maximum extent permitted by applicable law.
Section 102(b)(7) of the Delaware General Corporation Law enables a
corporation in its Certificate of Incorporation to limit or eliminate the
personal liability of members of its Board of Directors for monetary damages for
violations of a director's fiduciary duty of care. This Section does not,
however, limit the liability of a director for breaching his or her duty of
loyalty, failing to act in good faith, engaging in intentional misconduct or
knowingly violating a law. The Registrant's Certificate of Incorporation limits
the liability of its directors to the maximum extent authorized by such Section
102(b)(7).
For provisions of the Registrant's Certificate of Incorporation and Bylaws
dealing with indemnification, see Exhibits 3(a) and 3(b).
The Underwriting Agreement, the form of which is included as an Exhibit to
this Registration Statement, provides that the Underwriters shall indemnify the
Company and each person who controls the Registrant within the meaning of
Section 15 of the Securities Act of 1933, as amended, for any liability arising
by reason of information furnished by the Underwriters for use in the
Registration Statement.
The Company maintains directors' and officers' liability insurance covering
such persons in their official capacities with the Company and its subsidiaries.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Effective August 15, 1996, the Registrant issued 66,863 shares of Class A
Common Stock valued at $14.50 per share to Edit Acquisition LLC ("Editworks") in
partial consideration for the purchase of all of the assets and certain
liabilities of Editworks.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of The Todd-AO Corporation is
incorporated by reference from Registrant's Information Statement dated May 13,
1996.
3.2 Registrant's Bylaws are incorporated by reference from the Registrant's Proxy
Statement dated April 2, 1990.
4.1 Specimen copy of Class A Common Stock Certificate is incorporated by reference
from the Registrant's Registration Statement on Form S-2, as filed on February 2,
1988 (Registration No. 33-19279).
5.1 Opinion of Greenberg Glusker Fields Claman & Machtinger LLP, counsel to the
Registrant, as to the legality of the shares being registered.
10.1 Asset Purchase Agreement dated March 3, 1986 between the Todd-AO Corporation and
Republic Corporation is incorporated by reference from the Registrant's Report on
Form 8-K filed on March 14, 1986.
10.2 License Agreement dated April 16, 1987 between the CBS/MTM Company and the
Todd-AO Corporation is incorporated by reference from the Registrant's Report on
Form 10-K for the fiscal year ended August 31, 1987.
10.3 License Agreement dated September 27, 1991 between the CBS/MTM Company and the
Todd-AO Corporation is incorporated by reference from the Registrant's Form 10-K
for the fiscal year ended August 31, 1991.
10.4 Employment and Consulting Agreement dated as of September 5, 1991 by and between
Shawn Murphy individually ("SM"), Murphy Balance Engineering, a California
corporation wholly owned by SM, and Todd-AO/Glen Glenn Studios is incorporated by
reference from the Registrant's Form 10-K for the fiscal year ended August 31,
1993.
10.5 Equipment lease dated as of September 5, 1991 by and between Murphy Mandala (a
joint venture) (lessor) and Todd-AO/Glen Glenn Studios (lessee) is incorporated
by reference from the Registrant's Form 10-K for the fiscal year ended August 31,
1993.
10.6 Employment Agreement dated as of October 1, 1994 between the Todd-AO Corporation
and J.R. DeLang is incorporated by reference from the Registrant's Form 10-K for
the fiscal year ended August 31, 1995.
10.7 Amended and restated lease dated as of June 18, 1992 between West 54th Street
Partners L.P., successor in interest to Rita Silver, (Landlord) and Todd-AO
Studios East, Inc. (Tenant) with respect to premises consisting of the 7th and
8th floors at 247-59 West 54th Street, New York, NY is incorporated by reference
from the Registrant's Form 10-K for the fiscal year ended August 31, 1993.
10.8 Joint Venture Agreement dated as of July 20, 1992 between Trans-Atlantic
Enterprises, Inc. and Todd-AO Productions, Inc. is incorporated by reference from
the Registrant's Form 10-K for the fiscal year ended August 31, 1992.
10.9 Extension and amendment to Joint Venture Agreement dated as of October 20, 1993
between Trans-Atlantic Enterprise, Inc. and Todd-AO Productions, Inc. is
incorporated by reference from the Registrant's Form 10-K for the fiscal year
ended August 31, 1993.
10.10 Amendment No. 2 to Joint Venture Agreement dated as of September 1, 1994 is
incorporated by reference from the Registrant's Form 10-K for the fiscal year
ended August 31, 1994.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.11 Employment Agreement dated as of January 1, 1994 between the Todd-AO Corporation
and Christopher D. Jenkins is incorporated by reference from the Registrant's
Form 10-Q filed on April 13, 1994.
10.12 Asset Purchase Agreement dated as of August 30, 1994 by and among Todd-AO Video
Services, Paskal Video and Joseph S. Paskal is incorporated by reference from the
Registrant's Form 8-K filed on September 14, 1994.
10.13 Lease Agreement dated as of August 31, 1994 between Joseph S. Paskal, Trustee,
and Todd-AO Video Services is incorporated by reference from the Registrant's
Form 8-K filed on September 14, 1994.
10.14 Credit Agreement dated as of December 2, 1994 between the Todd-AO Corporation and
Bank of America National Trust and Savings Association is incorporated by
reference from the Registrant's Form 10-Q filed on January 13, 1995.
10.15 First Amendment to Credit Agreement dated as of March 13, 1995 between the
Todd-AO Corporation and Bank of America National Trust and Savings Association is
incorporated by reference from the Registrant's Form 8-K filed on March 31, 1995.
10.16 Letter Amendment dated April 5, 1996 to Credit Agreement dated as of December 2,
1994 between The Todd-AO Corporation and Bank of America National Trust and
Savings Association is incorporated by reference from the Registrant's Form 10-Q
for the quarter ended February 29, 1996.
10.17 Third Amendment dated June 14, 1996 to Credit Agreement dated as of December 2,
1994 between The Todd-AO Corporation and Bank of America National Trust and
Savings Association is incorporated by reference to the Registrant's Form 10-Q
for the quarter ended May 31, 1996.
10.18 Lease Intended as a Security dated December 27, 1994 between the Todd-AO
Corporation and BA Leasing and Capital Corporation is incorporated by reference
from the Registrant's Form 10-Q filed on January 13, 1995.
10.19 Asset Purchase Agreement dated as of February 13, 1995 between Todd-AO Studios
West and Kaytea Rose, Inc. (dba Skywalker Sound South) is incorporated by
reference from the Registrant's Form 8-K filed on February 27, 1995.
10.20 Real Property Purchase Agreement (including Exhibits) dated as of February 13,
1995 between Todd-AO Studios West and Kaytea Rose, Inc. is incorporated by
reference from the Registrant's Form 8-K filed on February 27, 1995.
10.21 Assignment and Assumption Agreement dated as of February 3, 1995 by and among
Todd-AO Studios West, The Todd-AO Corporation, Lucasfilm Ltd., Lucas Holdings,
Inc., Lucas Digital Ltd. and Lantana Center is incorporated by reference from the
Registrant's Form 8-K filed on February 27, 1995.
10.22 Lease dated as of May 21, 1989 between Lantana Center as Landlord and Lucasfilm
Ltd. as Tenant, as amended by documents dated March 27, 1990 and November 8, 1990
is incorporated by reference from the Registrant's Form 8-K filed on February 27,
1995.
10.23 Agreement for the acquisition of the entire issued share capital of Chrysalis
Television Facilities Ltd. dated as of March 16, 1995 between FCB 1120 Ltd.
(subsequently Todd-AO Europe Holdings Ltd.) and Chrysalis Holdings Ltd. is
incorporated by reference from the Registrant's Form 8-K filed March 31, 1995.
10.24 Tax Deed dated as of March 16, 1995 between FCB 1120 Ltd. and Chrysalis Holdings
Ltd. is incorporated by reference from the Registrant's Form 8-K filed on March
31, 1995.
10.25 Performance Guarantee dated March 16, 1995 between The Todd-AO Corporation and
Chrysalis Holdings Ltd. is incorporated by reference from the Registrant's Form
8-K filed on March 31, 1995.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.26 Agreement for the acquisition of the entire issued share capital of Filmation
Laboratories Ltd. dated as of April 18, 1996 between David L. Gibbs, Ian Magowan
and Todd-AO Europe Holding Company Ltd. is incorporated by reference to the
Registrant's Form 10-Q for the quarter ended May 31, 1996.
10.27 Asset Purchase Agreement dated August 13, 1996 by and among The Todd-AO
Corporation (Purchaser), Edit Acquisition LLC (Seller), Edit Group L.P., Patrick
H. Furlong, Margie F. Furlong, and James V. Furlong (Members) and Margie F.
Furlong, Patrick H. Furlong, K. Robert Draughon and Robert Martin (Guarantors),
incorporated by reference to Registrant's Form 8-K filed on August 28, 1996.
10.28 Amendment to Asset Purchase Agreement dated October , 1996 by and among The
Todd-AO Corporation (Purchaser), Edit Acquisition LLC (Seller), Edit Group L.P.,
Patrick H. Furlong, Margie F. Furlong, and James V. Furlong (Members) and Margie
F. Furlong, Patrick H. Furlong, K. Robert Draughon and Robert Martin
(Guarantors). (1)
10.29 1986 Stock Option Plan is incorporated by reference to the Company's Final Proxy
Statement dated June 1, 1987.
10.30 Amendment No. 1 to 1986 Stock Option Plan is incorporated by reference to the
Company's Final Proxy Statement dated December 23, 1987.
10.31 Amendment No. 2 to 1986 Stock Option Plan is incorporated by reference to the
Company's Final Proxy Statement dated June 3, 1991.
10.32 Amendment No. 3 to 1986 Stock Option Plan is incorporated by reference to the
Company's Final Proxy Statement dated January 3, 1995.
10.33 Amendment No. 4 to 1986 Stock Option Plan is incorporated by reference to the
Company's Final Proxy Statement dated February 12, 1996.
10.34 1994 Stock Option Plan is incorporated by reference to the Company's Final Proxy
Statement dated July 8, 1994.
10.35 1995 Stock Option Plan is incorporated by reference to the Company's Final Proxy
Statement dated January 3, 1995.
10.36 Amendment No. 1 to 1995 Stock Option Plan is incorporated by reference to the
Company's Final Proxy Statement dated February 12, 1996.
10.37 Empoyment Agreement dated September 1, 1994 between Todd-AO Video Services, a
wholly-owned subsidiary of The Todd-AO Corporation and Richard R. O'Hare.
21.1 Subsidiaries of the Registrant. (2)
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Gifford, Hillegass & Ingwersen, P.C.
23.3 Consent of Greenberg Glusker Fields Claman & Machtinger LLP (included as part of
Exhibit 5.1).
24.1 Power of Attorney (included on Page II-5 hereto).
</TABLE>
(b) Financial Statement Schedules
<TABLE>
<C> <S>
Schedule II -- Valuation and Qualifying Accounts (2)
</TABLE>
- ------------------------
(1) To be filed by Amendment.
(2) Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
II-4
<PAGE>
Registrant has been advised that in the opinion of the Securities an Exchange
Commission such indemnification is against public policy as expressed in the 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 of controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
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 Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities Act
of 1933, 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 of
1933, 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 bedeemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Los Angeles,
State of California, on October 23, 1996.
THE TODD-AO CORPORATION
By SALAH M. HASSANEIN
-----------------------------------------
Salah M. Hassanein,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- -------------------------------------------------- ------------------------------ ----------------
<C> <S> <C>
SALAH M. HASSANEIN Director, President and Chief
------------------------------------ Executive Officer October 23, 1996
Salah M. Hassanein
SILAS R. CROSS Vice President, Treasurer and
------------------------------------ Principal Financial and October 23, 1996
Silas R. Cross Accounting Officer
* Co-Chairman of the Board of
------------------------------------ Directors October 23, 1996
Robert A. Naify
* Co-Chairman of the Board of
------------------------------------ Directors October 23, 1996
Marshall Naify
* Senior Vice President and
------------------------------------ Director October 23, 1996
Christopher D. Jenkins
* Senior Vice President and
------------------------------------ Director October 23, 1996
J.R. DeLang
*
------------------------------------ Vice President and Director October 23, 1996
Richard Hassanein
*
------------------------------------ Director October 23, 1996
A.C. Childhouse
*
------------------------------------ Director October 23, 1996
Robert I. Knudson
------------------------------------ Director October , 1996
David Haas
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- -------------------------------------------------- ------------------------------ ----------------
<C> <S> <C>
*
------------------------------------ Director October 23, 1996
Herbert L. Hutner
------------------------------------ Director October , 1996
Michael S. Naify
------------------------------------ Director October , 1996
A. Frank Pierce
*
------------------------------------ Director October 23, 1996
Zelbie Trogden
* BY SALAH M. HASSANEIN
------------------------------------
Salah M. Hassanein
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
2,500,000 SHARES
THE TODD-AO CORPORATION
CLASS A COMMON STOCK
UNDERWRITING AGREEMENT
_____________, 1996
DEAN WITTER REYNOLDS INC.
BREAN MURRAY & CO., INC.
As Representatives of the
several Underwriters
c/o Dean Witter Reynolds Inc.
2 World Trade Center
65th Floor
New York, New York 10048
Dear Sirs:
1. INTRODUCTORY. The Todd-AO Corporation, a Delaware corporation (the
"Company") proposes to issue and sell, pursuant to the terms of this
Agreement, to the several Underwriters named in Schedule A hereto (the
"Underwriters" which term also shall include any underwriter substituted as
hereinafter provided in Section 11) an aggregate of 2,500,000 shares of Class
A Common Stock (the "Common Stock") of the Company. The aggregate of
2,500,000 shares so to be sold by the Company is herein called the "Firm
Stock". The Company also proposes to sell severally to the Underwriters, on
a pro rata basis, at the option of the Underwriters, an aggregate of not more
than 375,000 additional shares of Common Stock as provided in Section 4 of
this Agreement. The aggregate of 375,000 shares so proposed to be sold is
herein called the "Optional Stock". The Firm Stock and the Optional Stock
are collectively referred to herein as the "Stock". Dean Witter Reynolds
Inc. and Brean Murray & Co., Inc. are acting as representatives of the
several Underwriters and in such capacity are hereinafter referred to as the
"Representatives".
2. Before the purchase and public offering of the Stock by the several
Underwriters, the Company and the Representatives, acting on behalf of the
several Underwriters, shall enter into an agreement substantially in the form
of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may
take the form of an exchange of any standard
<PAGE>
form of written telecommunication between the Company and the Representatives
and shall specify such applicable information as is indicated in Exhibit A
hereto. The offering of the Stock will be governed by this Agreement, as
supplemented by the Pricing Agreement. From and after the date of the
execution and delivery of the Pricing Agreement, this Agreement shall be
deemed to incorporate the Pricing Agreement.
3. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters, as of
the date hereof and as of the date of the Pricing Agreement (such later date
being hereinafter referred to as the "Representation Date"), that:
(i) A registration statement on Form S-1 (File No.
333-________) with respect to the Stock, a copy of which has
heretofore been delivered to you, has been carefully prepared by the
Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the published rules and regulations
(the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act, and has been filed with
the Commission under the Act; and the Company has so prepared and
proposes so to file prior to the effective date of such registration
statement an amendment to such registration statement including the
final form of prospectus (which may omit such information as permitted
by Rule 430A of the Rules and Regulations). Such registration
statement as amended and the prospectus constituting a part thereof
(including in each case the information, if any, deemed to be a part
thereof pursuant to Rule 430A(b) or Rule 434 of the Rules and
Regulations) are hereinafter referred to as the "Registration
Statement" and the "Prospectus," respectively, except that if any
revised prospectus shall be provided to the Underwriters by the
Company for use in connection with the offering of the Stock which
differs from the prospectus on file at the Commission at the time the
Registration Statement becomes effective (whether or not such
prospectus is required to be filed by the Company pursuant to Rule
424(b) of the Rules and Regulations), the term "Prospectus" shall
refer to such revised prospectus from and after the time it is first
provided to the Underwriters for such use. The box on the draft S-1
concerning delivery of the Prospectus pursuant to Rule 434 was not
checked. If the Company files a registration statement to register a
portion of the Securities and relies on Rule 462(b) for such
registration statement to become effective upon filing with the
Commission (the "Rule 462 Registration Statement"), then any reference
to "Registration
2
<PAGE>
Statement" herein shall be deemed to be to both the registration
statement referred to above (No. 333-__________) and the Rule 462
Registration Statement, as each such registration statement may be
amended pursuant to the Act.
(ii) When the Registration Statement becomes effective and
as of the Representation Date, the Registration Statement and the
Prospectus will conform in all material respects to the requirements
of the Act and the Rules and Regulations. At the time the
Registration Statement becomes effective and at the Representation
Date, the Registration Statement will not include any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein
not misleading. The Prospectus, at the time the Registration
Statement becomes effective and as of the Representation Date (unless
the term "Prospectus" refers to a prospectus which has been provided
to the Underwriters by the Company for use in connection with the
offering of the Stock which differs from the prospectus on file at the
Commission at the time the Registration Statement becomes effective,
in which case at the time it is first provided to the Underwriters for
such use) and at the Closing Date (as hereinafter defined), will not
include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that the foregoing representations,
warranties and agreements shall not apply to information contained in
or omitted from the Registration Statement or the Prospectus in
reliance upon, and in conformity with, written information furnished
to the Company by or on behalf of any Underwriter, directly or through
the Representatives, specifically for use in the preparation thereof.
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
(A) neither the Company nor any of its subsidiaries has incurred any
liabilities or obligations (indirect, direct or contingent) or entered
into any oral or written agreements or other transactions not in the
ordinary course of business that, singly or in the aggregate, could
reasonably be expected to be material to the Company and its
subsidiaries considered as a whole or that could reasonably be
expected to result in a material reduction in the earnings of the
Company and its subsidiaries considered as a whole, (B) neither the
3
<PAGE>
Company nor any of its subsidiaries has sustained any loss or
interference with its business or properties from strike, fire, flood,
windstorm, accident or other calamity (whether or not covered by
insurance) that, singly or in the aggregate, could reasonably be
expected to be material to the Company and its subsidiaries considered
as a whole, (C) there has been no material change in the indebtedness
of the Company, no change in the capital stock of the Company and no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock, and (D) there has not been
any material adverse change, nor any development that could, singly or
in the aggregate, result in a material adverse change in the condition
(financial or other), business, prospects or results of operations of
the Company and its subsidiaries considered as a whole, whether or not
arising in the ordinary course of business.
(iv) The financial statements, together with the related
notes and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement, fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and changes in financial position of the Company and its
consolidated subsidiaries at the respective dates or for the
respective periods therein specified. Such financial statements and
related notes and schedules have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
except as may be set forth in the Prospectus. The selected financial
data set forth in the Prospectus under the caption "Selected
Consolidated Financial Data" fairly presents, on the basis stated in
the Registration Statement, the information set forth therein. The
pro forma financial statements of the Company and the related notes
thereto included in the Registration Statement and the Prospectus have
been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements and have been properly
compiled on the bases described therein, and the assumptions used in
the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein.
(v) Deloitte & Touche LLP, who have expressed their
opinions on the audited financial statements and related schedules
included in the Registration Statement, are independent public
accountants as required by the Act and the Rules and Regulations.
4
<PAGE>
(vi) Gifford, Hillegass Ingwersen, P.C., who have expressed
their opinion on the audited financial statements of Editworks
Acquisition LLC ("Editworks"), are independent public accountants as
required by the Act and the Rules and Regulations.
(vii) The Company and each of its subsidiaries have been
duly organized and are validly existing and in good standing as
corporations under the laws of their respective jurisdictions of
organization, with power and authority (corporate and other) to own,
lease and operate their properties and to conduct their businesses as
described in the Registration Statement and Prospectus; the Company is
and each of its subsidiaries are in possession of and operating in
compliance with all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders required for the
conduct of its business, all of which are valid and in full force and
effect, and neither the Company nor any of its subsidiaries
has received any notice of proceedings relating to the revocation or
modification of any such franchise, grant, authorization, license,
permit, easement, consent, certificate or order which, singly or in
the aggregate, if the subject of an unfavorable decision, would result
in a materially adverse change in the condition (financial or
otherwise), business, prospects or results of operations of the
Company and its subsidiaries considered as a whole; and the Company is
and each of such subsidiaries are duly qualified to do business and in
good standing as foreign corporations in all other jurisdictions where
their ownership or leasing of properties or the conduct of their
businesses requires such qualification.
(viii) The Company has authorized, issued and outstanding
capital stock as set forth under the heading "Capitalization" in the
Prospectus (except for subsequent issuances, if any, pursuant to
reservations or agreements referred to in the Prospectus); the issued
and outstanding shares of Common Stock of the Company, conform to the
description thereof in the Prospectus and have been duly authorized
and validly issued and are fully paid and nonassessable; the
stockholders of the Company have no preemptive rights with respect to
any shares of capital stock of the Company and all outstanding shares
of capital stock of each corporate subsidiary have been duly
authorized and validly issued, and are fully paid and nonassessable
and are owned directly by the Company or by another subsidiary of the
Company free and clear of any liens, encumbrances, equities or claims.
5
<PAGE>
(ix) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein and
in the Pricing Agreement, will be duly and validly issued and fully
paid and nonassessable and will conform to the description thereof in
the Prospectus.
(x) Except as disclosed in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any subsidiary is the subject, that are required to be disclosed in
the Registration Statement (other than as described therein), or
which, if determined adversely to the Company or any subsidiary, would
individually or in the aggregate result in a material adverse change
in the condition (financial or otherwise), business, prospects or
results of operations of the Company and its subsidiaries considered
as a whole or which might materially and adversely affect the
consummation of this Agreement; and to the best of the Company's
knowledge no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(xi) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or passage of time or both would be, in
breach or violation of any of the terms or provisions of or in default
under (A) any statute, rule or regulation applicable to the Company or
any of its subsidiaries, (B) any indenture, contract, lease, mortgage,
deed of trust, note or other agreement or instrument to which the
Company or such subsidiary is a party or by which it may be bound,
(C) its certificate of incorporation, by-laws or other organizational
documents, and (D) any order, decree or judgment of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries. The performance of this Agreement and the
consummation of the transactions herein contemplated will not, with
the giving of notice or passage of time or both, result in a breach or
violation of any of the terms or provisions of or constitute a default
under (W) any statute, rule or regulation applicable to the Company or
any of its subsidiaries, (X) any indenture, contract, mortgage, lease,
deed of trust, note or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it is bound,
(Y) the Company's or any such subsidiary's certificate of
incorporation, by-laws or other organizational documents, or (Z) any
order, decree judgment of any
6
<PAGE>
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their respective
properties.
(xii) No labor dispute with the employees of the Company
or any of its subsidiaries exists or is imminent; and the Company is
not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or
contractors which might be expected to result in any material adverse
change in the condition (financial or otherwise), or in the earnings,
affairs or business prospects of the Company and its subsidiaries
considered as a whole.
(xiii) No consent, approval, authorization, order,
registration or qualification of or with any court or governmental
agency or body is required for the issuance and sale of the Stock by
the Company or for the consummation by the Company of the transactions
contemplated by this Agreement, including, without limitation, the use
of the proceeds from the sale of the Stock to be sold by the Company
in the manner contemplated in the Prospectus under the caption "Use of
Proceeds," except such as may be required by the National Association
of Securities Dealers, Inc. (the "NASD") or under the Act or the
securities or Blue Sky laws of any jurisdiction in connection with the
purchase and distribution of the Stock by the Underwriters.
(xiv) This Agreement and the Pricing Agreement have been
duly authorized, executed and delivered by the Company.
(xv) The Company and its subsidiaries own or have obtained
valid licenses for all trademarks, trademark registrations, service
marks, service mark registrations, trade names and copyrights
described in the Prospectus as being owned, licensed or used by the
Company or any of its subsidiaries or that are necessary for the
conduct of their respective businesses as described in the Prospectus
(collectively, "Intellectual Property") and neither the Company nor
any of its subsidiaries is aware of any claim (or of any facts that
would form a reasonable basis for any claim) to the contrary or any
challenge by any third party to the rights of the Company or any of
its subsidiaries with respect to any such Intellectual Property or to
the validity or scope of any such Intellectual Property and neither
the Company nor any of its subsidiaries have any claim against a third
party with respect to the infringement by such
7
<PAGE>
third party of any such Intellectual Property, which claims or
challenges, if adversely determined, could, singly or in the
aggregate, have a material adverse effect on the condition
(financial or otherwise), business prospects or results of
operations of the Company and its subsidiaries considered as a
whole. The Company has a good faith belief in the distinctiveness
and enforceability of all trademarks, service marks and trade
names comprising the Intellectual Property.
(xvi) The Company and its subsidiaries have such
certificates, permits, licenses, franchises, consents, approvals,
authorizations and clearances as are necessary to own, lease or
operate their respective properties and to conduct their respective
businesses in the manner described in the Prospectus ("Licenses") and
all such Licenses are valid and in full force and effect. The Company
and each of its subsidiaries are in compliance in all material
respects with their respective obligations under such Licenses and no
event has occurred that allows, or after notice or lapse of time or
both would allow, revocation, suspension or termination of any such
License or a material violation of any such laws or regulations. No
such License contains a burdensome restriction on the Company or any
of its subsidiaries that is not adequately disclosed in the
Registration Statement and the Prospectus.
(xvii) The Company is not an "investment company" or an
entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
(xviii) The Company and its subsidiaries have good and
marketable title to all properties (real and personal) owned by the
Company and its subsidiaries, free and clear of any mortgage, pledge,
lien, security interest, claim or encumbrance of any kind that may
materially interfere with the use of such properties or the conduct of
the business of the Company and its subsidiaries considered as a
whole; and all material properties held under lease or sublease by the
Company or its subsidiaries are held under valid, subsisting and
enforceable leases or subleases.
(xix) The Company and its subsidiaries maintain accurate
books and records reflecting their respective assets and maintain
internal accounting controls which provide reasonable assurance that
(A) transactions are executed with management's authorization,
(B) transactions are recorded as necessary to permit preparation of
financial statements
8
<PAGE>
and to maintain accountability for assets, (C) access to assets is
permitted only in accordance with management's authorization and
(D) the reported accountability of assets is compared with
existing assets at reasonable intervals.
(xx) The Company has complied, and will continue to comply,
with all provisions of Section 517.075 of the Florida Statutes
(Chapter 92-198, Laws of Florida) and the rules thereunder.
(xxi) The Company and its subsidiaries carry or are
entitled to the benefits of insurance in such amounts and covering
such risks as is generally maintained by or on behalf of companies of
established repute engaged in the same of similar business, and all
such insurance is in full force and effect.
(xxii) The Company and its subsidiaries have filed all
federal, state, local and foreign tax returns required to be filed,
such returns are complete and accurate in all material respects, and
all taxes shown by such returns or otherwise assessed that are due or
payable have been paid, except such taxes as are being contested in
good faith and as to which adequate reserves have been provided. The
charges, accruals and reserves on the books of the Company and its
subsidiaries in respect of any tax liability for any year not finally
determined are adequate to meet any assessments or reassessments for
additional taxes; and there has been no tax deficiency asserted and,
to the best knowledge of the Company, no tax deficiency might be
asserted or threatened against the Company or any of its subsidiaries
that could, singly or in the aggregate, have a material adverse effect
on the financial (financial or otherwise), business, prospects or
results of operations of the Company and its subsidiaries considered
as a whole.
(xxiii) Each "employee benefit plan" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), in which employees of the Company or any of its
subsidiaries are eligible to participate is in compliance in all
material respects with the applicable provisions of ERISA and the
Internal Revenue Code of 1986, as amended. Neither the Company nor
any of its subsidiaries has any liability under Title IV of ERISA,
nor does the Company or any of its subsidiaries expect that any such
liability will be incurred, that could singly or in the aggregate,
have a material adverse effect on the condition (financial or
otherwise), business, prospects or results of
9
<PAGE>
operations of the Company and its subsidiaries considered as a whole.
(xxiv) No transaction has occurred between or among the
Company, its subsidiaries and any of their respective officers,
directors or affiliates or, the best of the Company's knowledge, any
affiliate of any such officer or director, that is required to be
described in the Registration Statement that is not so described.
(xxv) Except as otherwise disclosed in the Registration
Statement or Prospectus, there are no contracts, agreements or
understandings between the Company or its subsidiaries and any third
party (whether acting in an individual, fiduciary or other capacity)
granting such third party the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such third party or to require the
Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Act.
(xxvi) There are no statutes, regulations, contracts or
other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
registration Statement that are not described or filed as required.
The contracts so described in the Registration Statement and the
Prospectus are in full force and effect and neither the Company or any
of its subsidiaries nor, to the best knowledge of the Company, any
other party is in breach of or default under any such contracts.
(xxvii) The properties, assets and operations of the
Company and its subsidiaries are in compliance with all applicable
federal, state, local and foreign laws, rules and regulations orders,
decrees, judgments, permits and licenses relating to public and worker
health and safety and to the protection and clean-up of the natural
environment and activities or conditions related thereto, including,
without limitation, those relating to the generation, handling,
disposal, transportation or release of hazardous materials
(collectively, "Environmental Laws"), except to the extent that
failure to comply could not, singly or in the aggregate, have a
material adverse effect on the condition (financial or otherwise),
business, prospects or results of operations of the Company and its
10
<PAGE>
subsidiaries considered as a whole. With respect to such properties,
assets and operations, including any previously owned, leased or
operated properties, assets or operations, there are no past, present
or, to the best knowledge of the Company, reasonably anticipated
future events, conditions, circumstances, activities, practices,
incidents, actions or plans of the Company or any of its subsidiaries
that may interfere with or prevent compliance or continued compliance
in all material respects with applicable Environmental Laws. Neither
the Company nor any of its subsidiaries is the subject of any federal,
state, local or foreign investigation and neither the Company nor any
of its subsidiaries has received any notice or claim (or is aware of
any facts that would form a reasonable basis for any claim), nor
entered into any negotiations or agreements, with any third party
relating to any liability or remedial action or potential liability or
remedial action under Environmental Laws, nor are there any pending,
reasonably anticipated or, to the best knowledge of the Company,
threatened actions, suits or proceedings against or affecting the
Company, any of its subsidiaries or their properties, assets, or
operations, in connection with any such Environmental Laws. The term
"hazardous materials" shall mean those substances that are regulated
by or form the basis for liability under any applicable Environmental
Laws.
(b) Any certificate signed by an officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be
deemed a representation and warranty of the Company to each Underwriter as
to the matters covered thereby.
4. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS; CLOSING DATE.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, and subject to the terms and conditions
herein set forth, the Company agrees to sell to the Underwriters the Firm
Stock; and subject to the terms and conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the
Company, at the price per share set forth in the Pricing Agreement, the
number of shares of Firm Stock set forth opposite their names in Schedule A
(except as otherwise provided in the Pricing Agreement), subject to
adjustment in accordance with Section 11 hereof.
(b) If the Company has elected not to rely upon Rule 430A under
the Rules and Regulations, the initial public offering price and the
purchase price per share to be paid by the several Underwriters for the
Firm Stock each
11
<PAGE>
have been determined and set forth in the Pricing Agreement, dated the
date hereof, and an amendment to the Registration Statement and the
Prospectus will be filed before the Registration Statement becomes
effective.
If the Company has elected to rely upon Rule 430A under the Rules
and Regulations, the purchase price per share to be paid by the several
Underwriters for the Firm Stock shall be an amount equal to the initial
public offering price, less an amount per share to be determined by
agreement between the Representatives and the Company. The initial public
offering price per share of the Firm Stock shall be a fixed price to be
determined by agreement between the Representatives and the Company. The
initial public offering price per share of the Firm Stock shall not be
higher than the last "asked" quotation for the Common Stock immediately
prior to determination of the initial public offering price, as reported by
the National Association of Securities Dealers Automated Quotation System.
The initial public offering price and the purchase price, when so
determined, shall be set forth in the Pricing Agreement. In the event that
such prices have not been agreed upon and the Pricing Agreement has not
been executed and delivered by all parties thereto by the close of business
on the fourteenth business day following the date of this Agreement, this
Agreement shall terminate forthwith, without liability of any party to any
other party, unless otherwise agreed to by the Company and the
Representatives.
(c) The Company will deliver the Firm Stock to the
Representatives for the respective accounts of the several Underwriters (in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company given at or prior to 12:00 Noon, New York Time, on the business day
preceding the Closing Date or, if no such direction is received, in the
names of the respective Underwriters in the amount set forth opposite each
Underwriter's name on Schedule A hereto), against payment of the purchase
price therefor by certified or official bank check or checks in New York
Clearing House or similar next day funds, payable to the order of the
Company, all at the offices of Greenberg Glusker Fields Claman & Machtinger
LLP, 1900 Avenue of the Stars, Los Angeles, California. The time and date
of delivery and closing shall be at 10:00 A.M., New York Time, on the third
full business day after the Registration Statement becomes effective (or,
if the Company has elected to rely upon Rule 430A, the third full business
day after execution of the Pricing Agreement); PROVIDED, HOWEVER, that such
date and time may be accelerated or extended by agreement among the Company
and the Representatives or postponed pursuant to the provisions of Section
13 hereof. The time and date of such payment and delivery
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are herein referred to as the "Closing Date". The Company shall make the
certificates for the Stock available to the Representatives for
examination on behalf of the Underwriters not later than 3:00 P.M.,
New York Time, on the business day preceding the Closing Date.
(d) (i) In addition, for the purpose of covering any
over-allotments in connection with the distribution and sale of the Firm
Stock as contemplated by the Prospectus, the Company hereby grants the
Underwriters an option to purchase, severally and not jointly, up to
375,000 shares in the aggregate of the Optional Stock. The purchase price
per share to be paid for the Optional Stock shall be the same price per
share as for the Firm Stock, less the amount of any dividend declared by
the Company and payable on any Optional Stock and as to which the record
date has occurred after the date of the Pricing Agreement. The option
granted hereby may be exercised as to all or any part of the Optional Stock
at any time not more than 30 days subsequent to the effective date of this
Agreement. No Optional Stock shall be sold and delivered unless the Firm
Stock previously has been, or simultaneously is, sold and delivered. The
right to purchase the Optional Stock or any portion thereof may be
surrendered and terminated at any time upon notice by the Representatives
to the Company.
(ii) The option granted hereby may be exercised by the
Representatives on behalf of the Underwriters by giving written notice to
the Company setting forth the number of shares of the Optional Stock to be
purchased by them and the date and time for delivery of and payment for the
Optional Stock. Such date and time for delivery of and payment for the
Optional Stock (which may be the Closing Date) is herein called the "Option
Closing Date" and shall not be later than seven business days after written
notice is given. Optional Stock shall be purchased for the account of each
Underwriter in the same proportion as the number of shares of Firm Stock
set forth opposite such Underwriter's name in Schedule A hereto bears to
the total number of shares of Firm Stock (subject to adjustment by the
Representatives to eliminate odd lots). Upon exercise of the option by the
Representatives, the Company agrees to sell to the Underwriters the number
of shares of Optional Stock set forth in the written notice of exercise and
the Underwriters agree, severally and not jointly, subject to the terms and
conditions herein set forth, to purchase such shares of Optional Stock.
(iii) The Company will deliver the Optional Stock to the
Representatives for the respective accounts of the several Underwriters (in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to
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<PAGE>
the Company given at or prior to 12:00 Noon, New York Time, on the
business day preceding the Option Closing Date or, if no such direction
is received, in the names of the respective Underwriters), against
payment of the purchase price therefor by certified or official bank
check or checks in New York Clearing House or similar next day funds,
payable to the order of the Company, all at the offices of Greenberg
Glusker Fields Claman & Machtinger LLP, 1900 Avenue of the Stars,
Los Angeles, California. The Company shall make the certificates for
the Optional Stock available to the Representatives for examination on
behalf of the Underwriters not later than 3:00 P.M., New York Time,
on the business day preceding the Option Closing Date.
(e) It is understood that Dean Witter Reynolds Inc. or Brean
Murray & Co., Inc., individually and not as Representatives of the several
Underwriters, may (but shall not be obligated to) make payment to the
Company on behalf of any Underwriter or Underwriters, for the Stock to be
purchased by such Underwriter or Underwriters. Any such payment by Dean
Witter Reynolds Inc. or Brean Murray & Co., Inc. shall not relieve such
Underwriter or Underwriters from any of its or their other obligations
hereunder.
(f) After the Registration Statement becomes effective, the
several Underwriters propose to make an initial public offering of the
Stock at the initial public offering price. The Representatives shall
promptly advise the Company of the making of the initial public offering.
5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants
and agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective under the Act, will advise the
Representatives promptly as to the time at which the Registration Statement
becomes effective, will advise the Representatives promptly of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any such
stop order and to obtain as soon as possible the lifting thereof, if
issued. The Company will provide the Underwriters with copies of the form
of Prospectus, in such number as the Underwriters may reasonably request,
and file or transmit for filing with the Commission such Prospectus in
accordance with Rule 424(b) of the Rules and Regulations by the close of
business in New York on the business day immediately succeeding the date of
the Pricing Agreement.
(b) The Company will advise the Representatives promptly of any
request by the Commission for any amendment
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<PAGE>
of or supplement to the Registration Statement or the Prospectus or for
additional information, and will not at any time file any amendment to
the Registration Statement or supplement to the Prospectus which shall
not previously have been submitted to the Representatives a reasonable
time prior to the proposed filings thereof or to which the Representatives
shall reasonably object in writing or which is not in compliance with
the Act and the Rules and Regulations.
(c) The Company will prepare and file with the Commission,
promptly upon the request of the Representatives, any amendments or
supplements to the Registration Statement or the Prospectus (including any
revised prospectus which the Company proposes for use by the Underwriters
in connection with the offering of the Stock which differs from the
prospectus on file at the Commission at the time the Registration Statement
becomes effective, whether or not such revised prospectus is required to be
filed pursuant to Rule 424 of the Rules and Regulations or any term sheet
prepared in reliance on Rule 434 of the Rules and Regulations) which in the
opinion of the Representatives may be necessary to enable the several
Underwriters to continue the distribution of the Stock and will use its
best efforts to cause the same to become effective as promptly as possible.
(d) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be
delivered under the Act any event relating to or affecting the Company or
any of its subsidiaries occurs or has occurred as a result of which the
Prospectus would include an untrue statement of a material fact, or omit to
state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if it is necessary, at any time to amend the Prospectus to comply with the
Act, the Company will promptly notify the Representatives thereof and will
prepare an amended or supplemented prospectus (in form and substance
satisfactory to counsel to the Underwriters) which will correct such
statement or omission; and, in case any Underwriter is required to deliver
a prospectus relating to the Stock nine months or more after the effective
date of the Registration Statement, the Company upon the request of the
Representatives and at the expense of such Underwriter will prepare
promptly such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act.
(e) The Company will deliver to the Representatives, at or
before the Closing Date, signed copies of the Registration Statement and
all amendments thereto including
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<PAGE>
all financial statements and exhibits thereto, and will deliver to the
Representatives such number of copies of the Registration Statement,
including such financial statements but without exhibits, and of all
amendments thereto, as the Representatives may reasonably request.
The Company will deliver or mail to or upon the order of the
Representatives on the date of the initial public offering, and
thereafter from time to time during the period when delivery of a
prospectus relating to the Stock is required under the Act, as many copies
of the Prospectus, in final form or as thereafter amended or supplemented
as the Representatives may reasonably request; PROVIDED, HOWEVER, that the
expense of the preparation and delivery of any prospectus required for use
nine months or more after the effective date of the Registration Statement
shall be borne by the Underwriters required to deliver such prospectus.
(f) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 60 days
after the close of the period covered thereby, an earnings statement (in
form complying with the provisions of Rule 158 under the Act) which will
be in reasonable detail (but which need not be audited) and which will
comply with Section 11(a) of the Act, covering a period of at least twelve
months beginning not later than the first day of the Company's fiscal
quarter next following the "effective date" (as defined in Rule 158) of the
Registration Statement.
(g) The Company will cooperate with the Representatives to
enable the Stock to be qualified for sale under the securities laws of such
jurisdictions as the Representatives may designate and at the request of
the Representatives will make such applications and furnish such
information as may be required of it as the issuer of the Stock for that
purpose; provided, however, that the Company shall not be required to
qualify to do business or to file a general consent to service of process
in any such jurisdiction. The Company will, from time to time, prepare and
file such statements and reports as are or may be required of it as the
issuer of the Stock to continue such qualifications in effect for so long a
period as the Representatives may reasonably request for the distribution
of the Stock.
(h) The Company will furnish to its shareholders annual reports
containing financial statements certified by independent public accountants
and shall also furnish quarterly summary financial information in
reasonable detail which may be unaudited. During the period of five years
from the date hereof, the Company will deliver to the Representatives and,
upon request, to each of the other Underwriters, copies of each annual
report of the Company
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<PAGE>
and each other report furnished by the Company to its shareholders; and
will deliver to the Representatives, as soon as they are available,
copies of any other reports (financial or other) which the Company shall
publish or otherwise make available to any of its security holders as
such, and as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange or the NASD.
(i) The Company will file with the Nasdaq National Market all
documents and notices required by the Nasdaq National Market of companies
that have issued securities that are traded in the over-the-counter market
and quotations for which are reported by Nasdaq National Market.
(j) The Company will use the net proceeds received by it from
the sale of the Stock in the manner specified in the Prospectus under "Use
of Proceeds".
(k) During a period of 180 days from the date of the Pricing
Agreement, the Company will not, without prior written consent of Dean
Witter Reynolds Inc., directly or indirectly, sell, offer to sell, grant
any option for the sale of, or otherwise dispose of or enter into any
agreement to sell, any Common Stock or any security convertible into Common
Stock (except for Common Stock issued pursuant to reservations, agreements
or employee benefit plans disclosed in the Registration Statement).
(l) At the time this Agreement is executed, the Company shall
have furnished to the Representatives a letter from each officer and
director of the Company and _________ addressed to the Representatives, in
which each such person agrees that, during a period of 180 days from the
date of the Pricing Agreement, such person will not, without the prior
written consent of Dean Witter Reynolds Inc., directly or indirectly, (i)
sell, offer to sell, grant any option for the sale of, or otherwise dispose
of or transfer, any shares of Common Stock beneficially owned by such
person or any securities convertible into or exchangeable or exercisable
for such Common Stock, whether now owned or hereafter acquired by such
person or with respect to which has or hereafter acquires the power of
disposition, or file any registration statement under the Act with respect
to any of the foregoing or (ii) enter into any swap or any other agreement
or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise.
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<PAGE>
6. PAYMENT OF EXPENSES.
(a) The Company will pay (directly or by reimbursement) all
expenses incident to the performance of the obligations of the Company
under this Agreement, including but not limited to all expenses and taxes
incident to delivery of the Stock to the Representatives, all expenses
incident to the registration of the Stock under the Act and the printing of
copies of the Registration Statement, each Preliminary Prospectus, the
Prospectus, any amendments or supplements thereto, the "Blue Sky"
memorandum, the Agreement Among Underwriters, Underwriters' Questionnaire
and this Agreement and furnishing the same to the Underwriters and dealers
except as otherwise provided in Section 5, the fees and disbursements of
the Company's counsel and accountants, all filing and printing fees and
expenses (including legal fees and disbursements of counsel for the
Underwriters) incurred in connection with qualification of the Stock for
sale under the laws of such jurisdictions as the Representatives may
designate, all fees and expenses (including legal fees and disbursements
of counsel for the Underwriters) paid or incurred in connection with
filings made with the National Association of Securities Dealers, Inc. (the
"NASD"), the fees and expenses incurred in connection with the listing of
the Stock on the Nasdaq National Market, the costs of preparing stock
certificates, the costs and fees of any registrar or transfer agent and all
other costs and expenses incident to the performance of their obligations
hereunder which are not otherwise specifically provided for in this
Section.
(b) If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 9, Section 10 or Section 13
hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the fees and disbursements of O'Melveny &
Myers LLP, counsel for the Underwriters.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) (i) The Company agrees to indemnify and hold harmless each
Underwriter, each employee, officer, partner, director and agent of the
Underwriter, and each person, if any, who controls such Underwriter within
the meaning of the Act, against any losses, claims, damages, liabilities or
expenses (including the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in connection
therewith), joint or several, as incurred, which may be based upon the Act,
or any other federal or state statute or at common law, arising out of any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto), including the
information deemed to
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<PAGE>
be part of the Registration Statement pursuant to Rule 430A(b) of the
Rules and Regulations, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact contained
in the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, written
information furnished to the Company by such Underwriter, directly
or through the Representatives, specifically for use in the preparation
thereof; PROVIDED that the Company shall not be liable with respect to any
claims made against any Underwriter or any such employee, officer, partner,
director or agent or any such controlling person under this subsection
unless such Underwriter or employee, officer, partner, director or agent or
controlling person shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Underwriter or employee, officer, partner, director or agent or controlling
person (such notification by an Underwriter shall suffice as notification
on behalf of its officers, partners, directors, employees, agents and
controlling persons), but failure to notify the Company of any such claim
shall not relieve it from any liability which it may have to such
Underwriter or employee, officer, partner, director or agent or controlling
person otherwise than on account of the indemnity agreement contained in
this Section 7(a).
(ii) The Company shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense for
misstatements or omissions in a Preliminary Prospectus of any suit brought
to enforce any such liability, but, if the Company elects to assume the
defense, such defense shall be conducted by counsel chosen by it and
reasonably satisfactory to such Underwriter or indemnified person, as the
case may be. In the event the Company elects to assume the defense of any
such suit and retain such counsel, the Underwriter or Underwriters or other
indemnified person or persons, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such
counsel unless (i) the Company shall have specifically authorized the
retaining of such counsel or (ii) the parties to such suit include such
Underwriter or Underwriters other indemnified or person or persons, and
such Underwriter or Underwriters or other indemnified person or persons
have been advised by counsel that one or more legal defenses may be
available to it or
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<PAGE>
them which may not be available to the Company, in which case the
Company shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such
counsel. The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect
of which indemnification may be sought hereunder (whether or not such
Underwriter or other indemnified party is a party to such claim, action,
suit or proceeding), unless such settlement, compromise or consent (i)
includes an unconditional release of such Underwriter and each such other
indemnified person or persons from all liability arising out of such claim,
action, suit or proceeding and (ii) does not include a statement as to or
as admission of fault, culpability or a failure to act by or on behalf of
any indemnified party. The Company agrees that a breach of the preceding
sentence shall cause irreparable harm to the Underwriters and that the
Underwriters shall be entitled to injunctive relief from any appropriate
court ordering specific performance of said provision. This indemnity
agreement will be in addition to any liability which the Company might
otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, each of its employees, officers,
directors and agents and each person, if any, who controls the Company
within the meaning of the Act against any losses, claims, damages,
liabilities or expenses (including the reasonable cost of investigating and
defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, as incurred, which may be based
upon the Act, or any other statute or at common law, arising out of any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto), including the
information deemed to be part of the Registration Statement pursuant to
Rule 430A(b) of the Rules and Regulations, if applicable, or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but only insofar
as any such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for use
in the preparation
20
<PAGE>
thereof; PROVIDED, HOWEVER, that in no case is such Underwriter to be
liable with respect to any claims made against the Company or any person
against whom the action is brought unless the Company or such person
shall have notified such Underwriter in writing within a reasonable
time after the summons or other first legal process giving information
of the nature of the claim shall have been served upon the Company or
such person, but failure to notify such Underwriter of such claim shall
not relieve it from any liability which it may have to the Company or
such person otherwise than on account of its indemnity agreement
contained in this Section 7(c). Such Underwriter shall be entitled to
participate at its own expense in the defense, or, if it so elects, to
assume the defense of any suit brought to enforce any such liability, but,
if such Underwriter elects to assume the defense, such defense shall be
conducted by counsel chosen by it and reasonably satisfactory to the
Company or such person, as the case may be. In the event that any
Underwriter elects to assume the defense of any such suit and retain such
counsel, the Company, said employees, agents, officers and directors
and any other Underwriter or Underwriters or employee or employees or agent
or agents or controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained
by them, respectively. The Underwriter against whom indemnity may be
sought shall not be liable to indemnify any person for any settlement of
any such claim effected without such Underwriter's consent. This indemnity
agreement will be in addition to any liability which such Underwriter might
otherwise have.
(c) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein,
then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (or actions in respect thereof), as incurred, in
such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Stock. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then
each indemnifying party shall contribute to such amount paid or payable by
such indemnified party, as incurred, in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims,
damages, liabilities or expenses (or actions in
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<PAGE>
respect thereof), as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it
would not be just and equitable if contribution were determined by pro
rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above. The amount
paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or expenses (or actions in respect thereof)
referred to above shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price
at which the shares of the Stock underwritten by it and distributed to
the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute are several in proportion to their
respective underwriting obligations and not joint.
8. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Company or any of its officers or directors or
any controlling person, and shall survive delivery of and payment for the Stock.
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<PAGE>
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective
obligations of the several Underwriters hereunder shall be subject to the
accuracy, at and (except as otherwise stated herein) as of the date hereof, the
Representation Date and the Closing Date or the Option Closing Date, as the case
may be, of the representations and warranties made herein by the Company, to the
accuracy of the statements of the Company's officers or directors in any
certificate furnished pursuant to the provisions hereof, to compliance at and as
of such Closing Date by the Company with its covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to such
Closing Date, and to the following additional conditions:
(a) The Registration Statement shall become effective not later
than 3:00 P.M., New York City time, on the date hereof or, with the consent
of the Representatives, at a later time and date, not later, however, than
5:30 P.M., New York City time on the first business day following the date
hereof, or at such later date as may be approved by a majority in interest
of the Underwriters, and at such Closing Date (i) no stop order suspending
the effectiveness thereof shall have been issued and no proceedings for
that purpose shall have been initiated or, to the knowledge of the Company
or the Representatives, threatened by the Commission, and any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives, and
(ii) there shall not have come to the attention of the Representatives any
facts that would cause them to believe that the Prospectus, at the time it
was required to be delivered to a purchaser of the Stock, contained any
untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If the Company
has elected to rely upon Rule 430A of the Rules and Regulations, the price
of the Stock and any price related information previously omitted from the
effective Registration Statement pursuant to Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and before the
Closing Date the Company shall have provided evidence satisfactory to the
Representatives of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules and
Regulations.
(b) At the time of execution of this Agreement, the
Representatives shall have received from Deloitte & Touche LLP a letter,
dated the date of such execution, in
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form and substance previously approved by the Representatives, and to
the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the Rules and Regulations.
(ii) In their opinion, the financial statements and
supporting schedule(s) examined by them and included in the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the related
published Rules and Regulations thereunder and, if applicable, they
have made a review in accordance with standards established by the
American Institute of Certified Public Accountants of the unaudited
consolidated interim financial statements, selected financial data,
pro forma financial information, prospective financial statements
and/or condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter, as
indicated in their reports thereon, copies of which have been
furnished to the Representatives;
(iii) The unaudited selected financial information
with respect to the consolidated results of operations and financial
position of the Company for the five most recent fiscal years included
in the Prospectus agrees with the corresponding amounts (after
restatement where applicable) in the audited consolidated financial
statements for the five such fiscal years;
(iv) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and
other information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) the unaudited condensed consolidated statements of
income, consolidated
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<PAGE>
balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the related published rules and regulations
thereunder, or are not in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with the basis for the audited consolidated statements
of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree with
the corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived the
unaudited condensed financial statements referred to in clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in clause (B)
were not determined on a basis substantially consistent with the
basis for the audited financial statements included in the
Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than three days
prior to the date of such letter, there has been any change in
the consolidated capital stock of the Company (other than
issuances of capital stock upon exercise of options and upon
conversions of convertible securities, in each case which were
outstanding on the date of the latest balance sheet included in
the Prospectus)
25
<PAGE>
or any increase in the consolidated long-term debt of the
Company and consolidated subsidiaries, any decrease in the
consolidated net current assets, net assets or other items
specified by the Representatives, or any change in any other
items specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the specified
date referred to in Clause (E) there was any decrease in
consolidated revenues or operating profit or the total or per
share amounts of consolidated net income or other items specified
by the Representatives, or any increases in any items specified
by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period
of corresponding length specified by the Representatives, except
in each case for increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(v) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (iv) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records
of the Company and its subsidiaries, which appear in the Prospectus or
in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found
them to be in agreement.
(vi) On the basis of a reading of the unaudited consolidated
condensed pro forma financial statements included in the Registration
Statement and the Prospectus, carrying out certain specified
procedures and inquiries of certain officials of the Company and its
consolidated subsidiaries who have
26
<PAGE>
responsibility for financial and accounting matters, and proving
the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the unaudited consolidated
condensed pro forma financial statements, nothing came to their
attention that caused them to believe that the unaudited
consolidated condensed pro forma financial statements do not
comply as to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the
pro forma adjustments have not been properly applied to the historical
amounts in the compilation of such statements.
(c) The Representatives shall have received from Deloitte &
Touche LLP a letter, dated the Closing Date, to the effect that such
accountants reaffirm, as of such Closing Date, and as through made on such
Closing Date, the statements made in the letter furnished by such
accountants pursuant to paragraph (b) of this Section 9, except that the
specified date will be a date not more than three business days prior to
the Closing Date.
(d) At the time of execution of this Agreement, the
Representatives shall have received from Gifford, Hillegass & Ingwersen,
P.C. a letter, dated the date of such execution, in form and substance
previously approved by the Representatives, and to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the Rules and Regulations.
(ii) In their opinion, the financial statements examined by
them and included in the Registration Statement comply as to form in
all material respects with the applicable accounting requirements of
the Act and the related published Rules and Regulations thereunder
and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial
statements, selected financial data, pro forma financial information,
prospective financial statements and/or condensed financial statements
derived from audited financial statements of Editworks for the periods
specified in such letter, as indicated in their reports thereon,
copies of which have been furnished to the Representatives;
(iii) On the basis of limited procedures, not constituting
an examination in accordance with generally accepted auditing
standards, consisting of a
27
<PAGE>
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim
financial statements of Editworks, inspection of the minute books
of Editworks since the date of the latest audited financial
statements included in the Prospectus, inquiries of officials of
Editworks responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to believe
that:
(A) the unaudited condensed statements of income,
balance sheet and statements of cash flows included in the
Prospectus do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the related
published rules and regulations thereunder, or are not in
conformity with generally accepted accounting principles applied
on a basis substantially consistent with the basis for the
audited statements of income, balance sheets and statements of
cash flows included in the Prospectus;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree with
the corresponding items in the unaudited financial statements
from which such data and items were derived, and any such
unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited financial statements included in the
Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived the
unaudited condensed financial statements referred to in clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in clause (B)
were not determined on a basis substantially consistent with the
basis for the audited financial statements included in the
Prospectus; and
(iv) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (iv) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts,
28
<PAGE>
percentages and financial information specified by the
Representatives which are derived from the general accounting records
of Editworks, which appear in the Prospectus or in Part II of, or in
exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of
the Company and its subsidiaries and have found them to be in
agreement.
(e) The Representatives shall have received from Gifford,
Hillegass & Ingwersen, P.C. a letter, dated the Closing Date, to the effect
that such accountants reaffirm, as of such Closing Date, and as through
made on such Closing Date, the statements made in the letter furnished by
such accountants pursuant to paragraph (d) of this Section 9, except that
the specified date will be a date not more than three business days prior
to the Closing Date.
(f) The Representatives shall have received from Greenberg
Glusker Fields Claman & Machtinger LLP, counsel for the Company, an
opinion, dated the Closing Date, to the effect that:
(i) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of Delaware
and has power and authority (corporate and other) to own or lease its
properties and conduct its business as described in the Prospectus;
the Company is in possession of and is operating in compliance with
all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders required for the conduct of its
business, all of which are valid and in full force and effect; and the
Company is duly qualified as a foreign corporation in good standing in
all other jurisdictions where its ownership or leasing of properties
or the conduct of its business requires such qualification.
(ii) The Company has an authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the
Prospectus; all outstanding shares of Common Stock (including the
Stock) conform to the description thereof in the Prospectus and have
been duly authorized and validly issued and are fully paid and
nonassessable, and the stockholders of the Company have no preemptive
rights with respect to any shares of capital stock of the Company.
(iii) To the best of such counsel's knowledge, there are
no legal or governmental proceedings pending other than those set
forth under "Business -- Legal
29
<PAGE>
Proceedings" in the Prospectus to which the Company or any of
its subsidiaries is a party or of which any property of the
Company or any subsidiary is the subject, which individually or
in the aggregate are material; and to the best of such counsel's
knowledge no such proceedings are threatened by governmental
authorities or others.
(iv) This Agreement and the Pricing Agreement have been duly
authorized, executed and delivered by the Company; and the performance
of this Agreement and the Pricing Agreement and the consummation of
the transactions herein and therein contemplated will not result in a
breach or violation of any of the terms or provisions of or constitute
a default under any statute, contract, indenture, mortgage, deed of
trust, loan agreement, note, lease or other agreement or instrument
known to such counsel to which the Company is a party or by which it
is bound, the Company's Certificate of Incorporation or By-laws, or
any order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or
any of its properties.
(v) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
by the Company of the transactions contemplated by this Agreement and
the Pricing Agreement, except such as may be required under the Act or
as may be required under the securities or Blue Sky laws of any
jurisdiction or by the NASD in connection with the purchase and
distribution of the Stock by the Underwriters.
(vi) The Registration Statement has become effective under
the Act and, to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act.
(vii) The Common Stock has been approved for listing on
the Nasdaq National Market.
(viii) The Registration Statement and the Prospectus
(other than the financial statements and supporting schedules included
therein, as to which no opinions need be rendered), and each amendment
or supplement thereto, as of their respective effective or issue dates
and as of the Closing Date complied as to form in all material
respects with the requirements of the Act and the Rules and
Regulations.
30
<PAGE>
(ix) The descriptions in the Registration Statement and
Prospectus of contracts and other documents are accurate in all
material respects and such descriptions fairly present in all material
respects the information required to be shown; and such counsel does
not know of any legal or governmental proceedings or of any contracts
or documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement or Prospectus which are not described and filed
as required.
(x) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
(xi) Nothing has come to such counsel's attention that would
lead such counsel to believe that the Registration Statement, at the
time it became effective or at the Representation Date, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, at the Representation
Date (unless the term "Prospectus" refers to a prospectus which has
been provided to the Underwriters by the Company for use in connection
with the offering of the Stock which differs from the prospectus on
file at the Commission at the time the Registration Statement became
effective, in which case at the time it was first provided to the
Underwriters for such use) or at the Closing Date, included any untrue
statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(xii) Todd-AO Productions, Inc., Todd-AO Studios East,
Inc., Todd-AO East, Todd-AO Digital Images, Todd-AO Video Services,
Todd-AO Studios West, Todd-AO Europe Holdings Ltd., Editworks and
Chrysalis/Todd-AO Europe Ltd., [OTHERS] subsidiaries of the Company
(the "Subsidiaries"), have each been duly incorporated, are validly
existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation and have power and authority
(corporate and other) to own their respective properties and conduct
their respective businesses as described in the Prospectus, and each
of such Subsidiaries are duly qualified as foreign corporations
31
<PAGE>
in good standing and in all other jurisdictions where their ownership
or leasing of properties or the conduct of their businesses requires
such qualification.
(xiii) All outstanding shares of capital stock of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable, and are owned by the Company free and clear of
any liens, encumbrances, equities and claims.
(g) The Representatives shall have received from O'Melveny &
Myers LLP, counsel for the Underwriters, their opinion or opinions dated
the Closing Date with respect to the validity of the Stock, the
Registration Statement, the Prospectus and such other related matters as
the Representatives may require. In giving such opinion, such counsel may
rely, as to all matters governed by the laws of jurisdictions other than
the laws of the States of California and New York and the General
Corporation Law of the State of Delaware and the federal law of the United
States, upon opinions of counsel satisfactory to the Representatives. The
Company shall have furnished to such counsel such documents as they may
request for the purpose of enabling them to pass upon such matters.
(h) The Representatives shall have received a certificate, dated
such Closing Date, of the Chief Executive Officer or the President and the
chief financial or accounting officer of the Company to the effect that:
(i) no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act; (ii) subsequent to
the respective dates as of which information is given in the Prospectus,
neither the Company nor any of its subsidiaries has incurred any
liabilities or obligations, direct or contingent, nor entered into any
transactions, not in the ordinary course of business, which in either case
are material to the Company and its subsidiaries considered as a whole,
whether or not arising in the ordinary course of business, and there has
not been any material adverse change in the condition (financial or
otherwise), business, prospects or results of operations of the Company and
its subsidiaries considered as a whole, or any change in the capital stock
or long-term debt of the Company and its subsidiaries considered as a
whole; (iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or before the
Closing Date; (iv) the representations and warranties of the Company in
this Agreement are true and correct at and as of the Closing Date; and (v)
between the execution of this Agreement and the Closing Date, the business
and operations conducted by the Company and its subsidiaries have not
32
<PAGE>
sustained a loss by strike, fire, flood, accident or other calamity
(whether or not insured) of such a character as to interfere materially
with the conduct of the business and operations of the Company and its
subsidiaries considered as a whole. As used in this Section 9(h), the term
"Prospectus" means the Prospectus in the form first used to confirm sales
of Stock.
(i) The Company shall have furnished to the Representatives such
additional certificates as the Representatives may have reasonably
requested as to the accuracy, at and as of the Closing Date, of the
representations and warranties made herein by them as to compliance at and
as of the Closing Date by it with their covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to the
Closing Date and as to other conditions to the obligations of the
Underwriters hereunder.
(j) The Stock shall have been approved for listing on Nasdaq
National Market.
(k) In the event the Underwriters exercise the option granted in
Section 4(e) hereof to purchase all or any portion of the Optional Shares,
the representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company hereunder shall be
true and correct as of the Option Closing Date, and you shall have
received:
(i) Letters from Deloitte & Touche LLP and Gifford,
Hillegass & Ingwersen, P.C., in form and substance satisfactory to you
and dated the Option Closing Date, substantially the same in scope and
substance as the letters furnished to you pursuant to Section 9(b) and
9(d), except that the specified date in the letter furnished pursuant
to this subsection (m) shall be a date not more than five days prior
to the Option Closing Date.
(ii) A certificate, dated the Option Closing Date, of the
Chief Executive Officer or President and the chief financial or
accounting officer of the Company confirming that the certificate
delivered at the Closing Date pursuant to subsection (i) remains true
as of the Option Closing Date.
(iii) The opinion of Greenberg Glusker Fields Claman &
Machtinger LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated the Option Closing
Date, relating to the Optional Stock and otherwise to the same effect
as the opinion required by subsection (f).
33
<PAGE>
(iv) The opinion of O'Melveny & Myers LLP, counsel for the
Underwriters, dated the Option Closing Date, relating to the Optional
Stock and otherwise to the same effect as the opinion required by
subsection (g).
If any of the conditions hereinabove provided for in this Section shall
not have been satisfied when and as required by this Agreement, this
Agreement may be terminated by the Representatives by notifying the Company
of such termination in writing or by telegram at or prior to the Closing
Date, but the Representatives shall be entitled to waive any of such
conditions.
10. TERMINATION. This Agreement may be terminated by the
Representatives by notice to the Company if at or prior to the Closing Date
or the Option Closing Date, as the case may be, (i) trading in securities on
the New York or American Stock Exchanges shall have been suspended or minimum
or maximum prices shall have been established on either such exchange, or a
banking moratorium shall have been declared by New York or United States
authorities; (ii) there shall have been any adverse change in the financial
markets in the United States, Japan or Europe or any outbreak or escalation
of hostilities between the United States and any foreign power, or of any
other insurrection or armed conflict involving the United States that, in the
judgment of the Representatives, makes it impracticable or inadvisable to
offer, sell or deliver the Firm Stock or the Optional Stock as applicable, on
the terms contemplated by the Prospectus or this Agreement; (iii) there shall
have been since the execution of this Agreement or since the respective dates
as of which information is given in the Prospectus any material adverse
change in the condition (financial or otherwise), or business, prospects or
results of operations of the Company and its subsidiaries considered as a
whole; (iv) there shall have been any development involving the business or
properties or securities of the Company or any of its subsidiaries or the
transactions contemplated by this Agreement, which, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer, sell or
deliver the Firm Stock or Option Stock, as applicable, on the terms
contemplated by the Prospectus or this Agreement or (v) if there shall be any
litigation, pending or threatened, which, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer or deliver
the Firm Stock or the Optional Stock, as applicable, on the terms
contemplated by the Prospectus or this Agreement. As used in this Section
10, the term "Prospectus" means the Prospectus in the form first used to
confirm sales of Stock.
11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other
provisions hereof, if this Agreement shall be terminated by the Representatives
under Section 9, Section 10 or Section 13, the Company will bear and pay the
expenses specified
34
<PAGE>
in Section 6 hereof and, in addition to their obligations pursuant to Section
7, hereof, the Company will reimburse the reasonable out-of-pocket expenses
of the several Underwriters (including reasonable fees and disbursements of
counsel for the Underwriters) incurred in connection with this Agreement and
the proposed purchase of the Stock, and promptly upon demand the Company will
pay such amounts to you as Representatives. In addition, the provisions of
Section 7 shall survive any such termination.
12. DEFAULT BY UNDERWRITERS. If any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Firm Stock
hereunder on the Closing Date and the aggregate number of shares of Firm
Stock which such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares which the
Underwriters are obligated to purchase at the Closing Date, the other
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the shares of Stock which such defaulting
Underwriter or Underwriters agreed but failed to purchase. If any
Underwriter or Underwriters shall so default and the aggregate number of
shares of Stock with respect to which such default or defaults occur is more
than 10% of the total number of shares underwritten and arrangements
satisfactory to the Representatives and the Company for the purchase of such
shares of Firm Stock by other persons are not made within 48 hours after such
default, this Agreement shall terminate.
If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or part of the shares of Firm Stock of a
defaulting Underwriter or Underwriters as provided in this Section 12, (i)
the Company shall have the right to postpone the Closing Date for a period of
not more than five full business days, in order that the Company may effect
whatever changes may thereby be made necessary in the Registration Statement
or the Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii)
the respective numbers of shares of Firm Stock to be purchased by the
remaining Underwriters or substituted underwriters shall be taken as the
basis of their underwriting obligation for all purposes of this Agreement.
Nothing herein contained shall relieve any defaulting Underwriter of its
liability to the Company or the Underwriters for damages occasioned by its
default hereunder. Any termination of this Agreement pursuant to this
Section 12 shall be without liability on the part of any non-defaulting
Underwriter or the Company, except for expenses to be paid or reimbursed
pursuant to Section 6 and except for the provisions of Section 7.
35
<PAGE>
13. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing
Date to sell and deliver the number of shares of Stock which it is obligated
to sell hereunder, then this Agreement shall terminate without any liability
on the part of any non-defaulting party. No action taken pursuant to this
Section shall relieve the Company so defaulting from liability, if any, in
respect of such default.
14. NOTICES. All communications hereunder shall be in writing and, if
sent to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their Representatives c/o Dean Witter Reynolds Inc. at
Two World Trade Center, 65th Floor, Corporate Finance, New York, New York
10048, Attn: Samuel H. Wolcott, III, except that notices given to an
Underwriter pursuant to Section 7 hereof shall be sent to such Underwriter at
the address provided to the Representatives or, if sent to the Company, shall
be mailed, delivered or telegraphed and confirmed c/o The Todd-AO Corporation
at 900 North Seward Street, Hollywood, California 90038,
ATTN:_______________.
15. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence any legal or equitable right,
remedy or claim under or in respect of this Agreement, or any provisions
herein contained, this Agreement and all conditions and provisions hereof
being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the
representations, warranties, covenants, agreements and indemnities of the
Company contained in this Agreement shall also be for the benefit of the
person or persons, if any, who control any Underwriter or Underwriters within
the meaning of Section 15 of the Act, and the indemnities of the several
Underwriters shall also be for the benefit of each director of the Company,
each of its officers who has signed the Registration Statement and the person
or persons, if any, who control the Company within the meaning of Section 15
of the Act.
16. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS. The Company hereby consents to personal
jurisdiction in the State of New York and voluntarily submits to the
jurisdiction of the courts of such state, including the federal district
courts located in such state, in any proceeding with respect to this
Agreement.
17. COUNTERPARTS. This Agreement may be executed by one or more
parties hereto in any number of counterparts each of which shall be deemed to
be an original, but all such
36
<PAGE>
counterparts shall together constitute one and the same instrument.
18. AUTHORITY OF THE REPRESENTATIVES. In connection with this
Agreement, the Representatives will act for and on behalf of the several
Underwriters, and any action taken under this Agreement by the
Representatives jointly or by Dean Witter Reynolds Inc., as representatives
of the several Underwriters, will be binding on all the Underwriters.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding
agreement between us.
Very truly yours,
THE TODD-AO CORPORATION
By
------------------------------------
Accepted and delivered,
as of the date first above written:
DEAN WITTER REYNOLDS INC.
BREAN MURRAY & CO., INC.
Acting on their own behalf and
as Representatives of the several
Underwriters referred to in the
foregoing Agreement.
BY: DEAN WITTER REYNOLDS INC.
By:
------------------------------
Authorized Signature
BY: BREAN MURRAY & CO., INC.
By:
-----------------------------
Authorized Signature
37
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Shares of
Name of Stock to be
Underwriter Purchased
----------- -----------
<S> <C>
------------
Total
------------
------------
</TABLE>
38
<PAGE>
EXHIBIT A
2,500,000 Shares
THE TODD-AO CORPORATION
Class A Common Stock
PRICING AGREEMENT
_________ __, 1996
DEAN WITTER REYNOLDS INC.
BREAN MURRAY & CO., INC.
As Representatives of the several Underwriters
c/o Dean Witter Reynolds Inc.
2 World Trade Center
65th Floor
New York, New York 10048
Dear Sirs:
Reference is made to the Underwriting Agreement, dated __________ __,
1996 (the "Underwriting Agreement"), relating to the purchase by the several
Underwriters named in Schedule A thereto, for whom Dean Witter Reynolds Inc.
and Brean Murray & Co., Inc. are acting as representatives (the
"Representatives"), of the above shares of Class A Common Stock (the "Common
Stock") of The Todd-AO Corporation (the "Company").
Pursuant to Section 4 of the Underwriting Agreement, the Company agrees
with each underwriter as follows:
1. The initial public offering price per share for the Stock,
determined as provided in Section 4, shall be $_______________.
2. The purchase price per share for the Stock to be paid by the
several Underwriters shall be $_______________.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along
<PAGE>
with all counterparts, will become a binding agreement between the
Underwriters and the Company in accordance with its terms.
Very truly yours,
THE TODD-AO CORPORATION
By:
-----------------------------------
Accepted and delivered,
as of the date first above written:
DEAN WITTER REYNOLDS INC.
BREAN MURRAY & CO., INC.
Acting on their own behalf and as
Representatives of the several
Underwriters referred to in the
foregoing Agreement.
BY: DEAN WITTER REYNOLDS INC.
By
-------------------------------
Authorized Signature
BY: BREAN MURRAY & CO., INC.
By:
------------------------------
Authorized Signature
40
<PAGE>
Exhibit 5.1
[LETTERHEAD]
October 23, 1996
The Todd-AO Corporation
900 North Seward Street
Hollywood, CA 90038
Re: Registration Statement on Form S-1
(Registration No. 333-13891)
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (the "Registration
Statement") filed by The Todd-AO Corporation, a Delaware corporation (the
"Company") with the Securities and Exchange Commission on October 10, 1996
(Registration No. 333-13891), as amended to the date hereof, in connection with
the registration under the Securities Act of 1933, as amended, of up to an
aggregate of 2,875,000 shares (the "Shares") of the Company's Common Stock, par
value $0.01 per share (the "Common Stock"), to be sold by the Company in a
proposed public offering (the "Offering"), all as set forth in the Registration
Statement.
As your counsel, we have examined the Company's Certificate of
Incorporation and Bylaws, each as amended to the date hereof, and the records of
corporate proceedings and other actions taken by the Company in connection with
the authorization and issuance of the Common Stock being sold by the Company and
the sale of the Shares by the Company. Based upon the foregoing and in
reliance thereof, and subject to (i) compliance with applicable state securities
laws and (ii) receipt from the Securities and Exchange Commission of an order
declaring the Registration Statement effective, it is our opinion that the
Shares, when issued, delivered and paid for pursuant to and in accordance with
the Registration Statement (and pertinent exhibits thereto), will be validly
issued, fully paid and non-assessable.
<PAGE>
GREENBERG GLUSKER FIELDS
CLAMAN & MACHTINGER LLP
The Todd-AO Corporation
October 23, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration State, and we further consent to the use of our name under the
caption "Legal Matters" in the Prospectus forming a part of said Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
Greenberg Glusker Fields Claman
& Machtinger LLP
GREENBERG GLUSKER FIELDS CLAMAN
& MACHTINGER LLP
<PAGE>
Exhibit 10.37
[LETTERHEAD]
As of September 1, 1994
Mr. Richard R. O'Hare
595 27th Street
Manhattan Beach, CA 92066
Re: Employment Agreement
Dear Mr. O'Hare:
This letter will constitute your employment agreement with Todd-AO Video
Services (the "Company"), a wholly-owned subsidiary of The Todd-AO Corporation:
1. EMPLOYMENT. The Company hereby employs you as its President, provided that
this shall not limit the Company's authority to appoint another individual as
the Chairman and Chief Executive Officer of the Company. You agree to perform
all duties (consistent with your position as President of a subsidiary) as may
be assigned to you from time to time by the President of The Todd-AO
Corporation, to serve on the executive committee of the Company if so appointed,
and to devote your full business time, skill and attention to such services on
an exclusive basis. You will be based in Los Angeles but may from time to time
be asked to travel domestically or abroad, in which event the Company will pay
your reasonable travel and living expenses in accordance with its normal
policies.
2. COMMENCEMENT DATE AND TERM.
2.1 COMMENCEMENT DATE. The Commencement Date of this agreement shall be
the closing date of the Company's acquisition of substantially all of the assets
of Film Video Masters, Inc., a California corporation dbn Paskal Video (the
"Acquisition") or such earlier date as may be mutually agreed. In the event the
Acquisition is not consummated by September 30, 1994 then this agreement shall
be deemed rescinded without further action by either party.
<PAGE>
Richard O'Hare
As of September 1, 1994
Page 2
2.2 TERM. The term of your employment will begin as of the Commencement
Date and will continue for a period of 36 months thereafter, provided that the
Company may terminate your employment without liability on at least 10 days
prior written notice to you if you are unable to render substantially all of the
services required hereunder for a period of 3 consecutive months or more because
of physical or mental disability.
2.3 NON SOLICITATION. For a period of one year following the expiration
or other termination of your employment, you will not solicit or induce any
employees of the Company to terminate their employment with the Company.
3. COMPENSATION AND BENEFITS
3.1 COMPENSATION. For the indicated weeks following the Commencement Date
your compensation will be as follows:
Weeks Gross Weekly Compensation
----- -------------------------
1-52 $2,942.61
53-103 3,230.77
105-156 3,903.84
3.2 FRINGE BENEFITS. You will be entitled to three weeks paid vacation
per year, a car allowance of $400/month and reimbursement for business related
automobile operating expenses (fuel and parking). You are eligible for group
medical coverage on the same conditions, limitations and contribution
requirements as may be from time to time offered to those employees of Todd-AO
Video Services who are not covered under the Motion Picture Industry Health
Plan, for participation in the 401(k) plan made by the Todd-AO Corporation and
for such additional benefits as the Company's Board of Directors may determine.
To the extent (if any) that Todd-AO Video Services is required to offer you
participation in the Motion Picture Industry Health, Pension or other benefit
Plan, you acknowledge that you have been offered such participation and
specifically waive it.
4. INTELLECTUAL PROPERTY.
4.1 INCLUDED INVENTIONS. For purposes of this agreement, "Included
Inventions" shall mean all developments, designs, creations, improvements,
original works of authorship, copyrights, formulas, processes, know how,
techniques and/or inventions made or conceived or reduced to practice during the
term of this agreement or reduced to practice within 12 months after termination
of
<PAGE>
Richard O'Hare
As of September 1, 1994
Page 3
this agreement, that relate in any way to interactive entertainment, computer
graphics, visual effects, audio and visual production and post production
(including without limitation telecine, film to tape transfers, audio layback
and video tape duplication), film, television, cable, CD ROM, multi-media, or
any other business now or hereafter conducted by the Company.
Excluded from the foregoing definitions of "Included Inventions" are any
inventions exempt under the provisions of Section 2870 of the California Labor
Code, which provides as follows:
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the
employer's equipment, supplies, facilities or trade secret information
except for those inventions that either: (1) relate at the time of
conception or reduction to practice of the invention to the employer's
business, or actual or demonstrably anticipated research or development of
the employer; or (2) result from any work performed by the employee for the
employer.
(b) To the extent that a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
4.2 DISCLOSURE AND OWNERSHIP. You agree to promptly disclose all Included
Inventions to the Company. All Included Inventions shall be the sole and
exclusive property of the Company and you hereby assign to the Company all of
your right, title and interest in such Included Inventions.
4.3 FURTHER ASSURANCES. You will assist the Company in applying for
and obtaining patents, copyrights and/or other protection for the Included
Inventions (during the term of this Agreement and thereafter) provided that
you will be reasonably compensated if the Company requests your assistance
after termination of this agreement. You will sign such additional documents
as the Company may request in order to confirm the Company's rights to
Included Inventions. In the event the Company is unable to obtain your
signature on any document needed to apply for, obtain or enforce any
intellectual property rights relating to any Included Invention for any
reason whatsoever (including without limitation your refusal, unavailability
or incapacity), you hereby irrevocably appoint Christopher D. Jenkins or
J. R. DeLang, or either of them acting alone, with full power of substitution,
as your agent and attorney in fact to act for and on your behalf in
connection with the execution and filing of any such document with the same
legal force and effect as if such acts were performed by you.
<PAGE>
Richard O'Hare
As of September 1, 1994
Page 4
5. CONFIDENTIAL INFORMATION. You agree, during the term of your employment;
(i) to keep secret and confidential all information previously or subsequently
acquired by you concerning the business and affairs of the Company which is
designated as confidential at the time of disclosure or within a reasonable
period thereafter; and (ii) not to use such information in a manner adverse to
the Company's interests.
6. EQUITABLE RELIEF. You acknowledge and agree that because of the unique and
extraordinary nature of your services, any breach or threatened breach by you of
this agreement will cause irreparable injury and incalculable harm to the
Company and that the Company shall be entitled to any remedy at law or in
equity, including injunctive relief, provided that there is otherwise a basis
for such relief.
7. FINDER'S COMPENSATION. Subject to and within 10 business days after the
closing date of the Acquisition, the Company shall pay you the sum of $100,000
as a finder's fee, less applicable withholding taxes at the rate of 24.45%.
This fee is in lieu of any finder's compensation owed to you by Paskal Video.
You agree to defend, hold harmless and indemnify the Company, The Todd-AO
Corporation, Paskal Video and their respective officers, directors, employees
and agents from and against all liability, costs and expenses (including
attorney's fees) which they may incur by virtue of any claims for finder's
compensation from Bob Aten or others to the extent attributable to your
statements or actions.
8. MISCELLANEOUS. This agreement constitutes the entire understanding
relating to your employment and no waiver or modification shall be valid unless
in writing and signed by the party to be charged. You represent and warrant
that you have not entered into any agreements for commissions and finder's
compensation arising out of your employment by the Company.
If this sets forth our agreement, please sign and return a copy of this
letter.
Very truly yours,
Todd-AO Video Services
/s/ Salah M. Hassanein
Salah M. Hassanein
Chairman and CEO
<PAGE>
Richard O'Hare
As of September 1, 1994
Page 5
Accepted and Agreed:
/s/ Richard R. O'Hare
Richard R. O'Hare
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement
(No. 333-13891) of The Todd-AO Corporation on Form S-1 of our report dated
August 23, 1996 appearing in the prospectus which is part of this Registration
Statement and to the references to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of The Todd-AO
Corporation, listed in Item 16. The financial statement schedule is the
responsibility of the Corporation's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
By /s/ DELOITTE & TOUCHE LLP
-------------------------------------------
Deloitte & Touche LLP
Los Angeles, California
October 23, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 26, 1996,
relating to the financial statements of Editworks Acquisition LLC, which appears
in such Prospectus. We also consent to the references to us under the headings
"Experts."
By /s/ GIFFORD, HILLEGASS & INGWERSEN, P.C.
-------------------------------------------
Gifford, Hillegass & Ingwersen, P.C.
Atlanta, Georgia
October 23, 1996
