<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest event reported) May 8, 1998
--------------------------------
THE TODD-AO CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-1461 13-1679856
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
900 North Seward Street, Hollywood, California 90038
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213) 962-4000
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Not Applicable
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(Former name or former address, if changed from last report)
Exhibit index located on page 2
<PAGE>
THE TODD-AO CORPORATION
FORM 8-K
MAY 8, 1998
--------------------------------
TABLE OF CONTENTS
Item 2. ACQUISITION OR DISPOSITION OF ASSETS. Page 2
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
a. Financial Statements of business acquired:
Item 7 (a) has been omitted due to the
impracticality of filing the required
audited financial statements at the
time of filing this report on Form 8-K.
Item 7 (a) will be filed on Form 8 within
60 days after the required filing date of
this report.
b. Pro forma condensed financial information
Item 7 (b) has been omitted due to the
impracticality of filing the required pro
forma information at the time of filing
this report on Form 8-K. Item 7 (b) will
be filed on Form 8 within 60 days after
required filing date of this report.
c. Exhibit Index Page 3
1
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 8, 1998, an offer to acquire all the issued and to be issued
ordinary shares of Tele-Cine Cell Group plc ("Tele-Cine") by Todd-AO
Europe Holding Company Ltd. ("Todd Europe"), a wholly owned subsidiary
of Todd-AO Corporation ("Todd"), at 80 pence per share was accepted by
shareholders of 11,620,582 shares representing 93.375% of the
outstanding ordinary shares. The offer was declared unconditional as
of May 8, 1998 and settlement of these shares is due 14 days from that
date at the prevailing exchange rate on May 8, 1998. The offer was
extended and additional shareholders have tendered acceptances to
date.
Under the Recommended Offer shareholders who accept the Offer may
elect to receive cash or Loan Notes for all or part of their holdings
of Tele-Cine ordinary shares. The unsecured Loan Notes issued by Todd
Europe are guaranteed as to principal only by Bank of America.
Interest is payable annually in arrears at a fixed rate of 4.5%. The
Notes are redeemable at par value, at the option of the holders on
each interest payment date and unless previously redeemed or
purchased, the outstanding Loan Notes will be redeemed by Todd Europe
at par on April 30, 2002.
The transaction is to be accounted for as a purchase and the
acquisition price is equal to the sum of: (1) approximately L9,553,000
in cash and L1,353,000 in Loan Notes as described above (paid and
issued on settlement dates) for the shares (2) approximately
L3,000,000 debt assumed at acquisition.
The funds to be paid on the settlement dates will be provided by
Todd's institutional lender under its current credit facilities. On
May 8, 1998, the exchange rate for the pound sterling was US $1.63.
Tele-Cine and Todd Europe are both corporations organized under the
laws of the United Kingdom and headquartered in London. Tele-Cine
specializes in video post production and special effects providing
services to the film and television industries.
2
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
c. The following exhibits are filed with this Current Report on Form
8-K:
Exhibit No. Exhibit
1 Recommended Offer by Astaire & Partners Limited on
behalf of Todd-AO Europe Holding Company Limited (a
wholly owned subsidiary of The Todd-AO Corporation) for
the entire issued and to be issued ordinary share
capital of Tele-Cine Cell Group plc.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
THE TODD-AO CORPORATION
--------------------------
(Registrant)
/s/ Silas R. Cross
--------------------------
Silas R. Cross
Vice President/Treasurer
May 18, 1998
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Date
4
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN
ANY DOUBT ABOUT THE ACTION YOU SHOULD TAKE, YOU SHOULD SEEK YOUR OWN FINANCIAL
ADVICE FROM YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR OTHER
INDEPENDENT FINANCIAL ADVISER AUTHORISED UNDER THE FINANCIAL SERVICES ACT 1986.
If you have sold or otherwise transferred all your shares in Tele-Cine Cell,
please send this document and the accompanying Form of Acceptance and reply-paid
envelope to the purchaser or transferee, or the stockbroker, bank or other agent
through whom the sale or transfer was effected, for transmission to the
purchaser or transferee. However, the Offer referred to in this document and the
accompanying Form of Acceptance is not being made, directly or indirectly, in or
into the United States, Canada, Australia or Japan and none of such documents
should be mailed, distributed, forwarded or transmitted in or into the United
States, Canada, Australia or Japan.
Astaire, which is regulated by The Securities and Futures Authority Limited, is
acting for Todd Europe and no one else in connection with the Offer and will not
be responsible to anyone other than Todd Europe for providing the protections
afforded to customers of Astaire nor for providing advice in relation to the
Offer.
Beeson Gregory, which is regulated by The Securities and Futures Authority
Limited, is acting for Tele-Cine Cell and no one else in connection with the
Offer and will not be responsible to anyone other than Tele-Cine Cell for
providing the protections afforded to customers of Beeson Gregory nor for
providing advice in relation to the Offer.
The Loan Notes to be issued in connection with the Offer have not been, and will
not be, registered under the United States Securities Act of 1933 (as amended)
or under the securities law of any jurisdiction of the United States and the
relevant clearances in relation to those Loan Notes have not been, and will not
be, registered under the United States Securities Act of 1933 (as amended) or
under the securities law of any jurisdiction of the United States and the
relevant clearances in relation to those Loan Notes have not been, and will not
be, obtained from the Securities Commission of any province or territory of
Canada, and no prospectus in relation to those Loan Notes has been, or will be,
lodged with, or registered by, the Australian Securities Commission or the
Japanese Ministry of Finance and no steps have been taken, nor will be taken, to
enable those Loan Notes to be offered in compliance with applicable laws of any
of those jurisdictions.
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RECOMMENDED OFFER
BY
ASTAIRE & PARTNERS LIMITED
ON BEHALF OF
TODD-AO EUROPE HOLDING COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THE TODD-AO CORPORATION)
FOR
THE ENTIRE ISSUED AND TO BE ISSUED ORDINARY SHARE CAPITAL OF
TELE-CINE CELL GROUP PLC
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Your attention is drawn to the letter from Mr Julian Paul, Chairman of Tele-Cine
Cell, set out on pages 5 and 6 which contains a recommendation to you to accept
the Offer.
ACCEPTANCES SHOULD BE RECEIVED AS SOON AS POSSIBLE, BUT IN ANY EVENT NOT LATER
THAN 3.00 P.M. ON FRIDAY, 8 MAY 1998.
THE PROCEDURE FOR ACCEPTANCE IS SET OUT ON PAGES 12 TO 15 AND IN THE
ACCOMPANYING FORM OF ACCEPTANCE.
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page No
<S> <C>
Letter of recommendation from the Chairman of Tele-Cine Cell. 5
Letter from Astaire & Partners Limited. 7
1. Introduction. 7
2. The Offer. 7
3. Financial effects of acceptance. 8
4. The Loan Note Alternative. 8
5. Information on Todd Europe. 9
6. Information on Todd. 9
7. Information on Tele-Cine Cell. 9
8. Background to and reasons for the Offer. 9
9. Management and employees. 9
10. Taxation. 10
11. Procedure for acceptance. 12
12. Settlement. 15
13. Further information. 16
Appendices
I. Conditions and further terms of the Offer. 17
II. Financial and other information on Todd Europe. 28
III. Financial and other information on Todd. 34
IV. Financial and other information on Tele-Cine Cell. 53
V. Particulars of the Loan Notes. 67
VI. Additional information. 69
</TABLE>
2
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DEFINITIONS
The following definitions apply throughout this document and the Form of
Acceptance, unless the context otherwise requires:
ASTAIRE Astaire & Partners Limited
BANK OF AMERICA Bank of America NT&SA
BEESON GREGORY Beeson Gregory Limited
BUSINESS DAY any day upon which the London
Clearing banks are ordinarily open
for business
CERTIFICATED OR IN CERTIFICATED FORM a share or other security which is
not in uncertificated form
CODE the City Code on Takeovers and
Mergers
CREST the computerised registration and
electronic stock transfer system
operated by CRESTCo
CRESTCo CRESTCo Limited
CREST MEMBER a person who has been admitted by
CRESTCo as a system-member (as
defined in the Regulations)
CREST PARTICIPANT a person who is, in relation to
CREST, a system-participant (as
defined in the Regulations)
CREST SPONSOR a CREST participant admitted to CREST
as a CREST sponsor
CREST SPONSORED MEMBER a CREST member admitted to CREST as a
sponsored member
DISCLOSURE PERIOD the period commencing on 2 February
1997 (being the date twelve months
prior to the commencement of the
Offer period) and ended on 16 April
1998 (the latest practicable date
prior to the publication of this
document)
FORM OF ACCEPTANCE the form of acceptance, authority and
election relating to the Offer,
enclosed with this document
LOAN NOTES the 4.5 per cent. unsecured loan
notes of Todd Europe guaranteed as to
principal by Bank of America to be
issued pursuant to the Loan Note
Alternative
LOAN NOTE ALTERNATIVE the loan note alternative, contained
in this document, by which holders of
Tele-Cine Cell ordinary shares who
validly accept the Offer may elect to
receive Loan Notes instead of the
cash consideration to which they
would otherwise be entitled under the
Offer
LONDON STOCK EXCHANGE the London Stock Exchange Limited
MEMBER ACCOUNT ID the identification code or number
attached to any member account in
CREST
OFFER the recommended Offer by Astaire on
behalf of Todd Europe to acquire all
the Tele-Cine Cell ordinary shares on
the terms and conditions set out in
this document and in the Form of
Acceptance including, where the
context so requires, any subsequent
revision, variation, extension or
renewal of such Offer
1994 SCHEME the Tele-Cine Cell 1994 Executive
Share Option Scheme
1996 SCHEME the Tele-Cine Cell 1996 Share Option
Scheme
PANEL the Panel on Takeovers and Mergers
PARTICIPANT ID the identification code or membership
number used in CREST to identify a
particular CREST member or other
CREST participant
RECEIVING BANKERS Bank of Scotland New Issues
3
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REGULATIONS the Uncertificated Securities
Regulations 1995 (SI 1995 No.
95/3272)
TELE-CINE CELL OR COMPANY Tele-Cine Cell Group plc
TELE-CINE CELL OPTION SCHEMES the 1994 Scheme and the 1996 Scheme
TELE-CINE CELL ORDINARY SHARES the existing unconditionally allotted
or issued and fully paid ordinary
shares of 5p each in the capital of
Tele-Cine Cell and any further such
shares as are or may be
unconditionally allotted or issued
after the date of this document and
before the date on which the Offer
closes
TELE-CINE CELL PREFERENCE SHARES the existing unconditionally allotted
or issued and fully paid
5.75 per cent. cumulative preference
shares of L1 each in the capital of
Tele-Cine Cell
TELE-CINE CELL OPTIONS the options to subscribe for
Tele-Cine Cell ordinary shares
granted pursuant to the Tele-Cine
Cell Option Schemes
TODD The Todd-AO Corporation
TODD EUROPE Todd-AO Europe Holding Company
Limited
TFE INSTRUCTION a Transfer from Escrow instruction
(as defined by the CREST manual
issued by CRESTCo)
TTE INSTRUCTION a Transfer to Escrow instruction (as
defined by the CREST manual issued by
CRESTCo)
UNCERTIFICATED OR IN UNCERTIFICATED FORM recorded on the relevant register of
the share or security concerned as
being held in uncertificated form in
CREST, and title to which, by virtue
of the Regulations, may be
transferred by means of CREST
4
<PAGE>
[LETTERHEAD]
17 April 1998
TO: TELE-CINE CELL ORDINARY SHAREHOLDERS AND, FOR INFORMATION ONLY, TO
PARTICIPANTS IN THE TELE-CINE CELL OPTION SCHEMES
Dear Sir or Madam
RECOMMENDED CASH OFFER ON BEHALF OF TODD EUROPE
It was announced on 6 April 1998 that agreement had been reached between your
Board and the Board of Todd Europe, a subsidiary of Todd, on the terms of a
recommended cash offer to be made by Astaire on behalf of Todd Europe for the
whole of the issued and to be issued ordinary share capital of Tele-Cine Cell.
This letter sets out the background to the Offer and the reasons why your Board
is unanimously recommending all shareholders to accept the Offer. The Offer is
set out in the letter from Astaire on pages 7 to 16.
TERMS OF THE OFFER
The Offer is being made on the following basis:
FOR EACH TELE-CINE CELL ORDINARY SHARE 80 PENCE IN CASH
The Offer values the whole of the issued ordinary share capital of Tele-Cine
Cell at L9.956 million. The Offer price represents a premium of 16.79 per cent.
over the closing middle market quotation of 68.50p per Tele-Cine Cell ordinary
share on Friday, 3 April 1998, the dealing day prior to the announcement of the
Offer, and a premium of 41.59 per cent. over the closing middle market quotation
of 56.50p per Tele-Cine Cell ordinary share on Friday, 30 January 1998, the
dealing day prior to the Board of Tele-Cine Cell's announcing that it had
received an approach which may or may not lead to an offer for the Company.
LOAN NOTE ALTERNATIVE
Tele-Cine Cell ordinary shareholders who validly accept the Offer may elect to
receive Loan Notes in respect of all or part of their holdings of Tele-Cine Cell
ordinary shares. Further details of the Loan Notes are set out in the letter
from Astaire on pages 7 to 16 and in Appendix V.
THE DIRECTORS OF TELE-CINE CELL ARE MAKING NO RECOMMENDATION TO TELE-CINE CELL
ORDINARY SHAREHOLDERS AS TO WHETHER OR NOT TO ELECT TO RECEIVE LOAN NOTES.
TELE-CINE CELL ORDINARY SHAREHOLDERS WHO ARE IN ANY DOUBT AS TO WHETHER OR NOT
TO ELECT TO RECEIVE LOAN NOTES SHOULD CONSULT THEIR STOCKBROKER, BANK MANAGER,
SOLICITOR, ACCOUNTANT OR OTHER INDEPENDENT FINANCIAL ADVISER AUTHORISED UNDER
THE FINANCIAL SERVICES ACT 1986.
When deciding what form of consideration to receive Tele-Cine Cell ordinary
shareholders may like to consider the information on taxation set out on pages
10 to 12. Tele-Cine Cell ordinary shareholders who are in any doubt as to their
tax position should consult their professional advisers.
BACKGROUND TO AND REASONS FOR THE OFFER
The directors of Tele-Cine Cell have carefully assessed the prospects of the
business as an independent entity and believe it is in the best interests of the
business and its employees to be part of a larger group and, in particular, an
international group in view of the increasingly global nature of the facilities
business.
Significant progress has been made by the current management team in dealing
with the problems in the Cell Animation business and in particular, the merger
of that business with XTV is showing promise. However, investor confidence in
Tele-Cine Cell will take time to rebuild and the Offer represents a substantial
premium to the share price before the announcement that the Company had received
an approach which might lead to an offer.
5
<PAGE>
MANAGEMENT AND EMPLOYEES
Grant Duncan, Ray Kirsch, James Rowsell and I have indicated to the Board of
Tele-Cine Cell our intention to resign as directors of Tele-Cine Cell if the
Offer becomes or is declared wholly unconditional. If the Offer becomes or is
declared wholly unconditional, Ray Kirsch will enter into a five year
consultancy agreement with Todd, at an annual fee of US$50,000, to advise the
Todd group on global corporate strategy.
The existing rights of employees of Tele-Cine Cell, including pension rights,
will be fully safeguarded.
TELE-CINE CELL SHARE OPTION SCHEMES
In accordance with the requirements of the Code,Todd Europe will put appropriate
proposals to Tele-Cine Cell option holders in respect of their Tele-Cine Cell
Options.
UNDERTAKINGS FROM TELE-CINE CELL SHAREHOLDERS
Directors and their associates and certain other holders of Tele-Cine Cell
ordinary shares have undertaken to accept the Offer in respect of holdings
totalling 6,838,946 Tele-Cine Cell ordinary shares, representing 54.95 per cent.
of the issued ordinary share capital of Tele-Cine Cell. These holdings include
3,044,340 Tele-Cine Cell ordinary shares owned by Arcadian Associates Limited, a
company controlled by Ray Kirsch. Further details of these irrevocable
undertakings are set out in paragraph 2(d) of Appendix VI.
These irrevocable undertakings will remain binding in the event that a higher
offer is made.
Ray Kirsch has agreed, subject to the Offer becoming unconditional in all
respects, to sell to Todd Europe the 245,635 issued Tele-Cine Cell preference
shares at 80p per share together with all rights attaching to them.
ACTION TO BE TAKEN TO ACCEPT THE OFFER
To accept the Offer you should ensure that you return your Form of Acceptance in
the reply-paid envelope as soon as possible and in any event so as to be
received not later than 3.00 pm Friday, 8 May 1998. Your share certificate(s)
should be enclosed with your Form of Acceptance.
The procedure for acceptance is set out on pages 12 to 15, and in the Form of
Acceptance and in the notes attached thereto.
RECOMMENDATION
THE DIRECTORS, WHO HAVE BEEN SO ADVISED BY BEESON GREGORY, TELE-CINE CELL'S
FINANCIAL ADVISER, CONSIDER THAT THE TERMS OF THE OFFER ARE FAIR AND REASONABLE.
IN PROVIDING ADVICE TO THE BOARD OF TELE-CINE CELL, BEESON GREGORY HAS TAKEN
INTO ACCOUNT THE DIRECTORS' COMMERCIAL ASSESSMENT. ACCORDINGLY, THE DIRECTORS
UNANIMOUSLY RECOMMEND ALL TELE-CINE CELL ORDINARY SHAREHOLDERS TO ACCEPT THE
OFFER AS THEY AND THEIR ASSOCIATES HAVE IRREVOCABLY UNDERTAKEN TO DO IN RESPECT
OF HOLDINGS TOTALLING 5,245,196 TELE-CINE CELL ORDINARY SHARES, REPRESENTING
42.15 PER CENT. OF THE ISSUED ORDINARY SHARE CAPITAL OF TELE-CINE CELL.
Yours faithfully
JULIAN PAUL
Chairman
6
<PAGE>
LETTER FROM ASTAIRE & PARTNERS LIMITED
[LETTERHEAD]
17 April 1998
TO THE HOLDERS OF TELE-CINE CELL ORDINARY SHARES AND, FOR INFORMATION ONLY,
PARTICIPANTS IN THE TELE-CINE CELL OPTION SCHEMES.
Dear Sir or Madam
RECOMMENDED OFFER ON BEHALF OF TODD EUROPE
1. INTRODUCTION
The Boards of Todd and Tele-Cine Cell announced on 6 April 1998 that they had
agreed the terms of a recommended offer to be made by Astaire on behalf of Todd
Europe (a wholly-owned subsidiary of Todd) to acquire all the issued and to be
issued Tele-Cine Cell ordinary shares. This document contains the formal Offer
for your Tele-Cine Cell ordinary shares together with financial and other
information on Todd Europe, Todd and Tele-Cine Cell. The Form of Acceptance to
be used for the purpose of accepting the Offer accompanies this document.
Todd Europe has agreed to acquire all the issued Tele-Cine Cell preference
shares, subject to the Offer becoming unconditional in all respects, for cash at
80p each, together with all rights attaching to them.
Irrevocable undertakings to accept the Offer have been given to Todd Europe by
the directors of Tele-Cine Cell and their associates and by certain other
shareholders of Tele-Cine Cell, in respect of a total of 6,838 946 Tele-Cine
Cell ordinary shares, representing 54.95 per cent. of Tele-Cine Cell's issued
ordinary share capital.
Your attention is drawn to a letter from Mr Julian Paul, Chairman of Tele-Cine
Cell, on pages 5 and 6, in which he sets out the reasons why the directors of
Tele-Cine Cell, who have been so advised by Beeson Gregory, consider the terms
of the Offer to be fair and reasonable and why they unanimously recommend you to
accept the Offer.
2. THE OFFER
On behalf of Todd Europe, we hereby offer to acquire, on the terms and subject
to the conditions set out in this document and in the Form of Acceptance, all of
the Tele-Cine Cell ordinary shares on the following basis:
FOR EACH TELE-CINE CELL ORDINARY SHARE 80 PENCE IN CASH
The conditions and further terms of the Offer are set out in Appendix I and the
Form of Acceptance.
The Offer values each Tele-Cine Cell ordinary share at 80p and the entire issued
ordinary share capital of Tele-Cine Cell at L9.956 million.
The Offer price represents a premium of 16.79 per cent. over the closing middle
market quotation of 68.50p for a Tele-Cine Cell ordinary share as at Friday, 3
April 1998, the dealing day before the date of the announcement of this Offer,
and represents a premium of approximately 41.59 per cent. over the closing
middle market quotation of 56.50p for a Tele-Cine Cell ordinary share as at
Friday, 30 January 1998, the dealing day before the Board of Tele-Cine Cell
announced that it had received an approach that might lead to an offer for the
whole of the issued ordinary share capital of Tele-Cine Cell.
7
<PAGE>
The Tele-Cine Cell ordinary shares are to be acquired by Todd Europe fully paid
and free from all liens, charges, encumbrances and other interests and together
with all rights now or hereafter attaching thereto, including the right to
receive and retain all dividends and other distributions hereafter declared,
made or paid.
ACCEPTANCES SHOULD BE DELIVERED BY POST TO BANK OF SCOTLAND, NEW ISSUES, APEX
HOUSE, 9 HADDINGTON PLACE, EDINBURGH EH7 4AL OR BY HAND ONLY (DURING NORMAL
BUSINESS HOURS) TO BANK OF SCOTLAND, NEW ISSUES, 1ST FLOOR, BROAD STREET HOUSE,
55 OLD BROAD STREET, LONDON EC2P 2HL AS SOON AS POSSIBLE, BUT IN ANY EVENT NOT
LATER THAN 3.00 P.M. ON FRIDAY, 8 MAY 1998.
3. FINANCIAL EFFECTS OF ACCEPTANCE
The following table shows, for illustrative purposes only and on the bases and
assumptions set out in the notes below, the financial effects of acceptance of
the Offer on capital value and gross income for an accepting holder of 100
Tele-Cine Cell ordinary shares if the Offer becomes or is declared unconditional
in all respects.
<TABLE>
<CAPTION>
L L
Cash Loan Note
Notes Consideration Alternative
<S> <C> <C> <C>
CAPITAL VALUE
Consideration for 100 Tele-Cine Cell ordinary shares (i) 80.00 77.43
Market value of 100 Tele-Cine Cell ordinary shares (ii) 56.50 56.50
------- -------
INCREASE IN CAPITAL VALUE OF 23.50 20.93
This represents a percentage increase of 41.59% 37.04%
INCOME
Gross income from consideration under the Offer (iii), (iv) 4.63 3.60
Gross dividend income from 100 ordinary shares (v) Nil Nil
</TABLE>
Notes
(i) The value of the consideration in respect of the Loan Note Alternative
is calculated on the basis that the value of a Loan Note is 96.79p.
(ii) The market value shown in the table above for 100 Tele-Cine Cell
ordinary shares is based on the closing middle market quotation of
56.50p per Tele-Cine Cell ordinary share (as derived from the Daily
Official List of the London Stock Exchange) on Friday, 30 January
1998, the dealing day prior to the announcement that the Company had
received an approach that might lead to an offer.
(iii) The cash consideration received is assumed to be reinvested so as to
yield 5.79 per cent. per annum, being the FTSE Actuaries Government
Securities UK Index average gross redemption yield for [medium coupon
UK gilts with maturities of five to fifteen years] as published in The
Financial Times on Friday,3 April 1998, the dealing day prior to the
announcement of the Offer.
(iv) The rate of interest payable on the Loan Notes will be 4.50 per cent.
(v) No dividends have been paid or declared in respect of Tele-Cine Cell
ordinary shares for the 12 months ended 31 December 1997.
(vi) In assessing the financial effects of acceptance of the Offer, no
account has been taken of any liability to taxation.
4. THE LOAN NOTE ALTERNATIVE
As an alternative to the cash consideration of 80 pence per Tele-Cine Cell
ordinary share receivable under the Offer, Tele-Cine Cell ordinary shareholders
who accept the Offer are entitled to elect, in respect of all or part of their
holdings, to receive 80 pence in nominal value of Loan Notes for each Tele-Cine
Cell ordinary share.
The Loan Notes, which will be issued by Todd Europe, will be guaranteed as to
the principal amount only by Bank of America, will be unsecured and will be
issued credited as fully paid, in amounts and integral multiples of L1 nominal.
All fractional entitlements will be satisfied in cash.
The Loan Notes will bear a fixed rate of interest (from the date of issue to the
relevant holder) payable annually in arrears at a rate of 4.5 per cent. (less
any applicable tax).
Interest on the Loan Notes will be payable on 30 April annually (or, if not a
business day in any year on the preceding business day). The first instalment
will be payable on 30 April 1999.
The Loan Notes will be redeemable at par at the option of the holders on each
interest payment date, commencing 30 April 1999 or, in relation to Loan Notes
issued after 22 October 1998, 30 April 2000. Unless previously redeemed or
purchased, the outstanding Loan Notes will be redeemed by Todd Europe at par on
30 April 2002.
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The Loan Notes will be transferable but no application is to be made to any
stock exchange for the Loan Notes to be listed or dealt in, or for any other
trading facility. Particulars of the Loan Notes are set out in Appendix V.
Astaire have advised Todd Europe that based on available comparatives and market
conditions as at 3 April 1998, the dealing day prior to the announcement of the
Offer, in their opinion the Loan Notes, had they been in issue, would have been
valued at not less than 96.79p per L1 nominal of Loan Notes.
5. INFORMATION ON TODD EUROPE
Todd Europe is a wholly owned subsidiary of Todd and is the holding company for
the United Kingdom interests of Todd.
Further information on Todd Europe is set out in Appendix II.
6. INFORMATION ON TODD
Todd has been involved in motion picture and television post-production since
1952. The company and its employees have won 19 Academy Awards and 21 Emmy
Awards. With facilities located in Los Angeles, New York, Atlanta and London,
Todd offers post-production facilities for feature films, television and
commercials, and distribution services.
As shown in its audited accounts for the year ended 31 August 1997, the gross
revenues of Todd were US$78.97 million, net income was US$6.00 million, total
assets were US$103.45 million and total liabilities were US$46.07 million.
Results for the first quarter ended 30 November 1997 showed revenues rising to
US$25 million for the quarter, a 23 per cent. increase compared to the
equivalent quarter in the previous year. Earnings before interest, taxes,
depreciation and amortization grew by 22 per cent. to US$5.7 million. Net income
grew to US$1.77 million.
Todd plans to commence shortly the construction of two new digital video
compression suites to serve the Digital Versatile Disk market, and believes that
the shift to digital technology will generate new revenue streams from both film
and television companies.
Further information on Todd is set out in Appendix III.
7. INFORMATION ON TELE-CINE CELL
The Tele-Cine Cell Group is principally engaged in the provision of production,
post-production and special effects facilities to the film, television and video
industry. Tele-Cine Cell has two principal subsidiaries, Tele-Cine Limited and
XTV Cell Limited.
In the year ended 31 December 1997, Tele-Cine Cell reported an audited loss on
ordinary activities before taxation of L1.2 million on turnover of L13.8 million
and had net assets at that date of L7.1 million. These losses were struck after
expensing L454,000 of non-recurring redundancy and reorganisation costs incurred
in respect of the original Cell Animation business and L152,000 of provisions
against liabilities in respect of guarantees given in relation to obligations of
an associate company.
Further information on Tele-Cine Cell is set out in Appendix IV.
8. BACKGROUND TO AND REASONS FOR THE OFFER
The directors of Todd Europe believe that there are substantial benefits to be
derived from the acquisition of Tele-Cine Cell. In particular, they believe that
the business and technical facilities of Tele-Cine Cell are complementary to
those of Todd's existing operations and that the highly skilled and creative
management and employees of Tele-Cine Cell should assist Todd's aim of servicing
its international client base across a broader spectrum of technical facilities,
not only in London but also in continental Europe and in other geographic
regions.
9. MANAGEMENT AND EMPLOYEES
Todd Europe believes that the prospects for the management and employees of
Tele-Cine Cell will be improved by the acquisition. Todd's financial resources,
experience and contacts throughout the film, television, home entertainment and
media markets should, in Todd Europe's view, enable Tele-Cine Cell's
9
<PAGE>
business to be augmented and, by joining the Todd group, its opportunities to
expand should be further enhanced. The existing employment rights of all
employees of Tele-Cine Cell and its subsidiary companies will be fully
safeguarded.
Raymond Kirsch, a non-executive director of Tele-Cine Cell, will subject to the
Offer becoming or being declared wholly unconditional enter into a five year
consultancy agreement with Todd, at an annual fee of US$50,000, to advise the
Todd group on global corporate strategy.
10. UK TAXATION
The following paragraphs, which are intended as a general guide only, are based
on current legislation and Inland Revenue practice. They summarise certain
limited aspects of the UK taxation treatment of acceptance of the Offer and the
Loan Note Alternative, and they relate (except insofar as express reference is
made to the treatment of non-UK residents) only to the position of Tele-Cine
Cell ordinary shareholders who hold their Tele-Cine Cell shares as an
investment, otherwise than under a personal equity plan, and who are resident or
ordinarily resident in the UK for tax purposes. If you are in any doubt as to
your taxation position or if you are subject to taxation in any jurisdiction
other than the UK, you should consult an appropriate independent professional
adviser without delay.
(a) TAXATION OF CHARGEABLE GAINS
Liability to UK taxation of chargeable gains will depend on a Tele-Cine Cell
ordinary shareholder's individual circumstances and on the form of consideration
received.
A number of proposed changes to the charge to capital gains tax were announced
in the Chancellor's Budget speech on 17 March 1998 (the "1998 Budget"). The
impact of these proposals on Tele-Cine Cell ordinary shareholders, based on
information in the Press Release issued by the Inland Revenue on 17 March 1998,
is outlined below. The proposals are subject to amendment and clarification
during the passage of the Finance Bill through Parliament, and the changes, if
any, which are passed into law may differ from those which are currently
proposed.
In addition, it was announced that the Government will be giving further
consideration to the tax treatment of capital gains made by companies. No
details of any changes which may arise from this review are yet available. Any
such changes may lead to the tax position of Tele-Cine Cell ordinary
shareholders within the charge to corporation tax being different from that set
out below.
CASH
To the extent that a Tele-Cine Cell ordinary shareholder receives cash under the
Offer, this will constitute a disposal, or part disposal, of his Tele-Cine Cell
shares for the purposes of UK taxation of chargeable gains. Such a disposal, or
part disposal, may, depending on the shareholder's individual circumstances
(including availability of exemptions or allowable losses), give rise to a
liability to UK taxation of chargeable gains.
Under the proposed changes announced in the 1998 Budget, indexation allowance
will only be computed up to April 1998 in respect of a disposal after 5 April
1998 by a Tele-Cine Cell ordinary shareholder who is within the charge to
capital gains tax (individuals, trustees and personal representatives).
Indexation allowance will be replaced by a tapering relief which will reduce the
amount of the chargeable gain according to how long the asset has been held for
periods after 5 April 1998. Assets which are acquired before 17 March 1998 will
qualify for an addition of one year to the period for which they are treated as
held after 5 April 1998. For Tele-Cine Cell ordinary shareholders disposing of
their shares for cash under the Offer, the tapering relief will only be relevant
if the shares qualify as "business assets". Shares in a company will be
"business assets" if, broadly, the company is a trading company or the holding
company of a trading group, and the selling shareholder held shares which
carried not less than 25 per cent. of the voting rights, or the selling
shareholder is a full time working officer or employee of the company and held
shares carrying not less than 5 per cent. of the voting rights.
LOAN NOTES
(i) Roll-over and hold-over
To the extent that a Tele-Cine Cell ordinary shareholder (other than a
Tele-Cine Cell ordinary shareholder within the charge to corporation tax)
receives Loan Notes under the Offer, he should be treated as not having
made a disposal of Tele-Cine Cell ordinary shares for the purposes of UK
taxation of chargeable gains. Instead, any gain or loss which would
otherwise have arisen on a
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disposal of his Tele-Cine Cell ordinary shares should be
"rolled-over" into the Loan Notes so that the Loan Notes will be
treated as the same asset as his Tele-Cine Cell ordinary shares
acquired at the same time and for the same consideration as he
acquired his Tele-Cine Cell ordinary shares.
To the extent that a Tele-Cine Cell ordinary shareholder (within the
charge to UK corporation tax) receives Loan Notes under the Offer, it
should not be treated as having made a disposal of its Tele-Cine Cell
ordinary shares. Instead, any gain or loss which would otherwise have
arisen on a disposal of its Tele-Cine Cell ordinary shares will be
"held-over" and shall be deemed to accrue on a subsequent disposal
(including redemption) of the Loan Notes. The indexation allowance
will not apply after the Offer has become unconditional.
In certain circumstances, the above rules regarding the roll-over or
hold-over of any gain or loss will not apply to a Tele-Cine Cell
ordinary shareholder who, either alone or together with persons
connected with him, holds more than five per cent. of any class of
shares in Tele-Cine Cell. However such shareholders are advised that
clearance has been given by the Inland Revenue under Section 138 of
the Taxation of Chargeable Gains Act 1992 in respect of the Offer, and
therefore the benefit of the above rules regarding the roll-over of
any gain or loss should be given.
(ii) Disposal
A subsequent disposal of Loan Notes (including a redemption of Loan
Notes) may, depending on individual circumstances, give rise to a
liability to UK taxation of chargeable gains.
For a Tele-Cine Cell ordinary shareholder who is an individual, the
Loan Notes should not be qualifying corporate bonds. Accordingly any
chargeable gain or loss on disposal (including redemption) of the Loan
Notes should be calculated taking into account the original cost to
the holder of acquiring the relevant Tele-Cine Cell shares. In broad
terms the original cost of the relevant Tele-Cine Cell ordinary shares
will be apportioned as between the Loan Notes and/or cash received
according to their respective market values at the time of the
exchange of Tele-Cine Cell ordinary shares for cash and Loan Notes
under the Offer. As a result of the proposed changes announced in the
1998 Budget, indexation allowance will only be available on that cost
up to 5 April 1998. For periods subsequent to 5 April 1998, the
tapering relief may operate to reduce any chargeable gain, depending
on the length of ownership and certain other factors.
For a Tele-Cine Cell ordinary shareholder within the charge to UK
corporation tax, the Loan Notes will be qualifying corporate bonds
and, accordingly, indexation allowance will not be available in
respect of them (and see sub-paragraph (iii) next following).
(iii) Taxation of Company Loan Relationships
Tele-Cine Cell ordinary shareholders within the charge to UK
corporation tax in respect of the Loan Notes will generally be charged
to (or obtain relief from) UK corporation tax on profits, gains and
losses arising from their holding of Loan Notes. These profits, gains
or losses will be computed on either an accruals or mark-to-market
basis, broadly, in accordance with the Tele-Cine Cell ordinary
shareholders' accounting method authorised for this purpose.
(b) TAXATION OF INTEREST ON LOAN NOTES
(i) Withholding tax
Interest on the Loan Notes will be paid after deduction of UK income
tax (currently at the rate of 20 per cent.) unless Todd Europe has
been directed by the Inland Revenue, in respect of a particular
holding of Loan Notes, to make the payment free of deduction or
subject to a reduced rate of deduction (by virtue of relief under the
provisions of an applicable double taxation convention). Such
direction will only be made following an application in the
appropriate manner to the relevant tax authorities by the holder of
the relevant Loan Notes.
Todd Europe will not gross up payments of interest on the Loan Notes
in respect of any tax it is required to deduct at source.
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(ii) Individuals
Subject to the above, the gross amount of such interest will form part
of the recipient's income for the purposes of UK income tax, credit
being allowed for the tax withheld. Individuals who are taxable only
at the lower or basic rate will have no further tax to pay in respect of
the interest. In certain cases, holders of Loan Notes may be able to
recover an amount in respect of the credit from the Inland Revenue.
Under the "accrued income scheme" a charge to tax on income may arise
on a transfer of Loan Notes by a resident of the UK in respect of an
amount representing interest on the Loan Notes which has accrued at the
date of disposal.
(iii) Companies
Corporate Tele-Cine Cell ordinary shareholders within the charge to UK
corporation tax in respect of the Loan Notes will generally be charged
to UK corporation tax in respect of accrued interest on the Loan Notes
in accordance with the Tele-Cine Cell ordinary shareholders' accounting
method authorised for this purpose.
(c) OTHER DIRECT TAX MATTERS
Special provisions may apply to Tele-Cine Cell ordinary shareholders who have
acquired or acquire their Tele-Cine Cell ordinary shares by exercising options
under the Tele-Cine Cell Option Schemes including provisions imposing a charge
to income tax when such an option is exercised.
(d) STAMP DUTY AND STAMP DUTY RESERVE TAX ("SDRT")
ACCEPTANCE OF THE OFFER
No stamp duty or SDRT will be payable by Tele-Cine Cell ordinary shareholders by
reason of their acceptance of the Offer.
LOAN NOTES
Under current Inland Revenue practice, no stamp duty or SDRT will be payable on
transfer or sale of (or an agreement to transfer) Loan Notes.
THE UNITED KINGDOM TAX POSITION SET OUT ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A TELE-CINE CELL
ORDINARY SHAREHOLDER'S PARTICULAR SITUATION. TELE-CINE CELL ORDINARY
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF PARTICIPATION IN THE OFFER, INCLUDING THE TAX
CONSEQUENCES UNDER LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECT,
INCLUDING POSSIBLE RETROSPECTIVE EFFECT, OF CHANGES IN UNITED KINGDOM TAX LAW.
11. PROCEDURE FOR ACCEPTANCE
This section should be read together with the notes on the Form of Acceptance.
You should note that, if you hold Tele-Cine Cell ordinary shares in both
certificated and uncertificated form, you should complete a separate Form of
Acceptance for each holding. Similarly, you should complete a separate Form of
Acceptance for Tele-Cine Cell ordinary shares held in uncertificated form but
under different member account IDs, and for Tele-Cine Cell ordinary shares held
in certificated form but under different designations. If you need further Forms
of Acceptance you should contact Bank of Scotland, New Issues, Apex House, 9
Haddington Place, Edinburgh EH7 4AL, whose telephone number is 0131 243 5339.
(a) GENERAL
To accept the Offer in respect of some or all of your Tele-Cine Cell ordinary
shares, you must complete Boxes 1 and 4 and (if your Tele-Cine Cell ordinary
shares are in CREST) Box 5, and sign Box 3 of the enclosed Form(s) of Acceptance
in the presence of a witness, who should also sign in accordance with the
instructions printed therein.
To accept the Loan Note Alternative in respect of some or all of your Tele-Cine
Cell ordinary shares, you must complete Box 2 of the enclosed Form(s) of
Acceptance in addition to the Boxes detailed above. The Loan Note Alternative is
not available to Restricted Overseas Persons (as defined in paragraph 6 of Part
B of Appendix 1) or persons acting for the account or benefit of Restricted
Overseas Persons.
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The Form(s) of Acceptance, duly completed and signed, should then be returned,
whether or not your Tele-Cine Cell ordinary shares are in CREST. The completed
Form(s) of Acceptance together, if your Tele-Cine Cell ordinary shares are in
certificated form, with the relevant share certificate(s) and/or other
document(s) of title, should be returned by post or by hand in the enclosed
reply-paid envelope to Bank of Scotland, New Issues, Apex House, 9 Haddington
Place, Edinburgh EH7 4AL or by hand only (during normal business hours) to Bank
of Scotland, New Issues, First Floor, Broad Street House, 55 Old Broad Street,
London EC2P 2HL so as to be received as soon as possible and in any event not
later than 3.00 p.m. on Friday, 8 May 1998. NO ACKNOWLEDGEMENT OF RECEIPT OF
DOCUMENTS WILL BE GIVEN. THE INSTRUCTIONS PRINTED ON THE FORM OF ACCEPTANCE
SHALL BE DEEMED TO FORM PART OF THE TERMS OF THE OFFER.
(b) TELE-CINE CELL ORDINARY SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST)
If your Tele-Cine Cell ordinary shares are in uncertificated form, you should
insert in Box 5 of the Form of Acceptance the Participant ID and Member account
ID under which such shares are held by you in CREST and otherwise complete and
return the Form of Acceptance as described above. In addition, you should take
(or procure to be taken) the action set out below to transfer the Tele-Cine Cell
ordinary shares in respect of which you wish to accept the Offer to an escrow
balance, specifying the Bank of Scotland (in their capacity as a CREST
participant under its participant ID referred to below) as the escrow agent, as
soon as possible and in any event so that the transfer to escrow settles not
later than 3.00 p.m. on Friday, 8 May 1998.
IF YOU ARE A CREST SPONSORED MEMBER, YOU SHOULD REFER TO YOUR CREST SPONSOR
BEFORE TAKING ANY ACTION. Your CREST sponsor will be able to confirm details of
your Participant ID and the Member account ID under which your Tele-Cine Cell
ordinary shares are held. In addition, only your CREST sponsor will be able to
send the TTE instruction to CRESTCo in relation to your Tele-Cine Cell ordinary
shares.
You should send (or, if you are a CREST sponsored member, procure that your
CREST sponsor sends) a TTE instruction to CRESTCo which must be properly
authenticated in accordance with CRESTCo's specifications and which must
contain, in addition to the other information that is required for a TTE
instruction to settle in CREST, the following details:
- - Number of Tele-Cine Cell ordinary shares to be transferred into escrow
balance;
- - Your Member account ID. This must be the same Member account ID as the
Member account ID that is inserted in Box 5 of the Form of Acceptance;
- - Your Participant ID. This must be the same Participant ID as the
Participant ID that is inserted in Box 5 of the Form of Acceptance;
- - Participant ID of the escrow agent Bank of Scotland, in their capacity as a
CREST Receiving Agent. This is 1 RA 93;
- - Member account ID of the escrow agent. This is TAKEOVER;
- - Form of Acceptance Reference Number. This is the Reference Number that
appears pre-printed in Box 5 on page 3 of the Form of Acceptance. This
Reference Number should be inserted in the first eight characters of the
shared note field on the TTE instruction to enable Bank of Scotland to
match the transfer to escrow to your Form of Acceptance. You should keep a
separate record of this Reference Number for future reference;
- - Intended Settlement Date. This should be as soon as possible and in any
event not later than Friday, 8 May 1998.
After settlement of the TTE instruction, you will not be able to access the
Tele-Cine Cell ordinary shares concerned in CREST for any transaction or
charging purposes. If the Offer becomes or is declared unconditional in all
respects, the escrow agent will transfer the Tele-Cine Cell ordinary shares
concerned to itself in accordance with paragraph 7 (g) of Part B of Appendix I.
You are recommended to refer to the CREST Manual published by CRESTCo for
further information on the CREST procedures outlined above. For ease of
processing, you are requested, wherever possible, to ensure that a Form of
Acceptance relates to only one transfer to escrow.
If no Form of Acceptance Reference Number, or an incorrect Form of Acceptance
Reference Number, is included on the TTE instruction, Todd Europe may treat any
amount of Tele-Cine Cell ordinary shares transferred to an escrow balance in
favour of the escrow agent specified above from the Participant ID and
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Member account ID identified in the TTE instruction as relating to any Form(s)
of Acceptance which relate(s) to the same Member account ID and participant ID
up to the amount of Tele-Cine Cell ordinary shares inserted or deemed to be
inserted on the Form(s) of Acceptance concerned.
YOU SHOULD NOTE THAT CRESTCO DOES NOT MAKE AVAILABLE SPECIAL PROCEDURES, IN
CREST, FOR ANY PARTICULAR CORPORATE ACTION. NORMAL SYSTEM TIMINGS AND
LIMITATIONS WILL THEREFORE APPLY IN CONNECTION WITH A TTE INSTRUCTION AND ITS
SETTLEMENT. YOU SHOULD THEREFORE ENSURE THAT ALL NECESSARY ACTION IS TAKEN BY
YOU (OR BY YOUR CREST SPONSOR) TO ENABLE A TTE INSTRUCTION RELATING TO YOUR
TELE-CINE CELL ORDINARY SHARES TO SETTLE PRIOR TO 3.00 P.M. ON FRIDAY, 8 MAY
1998. IN THIS CONNECTION YOU ARE REFERRED IN PARTICULAR TO THOSE SECTIONS OF THE
CREST MANUAL CONCERNING PRACTICAL LIMITATIONS OF THE CREST SYSTEM AND TIMINGS.
Todd Europe will make an appropriate announcement if any of the details
contained in this paragraph (b) alter for any reason.
(c) SHARE CERTIFICATES NOT READILY AVAILABLE OR LOST
If your Tele-Cine Cell ordinary shares are in certificated form but your share
certificate(s) or other document(s) of title is/are not readily available or
is/are lost, the Form of Acceptance should nevertheless be completed, signed and
returned as indicated above together with the relevant share certificate(s)
and/or other relevant document(s) of title which you have, and a letter stating
that the balance will follow or that you have lost one or more of your share
certificate(s) and/or other documents of title (as to which latter alternative
see below). The missing documents should be forwarded as soon as possible
thereafter. No consideration will be issued until such documents, or an
acceptable indemnity in lieu thereof, is received.
In the event of loss, you should write as soon as possible to Harford
Registrars, Harford House, 101-103 Great Portland Street, London W1N 6LL
requesting a letter of indemnity for lost share certificate(s) and/or other
document(s) of title which, when completed in accordance with the instructions
given, should be returned to Bank of Scotland New Issues at the address set out
in paragraph 11(a) above.
(d) DEPOSITS OF TELE-CINE CELL ORDINARY SHARES INTO, AND WITHDRAWALS OF
TELE-CINE CELL ORDINARY SHARES FROM CREST
Normal CREST procedures (including timings) apply in relation to any Tele-Cine
Cell ordinary shares that are, or are to be, converted from uncertificated to
certificated form, or from certificated to uncertificated form, during the
course of the Offer, whether any such conversion arises as a result of a
transfer of Tele-Cine Cell ordinary shares or otherwise. Holders of Tele-Cine
Cell ordinary shares who are proposing so to convert any such shares are
recommended to ensure that the conversion procedures are implemented in
sufficient time to enable the person holding or acquiring the shares as a result
of the conversion to take all necessary steps in connection with an acceptance
of the Offer (in particular, as regards delivery of share certificate(s) or
other document(s) of title or transfers to an escrow balance as described above)
prior to 3.00 p.m. on Friday, 8 May 1998.
(e) VALIDITY OF ACCEPTANCES
Subject to the provisions of the Code and without prejudice to Part B of
Appendix I, Todd Europe reserves the right to treat as valid any acceptance of
the Offer which is not entirely in order or which is not accompanied by the
relevant transfer to escrow or (as applicable) the relevant share certificate(s)
and/or other document(s) of title. In that event, no payment of cash
consideration under the Offer or issue of Loan Notes will be made until after
the relevant transfer to escrow has settled or (as applicable) the relevant
share certificate(s) and/or other document(s) of title or indemnities
satisfactory to Todd Europe have been received.
(f) OVERSEAS SHAREHOLDERS
The availability of the Offer to certain persons not resident in the United
Kingdom may be affected by the laws of the relevant jurisdiction. It is the
responsibility of any holder of Tele-Cine Cell ordinary shares resident outside
the United Kingdom wishing to accept the Offer to inform himself about and
satisfy himself as to the full observance of the laws of the relevant territory
in connection therewith, including the obtaining of any governmental or other
consents which may be required or compliance with other necessary formalities.
The Offer is not being made, directly or indirectly in or into the United
States, Canada, Australia or Japan.
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The attention of holders of Tele-Cine Cell ordinary shares not resident in the
United Kingdom is drawn to paragraph 6 of Part B of Appendix I and to the
relevant provisions set out in the Form of Acceptance.
IF YOU ARE IN ANY DOUBT AS TO THE PROCEDURE FOR ACCEPTANCE, PLEASE CONTACT BANK
OF SCOTLAND NEW ISSUES BY TELEPHONE ON 0131 243 5339 OR AT THE FOLLOWING
ADDRESS: BANK OF SCOTLAND, NEW ISSUES, APEX HOUSE, 9 HADDINGTON PLACE, EDINBURGH
EH7 4AL.
YOU ARE REMINDED THAT, IF YOU ARE A CREST SPONSORED MEMBER, YOU SHOULD CONTACT
YOUR CREST SPONSOR BEFORE TAKING ANY ACTION.
12. SETTLEMENT
(a) THE OFFER
If the Offer becomes or is declared unconditional in all respects, settlement of
the consideration to which holders of Tele-Cine Cell ordinary shares are
entitled under the Offer will be effected (except as provided in the case of
overseas holders of Tele-Cine Cell ordinary shares referred to in paragraph 6 of
Part B of Appendix I):
(i) in the case of acceptances received, complete in all respects, by the
date when the Offer becomes unconditional in all respects, within 14
days of such date; or
(ii) in the case of acceptances received, complete in all respects, after
such date but whilst the Offer remains open for acceptance, within 14
days of such receipt.
(b) TELE-CINE CELL ORDINARY SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST)
Where an acceptance relates to Tele-Cine Cell ordinary shares in uncertificated
form, any cash consideration to which the accepting Tele-Cine Cell shareholder
is as such entitled will be paid by means of CREST by Todd Europe procuring the
creation of an assured payment obligation in favour of the accepting Tele-Cine
Cell ordinary shareholder's payment bank, in respect of the cash consideration
due, in accordance with the CREST assured payment arrangements. A definitive
certificate for the Loan Notes will (if the relevant Tele-Cine Cell ordinary
shareholder has elected for the Loan Note Alternative) be sent by first-class
post or by such other method as may be approved by the Panel.
Todd Europe reserves the right to settle all or part of the cash consideration
referred to in the previous paragraph in the manner referred to in paragraph (c)
below, if, for any reason, it wishes to do so.
(c) TELE-CINE CELL ORDINARY SHARES IN CERTIFICATED FORM
Where an acceptance relates to Tele-Cine Cell ordinary shares in certificated
form, any cash consideration due to the accepting shareholder as such will be
sent together (if the shareholder has elected for the Loan Note Alternative)
with a definitive certificate for the Loan Notes by first-class post (or such
other method as may be approved by the Panel. All such cash payments will be
made in pounds sterling by cheque drawn on a London branch of a UK clearing
bank.
(d) GENERAL
All documents and remittances sent by or to the holders of Tele-Cine Cell
ordinary shares or their agents will be sent at their risk. If the Offer does
not become or is not declared unconditional in all respects (i) the share
certificate(s) and/or other documents of title will be returned by post (or such
other method as may be approved by the Panel) within 14 days of the Offer
lapsing to the person or agent whose name and address are set out in Box 4 on
the relevant Form of Acceptance or, if none is set out, to the first-named
holder at his/her registered address and (ii) the Bank of Scotland will,
immediately after the lapsing of the Offer (or within such longer period as the
Panel may permit, not exceeding 14 days of the lapsing of the Offer), give TFE
instructions to CRESTCo to transfer all Tele-Cine Cell ordinary shares held in
escrow balances and in relation to which it is the escrow agent for the purposes
of the Offer to the original available balances of the Tele-Cine Cell ordinary
shareholders concerned.
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13. FURTHER INFORMATION
Your attention is drawn to the further information contained in the following
Appendices which form part of this document:
Appendix I Conditions and further terms of the Offer
Appendix II Financial and other information on Todd Europe
Appendix III Financial and other information on Todd
Appendix IV Financial and other information on Tele-Cine Cell
Appendix V Particulars of the Loan Notes
Appendix VI Additional information
Yours faithfully
Desmond Chapman
Director
ASTAIRE & PARTNERS LIMITED
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APPENDIX I
CONDITIONS AND FURTHER TERMS OF THE OFFER
References to "the Offer" in this Appendix I and in the Form of Acceptance
shall, where the context permits, include any revision or extension thereof.
References in this document and in the Form of Acceptance to the Offer becoming
unconditional shall be construed as references to the Offer becoming or being
declared unconditional in all respects.
PART A:
CONDITIONS OF THE OFFER
The Offer is conditional on:
1. valid acceptances being received (and not, where permitted, withdrawn) not
later than 3.00 p.m. on Friday, 8 May 1998 (or such other time(s) and/or
later date(s) as Todd Europe may, subject to the rules of the Code, decide)
in respect of not less than 90 per cent. in nominal value (or such lesser
percentage as Todd Europe may decide) of the Tele-Cine Cell ordinary shares
to which the Offer relates, provided that this condition will not be
satisfied unless Todd Europe shall have acquired or contracted to acquire
(either pursuant to the Offer or otherwise) Tele-Cine Cell ordinary shares
carrying more than 50 per cent. of the voting rights currently exercisable
at general meetings of Tele-Cine Cell, including for this purpose, to the
extent (if any) required by the Panel, any such voting rights attaching to
any Tele-Cine Cell ordinary shares that may be unconditionally allotted or
issued before the Offer becomes or is declared unconditional as to
acceptances whether pursuant to the exercise of any outstanding conversion
or subscription rights or otherwise; and for the purposes of this condition
the expression "Tele-Cine Cell ordinary shares to which the Offer
relates" shall be construed in accordance with Sections 428 to 430F of the
Companies Act 1985 and shares which have been unconditionally allotted
shall be deemed to carry the voting rights which they will carry upon
issue;
2. no government, government department or governmental, quasi-governmental,
supranational or trade agency or statutory or regulatory body nor any court
or any other person or body having jurisdiction having instituted or
threatened any action, legal proceedings, suit or investigation, enquiry or
reference or enacted, made or proposed any statute or regulation or order,
or required or accepted any undertaking, or taken any other measures or
steps that would or might (i) result in the implementation of the Offer
being restrained, prohibited or otherwise challenged or impose material
additional conditions or obligations with respect to the proposed
acquisition by Todd Europe of Tele-Cine Cell ordinary shares or (ii) make
the Offer or its implementation illegal or void, or directly or indirectly
prohibit, restrict, interfere in or materially delay its implementation or
impose additional adverse conditions or obligations with respect to, or
otherwise require amendment to the terms of, the Offer or (iii) require the
divestiture either by Todd or any subsidiary of Todd or Tele-Cine Cell or
any subsidiary of Tele-Cine Cell of all or any substantial proportion of
their business, assets or property or impose any material limitation on the
ability of any of them to conduct their respective businesses or integrate
any part of the business of Todd or any subsidiary of Todd with the
business of Tele-Cine Cell or any subsidiary of Tele-Cine Cell or own their
respective assets or properties or (iv) impose any material limitations on
the ability of Todd Europe to acquire, hold or exercise effectively any
rights of ownership in Tele-Cine Cell ordinary shares (whether pursuant to
the Offer or otherwise) or (v) otherwise materially and adversely affect
Todd or any subsidiary of Todd or Tele-Cine Cell or any subsidiary of
Tele-Cine Cell; and all applicable waiting periods during which any such
government, body, agency, professional association, person or body
corporate could institute or threaten any such action, proceedings, suit or
investigation having expired or been terminated;
3. there not being any provisions of any agreement or other instrument to
which Tele-Cine Cell or any subsidiary of Tele-Cine Cell is a party and by
or to which Tele-Cine Cell or any such subsidiary or any of its assets may
be bound or subject, which was not disclosed to Todd Europe prior to 6
April 1998 and which could result as a direct consequence of the proposed
acquisition by Todd Europe of all or any Tele-Cine Cell ordinary shares, to
an extent which is material in the context of Tele-Cine Cell and its
subsidiaries taken as a whole, in:
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(a) any material amount of monies borrowed by Tele-Cine Cell or any
subsidiary of Tele-Cine Cell becoming or being capable of being
declared repayable immediately or earlier than the repayment stated in
such agreement or instrument; or
(b) any such agreement or instrument being terminated or materially
adversely modified or any material action being taken or arising
thereunder; or
(c) the business or interests of Tele-Cine Cell or any subsidiary of
Tele-Cine Cell with any other person, firm or company (or any
arrangements relating to such business or interests) being materially
and adversely affected; or
(d) any material assets of Tele-Cine Cell or any subsidiary of Tele-Cine
Cell being disposed of or charged; or
(e) the interest of Tele-Cine Cell or any subsidiary of Tele-Cine Cell in
any firm or company (or any arrangements relating to such interest)
being terminated or materially affected;
4. since 31 December 1997, no adverse change having occurred in the financial
and/or trading position of Tele-Cine Cell or of any of its subsidiaries,
which is material in the context of Tele-Cine Cell and its subsidiaries
taken as a whole;
5. except, pursuant to existing commitments, or save as disclosed in this
document, since 31 December 1997, neither Tele-Cine Cell nor any subsidiary
of Tele-Cine Cell having:
(a) issued, authorised or proposed the issue of additional shares of any
class; or
(b) issued, authorised, proposed the issue of or granted securities
convertible into shares or rights, warrants or options to subscribe
for or acquire any shares or convertible securities; or
(c) issued or proposed the issue of any debentures, or mortgaged or
charged or created any security interest over any material asset; or
(d) incurred any indebtedness or contingent liability outside the ordinary
course of business which is material in the context of Tele-Cine Cell
and its subsidiaries taken as a whole; or
(e) entered into any contract or commitment (whether in respect of capital
expenditure or otherwise) which was not disclosed to Todd Europe prior
to 6 April 1998 and which is of a long term or unusual nature and/or
which involves or could involve an obligation of a nature or magnitude
which is material in the context of Tele-Cine Cell and its
subsidiaries taken as a whole; or
(f) authorised or proposed or announced its intentions to propose any
merger or acquisition or major disposal of assets or shares or change
in its capitalisation which is material in the context of Tele-Cine
Cell and its subsidiaries taken as a whole; or
(g) recommended, declared, paid or made (or proposed to do so) any
dividends or other distributions (other than dividends lawfully paid
by or to any wholly-owned subsidiary of Tele-Cine Cell); or
(h) entered into any material contract otherwise than in the normal course
of business or entered into any agreement which would be restrictive
to the business of Tele-Cine Cell or any of its subsidiaries to any
material extent; or
(i) except in the ordinary course of business, proposed, authorised or
made any material change in the composition of or the terms of any
contract with its senior management staff; or
(j) entered into an agreement with respect to any of the matters in this
paragraph 5;
6. since 31 December 1997 (a) no litigation or arbitration proceedings having
been instituted or threatened against Tele-Cine Cell or any subsidiary of
Tele-Cine Cell which are material in the context of Tele-Cine Cell and its
subsidiaries taken as a whole and which were not disclosed to Todd Europe
prior to such date; or (b) no receiver, administrative receiver or other
encumbrancer being appointed over any of the assets of Tele-Cine Cell or
any of its subsidiaries or any analogous proceedings or steps taking place
in any jurisdiction, and no order being made for the winding up of
Tele-Cine Cell or any of its subsidiaries; or (c) no petition being
presented for the administration of Tele-Cine Cell or any of its
subsidiaries or any analogous proceedings or steps taking place in any
jurisdiction.
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7. Todd not having discovered that the business or financial information
publicly disclosed by Tele-Cine Cell either contains a material
misrepresentation of fact or omits to state a fact necessary to make the
information contained therein not materially misleading.
Todd Europe reserves the right to waive all or any of conditions 2 to 7
inclusive in whole or in part and any determination by Todd Europe concerning
the fulfilment or otherwise of any condition shall be final and binding.
Conditions 2 to 7 inclusive must be fulfilled or waived no later than midnight
on Friday, 29 May 1998, or if later on the day falling 21 days after the date on
which condition 1 is fulfilled, or such later date(s) as the Panel may agree.
Todd Europe shall be under no obligation to waive or treat as fulfilled any of
conditions 2 to 7 inclusive by a date earlier than the latest date specified
above for the fulfilment thereof notwithstanding that the other condition of the
Offer may at such earlier date have been fulfilled or waived and that there are
at such earlier date no circumstances indicating that such condition may not be
capable of fulfilment.
If Todd Europe is required by the Panel to make an offer for Tele-Cine Cell
ordinary shares under the provisions of Rule 9 of the City Code, Todd Europe may
make such alterations to the conditions of the Offer, including condition 1, as
may be necessary to comply with the provisions of that Rule.
The Offer will lapse if the proposed acquisition of Tele-Cine Cell by Todd
Europe is referred to the Monopolies and Mergers Commission on or before 3.00
p.m. on Friday, 8 May 1998 or the date when the Offer becomes or is declared
unconditional as to acceptances, whichever is the later. If the Offer so lapses,
the Offer will cease to be capable of further acceptance, and accepting
Tele-Cine Cell shareholders will cease to be bound by forms of acceptance
submitted before the Offer lapses.
PART B:
FURTHER TERMS
1. ACCEPTANCE PERIOD
(a) The Offer will initially be open for acceptance until 3.00 p.m. on
Friday, 8 May 1998. Although no revision is envisaged, if the Offer is
revised, it will remain open for acceptance for a period of at least
14 days from the date of posting written notification of the revision
to holders of Tele-Cine Cell ordinary shares. Except with the consent
of the Panel, no revision of the Offer may be posted to holders of
Tele-Cine Cell ordinary shares after Tuesday, 2 June 1998.
(b) The Offer shall not be capable of becoming unconditional as to
acceptances after midnight on Tuesday, 16 June 1998 nor of being kept
open after that time unless it has previously become unconditional as
to acceptances, provided that Todd Europe reserves the right, with the
permission of the Panel, to extend the Offer to a later time and/or
date. For the purpose of determining whether condition 1 of Part A of
this Appendix I ("the acceptance condition") has been satisfied,
Todd Europe may only take into account acceptances received or
purchases of Tele-Cine Cell ordinary shares in respect of which all
relevant documents (as required by paragraphs 5(l) and (m) below) are
received by the Bank of Scotland before 1.00 p.m. on Tuesday, 16 June
1998 (or any other date beyond which Todd Europe has stated that the
Offer will not be extended) or any such later date as may be agreed
with the Panel. If the Offer, with the consent of the Panel in
circumstances other than specified in the Code, is extended beyond
midnight on Tuesday, 16 June 1998, acceptances received and purchases
made in respect of which the relevant documents are received after
1.00 p.m. on the relevant date may only be taken into account with the
agreement of the Panel.
(c) If the Offer becomes unconditional as to acceptances, it will remain
open for acceptance for not less than 14 days from the date on which
it would otherwise have expired. If the Offer has become unconditional
as to acceptances and it is stated that the Offer will remain open
until further notice, then not less than 14 days' notice will be given
prior to the closing of the Offer. If a competitive situation arises
after Todd Europe has given a "no extension statement" or a "no
increase statement" Todd Europe may, if it has specifically reserved
the right to do so, withdraw such statement provided that it gives
notice to this effect within four business days of the announcement of
the competing offer and notifies holders of Tele-Cine Cell ordinary
shares in writing thereof at the earliest opportunity.
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(d) For the purpose of determining whether the acceptance condition has
been satisfied, Todd Europe shall not be bound to take into account
any Tele-Cine Cell ordinary shares which have been unconditionally
allotted or issued during the offer period unless Tele-Cine Cell has
notified Todd Europe in writing of the relevant details of such
allotment or issue before the expiry of that period.
2. ANNOUNCEMENTS
(a) By 8.30 a.m. on the next business day ("the relevant day") following
the day on which the Offer is due to expire or becomes unconditional
as to acceptances or is revised or extended or such later time or date
as the Panel may agree, Todd Europe will make an appropriate
announcement and simultaneously inform the London Stock Exchange of
the position. Such announcement will also state the total number of
Tele-Cine Cell ordinary shares and rights over such shares (as nearly
as practicable) (i) for which valid acceptances of the Offer have been
received (ii) acquired or agreed to be acquired by or on behalf of
Todd Europe during the course of the offer period, (iii) held by or on
behalf of Todd Europe or any persons deemed to be acting in concert
with it prior to the offer period and (iv) for which valid acceptances
of the Offer have been received from any person deemed to be acting in
concert with Todd Europe, and will specify the percentage of the
Tele-Cine Cell ordinary shares represented by each of these figures.
Any decision to extend the date by which the acceptance condition has
to be fulfilled may be made at any time up to and will be announced
not later than 8.30 a.m. on the relevant day and the announcement will
state the next expiry date (unless the Offer is unconditional as to
acceptances). In computing the number of Tele-Cine Cell ordinary
shares represented by acceptances and purchases, there may be included
or excluded for announcement purposes, acceptances and purchases not
in all respects in order or subject to verification provided that such
acceptances or purchases could be counted towards fulfilling the
acceptance condition in accordance with paragraphs 5(l) and (m) of
this Part B.
(b) In this Part B, references to the making of an announcement or to the
giving of notice by Todd Europe include the release of an announcement
by public relations consultants to Todd Europe or by Astaire to the
press or the delivery by telephone, facsimile or telex or other
electronic transmission of an announcement to the London Stock
Exchange. An announcement made otherwise than to the London Stock
Exchange shall be notified simultaneously to the London Stock
Exchange.
3. RIGHTS OF WITHDRAWAL
(a) If Todd Europe, having announced the Offer to be unconditional as to
acceptances, fails to comply by 3.30 p.m. on the relevant day with any
of the other requirements specified in paragraph 2(a) above, an
accepting holder of Tele-Cine Cell ordinary shares may immediately
thereafter withdraw his acceptance by written notice (signed by the
accepting shareholder or his agent duly appointed in writing and
evidence of whose appointment is produced with the notice) given to
Bank of Scotland, New Issues either by post or by hand at Apex House,
9 Haddington Place, Edinburgh EH7 4AL, or by hand only (during normal
business hours) at Bank of Scotland, New Issues, First Floor, Broad
Street House, 55 Old Broad Street, London EC2P 2HL. Subject to
paragraph 1(b) above, this right of withdrawal may be terminated not
less than eight days after the relevant day by Todd Europe confirming,
if that be the case, that the Offer is unconditional as to acceptances
and complying with the other requirements specified in paragraph 2(a)
above. If any such confirmation is given, the first period of 14 days
referred to in paragraph 1(c) above will run from the date of such
confirmation and compliance.
(b) Save as otherwise agreed by the Panel, if by 3.00 p.m. on Tuesday, 16
June 1998, the Offer has not become unconditional as to acceptances an
accepting holder of Tele-Cine Cell ordinary shares may withdraw his
acceptance at any time thereafter by written notice received by Bank
of Scotland New Issues at either of the above addresses and in the
manner referred to in paragraph 3(a) above, before the earlier of (i)
the date on which the Offer becomes unconditional as to acceptances
and (ii) the final time for lodgement of acceptances which can be
taken into account in accordance with paragraph 1(b) above.
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(c) If a "no extension statement" or a "no increase statement" is
withdrawn in accordance with paragraph 1(c) above, any holder of
Tele-Cine Cell ordinary shares who has accepted the Offer after the
date of such statement may withdraw his acceptance thereafter in the
manner referred to in paragraph 3(a) above, not later than the eighth
day after the posting of notice in writing of the withdrawal of such
statement to the holders of Tele-Cine Cell ordinary shares.
(d) Except as provided by this paragraph 3, acceptances shall be
irrevocable. In this paragraph 3 "written notice" (including any
letter of appointment, direction or authority) means notice in writing
bearing the original signature(s) of the accepting holder(s) of
Tele-Cine Cell ordinary shares or his/their agent(s) duly appointed in
writing. Telex, facsimile or e:mail transmissions or copies will not
be sufficient to constitute written notice.
4. REVISED OFFERS
(a) Although no such revision is envisaged, if the Offer (in its original
or any previously revised form(s)) is revised (either in its terms and
conditions and/or in the value or nature of the consideration offered)
and such revision represents on the date on which such revision is
announced (on such basis as Astaire may consider appropriate) no
diminution in the value of the Offer as so revised compared with the
consideration or terms previously offered, the benefit of the revised
Offer will be made available to any holder of Tele-Cine Cell ordinary
shares who has accepted the Offer in its original or previously
revised form(s) (hereinafter called a "previous acceptor"). The
acceptance by or on behalf of a previous acceptor of the Offer in its
original or any previously revised form(s) shall in respect of the
number of Tele-Cine Cell ordinary shares comprised in such acceptance
constitute an authority to any director of Todd Europe or of Astaire
as his attorney and/or agent to accept any such revised Offer on
behalf of the previous acceptor and, if such revised Offer includes
alternative forms of consideration, to make elections and/or accept
alternative forms of consideration on his behalf as such attorney
and/or agent in his absolute discretion thinks fit and to execute on
behalf of and in the name of such previous acceptor all such further
documents (if any) as may be required to give effect to such
acceptances and/or elections. In making any such election, such
attorney and/or agent shall take into account elections made by the
previous acceptor in relation to such acceptance and such other facts
or matters as the attorney may reasonably consider to be relevant.
(b) The authority conferred by this paragraph 4 and any acceptance of a
revised Offer pursuant to such authority shall be irrevocable unless
and until the previous acceptor becomes entitled to withdraw his
acceptance(s) under paragraph 3 above and duly does so.
(c) The authority conferred by this paragraph 4 shall not be exercised by
any director of Todd Europe or of Astaire in the case of any previous
acceptor if, as result thereof, the previous acceptor would thereby
receive less cash or an entitlement to a smaller nominal amount of
Loan Notes than he would have received as a result of his acceptance
of the Offer in the form in which it was originally accepted by him or
on his behalf and the exercise of any such authority so conferred by a
previous acceptor shall be ineffective to the extent that such
previous acceptor shall lodge, within 14 days of the posting of the
document pursuant to which the consideration referred to in paragraph
4(a) above is made available to holders of Tele-Cine Cell ordinary
shares, a Form of Acceptance validly accepting the Offer in which he
validly elects to receive the consideration receivable by him in some
other manner.
(d) Todd Europe reserves the right to treat a valid acceptance of the
Offer (in its original or any previously revised form(s)), which is
received after the announcement or issue of the Offer in any revised
form as a valid acceptance of the revised Offer and such acceptance
shall constitute an authority in the terms of paragraph 4(a) above
MUTATIS MUTANDIS on behalf of the relevant holder of Tele-Cine Cell
ordinary shares.
5. GENERAL
(a) Save with the consent of the Panel, the Offer will lapse unless all
the conditions have been fulfilled or (if capable of waiver) waived on
or before midnight on Friday 29th May or by midnight on the date which
is 21 days after the date on which the Offer becomes unconditional as
to acceptances,
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whichever is the later, or such date as Astaire may, with the consent
of the Panel, elect. If the Offer lapses for any reason, it shall
cease to be capable of further acceptance, Todd Europe shall thereupon
cease to be bound by prior acceptances; and
(i) the share certificate(s) and/or other document(s) of title will
be returned by post, or such other method as may be approved by
the Panel) within 14 days of the Offer lapsing, at the risk of
the holder of Tele-Cine Cell ordinary shares concerned, to the
person or agent whose name and address is set out in the box
specified for the purpose on the Form of Acceptance, or, if no
address is set out, the first-named holder at his/her registered
address; and
(ii) Bank of Scotland New Issues will, immediately after the lapsing
of the Offer (or within such longer period as the Panel may
permit, not exceeding 14 days of the lapsing of the Offer), give
instructions to CRESTCo to transfer all Tele-Cine Cell ordinary
shares held in escrow balances and in relation to which it is the
escrow agent for the purposes of the Offer to the original
available balances of the Tele-Cine Cell shareholders concerned.
(b) If the Offer is referred to the Monopolies and Mergers Commission
before Friday, 8 May 1998 or the date when the Offer becomes
unconditional as to acceptances (whichever is the later) the Offer
will lapse as required by the Code with the consequence that the Offer
will cease to be capable of further acceptance and Todd Europe shall
thereupon cease to be bound by prior acceptances.
(c) All communications, notices, certificates, documents of title and
remittances to be delivered by or sent to or from holders of Tele-Cine
Cell ordinary shares will be delivered by or sent to or from them (or
their designated agents) at their risk.
(d) The expression "Offer period" when used in this document means, in
relation to the Offer, the period commencing on Monday, 2 February
1998 until whichever of the following dates shall be the latest: (i)
Friday, 8 May 1998 (ii) the date on which the Offer lapses and (iii)
the date on which the Offer becomes unconditional as to acceptances.
(e) Acceptance of the Offer will be deemed to constitute a warranty by the
accepting holder of Tele-Cine Cell ordinary shares that the Tele-Cine
Cell ordinary shares in respect of which the Offer is accepted are
sold by him free from all liens, charges and encumbrances and together
with all rights attaching thereto.
(f) Except with the consent of the Panel, settlement of the consideration
to which any holder of Tele-Cine Cell shares is entitled under the
Offer will be implemented in full, subject to and in accordance with
the terms of the Offer, without regard to any lien, right of set-off,
counter-claim or other analogous right to which Todd Europe may
otherwise be, or claim to be, entitled as against any such
shareholder.
(g) The instructions and authorities contained in the Form of Acceptance
constitute part of the terms of the Offer. Words and expressions
defined in this document have the same meaning when used in the Form
of Acceptance.
(h) The Offer and all acceptances thereof or elections thereunder will be
construed in accordance with and governed by English law.
(i) All references in this document and in the Form of Acceptance to
Friday, 8 May 1998 shall (except where the context otherwise
requires), if the expiry date of the Offer is extended, be deemed to
refer to the expiry date of the Offer as so extended.
(j) Accidental omission to despatch this document to, or any failure to
receive the same by any person to whom the Offer is made, or should be
made, shall not invalidate the Offer in any way. Copies of this
document are available from Astaire at 40 Queen Street, London EC4R
1DD.
(k) Subject to and with effect from the Offer becoming wholly
unconditional, due execution of a Form of Acceptance will constitute
(i) an irrevocable authority and direction to Tele-Cine Cell from the
relevant holder of Tele-Cine Cell shares to send any notice, circular,
warrant or other document or communication which he may be entitled to
receive as a member of Tele-Cine Cell to him at the registered office
of Todd Europe and (ii) an irrevocable appointment by the relevant
holder of Tele-Cine Cell shares of any director of Astaire or of Todd
Europe or any person nominated by any such director as his attorney
and on his behalf to sign any requisitions by any member(s) of
Tele-Cine Cell for the convening of any general meeting of Tele-Cine
Cell on behalf of him and/or to execute a form of proxy in respect of
any of his Tele-Cine Cell ordinary shares
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appointing any person determined by such attorney to attend any
general meeting of Tele-Cine Cell or its members or any of them and to
exercise the votes attaching to such Tele-Cine Cell ordinary shares on
his behalf in each case in such manner as such attorney may think fit
(subject only as hereinafter provided). This appointment will cease to
be valid if the acceptance is withdrawn and applies only to Tele-Cine
Cell ordinary shares in respect of which the Offer has been accepted.
(l) Notwithstanding the right reserved by Todd Europe to treat Forms of
Acceptance as valid even though not entirely in order or not
accompanied by the relevant share certificate(s) and/or other
document(s) of title, an acceptance of the Offer will only be counted
towards fulfilling the condition as to acceptances in paragraph 1 of
Part A of this Appendix I if the requirements of Note 4 and, if
applicable, Note 6 to Rule 10 of the Code are satisfied in respect of
it.
(m) A purchase of Tele-Cine Cell ordinary shares by Todd Europe or its
nominees shall be counted towards fulfilling the condition as to
acceptances set out in paragraph 1 of Part A of this Appendix I only
if the requirements of Note 5 and, if applicable, Note 6 to Rule 10 of
the Code are satisfied in respect of it.
(n) The Offer shall not become or be declared unconditional as to
acceptances unless Bank of Scotland New Issues shall have issued a
certificate to Todd Europe or Astaire stating the number of
acceptances which have been received which comply with paragraph 5(m)
of Part B of this Appendix I and the number of Tele-Cine Cell ordinary
shares otherwise acquired, whether before or during the offer period,
which comply with paragraph 5(m) of Part B of this Appendix I. A copy
of the certificate will be sent to the Board of Tele-Cine Cell and to
the Panel by Todd Europe or Astaire as soon as possible after it is
issued.
6. OVERSEAS SHAREHOLDERS
(a) The making of the Offer including the provisions of the Loan Note
Alternative to certain persons not resident in the United Kingdom or
who are citizens, residents or nationals of other countries "overseas
shareholders" may be affected by the laws of the relevant
jurisdictions. Holders of Tele-Cine Cell ordinary shares not resident
in the United Kingdom should inform themselves about and observe any
applicable legal requirements. It will be the responsibility of any
overseas shareholders wishing to accept the Offer to satisfy himself
as to the full observance of the laws of the relevant territory in
connection therewith, including the obtaining of any governmental or
other consents which may be required or the compliance with any other
necessary formalities, and the payment of any issue, transfer or other
taxes or duties due in such jurisdictions. Any overseas shareholder
will be responsible for payment of any issue, transfer or other taxes
or other requisite payments by whomsoever payable and Todd, Todd
Europe, Astaire and any person acting on their behalf shall be fully
indemnified and held harmless by such shareholder for any such issue,
transfer or other taxes or other requisite payments as Todd, Todd
Europe, Astaire and any person acting on their behalf may be required
to pay.
(b) In particular, the Loan Notes which are to be or may be issued to
Tele-Cine Cell ordinary shareholders accepting the Offer will not be
registered under the United States Securities Act of 1933, as amended,
and it is not at present intended to obtain any exemption from the
Securities Commission of any province of Canada. Todd Europe will not,
except at its discretion, authorise the delivery of any document(s) of
title in respect of any Loan Notes in the United States or Canada or
to any person who is, or who Todd Europe believes to be, a North
American person or a person in or resident of the Commonwealth of
Australia, or any of its states, territories or possessions, or Japan
collectively, ("Restricted Overseas Persons") or who, by completing
Box 7 of the Form of Acceptance does not give the warranty set out in
paragraph 7(d) to the effect that he is not a Restricted Overseas
Person and does not hold any Tele-Cine Cell ordinary shares on behalf
of a Restricted Overseas Person and will not hold or acquire any of
the Loan Notes for the account or benefit of a Restricted Overseas
Person or with a view to the offer, sale or delivery, directly or
indirectly, of any loan notes in the United States or Canada or to a
Restricted Overseas Person.
Accordingly, except as authorised by Todd Europe, any election for the
Loan Note Alternative by a Restricted Overseas Person will be invalid
and will be deemed to be an acceptance to receive the consideration
wholly in cash.
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(c) As used in this document and in the Form of Acceptance, the "United
States" means the United States of America (including the States and
the District of Columbia), its territories, its possessions and other
areas subject to its jurisdiction, "US person" means (i) any
individual who is a resident or citizen of the United States or an
estate or trust the income of which is subject to United States
federal income taxation regardless of the source and "North American
person" means a US person and any individual, corporation,
partnership, trust or other entity resident in Canada or receiving the
Offer in Canada, provided however that the terms "North American
person" and "US person" shall not include a branch or agency of a
United States bank or insurance company that is operating outside the
United States for valid business reasons as a locally registered
branch or agency engaged in the banking or insurance business and not
solely for the purposes of investing in securities not registered
under the United States Securities Act 1933.
(d) The provisions of this paragraph 6 shall have precedence over any
terms of the Offer which are inconsistent therewith.
7. FORM OF ACCEPTANCE
Subject to the rights of withdrawal set out in paragraph 3 above, each holder of
Tele-Cine Cell ordinary shares by whom, or on whose behalf, a Form of Acceptance
is executed irrevocably undertakes, represents, warrants and agrees to and with
Todd Europe, Astaire and the Bank of Scotland (so as to bind him, his personal
representatives, heirs, successors and assigns) to the following effect:
(a) that the execution of a Form of Acceptance constitutes:
(i) an acceptance of the Offer in respect of the number of Tele-Cine
Cell ordinary shares inserted or deemed to be inserted in Box 1
on the Form of Acceptance in each case and subject to the terms
and conditions set out in this document and the relevant Form of
Acceptance and that, subject to the rights of withdrawal set out
in paragraph 3 above, each such acceptance shall be irrevocable;
(ii) if so indicated by the completion of Box 2 of the Form of
Acceptance, an election to accept the Loan Note Alternative in
respect of the number of Tele-Cine Cell ordinary shares inserted
or deemed to be inserted in Box 2 of the Form of Acceptance in
each case and subject to the terms and conditions set out in this
document and the relevant Form of Acceptance;
(b) that the execution of a Form of Acceptance constitutes a request and
authority to any director of Astaire or of Todd Europe or any person
nominated by any such director to execute any further documents and
give any further assurances which may be required or are expedient for
the purpose of giving effect to the acceptance and any election for
any form of consideration and an undertaking by such person to execute
any such documents and/or give any such further assurances as may be
so required;
(c) that the execution of a Form of Acceptance constitutes, if the Offer
lapses, authority to Todd Europe and/or Astaire and/or any director of
either of them to return the relevant share certificate(s) and/or
other document(s) of title (if any) to the person whose name and
address are set out in Box 4 on the Form of Acceptance or, if none is
set out, to the first-named holder at his registered address as set
out in Box 4 on the Form of Acceptance;
(d) unless "YES" is put in Box 6 of the Form of Acceptance, a warranty
that such Tele-Cine Cell ordinary shareholder is not a Restricted
Overseas Person (other than a bank branch of a US bank located outside
the United States) and does not hold any Tele-Cine Cell ordinary
shares on behalf of Restricted Overseas Persons and will not acquire
any of the Loan Notes for the account or benefit of Restricted
Overseas Persons or with a view to the offer, sale or delivery,
directly or indirectly, of any Loan Notes in the United States,
Canada, Australia or Japan to Restricted Overseas Persons;
(e) that the execution of a Form of Acceptance constitutes the irrevocable
appointment of any director of Todd Europe or of Astaire and/or their
respective agents as his/her attorney, pursuant to paragraph 4 above;
(f) that the execution of a Form of Acceptance constitutes, subject to the
Offer becoming unconditional in all respects in accordance with its
terms and to an accepting Tele-Cine Cell ordinary shareholder not
having validily withdrawn his acceptance, the irrevocable
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<PAGE>
appointment of Todd Europe and/or Astaire as such shareholder's
attorney and/or agent and an irrevocable instruction to the attorney
and/or agent to complete and execute at any time(s) all or any form(s)
of transfer and/or document(s) at the discretion of the attorney
and/or agent in relation to the Tele-Cine Cell ordinary shares
referred to in paragraph (a) above in favour of Todd Europe or as it
may direct; and to deliver such form(s) of transfer and/or other
document(s) together with any certificate(s) and/or other document(s)
referred to in sub-paragraph h(i) below to Todd Europe or for
registration within six months of the Offer becoming unconditional in
all respects and to do all such other acts and things as may in the
opinion of such attorney be necessary or expedient for the purpose of,
or in connection with, the acceptance of the Offer and to vest in Todd
Europe or its nominee the relevant Tele-Cine Cell ordinary shares;
(g) that the execution of a Form of Acceptance constitutes the irrevocable
appointment of Bank of Scotland New Issues as such shareholder's
attorney and/or agent and an irrevocable instruction and authority to
the attorney and/or agent (i) subject to the Offer becoming
unconditional in all respects in accordance with its terms and to an
accepting Tele-Cine Cell shareholder not having validly withdrawn his
acceptance, to transfer to itself (or to such other person or persons
as Todd Europe or its agents may direct) by means of CREST all or any
of the relevant Tele-Cine Cell shares (but not exceeding the number of
Tele-Cine Cell ordinary shares in respect of which the Offer is
accepted or deemed to be accepted) and (ii) if the Offer does not
become unconditional in all respects, to give instructions to CRESTCo,
immediately after the lapsing of the Offer, to transfer to accepting
Tele-Cine Cell shareholders all "Relevant Tele-Cine Cell shares",
which expression means Tele-Cine Cell shares in uncertificated form
and in respect of which a transfer or transfers to escrow has or have
been effected pursuant to the procedures described in paragraph 10(b)
of the letter from Astaire contained in this document and where the
transfer(s) to escrow was or were made in respect in respect of
Tele-Cine Cell ordinary shares held under the same member account ID
and participant ID as the member account ID and participant ID
relating to the Form of Acceptance concerned (but irrespective of
whether or not any Form of Acceptance Reference Number corresponding
to that appearing on the Form of Acceptance concerned was included in
the TTE instruction concerned);
(h) that the execution of a Form of Acceptance constitutes, subject to the
Offer becoming unconditional in all respects and to an accepting
Tele-Cine Cell ordinary shareholder not having validly withdrawn his
acceptance, irrevocable authorities and requests:
(i) to Tele-Cine Cell's Registrars to procure the registration of the
transfer of the Tele-Cine Cell ordinary shares in certificated
form pursuant to the Offer and the delivery of the share
certificate(s) and/or other document(s) of title in respect
thereof to Todd Europe or as it may direct.
(ii) if the Tele-Cine Cell ordinary shares concerned are in
certificated form, to Todd Europe or its agents to procure the
dispatch by post (or by such other method as may be approved by
the Panel) of a cheque drawn on a branch of a UK clearing bank
for any cash consideration to which a holder of Tele-Cine Cell
ordinary shares may be entitled at the risk of such holder, to
the person whose name and address are set out in Box 7 on the
Form of Acceptance, or if none is set out, to the first named
holder at his registered address as set out in Box 4 in the Form
of Acceptance;
(iii) if the Tele-Cine Cell ordinary shares concerned are in
uncertificated form, to Todd Europe or its agents to procure the
creation of an assured payment obligation in favour of the
Tele-Cine Cell ordinary shareholder's payment bank in accordance
with the CREST assured payment arrangements in respect of any
cash consideration to which such shareholder is entitled,
provided that Todd Europe may (if, for any reason, it wishes to
do so) determine that all or any part of any such cash
consideration shall be paid by cheque dispatched by post, when
sub-paragraph (ii) of this paragraph (h) shall apply;
(iv) to Todd Europe to allot and issue the Loan Notes and to send the
certificates therefore to accepting Tele-Cine Cell ordinary
shareholders by post (or such other method as may be approved by
the Panel);
(i) that upon the Offer becoming or being declared unconditional in all
respects and pending registration:
25
<PAGE>
(i) Todd Europe shall be entitled to direct the exercise of any votes
and any of the rights and privileges (including the right to
requisition the convening of a general meeting of Tele-Cine Cell)
attaching to any Tele-Cine Cell ordinary shares in respect of
which the Offer has been accepted and not validly withdrawn; and
(ii) the execution of a Form of Acceptance by a Tele-Cine Cell
ordinary shareholder in respect of the Tele-Cine Cell ordinary
shares comprised in such acceptance and in respect of which such
acceptance has not been validly withdrawn;
(1) constitutes an authority to Tele-Cine Cell from such
Tele-Cine Cell shareholder to send any notice, warrant,
document or other communication which may be required to be
sent to him as a member of Tele-Cine Cell (including any
share certificate(s)) or other document(s) of title issued
as a result of a conversion of such Tele-Cine Cell shares
into certificated form to Todd Europe at its registered
office;
(2) constitutes an authority to Todd Europe or any director of
Todd Europe to sign any consent to short notice on his
behalf and/or attend and/or execute a form of proxy in
respect of such Tele-Cine Cell ordinary shares appointing
any person nominated by Todd Europe to attend general
meetings and separate class meetings of Tele-Cine Cell or
its members (or any of them and any adjournments thereof)
and to exercise the votes attaching to such ordinary shares
on his behalf, where relevant; and
(3) will also constitute the agreement of such Tele-Cine Cell
shareholder not to exercise any of such rights without the
consent of Todd Europe and the irrevocable undertaking of
such Tele-Cine Cell shareholder not to appoint a proxy to
attend any such general meeting or separate class meeting;
(j) that he will deliver to Bank of Scotland New Issues at either of the
above addresses, on behalf of Todd Europe, his share certificate(s)
and/or other document(s) of title in respect of the Tele-Cine Cell
ordinary shares in respect of which the Offer has been accepted and
not validly withdrawn in certificated form held by him, or an
acceptable indemnity in lieu thereof, as soon as possible and in any
event within six months of the Offer becoming unconditional in all
respects;
(k) that he will take (or procure to be taken) the action set out in
paragraph 10(b) of the letter from Astaire contained in this document
to transfer all Tele-Cine Cell ordinary shares in respect of which the
Offer has been accepted and not validly withdrawn held by him in
uncertificated form to escrow balance as soon as possible and in any
event so that the transfer to escrow settles within six months of the
Offer becoming unconditional in all respects;
(l) that if, for any reason, any Tele-Cine Cell ordinary shares in respect
of which a transfer to an escrow balance has been effected in
accordance with paragraph 10(b) of the letter from Astaire contained
in this document are converted to certificated form, he will (without
prejudice to sub-paragraph (b) above) immediately deliver or procure
the immediate delivery of the share certificate(s) or other
document(s) of the title in respect of all such Tele-Cine Cell
ordinary shares as so converted to Bank of Scotland New Issues at
either of the above addresses, or to Todd Europe at its registered
office or its agents may direct;
(m) that the creation of an assured payment obligation in favour of his
payment bank in accordance with the CREST assured payments
arrangements as referred to in sub-paragraph h(iii) above shall, to
the extent of the obligation so created, discharge in full any
obligation of Todd Europe and/or Astaire to pay to him the cash
consideration to which he is entitled pursuant to the Offer;
(n) that the terms and conditions of the Offer contained in this document
shall be deemed to be incorporated in, and form part of, the Form of
Acceptance which shall be read and construed accordingly;
(o) that the power(s) of attorney and authorities conferred by or referred
to in this Appendix I are given by way of security for the performance
of the obligations of such holder of Tele-Cine Cell ordinary shares
and are irrevocable (except in the circumstances where the donor of
such power of attorney or authority is entitled to withdraw his
acceptance in accordance with paragraph 3 above) for a period of one
year from the date of execution of the Form of Acceptance;
26
<PAGE>
(p) that he agrees to ratify each and every act or thing which may be done
or effected by Todd Europe or Astaire or Bank of Scotland New Issues
or any director of Todd Europe or any director of Astaire or any
director of the Bank of Scotland or their respective agents or
Tele-Cine Cell or its agents, as the case may be, in the exercise of
any of his or its powers and/or authorities hereunder;
(q) that, if he accepts the Offer, he will at the cost of Todd Europe do
all such acts and things as shall be necessary or expedient to vest in
Todd Europe or its nominee(s) or such other persons as it may decide
the Tele-Cine Cell ordinary shares comprised in his acceptance of the
Offer and all such acts and things as may be necessary or expedient to
enable Bank of Scotland New Issues to perform its functions as escrow
agent for the purposes of the Offer;
(r) that if any provision of this part B of this Appendix I shall in any
way be unenforceable, invalid or shall not operate so as to afford
Todd Europe or Astaire or Bank of Scotland New Issues or any director
of any of them the benefit of the authorities expressed to be given
therein, he shall with all practicable speed at the cost of Todd
Europe do all such acts and things and execute all such documents that
may be required to enable Todd Europe and/or Astaire and/or Bank of
Scotland New Issues and/or any director of any them to secure the full
benefits of this part B;
(s) that the Form of Acceptance shall be governed by and construed in
accordance with the laws of England and that the execution of the Form
of Acceptance constitutes his submission, in relation to all matters
arising out of the Offer and the Form of Acceptance, to the
jurisdiction of the courts of England; and
(t) that on its execution the Form of Acceptance shall take effect as a
deed.
References in this paragraph 7 to holder(s) of Tele-Cine Cell ordinary shares
shall include references to the person or persons executing a Form of Acceptance
and, in the event of more than one person executing a Form of Acceptance, the
provisions of this paragraph 7 shall apply to them jointly and to each of them.
27
<PAGE>
APPENDIX II
FINANCIAL AND OTHER INFORMATION ON TODD-AO EUROPE HOLDING COMPANY LIMITED
The following information does not constitute statutory accounts and has been
extracted without material adjustment from the audited financial statements of
Todd-AO Europe Holding Company Limited for the years ended 31 August 1995, 1996
and 1997 and on which accounts the audit opinions were unqualified.
DIRECTOR
S M Hassanein
DIRECTOR'S REPORT
The director presents his annual report and the audited financial statements for
the year ended 31 August 1997.
REVIEW OF THE BUSINESS
The principal activity of the company is a holding company.
RESULTS AND DIVIDENDS
The profit and loss account is set out on page 29 and shows the profit for the
year of L41,448 (1996 -- L20,416).
The director does not recommend the payment of a dividend for the year under
review.
DIRECTOR
The director who held office during the year was as follows:
S M Hassanein
The director had no interests in either the company or its subsidiaries, Todd-AO
UK Limited and Todd-AO Filmatic Ltd. S M Hassanein has a beneficial interest in
the ultimate parent company, The Todd-AO Corporation, a company incorporated
outside the United Kingdom.
GROUP ACCOUNTS
In the opinion of the directors, under section 248 of The Companies Act 1985,
the company is entitled to the exemption from the requirement to prepare group
accounts on the basis that the group meets the medium sized group requirements.
AUDITORS
A resolution for the reappointment of Deloitte & Touche as auditors of the
company is to be proposed at the forthcoming Annual General Meeting.
Approved by the Sole Director
S M Hassanein
17 April 1998
28
<PAGE>
TODD-AO EUROPE HOLDING COMPANY LIMITED
PROFIT AND LOSS ACCOUNT
Year ended 31 August 1997
<TABLE>
<CAPTION>
1997 1996 1995
Note L L L
<S> <C> <C> <C> <C>
Administrative expenses 3 (1,500) (3,000) ---
-------- -------- --------
OPERATING LOSS (1,500) (3,000) ---
Other interest receivable and
similar income 4 282,374 273,261 158,229
Interest payable and similar charges 5 (253,980) (230,127) (138,611)
-------- -------- --------
PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION 26,894 40,134 19,618
Tax credit/(charge) on profit on
ordinary activities 6 14,554 (19,718) ---
-------- -------- --------
PROFIT ON ORDINARY ACTIVITIES AFTER
TAXATION AND PROFIT FOR THE YEAR 41,448 20,416 19,618
ACCUMULATED PROFIT BROUGHT FORWARD 40,034 19,618 ---
-------- -------- --------
ACCUMULATED PROFIT CARRIED FORWARD 81,482 40,034 19,618
-------- -------- --------
-------- -------- --------
</TABLE>
ALL ACTIVITIES DERIVE FROM CONTINUING OPERATIONS.
A statement of total recognised gains and losses is not included in these
accounts as there are no recognised gains or losses in the current or prior
financial year other than the profits reported above.
29
<PAGE>
BALANCE SHEET
31 August 1997
<TABLE>
<CAPTION>
1997 1996 1995
Note L L L L L L
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED ASSETS
Investments 7 2,431,355 2,431,355 2,355,298
CURRENT ASSETS
Debtors 8 3,857,590 3,112,878 3,347,799
CREDITORS: amounts falling due
within one year 9 (3,592,463) (2,624,645) (5,133,478)
----------- ----------- ------------
NET CURRENT ASSETS 265,127 488,233 (1,785,679)
---------- ---------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES 2,696,482 2,919,588 569,619
CREDITORS: amounts falling due after
more than one year 10 --- (250,000) (550,000)
PROVISIONS FOR LIABILITIES AND
CHARGES 11 --- (14,554) ---
---------- ---------- ----------
2,696,482 2,655,034 9,619
---------- ---------- ----------
---------- ---------- ----------
CAPITAL AND RESERVES
Called up share capital 12 1,000 1,000 1
Share premium account 2,614,000 2,614,000 ---
Profit and loss account 81,482 40,034 19,618
---------- ---------- ----------
EQUITY SHAREHOLDERS' FUNDS 2,696,482 2,655,034 19,619
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
These financial statements were approved by the Director on 17 April 1998.
Signed by the Director
S M Hassanein
Director
30
<PAGE>
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
Year ended 31 August 1997
<TABLE>
<CAPTION>
1997 1996 1995
L L L
<S> <C> <C> <C>
Opening shareholders' funds 2,655,034 19,619 ---
Profit for the year 41,448 20,416 19,618
Issue of shares --- 2,614,999 1
--------- --------- -------
Closing shareholders' funds 2,696,482 2,655,034 19,619
--------- --------- -------
--------- --------- -------
</TABLE>
1. ACCOUNTING POLICIES
The financial statements are prepared in accordance with applicable accounting
standards. The principal accounting policies adopted are described below.
ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost convention.
GROUP ACCOUNTS
The company has taken advantage of the Section 248 of the Companies Act 1985
exemption from the requirement to prepare group accounts on the basis that the
group meets the medium sized group requirements. These accounts represent only
the entity of Todd-AO Europe Holding Company Limited.
INVESTMENTS
Investments are stated at cost less provisions for any permanent diminution in
value.
2. EMPLOYEES' AND DIRECTOR'S REMUNERATION
The director, who is the only employee of the company, did not receive any
remuneration in the year (1995:nil).
3. OPERATING LOSS
<TABLE>
<CAPTION>
1997 1996 1995
L L L
<S> <C> <C> <C>
Operating loss is after charging:
Auditors' remuneration 1,500 1,500 ---
--------- --------- -------
--------- --------- -------
</TABLE>
4. OTHER INTEREST RECEIVABLE AND SIMILAR INCOME
<TABLE>
<CAPTION>
1997 1996 1995
L L L
<S> <C> <C> <C>
Interest receivable on amounts owed
by group undertakings 282,374 273,261 158,229
--------- --------- -------
--------- --------- -------
</TABLE>
5. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1997 1996 1995
L L L
<S> <C> <C> <C>
Interest payable on amounts owed to group
undertakings 223,993 174,932 106,142
Interest payable in respect of other loans 29,987 55,195 32,469
--------- --------- -------
253,980 230,127 138,611
--------- --------- -------
--------- --------- -------
</TABLE>
6. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997 1996 1995
L L L
<S> <C> <C> <C>
United Kingdom corporation tax at 33%
(1996 - 33%) based on the profit for the
year -- 5,164 ---
Deferred taxation (14,554) 14,554 ---
--------- --------- -------
(14,554) 19,718 ---
--------- --------- -------
--------- --------- -------
</TABLE>
The tax credit is disproportionate to the profit before tax due to the receipt
of group relief at no charge and the write back of the deferred tax provision.
31
<PAGE>
7. INVESTMENTS
<TABLE>
<CAPTION>
Shares in subsidiary undertakings
1997 1996 1995
L L L
<S> <C> <C> <C>
Cost and net book value 2,431,355 2,431,355 2,431,355
--------- --------- ---------
--------- --------- ---------
</TABLE>
Investments represent the cost of acquiring the company's wholly owned
subsidiaries Todd-AO UK Limited and Todd-AO Filmatic Ltd.
In the opinion of the director the aggregate value of the shares and the amounts
due from the subsidiaries are not less than the amount at which the investments
are stated in the balance sheet of the company.
The subsidiaries are incorporated and registered in England and Wales and their
principal activity is the provision of television facilities and transmission
services.
8. DEBTORS
<TABLE>
<CAPTION>
1997 1996 1995
L L L
<S> <C> <C> <C>
Amounts owed by group undertakings 3,857,590 3,112,878 3,347,799
--------- --------- ---------
--------- --------- ---------
</TABLE>
9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997 1996 1995
L L L
<S> <C> <C> <C>
Amounts owed to group undertakings 3,109,477 2,254,800 4,801,009
Corporation tax payable --- 5,164 ---
Other creditors 482,986 364,681 332,469
--------- --------- ---------
3,592,463 2,624,645 5,133,478
--------- --------- ---------
--------- --------- ---------
</TABLE>
10. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997 1996 1995
L L L
<S> <C> <C> <C>
Other creditors --- 250,000 550,000
--------- --------- -------
--------- --------- -------
</TABLE>
The balance in other creditors represents a loan from the previous shareholder
of Todd-AO UK Limited in part consideration for the acquisition of that company.
The balance is payable as follows:
<TABLE>
<CAPTION>
L L L
<S> <C> <C> <C>
Between one and two years --- 250,000 300,000
--------- --------- -------
--------- --------- -------
</TABLE>
11. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1997 1996 1995
L L L
<S> <C> <C> <C>
Deferred taxation 14,554 --- ---
Balance at 1 September 1996
Profit and loss account (credit)/charge
for the year (14,554) 14,554 ---
--------- --------- -------
Balance at 31 August 1997 --- 14,554 ---
--------- --------- -------
--------- --------- -------
</TABLE>
The amounts of deferred taxation provided and unprovided in the accounts are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
Unprovided Provided Unprovided Provided Unprovided Provided
<S> <C> <C> <C> <C> <C> <C>
Timing differences --- --- --- 14,554 --- ---
---------- -------- ---------- -------- ---------- --------
---------- -------- ---------- -------- ---------- --------
</TABLE>
32
<PAGE>
12. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
Number 1997 Number 1996
L L
<S> <C> <C> <C> <C>
AUTHORISED:
Ordinary shares of L1 each 1,000 1,000 1,000 1,000
----- ----- ----- -----
----- ----- ----- -----
CALLED UP, ALLOTTED AND FULLY PAID:
Ordinary shares of L1 each 1,000 1,000 1,000 1,000
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
13. SHARE PREMIUM ACCOUNT
<TABLE>
<CAPTION>
1997 1996
L L
<S> <C> <C>
At 1 September 2,614,000 ---
Shares issued --- 2,614,000
--------- ---------
At 31 August 2,614,000 2,614,000
--------- ---------
--------- ---------
</TABLE>
14. RELATED PARTY TRANSACTIONS
In accordance with paragraph 3(c) of Financial Reporting Standard 8, the company
is not required to provide information on transactions with fellow subsidiaries
of The Todd-AO Corporation, a company which prepares consolidated accounts which
are publicly available.
15. CASH FLOW STATEMENT
In accordance with Financial Reporting Standard 1 - Cash Flow Statements, the
company is exempt from the requirement to prepare a cash flow statement since
all its shares are controlled by The Todd-AO Corporation, a company incorporated
in the United States of America, which prepares consolidated financial
statements which are publicly available.
16. ULTIMATE PARENT COMPANY
The ultimate parent company is The Todd-AO Corporation, a company incorporated
in the United States of America.
The accounts of The Todd-AO Corporation may be obtained from: 900 North Seward
Street, Los Angeles, California, 90038, USA.
MATERIAL CHANGES
Save as disclosed in this document, there has been no material change in the
financial or trading position of Todd Europe since 31 August 1997, the date to
which the latest published audited accounts were made up.
33
<PAGE>
APPENDIX III
FINANCIAL AND OTHER INFORMATION ON THE TODD-AO CORPORATION
The following information does not constitute statutory accounts and has been
extracted without material adjustment from the audited consolidated financial
statements of The Todd-AO Corporation for the years ended 31 August 1996 and
1997 and on which financial statements the audit opinion was unqualified. The
financial information in respect of the year ended 31 August 1995 has been
extracted from the comparative information contained within the 1996 financial
statements.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31,
1995 1996 1997
US$'000 US$'000 US$'000
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 5,278 3,385 5,127
Marketable securities 3,484 2,616 1,977
Trade receivables (net of allowance for
doubtful accounts of $696 and $562 at
August 31, 1996 and 1997, respectively) 6,787 9,132 13,176
Income tax receivable --- --- 671
Inventories (first-in first-out basis) 484 635 625
Prepaid income taxes 727 --- ---
Deferred income taxes 924 1,152 368
Other 565 988 2,168
------- ------- --------
TOTAL CURRENT ASSETS 18,249 17,908 24,112
------- ------- --------
INVESTMENTS 1,156 994 997
------- ------- --------
PROPERTY AND EQUIPMENT -- At cost:
Land 4,270 4,270 4,270
Buildings 10,548 10,559 10,994
Leasehold improvements 6,286 6,286 10,203
Lease acquisition costs 2,187 2,187 2,187
Equipment 24,785 31,259 54,707
Equipment under capital leases 3,163 3,360 1,540
Construction in progress --- 1,402 920
------- ------- --------
TOTAL 51,239 59,323 84,821
Accumulated depreciation and amortization (16,276) (20,846) (27,697)
------- ------- --------
Property and equipment -- net 34,963 38,477 57,124
------- ------- --------
GOODWILL
(net of accumulated amortization of $190
and $602 at August 31, 1996 and 1997,
respectively) 1,832 5,761 19,162
------- ------- --------
OTHER ASSETS 998 1,046 2,056
------- ------- --------
TOTAL $57,198 $64,186 $103,451
------- ------- --------
------- ------- --------
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31,
1995 1996 1997
US$'000 US$'000 US$'000
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable 1,784 2,812 5,302
Accrued liabilities:
Payroll and related taxes 1,975 2,023 2,507
Interest 179 173 422
Equipment lease 396 300 279
Other 515 1,198 1,533
Income taxes payable --- 368 105
Current maturities of long-term debt 759 615 578
Capitalized lease obligations -- current 897 616 35
Deferred income 703 634 1,459
------- ------- --------
TOTAL CURRENT LIABILITIES 7,208 8,739 12,220
------- ------- --------
LONG-TERM DEBT 7,707 9,332 25,430
CAPITALIZED LEASE OBLIGATIONS 620 22 ---
DEFERRED COMPENSATION AND OTHER 401 273 326
DEFERRED GAIN ON SALE/LEASEBACK 6,381 4,909 3,437
DEFERRED INCOME TAXES 3,683 4,488 4,659
------- ------- --------
Total liabilities 26,000 27,763 46,072
------- ------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares
of $0.01 par value; issued and outstanding
6,555,640 at August 31, 1996 and 8,284,925
issued at August 31, 1997 64 65 83
Class B; authorized 6,000,000 shares of $0.01
par value; issued and outstanding 1,747,178
at August 31, 1996 and 1997 17 17 17
Additional capital 23,004 24,291 39,996
Treasury stock --- --- (691)
Retained earnings 7,904 12,267 17,711
Unrealized gains on marketable securities
and long-term investments 473 42 94
Cumulative foreign currency translation
adjustment (264) (259) 169
------- ------- --------
TOTAL STOCKHOLDERS' EQUITY 31,198 36,423 57,379
------- ------- --------
TOTAL $57,198 $64,186 $103,451
------- ------- --------
------- ------- --------
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended August 31,
1995 1996 1997
US$'000 US$'000 US$'000
<S> <C> <C> <C>
REVENUES $ 50,003 $ 62,920 $ 78,971
COSTS AND EXPENSES:
Operating costs and other expenses 39,867 48,962 61,755
Depreciation and amortization 3,917 5,374 7,128
Interest 581 702 920
Equipment lease expense -- net 593 498 265
Other (income) expense -- net (290) (359) (50)
---------- ---------- -----------
TOTAL COSTS AND EXPENSES 44,668 55,177 70,018
---------- ---------- -----------
INCOME BEFORE LOSS FROM JOINT VENTURE AND PROVISION FOR INCOME TAXES 5,335 7,743 8,953
LOSS FROM JOINT VENTURE (249) (117) ---
---------- ---------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,086 7,626 8,953
PROVISION FOR INCOME TAXES 1,711 2,782 2,948
---------- ---------- -----------
NET INCOME $ 3,375 $ 4,844 $ 6,005
---------- ---------- -----------
---------- ---------- -----------
NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENTS $ 0.40 $ 0.55 $ 0.60
---------- ---------- -----------
---------- ---------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING 8,399,462 8,845,321 10,088,993
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES:
Year Ended August 31,
1995 1996 1997
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Net income $ 3,375 $ 4,844 $ 6,005
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,917 5,374 7,128
Deferred income taxes 1,258 577 968
Loss from joint venture 249 117 ---
Deferred compensation and other (164) (128) (72)
Amortization of deferred gain on sale/leaseback transaction (964) (1,472) (1,472)
(Gain) loss on sale of marketable securities and investments (127) 92 (20)
Loss on disposition of fixed assets --- 276 103
Shares issued for stock award --- --- 206
Changes in assets and liabilities (net of acquisitions):
Trade receivables, net (739) (1,494) (1,249)
Inventories and other current assets (266) (338) (1,133)
Accounts payable and accrued liabilities 138 550 1,149
Accrued equipment lease 396 (96) (21)
Income taxes payable, net (670) 926 (931)
Deferred income 560 (69) 759
-------- -------- --------
Net cash provided by operating activities 6,963 9,159 11,420
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and investments (996) (374) ---
Proceeds from sale of marketable securities and investments 1,606 881 708
Proceeds from disposition of fixed assets --- --- 87
Capital expenditures (3,345) (6,219) (13,147)
Contributions to joint venture (249) (117) ---
Purchase of Skywalker Sound South (6,966) --- ---
Purchase of Todd-AO UK (8,333) --- ---
Purchase of Editworks --- (3,180) (500)
Purchase of Hollywood Digital --- --- (17,761)
Other assets (1) (169) (255)
-------- -------- --------
Net cash flows used in investing activities (18,284) (9,178) (30,868)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of longterm debt 7,722 5,356 23,800
Payments on longterm debt (1,467) (4,430) (16,309)
Payments on capital lease obligations (1,108) (2,637) (603)
Proceeds from sale/leaseback transaction 11,218 --- ---
Proceeds from issuance of common stock 101 1,044 15,822
Treasury stock transactions --- (726) (996)
Dividends paid (435) (481) (561)
-------- -------- --------
Net cash flows provided by (used in) financing activities: 16,031 (1,874) 21,153
Effect of exchange rate changes on cash (38) --- 37
-------- -------- --------
37
<PAGE>
NET INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS: 4,672 (1,893) 1,742
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR: 606 5,278 3,385
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR: $5,278 $3,385 $5,127
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 408 $ 708 $ 526
-------- -------- --------
-------- -------- --------
Income taxes $1,413 $1,285 $1,725
-------- -------- --------
-------- -------- --------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES:
On June 20, 1997, the Company acquired substantially all of the assets and
certain of the liabilities of Hollywood Digital Limited Partnership. In
connection with this acquisition the Company paid cash as follows:
<TABLE>
<CAPTION>
1997
US$'000
<S> <C>
ASSETS ACQUIRED:
Property and equipment 12,117
Accounts receivable 2,640
Goodwill 14,100
Other assets 344
LIABILITIES ASSUMED:
Accounts payable and accrued expenses (2,745)
Deferred rent and notes payable (296)
Convertible subordinated notes issued to seller (8,399)
--------
CASH PAID IN ACQUISITION $17,761
--------
--------
</TABLE>
In July 1997, a non-cash adjustment in connection with the acquisition of
Chrysalis Television Facilities, Ltd. U.K. capital allowances in the amount
of $1,056 was made to deferred income taxes and goodwill.
On August 14, 1996, the Company acquired substantially all of the assets and
certain of the liabilities of Edit Acquisition LLC (Editworks). In connection
with this acquisition, the Company paid cash as follows:
<TABLE>
<CAPTION>
1996
US$'000
<S> <C>
ASSETS ACQUIRED:
Property and equipment 1,992
Accounts receivable 617
Goodwill 3,930
Other assets 90
LIABILITIES ASSUMED:
Accounts payable and accrued expenses (307)
Capitalized lease obligations (1,672)
Common stock issued in acquisition (970)
--------
Cash paid in acquisition $3,680
--------
--------
</TABLE>
38
<PAGE>
a) On February 15, 1995, the Company acquired substantially all of the
property, equipment and inventory of Skywalker Sound South. In connection
with this acquisition, the Company paid cash as follows:
<TABLE>
<CAPTION>
1995
US$'000
<S> <C>
ASSETS ACQUIRED:
Land $ 783
Buildings and improvements 844
Equipment 5,032
Other assets 307
--------
Cash paid in acquisition $6,966
--------
--------
</TABLE>
b) On March 16, 1995, the Company acquired all of the outstanding shares of
Chrysalis Television Facilities, Ltd. In connection with this acquisition,
the Company paid cash as follows:
<TABLE>
<CAPTION>
1995
US$'000
<S> <C>
ASSETS ACQUIRED:
Property and equipment $7,599
Accounts receivable 1,815
Goodwill 1,963
Other assets 339
LIABILITIES ASSUMED:
Accounts payable and accrued expenses (798)
Capitalized lease obligations (1,072)
Real estate mortgage payable (149)
Longterm debt issued to seller (1,364)
--------
Cash paid in acquisition $8,333
--------
--------
</TABLE>
See notes to consolidated financial statements.
39
<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 August 31, 1997, Robert Naify, Marshall Naify, and certain members of their
families and various trusts for the benefit of family members (the "Naify
Interests") owned approximately 50% of the outstanding shares of the Company,
representing approximately 79% 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"), Todd-AO Europe Holding Company Ltd. ("TAO
Europe") and Todd-AO Hollywood Digital ("Hollywood Digital"). 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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated 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 value of net assets
acquired, and is being amortized on a straightline basis over 15 and 25 years.
LONG-LIVED ASSETS
As of each balance sheet date, the Company evaluates the recovery of its
long-lived assets and recognizes impairment if it is probable that the recorded
amounts are not recoverable based upon future undiscounted cash flows or if
there is an event or change in circumstances which indicate that the carrying
amount of an asset may not be recoverable.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
financial statement and income tax bases of the Company's assets and
liabilities, based on enacted tax rates. A valuation allowance is provided when
it is more likely than not that some portion or all of the deferred income tax
assets will not be realized.
40
<PAGE>
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. Fully diluted earnings per share are
not materially different from primary earnings per share.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value because of the short-term maturity of
these instruments. Notes payable are carried at amounts approximating fair
values based on current rates offered to the Company for debt with similar
collateral and guarantees, if any, and maturities.
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 63% of revenues and for the year ended August 31, 1997, The Walt
Disney Company and its affiliated companies accounted for approximately 17% 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.
STOCK-BASED COMPENSATION
In fiscal 1997, the Company adopted the disclosure only provision of Statement
of Financial and Accounting Standards ("SFAS") No. 123. The Company continues to
account for its stock compensation arrangements using the intrinsic value method
in accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees."
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform with the current year's presentation.
RECENT ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". The statement is effective for interim periods and fiscal
years ending after December 15, 1997. The Company does not expect that the
statement will have a material effect on the Company's consolidated financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and No. 131, "Disclosure about Segments of an
Enterprise and Related Information". These statements are effective for
financial statements issued for periods beginning after December 15, 1997. The
Company has not yet determined the impact of adopting these statements.
2. ACQUISITIONS
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.
41
<PAGE>
On March 16, 1995 TAO Europe (a wholly owned subsidiary of the Company) acquired
all of the outstanding shares of Todd-AO UK Ltd. (formerly Chrysalis/Todd-AO
Europe Ltd.) ("Todd-AO UK") (formerly Chrysalis Television Facilities, Ltd.)
from Chrysalis Holdings Ltd. ("CHL"). TAO Europe, Todd-AO UK and CHL are all
corporations organized under the laws of the United Kingdom and headquartered in
London. Todd-AO UK 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 Todd-AO UK its
intercompany debt to CHL in the amount of $4,585. Subsequent to the acquisition,
TAO Europe advanced and paid on behalf of Todd-AO UK other debt in the amount of
$1,562. TAO Europe and Todd-AO UK 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, advertising agencies and other
businesses. The Company paid Editworks $3,680 in cash and $970 in Class A common
stock.
On June 20, 1997, the Company and its newly formed, wholly owned subsidiary
Todd-AO Hollywood Digital acquired the assets and certain liabilities of
Hollywood Digital Limited Partnership ("Hollywood Digital"). Hollywood Digital
is a digital based post-production facility providing sound and video services
to the film, television and advertising industries. In consideration of the
purchase, the Company paid $17,761 in cash to pay down existing debt of
Hollywood Digital. The Company also issued convertible subordinated notes in the
amount of $8,399. The notes are convertible into the Company's Class A Common
Stock at the conversion price of $11.875 per share at any time before the
maturity date. Todd-AO Hollywood Digital is included in the Company's results of
operations from June 20, 1997.
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, 1995. Pro forma
adjustments for Editworks are primarily to amortization of goodwill, interest
expense on borrowings in connection with the acquisition, and income taxes. Pro
forma adjustments for Hollywood Digital are primarily to non-recurring legal and
other non-operating costs, amortization of goodwill, interest expense on
borrowings in connection with the acquisition, and income taxes.
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Revenues $ 81,713 $ 94,771
------- --------
------- --------
Net income $ 4,369 $ 6,808
------- --------
------- --------
Net income per common share $ 0.49 $ 0.67
------- --------
------- --------
</TABLE>
3. SALE/LEASEBACK
In December 1994 the Company signed an agreement with its bank to implement the
sale/leaseback of certain equipment. 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 was $7,345.
The net equipment lease expense for the years ended August 31, 1996 and 1997 is
as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Equipment lease costs $ 1,970 $ 1,737
Amortization of deferred gain on sale of equipment (1,472) (1,472)
------- --------
Equipment lease expense, net $ 498 $ 265
------- --------
------- --------
</TABLE>
42
<PAGE>
4. LONG TERM DEBT
Long term debt outstanding as of August 31, 1996 and 1997 was as follows:
<TABLE>
<CAPTION>
1996 1997
US$'000 US$'000
<S> <C> <C>
Revolving credit facility multi-currency
credit line 4,350 775
Revolving credit facility other 4,281 16,000
Note payable Paskal Video acquisition 463 313
Note payable Todd-AO UK acquisition 853 408
Note payable Hollywood Digital Community
Redevelopment Agency --- 113
Convertible subordinated notes payable Hollywood
Digital acquisition --- 8,399
------- --------
Total 9,947 26,008
Less: current maturities (615) (578)
------- --------
Total long term debt $9,332 $25,430
------- --------
------- --------
</TABLE>
In December 1994, the Company signed a long term credit agreement with its bank
which was amended in 1995, 1996 and 1997. Under the agreement, the Company may
borrow up to $35,000 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. Under the agreement, $10,000 of the available credit is restricted
to multi-currency 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 multi-currency borrowings are restricted to Libor and CD options.
The agreement contains various restrictive provisions, including investment,
capital expenditure, cash dividends and borrowing limitations. The most
restrictive covenant limits the Company's capital expenditures for fiscal year
1997 to $16,500. As of August 31, 1997 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, 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 Todd-AO UK, 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.
In connection with the acquisition of Hollywood Digital, the Company issued
convertible subordinated notes. The notes are convertible into the Company's
Class A common stock at the conversion price of $11.875 per share at any time
before the maturity date and bear interest at 5% payable annually. The Company
also acquired a non-interest bearing note payable to the Community Redevelopment
Agency. The note is forgiven at the rate of $20 annually as long as the Company
maintains the appearance of the building located on Sunset Boulevard in
Hollywood, California.
5. CAPITALIZED LEASE OBLIGATIONS
In 1994, the Company entered into lease obligations for equipment which have
been capitalized. In addition, the Company acquired leases on certain other
equipment with the Paskal, Todd-AO UK, Filmatic and Hollywood Digital
acquisitions. The leases have implicit interest rates ranging from 7 1/2% to
11 1/2% and are secured by the related equipment.
Capitalized lease obligations at August 31, 1997 mature as follows:
<TABLE>
<CAPTION>
US$'000
<S> <C>
1998 37
Less amounts representing interest (2)
-------
$35
-------
-------
</TABLE>
43
<PAGE>
6. INCOME TAXES
The Company's effective income tax rate differs from the federal statutory
income tax rate due to the following:
<TABLE>
<CAPTION>
Years Ended August 31,
1995 1996 1997
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
Adjust to actual Company rate (1.0) (1.0) (1.0)
------ ------ -------
Adjusted federal statutory income tax rate 34.0 34.0 34.0
State taxes, net of federal benefit 0.8 1.6 (2.2)
Other, net (1.2) 0.9 1.1
------ ------ -------
Total 33.6% 36.5% 32.9%
------ ------ -------
------ ------ -------
</TABLE>
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future. Such deferred income
tax asset and liability computations are based on enacted tax laws and rates
applicable to periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
Deferred income tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
Federal State Foreign Total
US$'000 US$'000 US$'000 US$'000
<S> <C> <C> <C> <C>
1997:
Current Asset:
Accounts receivable reserves $ 186 $ 47 $ 9 $ 242
Vacation pay accruals 188 47 0 235
State income taxes 127 0 0 127
Other (192) (44) -- (236)
------- ------- -------- --------
TOTAL CURRENT ASSET $ 309 $ 50 $ 9 $ 368
------- ------- -------- --------
------- ------- -------- --------
Long Term Asset:
Deferred compensation $ 63 $ 16 -- $ 79
U.K loss carry over -- $ 83 83
U.K. capital allowances -- 605 605
State income tax credit carry over -- 1,067 -- 1,067
State income tax loss carry over -- 531 531
Other -- -- -- 0
------- ------- -------- --------
Total long term asset 63 1,614 688 2,365
------- ------- -------- --------
Long Term Liability:
Depreciation (2,815) (1,710) (352) (4,877)
Deferred gains on property (1,420) (359) (86) (1,865)
Other (312) 30 0 (282)
------- ------- -------- --------
Total long term liability (4,547) (2,039) (438) (7,024)
------- ------- -------- --------
NET LONG TERM LIABILITY $ (4,484) $ (425) $ 250 $ (4,659)
------- ------- -------- --------
------- ------- -------- --------
1996:
Current Asset:
Accounts receivable reserves $ 164 $ 40 $ 33 $ 237
Vacation pay accruals 305 74 -- 379
State income taxes 145 466 -- 611
Other (64) (15) 4 (75)
------- ------- -------- --------
TOTAL CURRENT ASSET $550 $565 $37 $1,152
------- ------- -------- --------
------- ------- -------- --------
44
<PAGE>
US$'000 US$'000 US$'000 US$'000
Long Term Asset:
Deferred compensation $ 85 $ 21 -- $ 106
U.K loss carryover -- -- $ 80 80
U.K. capital allowances -- -- -- 0
State income tax credit carry over -- -- -- 0
State income tax loss carry over -- -- -- 0
Other 25 6 -- 31
------- ------- -------- --------
Total long term asset 110 27 80 217
------- ------- -------- --------
Long Term Liability:
Depreciation (1,931) (635) (165) (2,731)
Deferred gains on property (1,420) (342) (82) (1,844)
Other (155) 25 -- (130)
------- ------- -------- --------
Total long term liability (3,506) (952) (247) (4,705)
------- ------- -------- --------
NET LONG TERM LIABILITY $ (3,396) $ (925) $ (167) $ (4,488)
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Components of the income tax provision are as follows: 1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Current provision domestic $ 274 $ 1,644 $ 1,156
Current provision foreign 180 561 (217)
Deferred provision domestic 1,231 473 1,343
Deferred provision foreign 26 104 666
------- -------- --------
Total $ 1,711 $ 2,782 $ 2,948
------- -------- --------
------- -------- --------
<CAPTION>
Components of pretax income are as follows: 1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Domestic $ 4,347 $ 5,978 $ 7,454
Foreign 739 1,648 1,499
------- -------- --------
Total $ 5,086 $ 7,626 $ 8,953
------- -------- --------
------- -------- --------
</TABLE>
7. STOCKHOLDERS' EQUITY
The Company has 1,000,000 shares of $.01 par value preferred stock authorized.
As of August 31, 1997 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.
On July 9, 1996 the Company filed an Amended and Restated Certificate of
Incorporation with the State of Delaware which increased the authorized shares
of Class A Stock from 20,000,000 to 30,000,000 and Class B Stock from 4,000,000
to 6,000,000. In addition, the par value of all classes of stock was reduced
from $.25 to $.01 per share.
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 financial statements set forth herein, and applicable share and per share
data for periods and dates included in the accompanying financial statements and
notes, have been adjusted to retroactively reflect the stock dividend and to
restate the par value of the common 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
August 31, 1997, 915,656 shares had been repurchased. 831,856 of these shares
have been cancelled and returned to authorized but unissued status.
45
<PAGE>
8. STOCK OPTIONS
STOCK OPTION PLANS
The Company has four stock option plans: The 1986, 1994, 1995 and the 1997 Stock
Option Plans. These plans provide for the granting of either nonqualified 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 ended August
31, 1997:
<TABLE>
<CAPTION>
Weighted
Average
Number of Price
Shares per share
--------- ----------
<S> <C> <C>
Options outstanding, September 1, 1994 559,460 $2.92
Awarded 638,165 4.92
Exercised (25,300) 2.93
Forfeited (11,000) 4.50
--------- ----------
Options outstanding, August 31, 1995 1,161,325 4.01
Awarded 14,500 7.13
Exercised (152,600) 3.60
Forfeited (14,580) 5.02
--------- ----------
Options outstanding, August 31, 1996 1,008,645 4.17
Awarded 773,000 10.40
Exercised (78,564) 2.93
Forfeited (37,490) 8.32
--------- ----------
Options outstanding, August 31, 1997 1,665,591 $7.03
--------- ----------
--------- ----------
Vested as of August 31, 1997 721,912
---------
---------
</TABLE>
As of August 31, 1997, 81,465 shares and 175,540 shares were available for grant
under the 1986 and 1995 plans respectively. All authorized options under the
1994 and 1997 Plans have been granted. Common Shares have been reserved for
issuance under the plans for all options outstanding at August 31, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Number Average Weighted Exercisable Weighted
Outstanding Remaining Average at Average
at August 31, Contractual Exercise August 31, Exercise
Range of Exercise Prices 1997 Life Price 1997 Price
<S> <C> <C> <C> <C> <C>
$ 2.03 -- 2.93 55,500 1 year $ 2.22 55,500 $ 2.22
4.50 -- 11.00 825,091 7 years 6.88 373,745 5.73
3.26 -- 10.50 386,654 6 years 8.44 121,330 6.56
3.59 220,000 1.8 years 3.59 132,000 3.59
10.50 23,346 4.3 years 10.50 4,670 10.50
9.13 -- 10.50 155,000 9 years 10.37 34,667 10.50
---------- ----------- ------- --------- ---------
2.03 -- 11.00 1,665,591 6.03 years $ 7.03 721,912 $ 5.47
---------- ---------
---------- ---------
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS 123, Accounting
for Stock-Based Compensation. The estimated fair value of options granted during
1997 and 1996 pursuant to SFAS 123 was approximately $2,940,268 and $46,206,
respectively. Had the Company adopted SFAS 123, pro forma net income would have
been $5,420 and $4,835, and pro forma net income per share would have been $0.54
and $0.55 for 1997 and 1996, respectively. The fair value of each option grant
was estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions: dividend yield of 0.55%-0.70%, volatility of 25%,
a risk free interest rate of 6.28% and expected option lives of 7 to 9 years.
46
<PAGE>
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 guarantee 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 $4,045, $4,526 and $4,736 for the years ended August
31, 1995, 1996, and 1997, respectively. Minimum rentals for operating leases for
years ending after August 31, 1997 are as follows: 1998, $5,076; 1999, $4,782;
2000, $4,545; 2001, $9,313; 2002, $3,065 and $13,320, thereafter. Some of the
leases have options to extend terms and are subject to escalation clauses and
two leases are subject to additional rent based on revenue.
Employment Agreements - At August 31, 1997, the Company is committed to
compensation under longterm employment agreements with certain of its officers
and key employees as follows: 1998, $1,238; 1999, $1,161; 2000, $806 and 2001,
$0.
10. PENSION PLAN
Certain officers and employees of the Company are eligible for participation in
the "Motion Picture Industry Pension Plan" ("MPIPP"), a multi employer defined
benefit pension plan, the Company's 401(k) Profit Sharing Plan and Trust in the
U.S. or the Group Personal Pension Plan in the U.K. The Plans are funded by
employer and employee contributions. Total pension plan expense for the Plans
for the years ended August 31, 1995, 1996, and 1997 are as follows:
<TABLE>
<CAPTION>
August 31,
1995 1996 1997
US$'000 US$'000 US$'000
<S> <C> <C> <C>
MPIPP $ 446 $ 474 $ 618
U.S. 401(k) $ 107 $ 313 $ 225
U.K. Plan $ 33 $ 81 $ 85
</TABLE>
11. JOINT VENTURE
During 1992, Todd-AO Productions, Inc., a wholly owned subsidiary of the
Company, entered into a Joint Venture Agreement with TransAtlantic 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 commercialised, a
portion of the proceeds are payable to Todd-AO Productions.
The Company is in the process of organising a limited liability company ("LLC")
with United Artists Theatre Circuit Inc., an operator of motion picture theatres
("UATC") for the purpose of exploiting proprietary technology to conserve film
stock and reduce the length of wide screen film release prints. The technology,
known as Compact Distribution Print or CDP, has been successfully demonstrated,
but its implementation will require a broad level of film industry acceptance
which has not yet been obtained.
47
<PAGE>
Pending such acceptance, further development and marketing expenditures will be
minimal. It is anticipated that the Company and UATC will each have a 50%
interest in any profits of the LLC, which is known as CDP Limited Liability
Company.
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.
In January 1997 the Company announced that it was in negotiations to acquire all
of the stock of International Video Conversions Inc. (IVC), a California
corporation based in Burbank. This acquisition has not materialised, and the
Company has filed an action against the seller seeking damages and other
appropriate relief.
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 years
ended August 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
1995 1996 1997
US$'000 US$'000 US$'000
<S> <C> <C> <C>
REVENUES:
United States $ 45,069 $ 51,394 $ 65,436
Europe 4,934 11,526 13,535
-------- -------- --------
Total $ 50,003 $ 62,920 $ 78,971
-------- -------- --------
-------- -------- --------
NET INCOME:
United States $ 2,842 $ 3,861 $ 4,955
Europe 533 983 1,050
-------- -------- --------
Total $ 3,375 $ 4,844 $ 6,005
-------- -------- --------
-------- -------- --------
ASSETS:
United States $ 45,074 $ 50,552 $ 85,569
Europe 12,124 13,634 17,882
-------- -------- --------
Total $ 57,198 $ 64,186 $103,451
-------- -------- --------
-------- -------- --------
</TABLE>
48
<PAGE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Earnings Per
Gross Common
Total Profit Net 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>
Earnings Per
Common
Total Gross Net Share
1996 Revenues Profit 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
Fourth Quarter 14,780 1,559 782 .09
--------- ---------- -------- -----------
TOTAL $ 62,920 $ 8,086 $ 4,844 $ .55(a)
--------- ---------- -------- -----------
--------- ---------- -------- -----------
<CAPTION>
Earnings Per
Common
Total Gross Net Share
1997 Revenues Profit Income Outstanding
<S> <C> <C> <C> <C>
First Quarter $ 20,340 $ 3,069 $ 1,771 $ .20
Second Quarter 19,341 2,611 1,518 .14
Third Quarter 19,657 2,688 1,900 .18
Fourth Quarter 19,633 1,455 816 .08
--------- ---------- -------- -----------
TOTAL $ 78,971 $ 9,823 $ 6,005 $ .60(a)
--------- ---------- -------- -----------
--------- ---------- -------- -----------
</TABLE>
(a) Aggregate per share amounts for each quarter may differ from annual totals
as each is independently calculated.
15. SUBSEQUENT EVENTS
On September 8, 1997 the Company and Disney Character Voices International, Inc.
("DCVI") committed to jointly establishing a dubbing and audio post production
studio in Germany which will be launched under the name Todd-AO Germany.
Additional joint ventures are contemplated for France, Italy, Spain and Asia.
The Company will manage all technical and operational functions and DCVI will
coordinate the creative services of the studios. The foreign language dubbing
studios will provide each territory with state-of-the-art theatrical and
television recording, mixing and editing facilities. Additional post production
services will be added as demand expands.
On October 20, 1997, the Company and its bank signed a First Amended and
Restated Credit Agreement under which the Company may borrow up to $50,000,000
in revolving loans. The agreement expires December 31, 2002 and may be extended
annually by the Company under certain conditions.
On November 3, 1997, the Company signed an agreement with its bank to implement
the sale/leaseback of certain equipment for up to $10,000,000. On that date an
aggregate of $8,500,000 of sound studio equipment was sold and leased back. The
agreement terminates on December 31, 2002.
16. 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 condition.
49
<PAGE>
QUARTERLY RESULTS
Full text of The Todd-AO Corporation first quarter report to shareholders for
the three months ended November 30, 1997.
Results for our 1998 fiscal first quarter, ended November 30, demonstrated the
positive impact of the steps we have taken in expanding geographically and
diversifying into higher-margin video services for film, television and
advertising post-production. These commitments we believe have already begun to
smooth out the seasonal peaks and valleys inherent in sound post-production.
Our business strategy is very well explained -- and endorsed -- in a recent
Morgan Stanley research report, Morgan Stanley's analyst noted: "Todd-AO is the
premier post-production sound studio in the world. We believe Todd-AO is
well-positioned to be the premier post-production video services company in the
world."
We are pleased to announce that our sound division worked on three critically
acclaimed features, L.A. CONFIDENTIAL (nominated for an Academy
Award-Registered Trademark-), AMISTAD and AS GOOD AS IT GETS, continuing
Todd-AO's long-time reputation for outstanding artistry and state-of-the-art
facilities. We are also proud that Todd-AO/Hollywood Digital contributed to
the special effects in the current hit movie TITANIC and that the Todd-AO
Scoring Stage was the facility selected to record the score for that film.
Revenue rose to $25 million in the quarter, a 23% increase compared to the same
quarter a year ago. Significantly, cash flow or EBITDA (earnings before
interest, taxes, depreciation and amortisation) grew 22% to $5.7 million. A key
contributor to this performance was the acquisition of Hollywood Digital in June
1997, a diversification move that made us an important player in the
advertising, television and film special effects post-production markets.
Our corporate strategy of expansion through internal growth and acquisition
proved its effectiveness in this quarter. Despite a softer post-production sound
market, compared to a record quarter in the same period a year ago, we reported
net income of $1.77 million, slightly better than the comparable period. Net
income in terms of earnings per share was lower because of the increased number
of shares outstanding. Margins also were negatively impacted as we began costly
upgrading of facilities. Construction required that we take one sound stage out
of action for upgrading to state-of-the-art digital technology. Installation of
digital consoles on two additional sound stages also began during the quarter.
Although conversion of our sound stages to digital, as well as other continuing
investments in the future had a negative impact on margins in the short term, in
the longer term they are among the critical actions we are initiating to
increase our forward momentum and reduce our sensitivity to cyclical
fluctuations in the sound business.
During the quarter, construction continued on Todd-AO/Hollywood Digital West, a
new 26,000 square foot facility located in Santa Monica that opens in March, to
serve the advertising and editorial community. We already are seeing indications
of a strong increase in revenue from the advertising industry, which has been
relocating its own operations to Santa Monica, and we look forward to heavy use
of our studios here.
Meanwhile, our geographic expansion in the United States with the August 1996
acquisition of Atlanta-based Todd-AO/Editworks, is paying off along with
increased marketing of this facility. Revenue was up 28% for the quarter, and
cash flow doubled compared with the prior period.
Internationally, Todd-AO UK and Filmatic consolidated facilities to a single
location in the United Kingdom. The combined operation reported a 24% increase
in revenue and 46% increase in cash flow compared with last year's comparable
period. The expansion of Turner Broadcasting's Cartoon Network and TNT into new
locations throughout Europe is increasing our contract transmission there.
Filmatic has begun to contribute positive cash flow, attracting and servicing a
niche market for film and documentaries.
Significantly, we are working closely with our joint venture partner Disney
Character Voices International, a subsidiary of the Walt Disney Company, to
build dubbing studios in Germany. With a foothold already in the UK, the venture
with Disney marks a major step for Todd-AO.
The entertainment industry's conversion to digital technology is creating a
world of opportunity for Todd-AO. At the same time, the global
telecommunications revolution in satellite and cable usage increasingly requires
expanded programming in many video formats and languages. The day of the small,
local post-production studio is waning. Todd-AO is positioned to take advantage
of these global and technological developments because of its reputation, its
close relationships to the major entertainment companies and its ability to
service their needs.
50
<PAGE>
We plan during the next six months to build two new digital compression suites
to serve the Digital Versatile Disk (DVD) market. These new suites as well as
the construction of Todd-AO/Hollywood Digital West demonstrate the direct
connection of our new investments to business commitments.
It is our belief that the shift to digital technology will generate new revenue
streams for Todd-AO from both film and television companies. The consumer
evolution from VHS videotapes to DVD already has begun and we believe that High
Definition Television will be a reality in the not too distant future. We are
positioning Todd-OA to service the increasing demand for digital formats in new
programming.
We look forward to updating you on new developments as we build Todd-AO's
business through internal expansion and strategic, cost-effective acquisitions.
Salah M Hassanein
President and CEO
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
November 30, August 31,
1997 1997
US$'000 US$'000
<S> <C> <C>
ASSETS
Current assets:
Cash and marketable securities $5,322 $7,104
Trade receivables -- net 15,763 13,176
Other current assets 4,312 3,832
----------- ----------
Total current assets 25,397 24,112
Investments 736 997
Property and equipment -- net 58,374 57,124
Goodwill 18,967 19,162
Other assets 2,583 2,056
----------- ----------
Total assets $106,057 $103,451
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Amounts payable and accrued liabilities $13,040 $10,148
Other current liabilities 2,097 2,072
----------- ----------
Total current liabilities 15,137 12,220
Long-term debt 18,007 25,430
Deferred gain on sale of equipment 7,921 3,437
Deferred income taxes 5,266 4,659
Other liabilities 197 326
----------- ----------
Total liabilities 46,530 46,072
Shareholders' equity:
Common stock 101 100
Additional capital and other 40,089 39,568
Retained earnings 19,337 17,711
----------- ----------
Total shareholders' equity 59,527 57,379
----------- ----------
Total liabilities and shareholders' equity $106,057 $103,451
----------- ----------
----------- ----------
</TABLE>
51
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
3 months ended November 30,
1997 1996
US$'000 US$'000
<S> <C> <C>
Revenue $ 25,024 $ 20,340
Costs and expenses 19,439 15,688
----------- ----------
Gross income 5,585 4,652
Depreciation and amortisation 2,421 1,622
Interest expense 412 221
----------- ----------
Income before income taxes 2,752 2,809
Income taxes 979 1,038
----------- ----------
Net income $1,773 $1,771
----------- ----------
Earnings per share $0.17 $0.20
----------- ----------
Average share outstanding 10,551,204 9,016,706
----------- ----------
</TABLE>
MATERIAL CHANGES
Save as disclosed in this document, there has been no material change in the
financial or trading position of Todd since 31 August 1997, the date to which
the latest published audited accounts were made up.
52
<PAGE>
APPENDIX IV
FINANCIAL AND OTHER INFORMATION ON TELE-CINE CELL
PART 1 AUDITED ACCOUNTS
The following information has been extracted without material adjustment from
the audited consolidated financial statements of Tele-Cine Cell for the years
ended 31 December 1997, 1996 and 1995. Such information does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
Audited statutory accounts have been delivered to the Registrar of Companies for
the two years ended 31 December 1995 and 1996 and will be delivered in respect
of the year ended 31 December 1997. The auditors of Tele-Cine Cell have given
reports in accordance with the requirements of the Companies Act for each of the
three financial years ended 31 December 1995, 1996 and 1997 and each such report
was an unqualified report.
CONSOLIDATED PROFIT & LOSS ACCOUNTS
<TABLE>
<CAPTION>
1997 1996 1995
Notes L'000 L'000 L'000
<S> <C> <C> <C> <C>
TURNOVER 2 13,823 13,264 12,094
Cost of sales (10,405) (9,501) (8,424)
-------- -------- --------
GROSS PROFIT 3,418 3,763 3,670
Exceptional administrative expenses (454) --- ---
Other administrative expenses (3,988) (2,912) (2,416)
Other operating income 56 65 122
-------- -------- --------
OPERATING (LOSS)/PROFIT 3 (968) 916 1,376
Share of profits of associated company 55 --- ---
Provision against liabilities in respect of associated company (152) --- ---
Net interest (payable)/receivable 5 (132) (9) 28
-------- -------- --------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (1,197) 907 1,404
Taxation on (loss)/profit on ordinary activities 6 15 (368) (497)
-------- -------- --------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (1,182) 539 907
Dividends paid and proposed, including amounts in respect of
non-equity shares 7 (14) (438) (650)
-------- -------- --------
(LOSS)/PROFIT FOR THE FINANCIAL YEAR TRANSFERRED TO RESERVES 20 (1,196) 101 257
-------- -------- --------
-------- -------- --------
(LOSS)/EARNINGS PER ORDINARY SHARE 8 (10.1)p 4.5p 7.6p
</TABLE>
There are no recognised gains or losses other than as stated in the profit and
loss account above in both the current and prior years.
All activities derive from continuing operations.
53
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1996 1995
Notes L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 9 6,118 6,407 7,034
Investments 10 64 5 ---
------- ------- --------
6,182 6,412 7,034
CURRENT ASSETS
Stocks 11 134 141 274
Investment in programming 12 365 304 ---
Debtors 13 4,393 4,256 3,570
Cash at bank and in hand --- 14 6
------- ------- --------
4,892 4,715 3,850
CREDITORS -- AMOUNTS FALLING
DUE WITHIN ONE YEAR 14 (3,621) (2,808) (2,528)
------- ------- --------
NET CURRENT ASSETS 1,271 1,907 1,322
------- ------- --------
TOTAL ASSETS LESS CURRENT
LIABILITIES 7,453 8,319 8,356
Creditors -- amounts falling
due after more than one year 15 (237) --- ---
PROVISIONS FOR LIABILITIES
AND CHARGES 16 (147) (55) (193)
------- ------- --------
TOTAL NET ASSETS 7,069 8,264 8,163
------- ------- --------
------- ------- --------
CAPITAL AND RESERVES
Called up share capital 19 857 834 834
Share premium account 3,563 3,563 3,563
Shares to be issued 300 --- ---
Profit and loss account 2,349 3,867 3,766
------- ------- --------
TOTAL SHAREHOLDERS' FUNDS 20 7,069 8,264 8,163
------- ------- --------
------- ------- --------
Attributable to equity
shareholders 6,823 8,018 7,917
Attributable to non-equity
shareholders 246 246 246
</TABLE>
54
<PAGE>
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
1997 1996 1995
Notes L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM
OPERATING ACTIVITIES 24 2,522 2,575 3,004
RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE
Interest (paid)/received (117) (9) 28
Dividends paid on
non-equity shares (14) (14) (14)
------- ------- --------
(131) (23) 14
TAXATION (363) (727) (915)
CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT
Purchase of tangible
fixed assets (2,582) (2,833) (2,161)
Sale of tangible fixed
assets 577 1,084 168
Purchase of investment (64) (5) ---
------- ------- --------
(2,069) (1,754) (1,993)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary
undertakings (25) --- ---
Cash balances acquired
with subsidiary 11 ---
------- ------- --------
(14) ---
Equity dividends paid (212) (629) (363)
------- ------- --------
NET CASH OUTFLOW BEFORE
FINANCING (267) (558) (253)
FINANCING
Capital element of finance
lease rentals (58) --- ---
Repayment of hire purchase
loans --- (613)
------- ------- --------
Net cash outflow from
financing (58) -- (613)
DECREASE IN CASH IN THE
YEAR 25 (325) (558) (866)
------- ------- --------
------- ------- --------
</TABLE>
55
<PAGE>
PART 2 EXTRACT OF THE NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER
1997
1. ACCOUNTING POLICIES
The accounts have been prepared in accordance with applicable accounting
standards. The following are the accounting policies used by the Group.
ACCOUNTING CONVENTION
The accounts have been prepared under the historical cost convention.
BASIS OF CONSOLIDATION
The group accounts consolidate the accounts of the Company and all subsidiaries
for the financial year ended 31 December 1997. The accounts of the Group's
associated undertaking have been excluded from the consolidation on the grounds
that it would be immaterial for the purposes of giving a true and fair view.
GOODWILL ARISING ON ACQUISITIONS
Goodwill arising on the acquisition of subsidiary companies is written off to
reserves in the year of acquisition. XTV Limited was acquisition accounted upon
the purchase of the balance of the issued share capital (note 18).
TANGIBLE FIXED ASSETS
Depreciation in respect of all fixed assets is provided at the following rates
on a straight line basis. The rates used are expected to write off the cost,
less any estimated residual value, of each asset over its expected useful life.
Plant & equipment, improvements to premises and office furniture & equipment are
depreciated at rates of 15-33 per cent. per annum.
Motor vehicles are depreciated at 20 per cent. per annum.
The leasehold properties will be written off over the remaining years of the
leases, which expire in years 2000 to 2011.
STOCKS
Stocks are stated at the lower of cost and net realisable value.
DEFERRED TAXATION
Deferred taxation is provided on timing differences arising from the different
treatment of items for accounting and taxation purposes, which are expected to
reverse in the future, calculated at the rates at which it is estimated that tax
will arise.
TURNOVER
Turnover is the amount derived from the provision of goods and services falling
within the Group's ordinary activities. This includes the provision of goods and
services to clients on certain projects where the income receivable is
contingent on the timing of amounts receivable by the client. Income is only
recognised on such projects when, in the opinion of the Directors, there is a
justifiable expectation of such income being received within the foreseeable
future. These balances are classified as investment in programming.
INVESTMENT IN PROGRAMMING
The investment in programming and copyright interest is stated at the lower of
cost and net realisable value. The investment is written down as income is
received until the investment is fully recouped. An assessment is made at each
balance sheet date by the Director to determine whether provision is required to
reduce the carrying value of the investment in programming to net realisable
value. Balances as at 31 December 1996 to the value of L304,000 in respect of
such investments have been restated from trade debtors.
PENSIONS
The Group operates a defined contribution scheme covering the majority of its
employees the assets of which are held separately from those of the Group, by an
insurance company. The costs of providing pensions are charged to the profit and
loss account in the period in which they are incurred. Contributions payable to
the fund at 31 December 1997 amounted to L44,000 (1996 -- L20,000).
56
<PAGE>
LEASES
Rental costs under operating leases are charged to the profit and loss account
in equal annual amounts over the periods of the lease.
INVESTMENTS
Investments held as fixed assets are stated at cost less provision for any
permanent diminution in value.
FOREIGN CURRENCIES
Trading results and assets and liabilities of overseas associated undertakings
are translated into sterling at the rate of exchange prevailing at the balance
sheet date. Transactions denominated in foreign currencies are translated into
sterling at the rates ruling at the dates of the transactions. Monetary assets
and liabilities denominated in foreign currencies at the balance sheet date are
translated at the rates at that date. These translations differences are dealt
with in the profit and loss account.
2. TURNOVER
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
United Kingdom 13,386 12,460
Rest of Europe 362 447
Rest of World 75 357
------ ------
13,823 13,264
------ ------
------ ------
</TABLE>
Included above is turnover with related parties as follows:
<TABLE>
<CAPTION>
L'000
<S> <C>
Cell Scandinavia ApS 34
Eagle Rock Entertainment plc 120
Castle Communications plc 17
XTV Limited (whilst an associated company) 251
</TABLE>
The Chairman, Mr Paul is a director and shareholder of Eagle Rock Entertainment
plc and, until May 1997, a director of Castle Communications plc. Otherwise the
Group has an interest in Cell Scandinavia ApS as a 33 per cent. shareholder and
had an interest in XTV Limited as a 50 per cent. shareholder until 7 November
1997. Turnover with Cell Scandinavia ApS represents the lease of certain items
of operating equipment. The turnover with other parties represents the provision
of services on normal third party terms.
3. OPERATING (LOSS)/PROFIT
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
OPERATING (LOSS)/PROFIT IS STATED AFTER
CHARGING/(CREDITING)
Depreciation (note 9) -- owned assets 2,739 2,426
Depreciation of assets under finance leases 40 --
Staff costs, including Directors' remuneration
(note 4) 6,806 5,262
Rentals under operating leases:
Hire of plant and machinery 319 204
Other operating leases 573 487
Auditors' remuneration:
Group audit fees 25 21
Company audit fees 3 3
Other work 2 --
Exceptional administrative expenses 454 --
Profit on disposal of fixed assets (78) (50)
------ ------
------ ------
</TABLE>
Exceptional administrative expenses represent costs of redundancies, asset write
downs and abortive marketing costs resulting from the reorganisation of the Cell
business.
57
<PAGE>
4. STAFF COSTS AND EMPLOYEES
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Wages and salaries 5,985 4,594
Fees 64 55
Social security costs 523 378
Other pension contributions 234 235
------ ------
6,806 5,262
------ ------
------ ------
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
AVERAGE NUMBER EMPLOYED
Operating 106 95
Engineering 18 15
Sales/bookings 53 49
Administration 63 49
------ ------
240 208
------ ------
------ ------
</TABLE>
5. NET INTEREST PAYABLE
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Bank interest received -- 5
Bank overdraft interest paid (102) (14)
Interest payable on finance lease and hire
purchase commitments (20) ---
Other interest paid (10) ---
------ ------
(132) (9)
------ ------
------ ------
</TABLE>
All interest paid relates to borrowings repayable within five years.
6. TAXATION ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
UNITED KINGDOM CORPORATION TAX BASED ON THE
(LOSS)/PROFIT FOR THE YEAR
Current year at 31% 82 549
Prior year at 33% (13) 10
Share of associated company's taxation 26 --
DEFERRED TAXATION
Current year (110) (198)
Prior year -- 7
------ ------
(15) 368
------ ------
------ ------
</TABLE>
The disproportionate tax charge is because of the level of disallowable
expenditure for tax purposes and non recognition of deferred tax assets.
58
<PAGE>
7. DIVIDENDS
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
ORDINARY DIVIDENDS ON EQUITY SHARES
Interim paid -- nil per share (1996 -- 1.8p) -- 212
Final proposed -- nil per share (1996 --
1.8p per share) -- 212
------ ------
-- 424
PREFERENCE DIVIDENDS ON NON-EQUITY SHARES
Final accrued -- 5.75% (1996 - 5.75%) 14 14
------ ------
14 438
------ ------
------ ------
</TABLE>
Dividends have been accrued in respect of the preference shares. However, it is
not intended to pay these dividends until such time as dividends on the ordinary
shares recommence.
8. (LOSSES)/EARNINGS PER ORDINARY SHARE
The calculation of (losses)/earnings per ordinary share is based on the weighted
average number of ordinary shares in issue throughout the year of 11,849,000
(1996 -- 11,772,000) and on losses attributable to ordinary shareholders (after
deduction of preference dividends) of L1,196,000 (1996 -- profit L525,000). No
material dilution of (losses)/earnings per share would arise if all share
options were exercised and shares to be issued were issued.
9. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Short Improve- Office
Plant & leasehold ments to furniture & Motor
equipment premises premises equipment vehicles Total
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
COST
1 January 1997 13,836 113 1,399 975 200 16,523
Additions 2,212 --- 306 238 171 2,927
Acquisition of subsidiary 49 -- -- 30 -- 79
Disposals (896) --- (6) (4) (74) (980)
------ ------ ------ ------ ------ ------
31 December 1997 15,201 113 1,699 1,239 297 18,549
------ ------ ------ ------ ------ ------
DEPRECIATION
1 January 1997 8,640 70 705 609 92 10,116
Charge 2,283 8 241 193 54 2,779
Acquisition of subsidiary 7 -- -- 10 -- 17
Disposals (419) --- --- (1) (61) (481)
------ ------ ------ ------ ------ ------
31 December 1997 10,511 78 946 811 85 12,431
------ ------ ------ ------ ------ ------
NET BOOK VALUE
31 December 1997 4,690 35 753 428 212 6,118
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
31 December 1996 5,196 43 694 366 108 6,407
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
Included above are plant and equipment held under finance leases and hire
purchase contracts with a net book value at 31 December 1997 of L317,000 (1996
Lnil).
59
<PAGE>
10. INVESTMENTS
This represents ordinary shares in subsidiary undertakings and associated
undertakings at cost less provision for permanent diminution in value.
<TABLE>
<CAPTION>
Associated Other
undertakings investments Total
L'000 L'000 L'000
<S> <C> <C> <C>
1 January 1997 5 -- 5
Additions -- 64 64
Provisions for loss in value (5) -- (5)
------ ------ ------
31 December 1997 64 64
------ ------ ------
------ ------ ------
</TABLE>
Subsidiary undertakings, associated undertakings and other investments comprise
the following.
<TABLE>
<CAPTION>
Country of
Percentage incorporation/
holding of registration Principal
ordinary shares and operation activities
%
<S> <C> <C> <C>
SUBSIDIARY UNDERTAKINGS
Tele-Cine Limited 100 England Broadcast & Media
facilities
XTV Cell Limited 100 England Design, production and
film & video animation
Silver Digital Limited 100 England Dormant
(formerly Palm Tree Video Limited)
XTV Limited 100 England Dormant
File Exchange Limited 100 England Dormant
ASSOCIATED UNDERTAKINGS
Cell Scandinavia ApS 33.33 Denmark Film animation
OTHER INVESTMENTS
2010 Media Group Limited 16 England Programme production
</TABLE>
XTV Limited commenced trading on 1 January 1997 with an issued share capital of
L100 and the Group had a 50 per cent. interest at that time. The other 50 per
cent. of the issued share capital was acquired in November 1997 (note 18).
Following the acquisition of the balance of the shares, the business of XTV
Limited was transferred to XTV Cell Limited (formerly called Cell Animation
Limited).
Cell Scandinavia ApS commenced trading in October 1996 and its first accounting
period ended 31 December 1997. Its unaudited accounts to 31 December 1997
disclose a loss of L171,000 for the period then ended. The Group guarantees the
bank loans and overdrafts and a finance lease of Cell Scandinavia ApS jointly
and severally with the other shareholders and has an obligation to repurchase
certain plant used in the business bought on a finance lease. Provision has been
made for the estimated liability that would occur if the business ceased to
trade (note 16). The Group intends to exit from its involvement with Cell
Scandinavia ApS.
The Group guaranteed during the year ended 31 December 1997 the bank overdraft
of 2010 Media Group Limited up to a value of L60,000. This guarantee ceased on
17 February 1998. In the opinion of the Directors, 2010 Media Group Limited
should not be equity accounted as there is one shareholder in that company who
holds 64 per cent. of the voting rights and the Group is not involved in the
financial and operating policy decisions of the company.
The proportion of voting held in respect of Cell Scandinavia ApS and 2010 Media
Group Limited is the same as the proportion of ordinary shares held.
60
<PAGE>
11. STOCKS
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Stock of goods for resale 134 141
------ ------
------ ------
</TABLE>
12. INVESTMENT IN PROGRAMMING
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Work in progress 105 197
Completed programming 260 107
------ ------
365 304
------ ------
------ ------
</TABLE>
Due to the nature of these assets, some of the balance may not be recoverable
until after more than one year, and recoverability depends upon the ultimate
success of the projects concerned.
13. DEBTORS
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Trade debtors 3,771 3,738
Amount owed by associated undertaking 17 49
Corporation tax 261 ---
Other debtors 45 212
Prepayments and accrued income 299 257
------ ------
4,393 4,256
------ ------
------ ------
</TABLE>
Included above are amounts owing by related parties as follows:
<TABLE>
<CAPTION>
L'000
<S> <C>
Cell Scandinavia ApS 17
Eagle Rock Entertainment plc 83
Castle Communication plc 1
</TABLE>
14. CREDITORS -- AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Bank overdraft 938 627
Trade creditors 1,115 915
Other creditors 80 55
Accruals and deferred income 236 125
Finance lease and hire purchase obligations 61 --
Corporation tax 459 494
Other taxes and social security costs 718 366
Dividends payable 14 226
------ ------
3,621 2,808
------ ------
------ ------
</TABLE>
The bank overdraft is repayable on demand and secured by a fixed and floating
charge over the Group's assets.
61
<PAGE>
15. CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Finance lease and hire purchase obligations 237 --
----- -----
----- -----
</TABLE>
Of the finance lease and hire purchase obligations shown above, L56,000 is
payable in between one and two years and L181,000 is payable between two and
five years.
16. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Deferred taxation (note 17) -- 55
Provision against guarantees over associated
company (note 10) 147 --
----- -----
147 55
----- -----
----- -----
</TABLE>
PROVISIONS: MOVEMENT IN THE YEAR
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
1 January 1997 -- --
Charge for the year in respect of liabilities
under guarantees given to Cell
Scandinavia ApS 147 --
----- -----
31 December 1997 147 --
----- -----
----- -----
</TABLE>
17. DEFERRED TAXATION
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
MOVEMENT IN THE YEAR
1 January 1997 55 193
Credit to profit and loss account for the year (110) (191)
ACT on proposed dividend -- (55)
ACT recoverable against mainstream corporation
tax liability for current period 55 108
----- -----
31 December 1997 -- 55
----- -----
----- -----
FULL PROVISION AT YEAR END
Accelerated capital allowances -- 95
Capital gains rolled over -- 15
ACT on proposed dividend, recoverable after
more than one year -- (55)
----- -----
-- 55
----- -----
----- -----
</TABLE>
There are no unprovided deferred taxation liabilities (1996 -- nil)
18. ACQUISITION OF XTV LIMITED
On 1 January 1997, the Group acquired a 50 per cent. interest for notional value
in XTV Limited, a newly formed company established by its management to provide
a production design facility. On 7 November 1997, the Group purchased the 50 per
cent. of the issued share capital of XTV Limited that it did not hold. The
consideration for the purchase of the remaining 50 per cent. was as follows:
<TABLE>
<CAPTION>
L'000
<S> <C>
Paid on 7 November 1997 200
Paid on 13 January 1998 100
Payable on 1 July 1998 100
Payable on 1 April 1999 100
----
500
----
----
</TABLE>
62
<PAGE>
All consideration is payable in 5p ordinary shares of the Company at the market
price prevailing at the time of payment. The consideration payable on 1 April
1999 is only payable in the event that XTV Cell Limited makes a profit in the
year ended 31 December 1998. The deferred consideration outstanding has been
treated as shares to be issued.
The assets acquired were as follows:
<TABLE>
<CAPTION>
Fair value
of net assets
in Group
L'000
<S> <C>
Fixed assets 62
Cash at bank and in hand 11
Debtors 255
Creditors
Amounts falling due within one year (264)
Amounts falling due after more than one year (9)
-------
Net Assets at 100% 55
-------
Net Assets of interest acquired of 50% 27
-------
Goodwill arising on acquisition was as follows:
Consideration 500
Expenses 26
-------
526
Interest in net assets acquired (27)
-------
Total goodwill arising 499
-------
Offset under S131 Companies Act 1985
against share premium otherwise arising 177
Written off against profit and loss reserve 322
-------
499
-------
-------
</TABLE>
In the period from 1 January 1997 to 7 November 1997 XTV Limited had turnover of
L990,000 and profit before taxation of L110,000. Following the acquisition of
the remaining 50 per cent. interest, the business of XTV Limited was merged
together with that of Cell Animation Limited which changed its name to XTV Cell
Limited. As a consequence, separate profit and loss and cashflow figures are not
available for the period after acquisition. The Directors do not consider this
omission to be material.
No fair value adjustments were required to XTV Limited's net asset value.
19. SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
AUTHORISED
15,907,135 ordinary shares of 5p each 795 795
245,635 5.75% cumulative preference shares of
L1 each 246 246
----- -----
1,041 1,041
----- -----
----- -----
CALLED UP, ALLOTTED AND FULLY PAID
12,232,282 (1996: 11,772,282) ordinary shares
of 5p each 611 588
245,635 5.75% cumulative preference shares
of L1 each 246 246
----- -----
857 834
----- -----
----- -----
</TABLE>
The ordinary shares are equity shares and the 5.75 per cent. cumulative
preference shares are non-equity shares.
The cumulative preference shares of L1 each confer on the holders the right to
receive a fixed cumulative preferential dividend of 5.75 per cent. on the paid
up capital and the right to rank ahead of the ordinary shares on a winding up or
return of capital. The shares carry no right to vote.
63
<PAGE>
On 7 November 1997 460,000 ordinary shares of 5p each with an aggregate nominal
value of L23,000 and on 13 January 1998 212,766 ordinary shares of 5p each with
an aggregate nominal value of L11,000 were issued in part consideration of the
purchase of the 50% interest in XTV Limited not already owned by the Group (note
18).
The Company operates two share option schemes, the Inland Revenue approved
Tele-Cine Cell Group plc 1994 Executive Share Option Scheme and the unapproved
Tele-Cine Cell Group plc 1996 Share Option Scheme. At 31 December 1997 the
following options to purchase 5p Ordinary shares were outstanding:
<TABLE>
<CAPTION>
Exercise period Number of Option
Date of Grant From End date shares price
<S> <C> <C> <C> <C>
28 November 1994 28 November 1997 28 November 2004 82,000 170p
3 November 1995 3 November 1995 3 November 2005 15,000 125p
3 May 1996 3 May 19993 May 2006 9,000 63p
5 November 1996 5 November 1999 5 November 2006 141,000 53.5p
6 May 1997 6 May 2000 6 May 2007 40,000 44p
12 November 1997 12 November 2000 12 November 2007 360,000 42p
12 November 1997 12 November 2000 12 November 2004 160,000 42p
--------
807,000
--------
--------
</TABLE>
The market price of the Company's shares at 31 December 1997 was 47p.
20. CAPITAL AND RESERVES
<TABLE>
<CAPTION>
Profit and
Shareholders Share Share Shares to loss Merger
funds capital premium be issued reserve reserve
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
1 January 1997 8,264 834 3,563 -- 3,867 --
Purchase of XTV Limited 200 23 -- -- -- 177
Shares to be issued 300 -- -- 300 -- --
Retained (loss) for the year (1,196) -- -- -- (1,196) --
Goodwill written off (499) -- -- -- (322) (177)
------ ---- ----- ----- ------ -----
------ ---- ----- ----- ------ -----
31 December 1997 7,069 857 3,563 300 2,349 --
------ ---- ----- ----- ------ -----
------ ---- ----- ----- ------ -----
</TABLE>
At 31 December 1997 L499,000 (1996 - Lnil) of goodwill in respect of
subsidiaries owned at that date had been written off directly to reserves or
offset against balances under S131 Companies Act 1985.
Shares to be issued represent the balance of the acquisition consideration for
XTV Limited (note 18).
21. CAPITAL COMMITMENTS
There were no capital commitments at 31 December 1997 contracted for but not
provided (1996: L309,000).
64
<PAGE>
22. CONTINGENT LIABILITIES
Contingent liabilities are not expected to give rise to any material losses.
23. OPERATING LEASE COMMITMENTS
At 31 December 1997, the Group was committed to the following payments during
the forthcoming year.
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
LAND AND BUILDINGS
Leases expiring within 2-5 years 53 53
Leases expiring after more than 5 years 521 476
----- -----
574 529
----- -----
----- -----
PLANT AND EQUIPMENT
Leases expiring within 2-5 years 271 271
----- -----
----- -----
</TABLE>
24. RECONCILIATION OF OPERATING (LOSS)/PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Operating (loss)/profit (968) 916
Depreciation 2,779 2,426
Profit on disposal of tangible fixed assets (78) (50)
Decrease in stocks 7 133
Decrease/(increase) in debtors 379 (686)
Increase in investment in programming (61) (304)
Increase in creditors 464 140
----- -----
Net cash inflow from operating activities 2,522 2,575
----- -----
----- -----
</TABLE>
Following the acquisition of XTV Limited, the business of XTV Limited was
transferred into Cell Animation Limited, which changed its name to XTV Cell
Limited. It has therefore not been possible to identify cash flows of the former
XTV Limited business following acquisition. The Directors do not consider the
omission to be material.
Included within net cash inflow from operating activities is L143,000 paid in
respect of exceptional items.
25. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Decrease in cash in the year (325) (558)
Net cash outflow from financing 58 --
------ -----
(267) (558)
New finance leases (345) --
Finance leases acquired with subsidiary (11) --
------ -----
(623) (558)
Net debt at 1 January 1997 (613) (55)
------ -----
Net debt at 31 December 1997 (1,236) (613)
------ -----
------ -----
</TABLE>
65
<PAGE>
26. ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
Other non-
31 December cash Effect of 1 January
1997 Cash flow movements Acquisition 1997
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
Cash at bank and in hand (14) -- 14
Bank overdrafts (938) (311) -- (627)
------ ----- ----- ----- -----
(938) (325) -- -- (613)
Finance leases (298) 58 (345) (11) --
------ ----- ----- ----- -----
Total (1,236) (267) (345) (11) (613)
------ ----- ----- ----- -----
------ ----- ----- ----- -----
</TABLE>
During the year the Group entered into finance lease arrangements in respect of
assets with a total capital value at the inception of the leases of L345,000.
PART 3 DIRECTORS' REMUNERATION
The following is an extract from the report of the Remuneration Committee for
the year ended 31 December 1997.
<TABLE>
<CAPTION>
1997 1996
Pension
Basic con- Benefits
Fees salaries tributions in kind Total Total
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
EXECUTIVE DIRECTORS
J P Rowland 103 19 7 129 119
P A P O'Hagan (resigned
17 January 1998) 94 17 8 119 118
N Igoe (resigned 13 January 1998) 59 11 8 78 77
R A Cole (appointed
11 November 1997) 14 -- 14 --
D G Brocksom (appointed
13 January 1998) -- -- -- --
NON-EXECUTIVE DIRECTORS
J B Paul (Chairman) 40 -- -- 40 30
J L Rowsell 12 -- -- 12 11
R Kirsch 12 -- -- -- 12 13
G S Duncan (appointed
12 November 1996) 8 -- -- -- 8 1
---- ----- ----- ----- ----- -----
Total 72 270 47 23 412 369
---- ----- ----- ----- ----- -----
---- ----- ----- ----- ----- -----
</TABLE>
PART 4 MATERIAL CHANGES
Save as disclosed in this document, there has been no material change in the
financial or trading position of Tele-Cine Cell and its subsidiaries since 31
December 1997, the date to which the latest audited accounts were made up.
66
<PAGE>
APPENDIX V
PARTICULARS OF THE LOAN NOTES
The guaranteed unsecured 4.5% fixed rate loan notes 1998/2002 of Todd Europe
have been created by a resolution of the Board of Todd Europe (or a duly
authorised committee) and constituted by a Loan Note instrument executed by Todd
Europe dated Friday 17th April 1998 (the "Loan Note Instrument"). The Loan Notes
will be guaranteed as to principal by Bank of America under the terms of the
Loan Note Instrument. Elections for Loan Notes by the holders of Tele-Cine Cell
ordinary shares in respect of the maximum cash consideration receivable under
the terms of the Offer would involve the issue of a nominal amount of Loan Notes
of L10,524,038 million. The Loan Note Instrument will contain provisions,
amongst others, to the effect set out below.
1. FORM AND STATUS
The Loan Notes will be issued in registered form in amounts of integral
multiples of L1 and will constitute unsecured obligations of Todd Europe.
Fractional entitlements arising on elections for Loan Notes will be satisfied in
cash. The Loan Note Instrument will not contain any restrictions on borrowing,
or disposals or charging of assets by Todd Europe.
2. INTEREST
Interest on the Loan Notes will accrue from day to day and will be calculated on
the basis of a 365 day year and will be payable (subject to any requirement to
deduct income tax from it) annually in arrears on 30 April or, if any such day
is not a business day on the immediate preceding business day, ("interest
payment date") in each year in respect of the interest period (as defined below)
ending on such dates at a rate of 4.5% per annum. The first payment of interest
on any Loan Note, which will be made on 30 April 1999, will be in respect of the
period from the date of issue of that Loan Note to 30 April 1999 (both dates
inclusive). The period from the date of issue of the Loan Notes to 30 April
1999, and the period from the day immediately following 30 April 1999 or any
subsequent interest payment date, to and inclusive of the next following
interest payment date, are herein called an "interest period".
3. REDEMPTION OF LOAN NOTES
(a) A holder of Loan Notes ("Noteholder") shall be entitled to require Todd
Europe to redeem the whole or any part at par, subject to a minimum of
L5,000 nominal, or, if smaller, the whole holding, together with accrued
interest (subject to any requirement to deduct tax from it) up to the date
of the redemption, on 30 April in each of the years 1999, 2000, 2001 and
2002 by giving (in the form endorsed on the Loan Note certificate) not less
than 30 days' prior notice in writing to Todd Europe accompanied by the
certificate(s) for all the Loan Notes to be redeemed, provided that no such
notice may be given in respect of any Loan Notes in respect of which notice
of redemption has previously been given by Todd Europe in accordance with
paragraph 3(c) of this Appendix and no notice may be given for redemption
prior to a date which is less than 190 days after the date of issue of the
Loan Notes to be redeemed.
(b) If, at any time, the principal amount of all Loan Notes outstanding is 10%
or less of the total nominal amount of Loan Notes issued, Todd Europe shall
have the right on giving to the Noteholders not less than 30 days' prior
notice in writing expiring on the next following 30 April, to redeem all
(but not some only) of the outstanding Loan Notes on such date by payment
of their nominal amount together with accrued interest (subject to any
requirement to deduct tax from it) up to the date of redemption.
(c) Any Loan Notes not previously so redeemed or otherwise acquired by Todd
Europe will be repaid in full at par on 30 April 2002 together with accrued
interest (subject to any requirement to deduct tax from it) up to that
date.
4. CANCELLATION
Any Loan Notes redeemed in accordance with paragraph 3 of this Appendix or
otherwise acquired by Todd Europe shall be cancelled and shall not be available
for re-issue, or re-sale.
67
<PAGE>
5. MODIFICATIONS
The provisions of the Loan Note Instrument will be subject to amendment by Todd
Europe and the rights of the Noteholders will be subject to modification,
abrogation or compromise in any respect with the sanction of an extraordinary
resolution of Noteholders being a resolution of a majority of holders holding
not less than 90% in nominal value of Loan Notes then outstanding.
6. REGISTRATION AND TRANSFER
The Loan Notes will be registered in amounts and multiples of L1. The Loan Notes
will be transferable in amounts or integral multiples of L1,000 (or if less, the
entire holding), provided that transfers of Loan Notes will not be registered
during the ten business days immediately preceding an interest payment date or
while the register is closed.
7. RESTRICTIONS ON OWNERSHIP AND TRANSFER
The Loan Notes have not been and will not be registered under the United States
Securities Act of 1933 (as amended) and may not be offered or sold in the United
States or to United States persons except in transactions exempt from, or not
subject to, the registration requirements of that Act, nor may they be sold or
offered to persons in, or resident in, Canada, Australia or Japan.
8. PRESCRIPTION
Noteholders will cease to be entitled to amounts due in respect of interest
and/or principal which remain unclaimed for a period of twelve years from the
date on which the relevant payment first becomes due and such amounts shall
revert to Todd Europe.
9. NO LISTING
No application has been made or is intended to be made to any stock exchange or
other dealing service for the Loan Notes to be listed or dealt in.
10. EVENTS OF DEFAULT
Each Noteholder shall be entitled to require all or any part (being an integral
multiple of L5,000 in nominal amount) of the Loan Notes held by him to be repaid
at par together with accrued interest (subject to any requirement to deduct any
tax from it) up to the date of redemption whilst any of the following is
continuing:
(a) the failure by Todd Europe to meet its payment obligations in full in
respect of any principal or interest on any of the Loan Notes held by that
Noteholder within 15 days after the due date for payment of it;
(b) an order is made or an effective resolution is passed for the winding-up or
dissolution of Todd Europe or any of its trading subsidiaries other than
for the purposes of a reconstruction or an amalgamation or a members'
voluntary winding-up upon terms previously approved by an extraordinary
resolution of the Noteholders, or;
(c) an encumbrancer takes possession or a trustee, receiver or an
administrator, administrative receiver or similar officer is appointed in
respect of all or substantially all of the undertaking of Todd Europe or
any of its trading subsidiaries and such person has not been paid out or
discharged within 5 business days.
11. GUARANTEE
The principal amount (but not interest) payable in respect of the Loan Notes
will be unconditionally guaranteed by Bank of America. Claims under such
guarantee must be made not later than 120 days after the date on which any
payment of principal on the Loan Notes falls due and is not paid by Todd Europe.
12. GOVERNING LAW
The Loan Notes and the Loan Note Instrument will be governed by and construed in
accordance with English law.
68
<PAGE>
APPENDIX VI
GENERAL INFORMATION
1. RESPONSIBILITY
(a) The issue of this document has been approved by the executive directors of
Todd and Todd Europe.
The executive directors of Todd and Todd Europe whose names appear below
accept responsibility for all the information contained in the document
(apart from that relating to Tele-Cine Cell, the directors of Tele-Cine
Cell and their immediate families). To the best of the knowledge and belief
of the directors of Todd and Todd Europe (who have taken all reasonable
care to ensure that such is the case) such information is in accordance
with the facts and does not omit anything likely to affect the import of
such information.
<TABLE>
<CAPTION>
<S> <C>
THE EXECUTIVE DIRECTORS OF TODD ARE: THE NON-EXECUTIVE DIRECTORS OF TODD ARE:
Robert A. Naify Robert I. Knudson David Haas
Co-Chairman of the Board and Director Director
Co-Chief Executive Officer
Michael S. Naify Anthur Franklin Pierce
Marshall Naify Director Director
Co-Chairman of the Board
Co-Chief Executive Officer Robert J. Naify David Priestly Malm
Director Director
Salah M. Hassanein
President and Chief Operating Officer Zelbie Trogden
Director
Christopher D.Jenkins
Senior Vice President and Director Herbert L. Hutner
Director
Joseph R. DeLang
Senior Vice President and Director
Richard C. Hassanein
Vice President and Director
THE DIRECTOR OF TODD EUROPE IS:
Salah M. Hassanein
</TABLE>
(b) The directors of Tele-Cine Cell whose names appear below accept
responsibility for all the information contained in the document relating
to Tele-Cine Cell, themselves and their immediate families. To the best of
the knowledge and belief of the directors of Tele-Cine Cell (who have taken
all reasonable care to ensure that such is the case) such information is in
accordance with the facts and does not omit anything likely to affect the
import of such information.
THE DIRECTORS OF TELE-CINE CELL ARE:
Julian Braithwaite Paul MA FCA Raymond Kirsch
Non-Executive Chairman Non Executive
John Philip Rowland James Luya Rowsell LLB
Group Managing Director Non Executive
David Graham Brocksom MA FCA Grant Stuart Duncan MA
Finance Director Non Executive
Robert Alan Cole FCA
Executive Director
The principal and registered office of Tele-Cine Cell is Video House, 48
Charlotte Street, London W1P 1LX.
69
<PAGE>
2. DISCLOSURE OF INTERESTS AND DEALINGS
Interests and dealings in the share capital of Tele-Cine Cell
(a) The following dealings for value in the ordinary shares of Tele-Cine Cell
have been made by the directors of Tele-Cine Cell during the Disclosure
Period.
<TABLE>
<CAPTION>
Number of
Nature of the Date of Tele-Cine Cell
Name Transaction Transaction ordinary shares Price
<S> <C> <C> <C> <C>
R. Cole Purchase* 13 January 1998 85,106 47p
R. Cole Purchase 25 November 1997 150,000 38p
R. Cole Purchase* 7 November 1997 184,000 43.48p
</TABLE>
*acquired as part of the consideration for the acquisition of XTV Limited.
On 12 November 1997, under the terms of the Company's share option schemes, R
Cole was granted options over 125,000 ordinary shares of the Company at a price
of 42 pence per share.
Under the terms of Mr Brocksom's contract of employment the Company has
undertaken to issue, at the first opportunity, options over 125,000 ordinary
shares under the terms of the Company's share option schemes. The Company has
undertaken to compensate Mr Brocksom at the time of any exercise of the options
in the event that the share options cannot be issued at, or less than, 47 pence
per share, being the price prevailing at the time his employment with the
Company commenced. In the event that the Offer becomes unconditional the options
will not be granted and Mr Brocksom will receive compensation of L41,250 being
the difference between the proposed option price and the Offer price in relation
to 125,000 Tele-Cine Cell ordinary shares.
On Thursday, 16 April 1998, the interests of the directors of Tele-Cine Cell and
their immediate families in the share capital of Tele-Cine Cell, as shown in the
register maintained under the provisions of the Companies Act 1985 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
J B Paul 170,000
J R Rowland 1,593,750
D G Brocksom nil
R A Cole 419,106
R Kirsch 3,044,340
J L Rowsell 18,000
G S Duncan nil
</TABLE>
R Kirsch owns 245,635 Tele-Cine Cell preference shares.
(b) Save as disclosed herein, neither Todd nor any of its subsidiaries nor any
of Todd's directors or their immediate families, nor Todd Europe nor any of
its subsidiaries nor any of Todd Europe's directors or their immediate
families, nor any adviser to Todd or Todd Europe, nor any person acting in
concert with Todd Europe, nor Tele-Cine Cell nor any of its subsidiaries
nor any of Tele-Cine Cell's directors nor their immediate families, nor any
pension fund of Tele-Cine Cell, nor any adviser to Tele-Cine Cell, has any
interest in or holds any Tele-Cine Cell shares or any securities
convertible into, rights to subscribe for or options in respect of
Tele-Cine Cell shares or dealt for value therein during the Disclosure
Period.
(c) Tele-Cine Cell has no interest in and holds no shares in Todd or Todd
Europe nor any securities convertible into, rights to subscribe for or
options in respect of such shares.
(d) Irrevocable undertakings to accept the Offer have been given as follows:
<TABLE>
<CAPTION>
Shareholder Number of Tele-Cine Cell
ordinary shares
<S> <C>
Arcadian Associates Limited 3,044,340
Robert Cole 419,106
Glyn Mills (Nominees) (Lombard Street) Limited 170,000
Paul O'Hagan 1,593,750
Janet Patricia Rowland 100,000
John Rowland 1,493,750
James Rowsell 18,000
</TABLE>
70
<PAGE>
(e) The following are the dealings for value in the ordinary shares of
Tele-Cine Cell by Beeson Gregory as market maker:
<TABLE>
<CAPTION>
Number of
Tele-Cine Cell
Nature of the Transaction Date of Transaction ordinary shares Price
<S> <C> <C> <C>
Purchase 22.09.97 25,000 40p
Sale 25.09.97 5,000 42p
Sale 26.09.97 5,000 42p
Purchase 2.10.97 5,000 34p
Sale 3.10.97 10,000 39p
Purchase 3.10.97 5,000 38p
Purchase 20.10.97 120,000 37.50p
Sale 20.10.97 10,000 38p
Sale 20.10.97 100,000 38p
Sale 21.10.97 25,000 39.50p
Sale 21.10.97 13,100 38.50p
Sale 22.10.97 20,000 40p
Sale 24.10.97 5,000 47p
Purchase 28.10.97 25,000 43p
Purchase 19.11.97 1,765 38p
Purchase 24.11.97 11,000 37p
Purchase 25.11.97 150,000 37p
Sale 25.11.97 150,000 38p
Sale 3.12.97 10,000 43p
Sale 4.12.97 3,940 50p
Sale 30.01.98 4,433 55p
Sale 9.02.98 10,000 70p
Purchase 10.02.98 25,000 73p
Purchase 13.02.98 3,000 68.50p
Sale 19.02.98 15,000 68p
Purchase 19.02.98 20,000 64p
Sale 19.02.98 15,000 66p
Purchase 19.02.98 13,100 65p
Purchase 25.02.98 4,832 63p
Purchase 26.02.98 5,446 62p
Sale 3.03.98 10,000 63p
Sale 4.03.98 25,000 62p
Purchase 4.03.98 10,000 60p
Purchase 4.03.98 3,200 60p
Purchase 4.03.98 20,000 59p
Sale 5.03.98 10,000 63p
Sale 6.03.98 10,000 66p
Purchase 6.03.98 25,000 63p
Sale 9.03.98 10,000 65p
Sale 9.03.98 10,000 65p
Sale 9.03.98 10,000 65p
Sale 9.03.98 10,000 65p
Purchase 9.03.98 25,000 63p
Sale 11.03.98 25,000 66p
Purchase 10.03.98 10,000 62p
Purchase 11.03.98 22,222 63p
Sale 12.03.98 17,391 69p
Purchase 16.03.98 5,000 72p
Purchase 16.03.98 15,000 72p
Purchase 23.03.98 15,000 67p
Sale 23.03.98 15,000 67.625p
Purchase 23.03.98 20,000 65p
Purchase 26.03.98 5,000 67p
Sale 1.04.98 8,000 68p
Purchase 3.04.98 25,000 67p
Sale 3.04.98 25,000 67.75p
Purchase 6.04.98 10,000 75p
Purchase 8.04.98 15,000 75.50p
Purchase 15.04.98 20,000 75p
</TABLE>
71
<PAGE>
3. STOCK EXCHANGE QUOTATIONS
The following table sets out the middle market quotation for Tele-Cine Cell
ordinary shares, as derived from the London Stock Exchange Daily Official List,
on the first dealing day of each of the six months prior to the date of this
document, on 29 January 1998 (the dealing day prior to the commencement of the
Offer period) and on 3 April 1998 (the date prior to the announcement of the
Offer) and for 16 April 1998 (the latest practicable date prior to the
publication of this document).
<TABLE>
<CAPTION>
Tele-Cine Cell
ordinary shares
pence
per share
<S> <C>
3 November 1997 44.5
1 December 1997 40.5
2 January 1998 47.0
29 January 1998 49.5
2 February 1998 61.0
2 March 1998 61.5
3 April 1998 68.5
16 April 1998 77.5
</TABLE>
4. DIRECTORS' SERVICE CONTRACTS
Save as disclosed herein:
(a) there are no service agreements in force between any director of Tele-Cine
Cell and Tele-Cine Cell or any of its subsidiaries which do not expire or
cannot be terminated within the next 12 months without payment of
compensation (other than statutory compensation).
(b) the following service agreements described above were entered into during
the 6 month period preceding the date of this document.
(1) On 7 November 1997 an agreement was entered into between (1) XTV Cell
Limited and (2) R A Cole whereby it was agreed that Cell Animation
Limited (now XTV Cell Limited) would engage R A Cole as a consultant
upon six months' notice at a monthly fee of L7,500 (plus VAT if
appropriate) to provide consultancy services to the Company and its
subsidiaries.
(2) On 24 February 1997 an agreement was entered into between (1)
Tele-Cine Cell and (2) D G Brocksom whereby it was agreed that D G
Brocksom would serve the Company as the finance director of the
Company and its subsidiaries from 5 January 1998 for a term which can
be determined by the Company giving not less than six months' notice
to D G Brocksom and vice versa to expire on or after 31 December 1998.
The remuneration payable under the agreement is L75,000 per annum.
5. MATERIAL CONTRACTS
(a) The following are the only contracts (other than contracts entered into in
the ordinary course of business) which are or may be material and which
have been entered into by Todd and its subsidiaries within the two years
immediately preceding the date of this document:
(1) Agreement for the acquisition of the entire issued share capital of
Filmatic Laboratories Ltd. ("Filmatic") dated as of April 18, 1996
between David L Gibbs, Ian Magowan and Todd Europe.
On April 18, 1996 Todd Europe acquired all the outstanding shares of
Filmatic, a London based film processing and video post production
company for the sum of L1. Concurrently with the acquisition, Todd
Europe advanced and paid on behalf of Filmatic bank debt in the amount
of L357,096.
(2) Asset Purchase Agreement dated August 13, 1996 by and among Todd
("Purchaser"), Edit Acquisition LLC ("Editworks") ("Seller"), Edit
Group L.P., Patrick H. Furlong, Margie F. Furlong and James Furlong V
("Members") and Margie F. Furlong, Patrick H. Furlong, K. Robert
Draughon and Robert M. Martin ("Guarantors").
72
<PAGE>
On August 13, 1996 Todd entered into an agreement with Editworks et al
to purchase substantially all of the assets and certain liabilities
of Editworks. The aggregate consideration of $4,650,000 was accounted
for as a purchase; $3,180,487 was paid in cash and $969,513 in Todd
common stock at the closing.
The remaining $500,000 was subsequently paid in cash upon the
completion of certain conditions. The funds paid at closing were
provided by the Company's credit facility with its institutional
lender. Editworks provides video post production services to
broadcasters, advertising agencies and other businesses.
(3) Agreement and Exhibits for the Purchase and Sale of Assets dated June
18, 1997 among Todd, Todd-AO HD, Inc. ("THD") and Hollywood Digital
Limited Partnership ("HD"), Hollywood Digital, Inc., The Palladion
Limited Partnership, HDZ Digital Limited Partnership, Phemus
Corporation, Rand Gladden, William Romeo, David Cottrell and Michael
Jackson.
On the closing date, June 20, 1997, an agreement dated June 18, 1997
for the purchase and sale of substantially all of the assets and
certain liabilities of HD was entered into for an aggregate
consideration of $30,400,000. The purchase price was subject to
reduction by an adjustment factor if the operating profit for the
period July 1, 1996 to June 30, 1997 is less than $5,500,000. In
August 1997, the seller and purchaser agreed that the operating profit
for the period was $4,793,356 and the purchase price was reduced to
$26,160,136. The acquisition has been accounted for as a purchase. Of
the total purchase price, cash in the amount of $17,741,429 was used
to pay down existing debt of the seller; $19,500 was used to assume
additional debt; and the remaining $8,399,207 is evidenced by the
issuance of convertible subordinated notes of Todd. The principal is
due and payable at the end of three years and interest is payable
annually at 5 per cent. The notes are convertible into Todd Class A
Common Stock at the conversion price of $11.875 per share
(subsequently adjusted to $11.812 per share) at any time before the
maturity date. Financing of the debt paid at closing was provided by
the Company's credit facility with its institutional lender. HD is an
all digital, post production facility providing sound and video
services to the film, television, and commercial advertising
industries.
(4) First Amended and Restated Credit Agreement dated October 20, 1997
between Todd and Bank of America National Trust and Savings
Association ("BA").
Under its new First Amended and Restated Credit Agreement, Todd may
borrow up to $50,000,000 (with a provision for an increase to
$60,000,000 requiring BA consent and Todd Board approval) in revolving
loans (including up to 50 per cent. in Multi-currency) until November
30, 2000. On that date and quarterly thereafter until August 31, 2002,
the revolving loan commitment will reduce by 6.25 per cent to 50 per
cent. of the combined loan commitment on the reduction date. The
remaining 50 per cent. will reduce to nil by the expiration of the
agreement on December 31, 2002. Annually, Todd may request an
automatic extension of the revolving period of the credit facility for
one year which will also extend the term period and the expiration
date of the agreement. Todd also has the availability of Standby
Letters of Credit up to $2,500,000 under the facility. The credit
facility provides for borrowings at just above the Bank's Reference,
CD, and Libor rates which can increase incrementally based on Todd's
leverage ratio. The leverage ratios which determine the rates range
from less than 1:1 to greater than 2.5:1. Leverage ratios may not
exceed 3:1. The facility includes commitment fees at 2 per cent. to .5
per cent. (based on the leverage ratio) per annum on the unused
balances. Other material restrictions include: the coverage ratio
(cash flow/fixed charges), Other Indebtedness or Contingent
Liabilities (with certain exclusions) may not exceed $10,000,000
without BA approval and Minimum Tangible Net Worth may not be less
than $25,000,000 plus net proceeds from issuance of equity plus 50 per
cent. of future consolidated net income. The credit facility is
available for general corporate purposes, capital expenditures and
acquisitions.
(5) Lease intended as a security dated November 3, 1997 between Todd-AO
Studios West ("TSW") and BA Leasing and Capital Corporation.
An agreement was signed in October 1997 to implement the
sale/leaseback of certain equipment for up to $10,000,000. An
aggregate of $8,500,000 of sound studio equipment was sold and leased
back on November 3, 1997. The sale/leaseback agreement, which
terminates on December 1, 2002, consists of five 1-year terms
amortizing to approximately 42 per cent. with interest at just above
Libor rates which can increase incrementally based on the Company's
leverage ratio.
73
<PAGE>
(b) The following are the only contracts (other than contracts entered into in
the ordinary course of business) which are or may be material and which
have been entered into by Tele-Cine Cell and its subsidiaries within the
two years immediately preceding the date of this document:
(i) An agreement made on 8 August 1996 between (1) Tele-Cine Cell, (2)
Jerry's Holding ApS under formation, (3) J.P.M. Hofmann ApS, (4)
Jerry Nilson, (5) Peter Hofmann and (6) Cell Scandinavia ApS under
formation ("CS") whereby it was agreed that CS would operate as a
joint venture between the parties, that Tele-Cine Cell would
undertake certain financial obligations under guarantees and
commitments to repurchase equipment and that CS would be the only
entity through which the business of the parties in Scandinavia
would be conducted. The financial commitments of Tele-Cine Cell
under these arrangements are estimated not to exceed L285,000 at
current exchange rates.
(ii) A sale and leasing arrangement over three years made on 16 August
1996 between (1) Tele-Cine Cell and (2) TSB Asset Finance Limited in
relation to equipment with a total cost of L989,042.
(iii) An agreement made on 9 August 1997 between (1) Tele-Cine Cell, (2)
Michael Parry, (3) Robert Cole, (4) Jan Hallett and (5) XTV Limited
("XTV") whereby it was agreed that Tele-Cine Cell would have a 50
per cent. interest in XTV and the remainder of the shares would be
held by Messrs Parry, Cole and Hallett ("the XTV Individuals"). The
agreement also provides for XTV to be operated as a joint venture
company and for various loans to be made by the shareholders. The
agreement also provides for a basis of trading between XTV and
Tele-Cine Cell, the occupation of premises and restrictions on the
activities of the XTV Individuals.
(iv) An agreement made on 7 November 1997 between (1) Tele-Cine Cell and
(2) the XTV Individuals, pursuant to which Tele-Cine Cell agreed to
acquire the 50 per cent. interest in the share capital of XTV
Limited which it did not already own. The consideration for the sale
was L500,000 of which L300,000 was satisfied by the issue of 460,000
Tele-Cine Cell ordinary shares credited as fully paid upon
completion and 212,766 Tele-Cine Cell ordinary shares issued
credited as fully paid on 13 January 1998. A further L100,000 will
become payable on 1 July 1998 and a final payment of L100,000 will
become payable on 1 April 1999 provided that profit before tax of
the XTV Cell business for the period ending 31 December 1998 is
positive. If the Offer does not become unconditional, the amounts
payable on 1 July 1998 and 1 April 1999 will be satisfied by the
issue of Tele-Cine Cell ordinary shares credited as fully paid at
the prevailing market prices but, in view of the Offer, a
supplemental agreement was entered into on 17 April 1998 between the
Company, the XTV Individuals and Todd providing for such
consideration to be satisfied by the issue of shares of common stock
of Todd at the then prevailing market prices so long as the Offer
shall have become unconditional in all respects.
6. ADDITIONAL INFORMATION
(a) Astaire and Beeson Gregory have given and have not withdrawn their
respective written consents to the issue of this document with references
to their names in the form and context in which they appear.
(b) The total consideration offered for the Tele-Cine Cell shares is L9.956
million and will be financed from Todd's existing resources. Astaire is
satisfied that the necessary financial resources are available to Todd
Europe for it to implement the Offer in full, from the existing facilities
available to Todd from Bank of America.
(c) Save as disclosed in this document, there is no agreement, arrangement or
understanding between Todd Europe and any party acting in concert with Todd
Europe and any of the directors, recent directors, shareholders or recent
shareholders of Tele-Cine Cell having any connection with or dependence on
the outcome of the Offer.
(d) Neither Todd Europe nor any associate of Todd Europe nor any person acting
in concert with Todd Europe, nor Tele-Cine Cell nor any associate of
Tele-Cine Cell, has any arrangement in relation to the share capital of
Tele-Cine Cell; for these purposes "arrangement" includes any indemnities
or option arrangements, or any agreement or understanding, formal or
informal, of whatever nature, which may be an inducement to deal, or
refrain from dealing, in such share capital.
(e) There is no agreement, arrangement or understanding whereby the beneficial
ownership of any of the Tele-Cine Cell ordinary shares to be acquired by
Todd Europe pursuant to the Offer will be transferred to any other person.
74
<PAGE>
(f) Astaire, which is regulated by the Securities and Futures Authority, has
approved the contents of this document and the Form of Acceptance for the
purposes of section 57 of the Financial Services Act 1986.
(g) The acquisition of Tele-Cine Cell will not affect the emoluments of any
director of Todd or Todd Europe.
(h) If sufficient acceptances are received, Todd Europe intends to apply the
provisions of sections 428 to 430F of the Companies Act 1985 to acquire
compulsorily any outstanding Tele-Cine Cell ordinary shares.
(i) The registered office of Todd Europe is:
4 John Carpenter Street, London EC4Y 0NH.
7. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection during normal
business hours on any weekday (Saturdays and public holidays excepted) at the
offices of Frere Cholmeley Bischoff, 4 John Carpenter Street, London EC4Y 0NH
while the Offer remains open for acceptance:
(a) the Memorandum and Articles of Association of Todd Europe and Tele-Cine
Cell and appropriate documents for Todd;
(b) the audited consolidated accounts of Todd for the two financial years ended
31 August 1996 and 1997 and of Tele-Cine Cell for the two financial years
ended 31 December 1996 and 1995.
(c) the written consents of Astaire and Beeson Gregory referred to in paragraph
6(a) above;
(d) the material contracts of Todd and Tele-Cine Cell referred to in paragraph
5 above;
(e) the irrevocable undertakings to accept the Offer referred to in paragraph
(e);
(f) the documents constituting the Tele-Cine Cell Option Schemes;
(g) the Loan Note Instrument;
(h) the consultancy agreement of R Kirsch with Todd;
(i) the agreement for the sale of the Tele-Cine Cell preference shares by R
Kirsch to Todd Europe;
(j) the valuation of the Loan Notes by Astaire.
75
