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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended AUGUST 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-1461
THE TODD-AO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1679856
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
900 N. SEWARD STREET, HOLLYWOOD, CALIFORNIA 90038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (323) 962-5304
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
- ----------------------
COMMON STOCK, CLASS A,
$ .01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates at November
11, 1999 was approximately $92,200,000.
The number of shares of common stock outstanding at November 11, 1999 was:
8,136,653 Class A Shares and 1,747,178 Class B Shares.
DOCUMENTS INCORPORATED BY REFERENCE
None
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<TABLE>
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The Todd-AO Corporation
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Annual Report on Form 10-K
August 31, 1999
Table of Contents
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Part I Page
<S> <C> <C>
Item 1 -Business 1
Item 2 -Properties 7
Item 3 -Legal Proceedings 7
Item 4 -Submission of Matters to a Vote
of Security Holders 7
Part II
Item 5 -Market for the Registrant's Common
Stock and Related Stockholder Matters 8
Item 6 -Selected Financial Data 9
Item 7 -Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9
Item 8 -Financial Statements and
Supplementary Data 15
Item 9 -Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 15
Part III
Item 10 -Directors and Executive Officers
of the Registrant 16
Item 11 -Executive Compensation 19
Item 12 -Security Ownership of Certain
Beneficial Owners and Management 21
Item 13 -Certain Relationships and Related
Transactions 22
Part IV
Item 14 -Exhibits, Financial Statement Schedule
and Reports on Form 8-K 23
Signatures 24
Exhibit Index 25
Index to Financial Statements
and Schedule 29
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PART I
ITEM 1. BUSINESS.
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
The Todd-AO Corporation and its subsidiaries (collectively "Todd-AO" or
the "Company") provide sound, video and ancillary post production and
distribution services to the motion picture and television industries in the
United States and Europe. The Company believes that it is one of the largest
independent providers of combined sound studio and video services in the world,
with facilities located in Los Angeles, New York, London and Atlanta. Sound
services include music recording, sound editing and enhancement and the mixing
of dialogue, music and sound effects. Todd-AO's principal video services include
film-to-video transfer (telecine), mastering and duplication of professional
videotape formats, transmission for satellite broadcast, videotape editing,
audio post production, and visual effects and graphics. The Company believes
that its principal strengths include the depth and continuity of its creative
and artistic talent, the quality and scope of its facilities, a tradition of
providing quality services to its clients, and a history of technological
innovation. Since its inception in 1952, the Company and its employees have been
nominated for 35 Academy Awards-Registered Trademark- and have won 20.
Todd-AO provides its sound and video services to over 1,500 clients,
including the major motion picture studios and television production companies.
The Company's ten largest customers accounted for approximately 52% and 56% of
revenues for the fiscal years ended August 31, 1999 and 1998, respectively. The
Walt Disney Company and its affiliated companies, the only customer to account
for more than 10% of revenues, accounted for 16% and 15% of revenues for 1999
and 1998, respectively.
Demand for the Company's services and facilities is principally derived
from the production of new motion pictures, television programs and television
commercials, as well as the distribution of previously released motion picture
and television programming through distribution channels such as television
syndication, home video, cable and satellite. Historically, its clients have
outsourced, and are expected by the Company to continue to outsource, many
services required for production, post production, and distribution of film and
television programming. The Company believes that trends toward digitalization
and globalization in the entertainment and media industries are increasing the
quality, variety and number of post production services required by customers.
The Company believes that the worldwide market penetration of distribution
channels such as home video and digital satellite broadcast is contributing to a
growing demand for original and reissued programming, American product in
particular, which in turn should increase demand for the Company's services.
The Company's objective is to be the leading worldwide independent
provider of sound and video post production services. Since 1994, the Company
has implemented a strategy to achieve this objective and to capitalize on the
movement towards digitalization and globalization in the motion picture and
television industries by expanding its range of services through strategic
acquisitions, internal growth and strategic alliances. The Company believes that
in the future, U.S. and international entertainment and media companies will
demand a broader range of sound and video post production services and are
likely to prefer a single-source provider. To implement its strategy, the
Company has assembled a senior management team experienced in the industry.
The Company entered the video services business in 1994 through its
acquisition of the assets and certain liabilities of Film Video Masters by
Todd-AO Video Services for the purchase price of $1,900. In February 1995, the
Company expanded its sound studio business through the acquisition of the assets
of Skywalker Sound South, renamed Todd-AO Studios West, with sound studios and
facilities located in the West Los Angeles area for $6,966. Also, in March 1995,
the Company expanded its operations into Europe through the acquisition of the
stock and inter-company debt ($8,135) of Chrysalis Television Facilities, Ltd.
("Todd-AO UK") in London, which also augmented the Company's video services
capabilities to include the collation of television programming for satellite
broadcast. The purchase of Filmatic Laboratories ("Filmatic") for a nominal sum
in 1996 enlarged Todd-AO's video services capabilities in London and added film
processing to its services. In August 1996, the Company acquired for the total
sum of $4,650 the assets and certain liabilities of Edit Acquisition LLC
("Editworks") located in Atlanta, Georgia, which specializes in providing video
services to the advertising industry. Expanding its sound and video services
still further, the Company acquired the assets and certain liabilities of
Hollywood Digital Limited Partnership ("Hollywood Digital") in June 1997. In
consideration, the Company paid down existing debt
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of $17,761 and issued convertible subordinated notes in the amount of $8,399.
Hollywood Digital is a digital based post-production facility providing sound
and video services to the film, television and advertising industries. In March
1998, the Company opened a new facility in Santa Monica, California primarily to
service Hollywood Digital's advertising customers. In May 1998, the Company
further expanded its operations in Europe by acquiring the stock of Tele-Cine
Cell Group plc. ("TeleCine") in London for a total purchase price of $17,948
which it anticipates will double its video post-production and special effects
services capabilities in the U.K. as well as adding graphics based clientele to
its customer base. In May 1998, the Company formed Todd-AO DVD, Inc. ("TAO DVD")
in Hollywood which provides Digital Versatile Disc ("DVD") services including
encoding, authoring, and proofing to the major Hollywood studios and others. In
June 1999, the Company expanded its operations on the east coast by acquiring
the stock of Sound One Corporation ("Sound One") for a total purchase price of
$13,115. Sound One is the leading post production sound facility in New York. As
a result of these transactions, the Company has expanded its client base,
increased its range of services and broadened its global market coverage.
LIBERTY MEDIA TRANSACTION
On July 30, 1999, the Company entered into a Letter of Intent with
Liberty Media Corporation (NYSE: LMG.A) in which Liberty Media shall acquire
control of Todd-AO in a tax-free transaction. The merger is subject to the
delivery of a fairness opinion by a financial advisor and the approval of
Todd-AO's stockholders as well as other customary closing conditions.
On September 24, 1999, the Company retained Banc of America Securities
LLC (BAS) to render an opinion to the Board of Directors on the proposed merger
transaction with Liberty Media and to advise the Board concerning the
consideration to be received by current Class A stockholders in this
transaction. On October 14, 1999, the Company's Board of Directors received a
favorable oral report from BAS regarding the fairness of this proposed
transaction to all current Company Class A shareholders. BAS announced that a
fairness opinion shall be issued in writing, once a definitive merger agreement
has been signed by the parties.
After the Letter of Intent was signed with Liberty Media on July 30,
1999, the independent directors (who constitute a majority of the Board of
Directors) undertook to direct the negotiation of the definitive merger
agreement. In these negotiations, the Board members were advised by Delaware
counsel. As a result of the Board's efforts, the agreement shall provide, among
other terms, that existing Company Class A and Class B common stock will be
reclassified. Each share of either class of Company stock will be converted into
0.4 shares of Todd-AO New Class A common stock and 0.6 shares of Todd-AO New
Class B common stock. Subsequently, all of Todd-AO's New Class B common stock
will be exchanged for shares of AT&T's Class A Liberty Media Group common stock
(LMG.A shares) on the basis of 1 LMG.A share for each 2.4 shares of Todd-AO's
New Class B common stock outstanding on the closing date. This revised structure
treats all Company Class A and Class B shareholders alike and provides a more
favorable exchange ratio than previously announced. Negotiations with Liberty
Media are in a final stage, and a definitive merger agreement is imminent.
SOUND STUDIO OPERATIONS
GENERAL
Todd-AO performs post production sound services primarily for
theatrical feature films, television series, television specials,
movies-of-the-week, trailers and commercials. Sound services include music
recording, sound editing and enhancement, mixing of music, sound effects, and
dialogue and narration. After picture editing, the soundtrack becomes the
primary focus of the production process. Feature film and television producers
utilize the Company's studio facilities and highly skilled sound engineers to
mix (re-record) the basic elements of a soundtrack: dialogue (or narration),
music ("score") and all other recorded sounds referred to collectively as "sound
effects." A number of ancillary services derive from this core activity,
including sound effects editing, film-to-tape and tape-to-tape transfers and
duplication, automated dialogue replacement ("ADR"), live recorded sound effects
("Foley"), equipment rental, edit room rental and sale of film and tape stock
("rawstock").
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The demand for the Company's core motion picture services has
historically been seasonal, with higher demand in the fall (first fiscal
quarter) and spring (third fiscal quarter) preceding the Christmas holiday
season and summer theatrical releases, respectively. Demand has been lower in
the winter and summer, corresponding to the Company's second and fourth fiscal
quarters, respectively. Accordingly, the Company has historically experienced,
and expects to continue to experience, quarterly fluctuations in revenue and net
income.
QUARTERLY FINANCIAL DATA SCHEDULE (UNAUDITED)
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DILUTED
BASIC EARNINGS EARNINGS
(LOSS) PER (LOSS) PER
TOTAL GROSS NET INCOME COMMON SHARE COMMON SHARE
1998 REVENUES PROFIT (LOSS) OUTSTANDING OUTSTANDING
- ---- ------------ ---------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
First Quarter............ $ 25,024 $ 3,262 $ 1,773 $ .18 $ .16
Second Quarter........... 22,582 1,991 1,316 .13 .12
Third Quarter............ 27,252 2,860 1,627 .16 .15
Fourth Quarter........... 27,756 537 (1,297) (.13) (.11)
------------ ---------- ----------- -------------- --------------
TOTAL.................... $ 102,614 $ 8,650 $ 3,419 $ .34(a) $ .33(a)
============ ========== =========== ============== ==============
DILUTED
BASIC EARNINGS EARNINGS
(LOSS) PER (LOSS) PER
TOTAL GROSS NET INCOME COMMON SHARE COMMON SHARE
1999 REVENUES PROFIT (LOSS) OUTSTANDING OUTSTANDING
- ---- ------------ ---------- ----------- -------------- --------------
First Quarter............ $ 33,947 $ 4,784 $ 2,468 $ .26 $ .24
Second Quarter........... 28,388 1,167 897 .10 .09
Third Quarter............ 28,093 784 62 .01 .01
Fourth Quarter........... 28,089 569 (2,114) (.22) (.21)
------------ ---------- ----------- -------------- --------------
TOTAL.................... $ 118,517 $ 7,304 $ 1,313 $ .14(a) $ .13(a)
============ ========== =========== ============== ==============
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(a) Aggregate per share amounts for each quarter may differ from annual totals
as each is independently calculated.
FACILITIES
Currently, the Company offers 35 acoustically designed sound stages
equipped with modern sound recording equipment, providing a broad range of sound
services for both film and videotape. Todd-AO's scoring stage can accommodate up
to 150 musicians for live sound recording. Most of the mixing (re-recording)
stages provide premium services including stereo sound in both 35mm and 70mm
formats. Each of the Company's major feature stages has the capability to create
soundtracks utilizing any of the current digital release formats. In order to
emulate the movie theater environment, the Company's film recording stages are
of significant size. The Company believes that its scoring stage is one of the
largest in the world. In total, the Company has over 80,000 square feet of stage
space.
Todd-AO's facilities are conveniently located and readily accessible to
the film making and television community, with locations in Hollywood, the San
Fernando Valley, Los Angeles' westside and New York.
ACADEMY AWARDS-Registered Trademark-
Todd-AO has a long history and tradition of providing quality sound
services, starting with the theatrical release of OKLAHOMA! in 1955. Equally
important as the Company's technical facilities is the talented staff of
associated recording mixers. The Company's mixing teams have won numerous
Academy Awards-Registered Trademark- and Emmys, including a Lifetime Achievement
Award for Fred Hynes, who was a sound mixer of the Company for over 30 years.
This long tradition of sound recording excellence continues today. The Company's
employees have received nine Academy Award-Registered Trademark- nominations for
Best Sound in the last ten years and three Academy Awards-Registered Trademark-
for Best Sound. A list of some of Todd-AO's 1999 credits include: MEET JOE
BLACK, ED TV, THE PRINCE OF EGYPT, WALT DISNEY'S TARZAN, RANDOM HEARTS AND
DOUBLE JEOPARDY.
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The Academy Awards-Registered Trademark- and nominations for Best Sound
received by the Company or its creative personnel are described below (with
Academy Award-Registered Trademark- winners shown in bold):
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YEAR MOVIE(S) YEAR MOVIE(S)
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<S> <C> <C> <C>
1998 SAVING PRIVATE RYAN 1978 Hooper
1997 L.A. Confidential 1977 Close Encounters of the Third Kind, Sorcerer
1996 Evita 1976 A Star Is Born
1995 APOLLO 13, Braveheart 1973 THE EXORCIST
1994 Legends of the Fall 1972 CABARET
1993 Schindler's List 1965 THE SOUND OF MUSIC
1992 LAST OF THE MOHICANS 1963 Cleopatra
1990 Dick Tracy 1961 WEST SIDE STORY
1988 Who Framed Roger Rabbit 1960 THE ALAMO
1987 Empire of the Sun 1959 Porgy and Bess
1985 OUT OF AFRICA 1958 SOUTH PACIFIC
1982 E.T. - THE EXTRA-TERRESTRIAL 1955 OKLAHOMA!
1979 1941
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Other Academy Awards-Registered Trademark- received:
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YEAR ACCOMPLISHMENT
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1997 Scientific/Technical Achievement Award
1995 Scientific/Technical Achievement Award
1994 Scientific/Technical Achievement Award
1987 Gordon E. Sawyer Lifetime Achievement Award (Fred Hynes)
1980 Honorary Award (Fred Hynes)
1973 Scientific/Technical Achievement Award
1968 Scientific/Technical Achievement Award
1957 Scientific/Technical Achievement Award
</TABLE>
VIDEO SERVICES
Todd-AO, through its various subsidiaries and divisions in Los
Angeles, New York, London and Atlanta, provides video services (electronic
post production services) principally to the worldwide motion picture,
television, home video and advertising industries. Video post production is
provided by skilled technicians using sophisticated electronic equipment and
computers to process images and sound from film, videotape and computers onto
a master element from which distribution and broadcast materials are created
for worldwide markets. These markets include theatrical releases, home video,
cable, pay television, syndication, network, satellite, multimedia and
advertising. Todd-AO provides its video services to over 1,000 customers
including the major motion picture and television studios, independent
producers, advertising agencies, television networks, cable program suppliers
and television program syndicators.
Todd-AO's principal video and related services are as follows:
-- FILM-TO-VIDEO TRANSFER (TELECINE). All feature films and most
television programming and advertising are produced on film but viewed
(except in movie theaters) on an electronic medium such as a television
screen. Todd-AO transfers the film to a video master in a frame-by-frame
process in which skilled personnel use specialized equipment to accurately
render the proper tone, color and lighting from the film original to the
video master.
-- MASTERING AND DUPLICATION OF PROFESSIONAL FORMAT VIDEOTAPE.
Todd-AO receives original master elements from a program provider such as a
motion picture, television, commercial production, or home video company and
duplicates the master for broadcast use in a variety of professional formats.
Duplicates are used by television stations, home video duplicators, cable
systems operators, cable program suppliers, TV networks, pay-per-view and
satellite distribution companies to exhibit programs and commercials.
Airlines use duplicates to exhibit in-flight movies.
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-- TRANSMISSION. Todd-AO UK transmits television channels for
satellite and cable broadcasters by providing services to generate video and
audio signals which are passed on to the uplink provider for distribution by
satellite. Clients provide details of each program and its exact duration.
Each day, the client supplies a computerized playlist detailing the next 24
hours of network programming. This playlist is input into dedicated
technology which consecutively plays each program at the correct time,
thereby creating the continuous network output. To provide such transmission
services (often on a 24 hours a day, 7 days a week basis), Todd-AO UK
provides the technology, operational staff, physical library, database
services, engineering support and emergency power (in case of electrical
failure).
-- VIDEOTAPE EDITING. Editing entails the electronic transfer of
video or audio information from one or more sources to a new master element.
Editing is a highly creative service with individual editors often attaining
star status and receiving screen credits.
-- AUDIO POST PRODUCTION. The Company provides services referred to
as audio layback and audio augmentation. Layback is the process by which the
sound and picture are synchronized and is frequently provided with telecine.
The final soundtracks for feature films often include foreign languages for
international release and are usually prepared separately for synchronization
to match the various versions of the picture. Audio augmentation or
"sweetening" is the process used to restore or modify existing sound or
create new sound. Sweetening allows for the addition of music or sound
effects, and eliminates unwanted portions of previously recorded sound.
-- VISUAL EFFECTS AND GRAPHICS. The Company provides visual effects
and graphics services using modern computer imaging systems such as Silicon
Graphics workstations. Visual effects for motion pictures and television
include anything from a simple "fade to black" to the intricate "special
effects" common in today's feature films. Graphic services entail the
creating and melding of computer-generated images, video and audio, into
programming, including commercial advertising, television music videos, and
corporate video.
-- BROADCAST STANDARDS CONVERSION. Several technically incompatible
video standards for broadcasting are in use throughout the world. The Company
converts feature films and television programs to or from any global
standard, depending on the intended market.
-- CLOSED CAPTIONING/SUBTITLING. The vast majority of programming is
closed captioned (for the hearing impaired) or subtitled for foreign
languages. The Company electronically applies captions and subtitles onto the
program.
-- PRODUCT EVALUATION/QUALITY ASSURANCE. The Company provides
comprehensive evaluation and quality control for video and audio products.
Todd-AO has consulted with several of the major entertainment and equipment
manufacturing companies to develop post production specifications, equipment
and processes.
-- VAULTING/STORAGE. Todd-AO provides storage for up to 100,000
units in its environmentally controlled and secured vaults. The Company also
offers database and tracking services, 24-hour shipping and delivery services
and element disposal.
OTHER SERVICES
-- DVD SERVICES. TAO DVD provides video and audio compression
(encoding), menu/interactive design, formatting (authoring), specification
verification and player compatibility testing (proofing) of DVD product. TAO
DVD is currently producing more than 30 complete projects per month for the
major Hollywood studios and others.
-- FILM PROCESSING. Filmatic provides film laboratory services
including film developing, printing, cleaning and negative film cutting.
Established in 1935, Filmatic is widely considered to be one of England's
premier specialty film laboratories, providing its services to over 500
customers, including colleges, universities, corporate and training
companies, film and video libraries, independent production companies and
broadcast television.
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-- COMPACT DISTRIBUTION PRINT. CDP Limited Liability Company, a
joint venture of Todd-AO and United Artists Theatre Circuit, Inc., has
created a new print process, known as Compact Distribution Print or CDP. The
CDP process reduces the length of feature release prints without affecting
picture or sound quality by eliminating 37% of interframe waste in standard
prints, an inefficiency which has existed since the 1950s. In addition to
potential savings realized from reduced film stock footage and developing
costs, a compact print can generally be distributed on a single reel, thereby
reducing shipping and handling costs. Opportunities for the implementation of
CDP are currently being explored.
COMPETITION
The Company encounters intense competition in each of the markets
that it serves. The Company competes on the basis of quality, service,
capacity, technical capability and price. Although price is an important
competitive factor, the lowest price is seldom the sole determining factor.
The cost of the Company's services is generally low in relation to the
overall budget or anticipated revenues of the project. Quality, capacity and
service remain the critical competitive factors in providing post production
services.
The Company's sound studio operations compete in both the feature
film and television markets. In the film market, competition for sound
services is predominantly driven by the skill and creativity of sound mixers.
Beyond the in-house facilities of major studios such as Universal, Warner
Bros., Sony, 20th Century and Disney, the Company does not believe that it
has a major competitor for feature films in the Los Angeles marketplace.
However, two smaller independent facilities have opened and attracted a
portion of the feature film market. On a wider basis, LucasFilm in Marin
County, California and certain London post production sound facilities
compete with the Company for motion picture studio clientele. In the
television market, the competition is intense and television pricing is
constantly under pressure. In addition to competing with the major studios,
the Company also competes with a wide array of independent post production
sound facilities. The Company believes that its major competitors are Four
Media Company ("4MC"), Westwind Media, EFX/Wilshire Studios and Pacifica
Media (formerly Larson Sound and Echo Sound). The Company believes that its
major competitors in New York are `Sync Sound and East Coast Post.
With respect to video services, a variety of other companies offer
special effects, post production video and transmission services similar to
those provided by Todd-AO. Many of these competitors are larger and have
greater financial resources than the Company. Competition for video services
within a geographical region tends to be highly fragmented with a few larger
full service companies and numerous small firms specializing in only one or
two services. Most small operations are centered around key personnel who
serve one or two clients based on long-standing relationships. The Company
believes its major direct competitors in the Los Angeles market for
distribution, telecine and professional duplication work are 4MC, Modern
Videofilm, Vidfilm, Laser Pacific and VDI Media.
The Company believes its major direct competition in the London
market for Todd-AO UK and TeleCine in the area of transmissions are Pearson,
Flextech, Cast, TLI and Arena. In addition, the Company competes in London
with VTR Group, Molinare, TSI and TVI/TVP (a division of 4MC) for market
share in sound and video post production. All provide a mixture of services
for both large and small media clients across the broadcast sector, and are
conveniently located in the prime vendor area in London's Soho district,
close to many of the customers' offices. The Company believes its major
competition in the London market for film laboratory services are Deluxe,
Technicolor, Metrocolor, Soho Images, Colour Film Services and Buck
Laboratories. The Company believes its major direct competition in the
Atlanta market for editing and graphics are Crawford Communications, Inc.,
Video Tape Associates, Inc. ("VTA"), Click 3X, Brickhouse Editorial and
Turner Broadcasting's new in-house facilities. Crawford Communications and
VTA are both considerably larger and currently offer a more complete array of
services and facilities than does Editworks.
EMPLOYEES
Todd-AO employs approximately 920 employees, some on a
project-by-project basis. The Company has employment agreements with 110 of
its key management, creative and technical personnel. The Company's sound
studio creative and technical personnel are subject to a collective
bargaining agreement with the International Association of Theatrical and
Stage Employees. The Company has never experienced a work stoppage and
considers relations with its employees to be excellent.
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PRINCIPAL STOCKHOLDERS
Approximately 53% of the Company's outstanding shares (representing
over 80% of the voting power) are beneficially owned by Marshall Naify,
Robert A. Naify, certain members of their families and certain trusts for the
benefit of family members (the "Naify Interests").
ITEM 2. PROPERTIES.
The Company's current operations are conducted in various owned,
leased or licensed premises in the Los Angeles/Santa Monica area, New York
City, Atlanta and London. The Company's facilities are adequate to support
its anticipated business.
The Company owns approximately 147,000 sq. ft. of building space in
Los Angeles. In addition, approximately 300,000 sq. ft. of building space is
subject to lease or license agreements. In London, Todd-AO owns approximately
10,500 sq. ft. of building space near Soho. Todd-AO also owns the underlying
freehold of 17,600 sq. ft. of building space in Camden Town, London. It
leases this area to a third party under a lease agreement which expires in
December 2042 and subleases the same area from its tenant under a lease
agreement which expires in March 2008. Todd-AO also leases an additional
3,500 sq. ft. of its owned London property to a third party under a lease
agreement which expires in June 2009. The Company also owns two undeveloped
parcels of land in Killeen, Texas.
The Company's Los Angeles/Santa Monica sound studio facilities
include premises licensed from Radford Studio Center under agreements
expiring in 2003, each of which can be extended for an additional five years
at the Company's option. The Company also leases premises in Lantana Center,
Santa Monica. The lease expires in December 2010 and can be extended for an
additional ten years at the Company's option. The New York sound studio
facilities on 54th Street operate under a lease agreement which expires in
December 2002 and which can be extended for an additional eight years at the
Company's option. The 54th Street lease agreement can be terminated by the
Company at any time upon six months' written notice to the landlord. The New
York sound studio facilities located at 1619 Broadway operate under a lease
agreement which expires in January 2010.
The Company's Los Angeles post production video service facilities
operate (1) under a lease agreement for approximately 20,000 square feet
which expires in August 2004 and which can be extended for one additional
five-year term or terminated on 90 days' written notice at the Company's
option and (2) under a lease agreement for approximately 35,000 sq. ft. which
expires in May 2003 and can be extended for an additional ten years at the
Company's option. The Company's Santa Monica video service facility operates
under a lease agreement for approximately 25,000 sq. ft. which expires in
July 2006 and which can be extended for two additional five-year terms at the
Company's option.
The Atlanta post production facility operates under a lease
agreement for approximately 12,600 square feet which expires in December 2001
and which can be extended for two additional five-year terms.
In London, the Company's TeleCine facilities operate under lease
agreements for approximately 22,700 square feet which expire on various dates
between September 2005 and March 2017 and one lease for 6,200 sq. ft. which
expires July 2000. The Company also leases 7,500 square feet of office and
storage space in London with leases expiring in October 2000 and September
2002.
ITEM 3. 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 position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS.
The Company has two classes of Common Stock designated as Class A Stock
and Class B Stock, as described below. There were approximately 675 and 7 record
holders of Class A and Class B Stock, respectively, as of November 16, 1999. The
number of holders of Class A Common Stock does not include an indeterminate
number of shareholders whose shares are held by brokers in "street name."
Class A Stock
The Company's Class A Common Stock is traded on the Nasdaq National
Market System under the symbol "TODDA." The following table sets forth, for the
periods indicated, the high and low sales prices for the Class A Common Stock as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
STOCK PRICE RANGES
FISCAL YEAR CLOSE
- ----------- ------------------
HIGH LOW
-------- -------
<S> <C> <C>
1998
First Quarter............................................................................ 12 7/8 8 7/8
Second Quarter........................................................................... 11 1/8 7 7/8
Third Quarter............................................................................ 13 9 7/8
Fourth Quarter........................................................................... 12 5/8 5 5/16
1999
First Quarter............................................................................ 9 1/4 5 1/2
Second Quarter........................................................................... 9 5/8 7 5/8
Third Quarter............................................................................ 8 1/2 5 13/16
Fourth Quarter........................................................................... 14 3/4 8 9/16
</TABLE>
The holders of Class A Common Stock are entitled to cumulative cash
dividends at an annual rate of $.045 per share before any cash dividends may
be declared or paid on the Class B Common Stock. Holders of Class B Common
Stock are entitled to cash dividends equal to 90% of the cash dividends paid
on the Class A Common Stock.
The Company paid cash dividends of $.06 and $.045 per Class A share
for the fiscal years 1998 and 1999, respectively. The Company's Board of
Directors has declined to issue a cash dividend beginning with the fourth
quarter of 1999.
The Transfer Agent and Registrar for the Class A Common Stock is
Continental Stock Transfer and Trust Company, 2 Broadway, New York, NY 10004.
Class B Stock
Class B shares have special voting rights (10 votes per share) and
are generally not transferable. Cash dividends are payable on the Class B
shares at a rate not to exceed 90% of the cash dividends paid on the Class A
shares. The two classes of stock participate on the same per share basis in
other property distributions. 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. Conversion is on a share for share basis and
once so converted the Class B Stock is retired and cannot be reissued without
a stockholder vote. Except for issuances in connection with stock splits and
stock dividends, additional Class B shares cannot be issued without an
affirmative vote of the Class B stockholders.
As of August 31, 1999, 1,747,178 Class B shares were outstanding and
owned by 7 shareholders, including 1,703,639 Class B shares owned by the
Naify Interests. Dividends in the amount of $.054 and $.0405 per Class B
share were paid for fiscal years 1998 and 1999, respectively. The Company's
Board of Directors has declined to issue a cash dividend beginning with the
fourth quarter of 1999. The Company acts as Transfer Agent for the Class B
common stock.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
<TABLE>
<CAPTION>
Years Ended August 31
--------------------------------------------------------
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Revenues.......................................... $ 50,003 $ 62,920 $ 78,971 $ 102,614 $ 118,517
======== ======== ========= ========= ==========
Net income........................................ $ 3,375 $ 4,844 $ 6,005 $ 3,419 $ 1,313
======== ======== ========= ========= ==========
Income per Common Share - Basic (1)............... $ .41 $ .59 $ .63 $ .34 $ .14
======== ======== ========= ========= ==========
Income per Common Share - Diluted (2)............. $ .40 $ .55 $ .59 $ .33 $ .13
======== ======== ========= ========= ==========
Total Assets...................................... $ 57,198 $ 64,186 $ 103,451 $ 135,596 $ 153,180
======== ======== ========= ========= ==========
Total Long-Term Debt Obligations.................. $ 8,327 $ 9,354 $ 25,430 $ 44,654 $ 65,520
======== ======== ========= ========= ==========
Cash Dividends:
Class A Shares................................ $ .06 $ .06 $ .06 $ .06 $ .045
======== ======== ========= ========= ==========
Class B Shares................................ $ .054 $ .054 $ .054 $ .054 $ .0405
======== ======== ========= ========= ==========
</TABLE>
(1) Basic income per share computed using average number of shares
outstanding of 8,167,905, 8,191,065, 9,539,312, 9,987,429 and 9,570,187
in 1995, 1996, 1997, 1998 and 1999, respectively.
(2) Diluted income per share computed using the average number of shares
outstanding and common stock equivalents of 8,399,462, 8,845,321,
10,207,503, 11,218,051 and 9,832,614 in 1995, 1996, 1997, 1998 and
1999, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
GENERAL
The Company derives its revenue primarily from sound and video
services to the motion picture and television industries.
Over the past decade, the Company provided sound services
exclusively until the August 1994 acquisition of Todd-AO Video Services. This
acquisition represented a fundamental shift in management's vision of the
Company's future. Prior to fiscal 1995, the core sound business had grown
from $14,000 in revenues in 1986 to almost $33,000 in fiscal 1994, but
profitability was volatile and inherently subject to scheduling conflicts,
unpredictable overtime revenues and seasonality.
Beginning in fiscal 1995, the Company pursued a strategy of
diversifying its operations by acquiring or establishing complementary
service companies in the production and post production markets. This
diversification is not only functional but geographical, as represented by
the acquisitions in March 1995 and May 1998 of Todd-AO UK and TeleCine,
respectively, in London, in August 1996 of Editworks in Atlanta and in June
1999 of Sound One in New York City. The Company also acquired Todd-AO Studios
West in 1995, Filmatic in 1996 and Hollywood Digital in 1997.
9
<PAGE>
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's results
of operations and should be read in conjunction with the Consolidated Financial
Statements and related notes thereto. The operating results for the periods
presented were not significantly affected by inflation.
The following sets forth, for the periods indicated, certain
information relating to the Company's operations expressed as a percentage of
the Company's revenues:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
---------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues................................................... 100.0% 100.0% 100.0%
Costs and expenses:
Operating costs and other expenses....................... 78.2 80.9 81.7
Depreciation and amortization............................ 9.0 10.4 10.8
Restructuring and other charges......................... -- 2.7 0.7
Interest................................................. 1.2 1.8 3.1
Equipment lease expense, net............................. 0.3 0.2 1.3
Other (income) expense, net.............................. (0.1) (0.5) 0.3
-------- -------- --------
Total costs and expenses.............................. 88.6 95.5 97.9
-------- -------- --------
Income before provision for income taxes................ 11.4 4.5 2.1
Provision for income tax................................ 3.7 1.2 0.7
-------- -------- --------
Net income before change in
accounting principle................................ 7.7 3.3 1.4
Change in accounting principle, net..................... -- -- (0.3)
-------- -------- --------
Net income.............................................. 7.7% 3.3% 1.1%
======== ======== ========
</TABLE>
FISCAL YEAR ENDED AUGUST 31, 1999 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1998
Revenues increased $15,903 or 15.5% from $102,614 to $118,517 primarily
due to the acquisitions of TeleCine in May 1998 ($14,652) and Sound One in June
1999 ($2,247) and to the formation of Todd-AO DVD ("TAO DVD") in May 1998 to
provide DVD product services to the major Hollywood studios and others ($3,831).
These increases were offset by lower utilization and activity in the Company's
sound services divisions ($3,860) and the Company's other video services
divisions ($967).
Operating costs and other expenses increased $13,856 or 16.7% from
$83,034 to $96,890. Cost increases are primarily related to the TeleCine
($11,137) and Sound One ($1,887) acquisitions and to the formation of TAO DVD
($1,636). Costs in connection with the Company's other sound and video services
divisions decreased as a result of the revenue decreases described above.
For fiscal year 1999, restructuring and other charges pertains to one
of the Company's sale/leaseback agreements which matures December 1999. As of
August 31, 1999 the lease commitment amount exceeded the estimated fair value of
the equipment, as determined by an independent valuation, by approximately $788.
The Company recorded a pre-tax loss on equipment lease commitments in this
amount. This amount is less than a pre-tax restructuring charge of $2,767
recorded by the Company in the previous year to recognize the impairment of
certain assets.
Depreciation and amortization increased $2,144 or 20.1% primarily due
to the equipment and goodwill acquired with the TeleCine and Sound One
acquisitions and to current year capital expenditures.
Interest expense increased $1,810 or 100.2% primarily due to the
TeleCine and Sound One acquisitions financing.
Net equipment lease expense increased $1,249 primarily as a result of
the sale/leaseback to the Company's financial institution of certain equipment
in December 1998.
10
<PAGE>
Net other expense increased $986 primarily due to employment severance
costs ($612) and a provision for post retirement benefits in connection with
Todd-AO Filmatic.
The effective income tax rate increased from 26.5% to 35.7% primarily
due to the termination of a state income tax credit program.
As a result of the above, income before taxes and net change in
accounting principles decreased $2,163 from $4,649 to $2,486 and net income
before net change in accounting principles decreased $1,813 from $3,419 to
$1,606.
The Company has elected early adoption of Statements of Position No.
98-5, "Reporting on the Costs of Start-Up Activities" and is reporting the
cumulative effect of a change in accounting principles, as described in
Accounting Principles Board Opinion No. 20, in the amount of $293, net of income
tax benefit in the amount of $150.
As a result of the election described above, net income after net
change in accounting principles decreased $2,106 from $3,419 to $1,313.
MATERIAL CHANGES IN CASH FLOWS
For the year ended August 31, 1999, the Company generated $13,085 in
cash from operating activities compared to $16,964 in 1998. Cash provided by
operating activities from net income of $1,313, adjusted for depreciation and
net amortization of $10,404 and augmented by a decrease in receivables of
approximately $1,000 was utilized primarily to fund capital expenditures.
Net cash generated by proceeds from the sale/leaseback of certain
equipment and net borrowings from the Company's credit facility totaling $28,661
were used to reinvest in capital assets of the Company and to fund the
acquisition of Sound One.
OTHER BUSINESS INFORMATION
After the Letter of Intent was signed with Liberty Media on July 30,
1999, the independent directors (who constitute a majority of the Board of
Directors) undertook to direct the negotiation of the definitive merger
agreement. In these negotiations, the Board members were advised by Delaware
counsel. As a result of the Board's efforts, the agreement shall provide, among
other terms, that existing Company Class A and Class B common stock will be
reclassified. Each share of either class of Company stock will be converted into
0.4 shares of Todd-AO New Class A common stock and 0.6 shares of Todd-AO New
Class B common stock. Subsequently, all of Todd-AO's New Class B common stock
will be exchanged for shares of AT&T's Class A Liberty Media Group common stock
(LMG.A shares) on the basis of 1 LMG.A share for each 2.4 shares of Todd-AO's
New Class B common stock outstanding on the closing date. This revised structure
treats all Company Class A and Class B shareholders alike and provides a more
favorable exchange ratio than previously announced. Negotiations with Liberty
Media are in a final stage, and a definitive merger agreement is imminent.
On September 24, 1999, the Company retained BAS to render an opinion to
the Board of Directors on the proposed merger transaction with Liberty Media and
to advise the Board concerning the consideration to be received by current Class
A stockholders in this transaction. On October 14, 1999, the Company's Board of
Directors received a favorable oral report from BAS regarding the fairness of
this proposed transaction to all current Company Class A shareholders. BAS
announced that a fairness opinion shall be issued in writing, once a definitive
merger agreement has been signed by the parties.
On July 30, 1999, the Company entered into a Letter of Intent with
Liberty Media in which Liberty Media shall acquire control of Todd-AO in a
tax-free transaction. Under the terms of the Letter of Intent, fifty percent
(50%) of Todd-AO's outstanding Class A stock and one hundred percent (100%) of
Todd-AO's outstanding Class B stock shall be converted into shares of AT&T's
Class A Liberty Media Group Tracking Stock at the conversion rate of 1 share of
Liberty Media Group Stock for each 2.5 shares of Todd-AO's Class A and Class B
stock. The transaction will result in the issuance of approximately 2.5 million
shares of Class A Liberty Media Group Stock. The merger is subject to the
delivery of a fairness
11
<PAGE>
opinion by a financial advisor and the approval of Todd-AO's stockholders as
well as other customary closing conditions.
On September 22, 1999, the Company, through its wholly owned
subsidiary, Todd-AO, Espana (formerly Todd-AO's Land of the Future),
purchased a fifty percent (50%) interest in a Barcelona-based sound facility
named 103 Estudio, S.L., for $2,010. The purchase agreement includes plans
for expansion of the current Barcelona facility, comprising state-of-the-art
digital dubbing studios designed for foreign language dubbing of feature
films and television programs. New premises near the two existing facilities
have already been acquired. Existing management shall remain in place, and
the Company shall assume two positions on the Board, thereby participating in
all top management policies and decisions of the new company, which shall be
named 103 Todd-AO Estudio, S.L.
On March 4, 1999, the Company and DCVI announced an agreement in
principle to build a studio in Munich, Germany. A non-binding letter of
intent, signed by the Company, Disney Character Voices International, Inc.
("DCVI") and the Minister of the Free State of Bavaria, provides that the
Studio would be located at the "Alte-Messe" in the heart of Munich, shall
encompass 36,000 square feet and would include feature and video mixing
studios, film and video dialogue recording rooms and editorial suites. The
City of Munich and the Free State of Bavaria have offered a subsidy of DM
27,000 for the construction, development and equipment of the Studio at this
site location. A definitive agreement is expected to be negotiated and signed
by Todd-AO Germany and BVI, the joint venture partners.
In January 1999, the Company, through its newly-formed subsidiary,
TODD-AO GERMANY GMBH, entered into a joint venture agreement with BUENA VISTA
INTERNATIONAL FILM PRODUCTION (GERMANY) GMBH ("BVI"), an affiliate of Disney
Enterprises, Inc. This agreement established a partnership, which shall be
known as Todd-AO [Germany] GmbH & Co. KG, which shall develop and operate a
German language dubbing facility in Germany. Under the agreement, DCVI shall
give the Studio the first opportunity to dub all of its products appropriate
for the German market, including live action and animated theatrical
features, trailers, videos, television, and animated interactive projects. To
this venture, Todd-AO and BVI committed to a capital equivalent of $1,025 and
a financial accommodation or loans not to exceed $2,975 each.
FISCAL YEAR ENDED AUGUST 31, 1998 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1997
Revenues increased $23,643 or 29.9% from $78,971 to $102,614
primarily due to the acquisition of Hollywood Digital ("THD") in June 1997,
the acquisition of Tele-Cine Cell Group plc. ("TeleCine") on May 8, 1998, and
the opening of the new THD Santa Monica facility in late March 1998.
Increases in video services revenues from THD (including Santa Monica),
TeleCine, and the Company's other video divisions of $28,036 were offset by
the Company's sound services, which were down compared to a particularly
strong prior year. This was primarily due to downtime on three sound stages
closed during part of the year for renovation and conversion to advanced
digital technology and to the negative impact of a threatened Screen Actors
Guild strike that caused major delays in motion picture production
industrywide.
Operating costs and other expenses increased $21,279 or 34.5% from
$61,755 to $83,034. Cost increases related to the THD and TeleCine
acquisitions and the new THD Santa Monica facility ($21,021) and the
Company's other video services divisions ($982) were offset by a reduction in
costs for the sound services divisions related to their revenue decreases
described above. These cost reductions were not sufficient to offset the
narrowing of the profit margin in the sound services divisions from the
revenue reductions.
The Company recorded a pre-tax restructuring charge of $2,767 in its
fourth quarter ended August 31, 1998 to recognize the impairment of certain
assets, as determined by an independent valuation. The Company has recently
invested in advanced digital technologies in both the sound and video areas
of post-production. Due to the acceleration in demand by the marketplace for
these advanced technologies, certain older composite digital and analog-based
technologies, primarily in the editing and graphics areas of video
post-production, have experienced a significant reduction in demand. The
Company believes that taking the restructuring charge is a prudent action and
anticipates the impact of changing technology on our business.
12
<PAGE>
The post-tax restructuring charge is $2,034 and the Basic and Diluted
Net Income Per Common Share of the Company excluding this non-recurring expense
would have been $0.55 and $0.51, respectively. The Basic and Diluted Net Income
Per Common Share of the Company including the restructuring charge is $0.34 and
$0.33, respectively.
Depreciation and amortization increased $3,557 or 49.9% primarily due
to the equipment and goodwill acquired with the THD and TeleCine acquisitions
and to current year capital expenditures.
Interest expense increased $887 or 96.4% primarily due to the THD and
TeleCine financing.
Other income - net increased $523. This was primarily due to a suit
settlement in the Company's favor ($200), a net gain from the sale of assets
($156), a reduction in expenses related to the Company's investment in CDP
($199), and a net reduction in expenses from miscellaneous provisions ($123).
This was offset by a decrease in interest income ($184).
The effective income tax rate decreased from 32.9% to 26.5% primarily
due to state income tax credit carryovers.
As a result of the above, income before taxes decreased $4,304 from
$8,953 to $4,649 and net income decreased $2,586 from $6,005 to $3,419.
LIQUIDITY AND CAPITAL RESOURCES
Through August 31, 1999 the Company has signed three agreements with
its bank to implement the sale/leaseback of certain equipment. An aggregate of
$28,527 of sound studio and video equipment has been sold and leased back. The
agreements terminate on December 30, 1999, December 1, 2002 and December 30,
2005. All the agreements provide for interest based on LIBOR rates.
Under a new long-term credit agreement dated June 30, 1999 and expiring
on May 31, 2004, the Company may borrow up to $80,000 in revolving loans until
May 31, 2002. On that date and thereafter the revolving loan commitment will
reduce incrementally to nil by the expiration of the agreement. Prior to May 31,
2002 the Company may request an automatic extension of the revolving period of
the facility for one year that will also extend the term period and the
expiration date of the agreement. Prior to December 31, 2000 the Company may
make a one-time request to increase the credit line by up to $20,000. Such
increase is at the sole discretion of the Banks; however, the Company has the
option to bring a new bank to the syndicate, thereby avoiding the Banks'
discretion. The Company also has the availability of Standby Letters of Credit
up to $20,000 under the facility. The credit facility provides for borrowings
based on the Bank's Reference, CD, and LIBOR rates. The facility includes
commitment fees on the unused balance of the credit facility. Other material
restrictions include: the Fixed Charge Coverage Ratio may not be less than
1.25:1; Other Indebtedness (excluding up to $35,000 in Capital or Off Balance
Sheet Leases, the convertible subordinated notes issued in the Hollywood Digital
acquisition, non-recourse debt up to $50,000 of less than 100% owned Joint
Ventures, $5,000 in purchase money mortgage financing and the existing TeleCine
mortgage debt for the Charlotte Street property) may not exceed $10,000;
Leverage Ratio is not to exceed 4:1 through May 31, 2001 (decreasing
thereafter); Net Worth is not to be less than $54,000 plus net proceeds from
issuance of equity plus 50% of consolidated net income subsequent to May 31,
1998 (excluding the effect of stock repurchases up to $3,000 from the closing
date through the fiscal year ending August 31, 2000).
In January 1998 the Company entered into a three-year interest rate
swap agreement for a notional amount of $10,000 to hedge the impact of
fluctuations in interest rates on its floating rate credit facility. Under the
agreement, the Company is obligated to pay 5.65% in exchange for receiving
three-month LIBOR on the notional amount. Settlements are quarterly and the
contract expires in March 2001.
The credit facilities are available for general corporate purposes,
capital expenditures and acquisitions. Management believes that funds generated
from operations, proceeds from the sale/leaseback agreements and the borrowings
available under the restated credit facility will be sufficient to meet the
needs of the Company at least through the end of 2000.
13
<PAGE>
In June 1997, the Company used $15,760 under its credit facility to
acquire the assets of Hollywood Digital. In May 1998, the Company used $14,000
to fund a substantial portion of the TeleCine acquisition. In June 1999, $11,962
was used to fund the Sound One acquisition. As of August 31, 1999, the Company
had $51,790 outstanding under the credit facility, which has been used
principally to fund the acquisitions described and for capital expenditures.
The Company has exercised its option to purchase for $5,699 the
equipment currently being leased under the sale/leaseback transaction maturing
in December 1999. The purchase will be funded by borrowings under credit
facilities.
The Company expects capital expenditures of approximately $14,000 for
its Los Angeles, Santa Monica, New York City, Atlanta and London facilities in
fiscal 2000. These capital expenditures will be financed by internally generated
funds and borrowings under credit facilities.
The Company does not believe that it is currently exposed to any
material foreign exchange rate risk and, at present, does not have a policy for
managing such risk beyond the utilization of local currency borrowings to fund
foreign acquisitions whenever possible.
FORWARD LOOKING STATEMENTS
When used in this document, the words "believes", expects",
anticipates", "intends", and similar expressions are intended to identify
forward looking statements. Such statements are subject to a number of known
risks and uncertainties. Actual results in the future could differ materially
from those described in the forward looking statements. Such risks and
uncertainties include, but are not limited to, industry-wide market factors such
as the timing of, and spending on, feature film and television programming
production, foreign and domestic television advertising, and foreign and
domestic spending by broadcasters, cable companies and syndicators on first run
and existing content libraries. In addition, the failure of the company to
maintain relationships with key customers and certain key personnel, more rapid
than expected technological obsolescence, and failure to integrate acquired
operations in expected time frames could also cause actual results to differ
materially from those described in forward looking statements.
YEAR 2000 COMPLIANCE ISSUE
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failure. The Company has
conducted a review of its computer information systems and its technological
operating equipment to identify the systems that could be affected by the year
2000 compliance issue.
The Company uses purchased software programs for a variety of
functions, including general ledger, accounts payable, and accounts receivable
accounting packages as well as comprehensive facility management packages. These
programs are generally Year 2000 compliant, and any software and/or computer
systems not currently compliant will be upgraded during fiscal 2000 under
existing maintenance and other agreements and through normal replacement
programs currently in place. A review of the Company's equipment containing
embedded microprocessors or other technology has revealed few systems that are
not Year 2000 compliant and those that are not compliant are expected to be
upgraded through normal maintenance replacements in fiscal 2000. Operation of
these systems is generally not time-sensitive and, if necessary, equipment
settings can be adjusted without posing any significant operational problems for
the Company.
Based on these reviews, costs of addressing potential problems are not
currently expected to have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods.
14
<PAGE>
To date, the Company has not identified any system which presents a
material risk of not being Year 2000 ready in a timely fashion or for which a
suitable alternative cannot be implemented. As the Company progresses with its
Year 2000 conversion, however, it may identify systems which do present a
material risk of Year 2000 disruption. Such disruption may include, among other
things, the inability to process transactions or information, to record or
access data, or engage in similar normal business activities. If the Company,
its customers or vendors are unable to resolve such processing issues in a
timely manner, it could result in a material financial risk. Accordingly, the
company will devote the necessary resources to resolve all significant Year 2000
issues in a timely manner.
The discussion above contains certain forward looking statements. The
costs of the Year 2000 conversion, the date which the Company has set to
complete such conversion, and possible risks associated with the Year 2000 issue
are based on the Company's current estimates and are subject to various
uncertainties that could cause the actual results to differ materially from the
Company's expectations. Such uncertainties include, among others, the success of
the Company in identifying systems that are not Year 2000 compliant, the nature
and amount of programming required to upgrade or replace each of the affected
systems, the availability of qualified personnel, consultants and other
resources, and the success of the Year 2000 conversion efforts of others.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISKS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks. The Company has entered into an interest rate
swap to alter its fixed and floating rate mix, and to effectively swap floating
rate exposure to fixed rates lower than those available to the Company if fixed
rate borrowings were made directly. Under the interest rate swap agreement, the
Company agrees with a counter party to exchange, at specific intervals, the
difference between fixed rate and floating rate interest amounts calculated by
reference to an agreed notional principal amount.
In January 1998, the Company entered into a three-year interest rate
swap agreement for a notional amount of $10,000 to hedge the impact of
fluctuations in interest rates on its floating rate credit facility. Under the
agreement, the Company is obligated to pay 5.65% in exchange for receiving
three-month Libor on the notional amount. Settlements are quarterly and the
contract expires in March 2001.
FOREIGN CURRENCY RISK
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 year-end exchange rates. The effects of the foreign currency
translation adjustments are deferred and are included as a component of
stockholders' equity.
At fiscal year-end August 31, 1999 the Company's only foreign
currency denomination was the British pound which has been stable relative to
the United States dollar. Total revenues denominated in the British pound for
the fiscal year ended August 31, 1999 were approximately 33% of total
revenues and assets denominated in the British pound were approximately 30%
of total assets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 in Part IV of this 10-K Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
On August 31, 1999, the executive officers and directors of the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---- --- ----------------------
<S> <C> <C>
Salah M. Hassanein (1)............ 78 President, Chief Executive Officer and Director
M. David Cottrell................. 43 Vice President of Administration
Silas R. Cross.................... 60 Vice President, Treasurer and Assistant Secretary
Clay M. Davis..................... 53 Vice President
J.R. DeLang....................... 43 Senior Vice President and Director
Graham Hall....................... 41 Director of Todd-AO Europe Holding Company Ltd.
Coburn T. Haskell................. 47 Vice President and Controller
Richard C. Hassanein.............. 48 Vice President and Director
Christopher D. Jenkins............ 44 Senior Vice President and Director
Jeremy Koch....................... 58 Senior Vice President
Marshall Naify (1)................ 79 Co-Chairman of the Board of Directors
Robert A. Naify (1)............... 77 Co-Chairman of the Board of Directors
Richard O'Hare.................... 46 Vice President and President of Todd-AO Video Services
Kathleen N. Reck.................. 58 Vice President Human Resources
Judi M. Sanzo..................... 41 Vice President, General Counsel and Secretary
David Haas (3).................... 58 Director
Herbert L. Hutner (2)(3).......... 90 Director
Robert I. Knudson................. 74 Director
David P. Malm (3)................. 35 Director
Michael S. Naify.................. 37 Director
A. Frank Pierce (2)............... 69 Director
Sydney Pollack.................... 65 Director
Zelbie Trogden (2)(3)............. 63 Director
</TABLE>
- --------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Certain officers and directors of the Company were formerly associated
in various capacities with United Artists Communications, Inc. ("UACI"), now
known as United Artists Theatre Circuit, Inc., a motion picture theater company.
UACI owned approximately 85% of the Company's common stock until 1986.
Salah M. Hassanein was elected as a Director in 1962. In July 1996, Mr.
Hassanein was appointed the President and Chief Executive Officer of the
Company. From 1994 to 1996, he served as President and Chief Operating Officer.
Prior to 1994, Mr. Hassanein was the Company's Senior Executive Vice President.
Mr. Hassanein also served as President of Warner Bros. International Theatres
Co. from 1988 to June 30, 1994. Mr. Hassanein previously served as Executive
Vice President and director of UACI and President of United Artists Eastern
Theatres, Inc. Mr. Hassanein is a principal of SMH Entertainment, Inc. and a
director of Software Technologies Corporation and Nuesoft Technologies, Inc.
M. David Cottrell was appointed Vice President of Administration for
the Company in 1998. Mr. Cottrell was formerly Executive Vice President and
Chief Financial Officer for Todd-AO/Hollywood Digital from 1993 to 1998.
Previously, he was Vice President of Finance for The Post Group Inc.
16
<PAGE>
Silas R. Cross became a Vice President of the Company in 1988. In 1995,
he was appointed Treasurer and Assistant Secretary. Mr. Cross previously served
as Assistant Treasurer of UACI, and has served the Company in various capacities
since 1965.
Clay M. Davis was appointed a Vice President of the Company in 1996.
Mr. Davis previously served as Vice President of Engineering of the Todd-AO
Studios since 1989.
J.R. DeLang was elected a Director in 1993. He has been the Senior Vice
President of the Company and the Executive Vice President of the Company's
Todd-AO Studios division since 1993. Mr. DeLang previously served as Vice
President of Sales and Marketing of Todd-AO Studios from 1988 to 1993 and
Director of Sales and Marketing from 1987 to 1988. Mr. DeLang resigned from the
Board of Directors on September 15, 1999.
Graham Hall was appointed Director of Todd-AO Europe Holding Company
Ltd. and TeleCine Ltd. in January 1999. Mr. Hall has also served as Managing
Director of Todd-AO UK since March 1990. From 1982 to 1990, Mr. Hall was
employed by Rank Video Services where he held various engineering positions,
ultimately advancing to Technical Development Manager.
Coburn T. Haskell has served as Vice President and as Controller of the
Company since 1995. Prior thereto, he served as Controller of Todd-AO Studios
from 1994 to 1995. Mr. Haskell joined the Company in 1990 as Assistant
Controller of Todd-AO Studios, having received his CPA certification while
employed by KPMG Peat Marwick from 1988 to 1990. Previously, Mr. Haskell was
Controller of American Fiber Optics Corporation.
Richard C. Hassanein has served as Vice President of the Company and
Director since 1993. Mr. Hassanein was appointed President of the Company's
subsidiary, Todd-AO Studios West in 1997. He was Executive Vice President of
Todd-AO Studios West from 1995 to 1997. From 1991 to 1995, he served as
Executive Vice President of the Company's subsidiary, Todd-AO Studios East.
Previously, he was President of United Film Distribution Co.
Mr. Hassanein is the son of Salah M. Hassanein.
Christopher D. Jenkins has been a Senior Vice President and Director of
the Company since 1987. He was appointed President of Todd-AO Studios in 1990
and served as Vice President from 1987 to 1990. He is currently a lead sound
mixer for the Company, and has won two Academy Awards-Registered Trademark- for
sound. Mr. Jenkins resigned from the Board of Directors on September 15, 1999.
Jeremy Koch was appointed Senior Vice President of the Company in June
1999. He is also the President of the Company's newly acquired subsidiary, Sound
One Corporation. Prior to the acquisition, Mr. Koch served as President of Sound
One Corporation from 1993 to 1999.
Marshall Naify was elected a Director in 1964, and currently serves as
Co-Chairman of the Board. He served as Chairman of the Board during the period
of 1990 until July 1996. From 1995 until July 1996, he also served as Co-Chief
Executive Officer. Mr. Naify previously served as Chairman of the Board and
Co-Chief Executive Officer of UACI. Mr. Naify is an investor. He is the brother
of Robert A. Naify.
Robert A. Naify was elected a Director in 1959 and serves as
Co-Chairman of the Board. Mr. Naify served as Co-Chairman and Co-Chief Executive
Officer from 1995 until July 1996. He previously served as President and Chief
Executive Officer during the period of 1990 until 1994. Mr. Naify also served as
President and Co-Chief Executive Officer of UACI. Mr. Naify is an investor and
is a director of Tele-Communications, Inc. He is the brother of Marshall Naify.
Robert A. Naify resigned from the Board of Directors on September 15, 1999.
Richard O'Hare was appointed Vice President of the Company in 1997. He
has served as President of Todd-AO Video Services since 1994 and previously
served as the President of Film Video Masters, its predecessor, from 1988 until
its acquisition by the Company in 1994. Previously, Mr. O'Hare was Vice
President of Twentieth Century Fox Film Corporation.
17
<PAGE>
Kathleen N. Reck was appointed Vice President Human Resources of the
Company in 1997. She has served as Director of Human Resources since 1986.
Previously, Ms. Reck was an employee of Glen Glenn Sound.
Judi M. Sanzo was appointed Vice President, General Counsel, and
Secretary of the Company in 1998. Ms. Sanzo brings to Todd-AO a considerable
background in legal affairs and, most recently, in private practice where she
specialized in litigation, business counseling and administrative proceedings.
She is a member of the California and Massachusetts bars.
David Haas was elected a Director in October 1996. Mr. Haas has been a
financial consultant since 1995, and has assisted clients in financial planning,
financing and the negotiation and structuring of acquisitions. From 1990 to
1994, Mr. Haas served as Senior Vice President and Controller of Time Warner
Inc. He is currently a director of Information Holdings, Inc.
Herbert L. Hutner was elected as a Director in 1987. He is an investor
and a financial consultant. Mr. Hutner was a Director of UACI from 1965 to 1986
and served as Chairman of the President's Advisory Commission on the Arts,
Kennedy Center, from 1982 to 1988.
Robert I. Knudson was elected as a Director in 1983, and currently
serves as a consultant to the Company. He was previously an Executive Vice
President of the Company and served as President of Todd-AO Studios from 1981
until 1990. During his tenure as a lead sound mixer for the Company, Mr. Knudson
won three Academy Awards-Registered Trademark- for sound.
David P. Malm was elected a Director in 1997. He is currently a partner
of Halpern, Denny & Company, a Boston based private equity investment firm, a
director of Tealuxe, Inc., E-Z Serve/Swifty Mart Convenience Stores, Ecce Panis,
Inc., H.C. Shaw Company, and Chairman of Brown Broadcasting Service, Inc. Prior
to forming Halpern, Denny & Company in 1991, Mr. Malm was affiliated with Bain
Capital, a private equity investment firm, and Bain & Company, a corporate
strategy consulting firm. He also previously worked in the Investment Banking
Group at Morgan Stanley & Company.
Michael S. Naify was elected a Director in 1993. He was previously Vice
President of the Company, serving in that capacity from 1993 to 1994. He is the
son of Marshall Naify.
A. Frank Pierce was elected as a Director in October 1996. Mr. Pierce
currently acts as an international consultant providing services related to
motion picture distribution. From January 1993 to June 1996, Mr. Pierce served
as Senior Vice President of Europe Theatrical Distribution for Time Warner
Entertainment. From 1972 to 1993, he served as Vice President of Europe
Theatrical Distribution for Warner Bros. International. From 1955 to 1972, Mr.
Pierce served in numerous international positions within the motion picture
industry including Managing Director of Italy for Paramount Pictures
International and management positions in four Latin American countries for
Columbia Pictures International.
Sydney Pollack, the renowned Academy Award-Registered Trademark-
- -winning director, was elected a director in 1998. Mr. Pollack's 17 films have
received 46 Academy Award-Registered Trademark- nominations including four for
Best Picture. His film OUT OF AFRICA won seven Oscars including Best Picture
and Best Director. In addition to winning the New York Film Critics' Award for
his 1982 film TOOTSIE, Mr. Pollack won the Golden Globe for Best Director twice,
the National Society of Film Critics Award, and the NATO Director of the Year
Award. Mr. Pollack formed Mirage Enterprises in 1985, which produces motion
picture feature films. He is a founding member of The Sundance Institute, The
Chairman Emeritus of The American Cinematheque, and serves on the Board of
Directors of the Film Preservation Board and The Motion Picture and Television
Fund Foundation.
Zelbie Trogden was elected a Director in 1994. He has been a financial
consultant and was a director of Citadel Holding Corporation and Fidelity
Federal Bank from 1993 to 1994. Prior thereto, he held various executive
positions with Bank of America and Security Pacific National Bank from 1960 to
1993.
18
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE. Non-Management directors (7) receive $10,000 per
year for their services as directors. All other directors receive no cash
compensation for their services as directors. The following table shows, for the
years ended August 31, 1999, 1998 and 1997 all forms of compensation for the
Chief Executive Officer and each of the most highly compensated executive
officers of the Company whose total annual salary and bonus exceeded $100,000
for the year ended August 31, 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM
---------------------- COMPENSATION
------------
NO. OF
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS COMPENSATION($)
- --------------------------- ------ ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Salah M. Hassanein 1999 221,160 (2) -- -- --
President and Chief Executive Officer 1998 250,000 (2) 241,813 (3) -- --
The Todd-AO Corporation 1997 123,250 (2) 231,875 (3) 76,000 --
J.R. DeLang 1999 450,625 -- -- 16,000 (4)
Senior Vice-President 1998 469,297 (4) -- -- 16,000 (4)
The Todd-AO Corporation 1997 403,490 (4) -- 7,600 15,000 (4)
Christopher D. Jenkins 1999 739,408 (5) -- -- 6,068 (5)
President 1998 962,027 (5) -- -- 6,068 (5)
Todd-AO Studios 1997 709,306 (5) -- 7,600 4,687 (5)
Clay M. Davis 1999 242,892 -- 5,000 6,068 (6)
Vice President 1998 253,815 -- -- 6,068 (6)
The Todd-AO Corporation 1997 246,534 -- 11,650 4,687 (6)
Richard O'Hare 1999 288,938 -- 10,000 16,000 (7)
President 1998 204,677 -- 4,050 16,000 (7)
Todd-AO Video Services 1997 210,922 -- 7,600 15,000 (7)
- ----------
</TABLE>
(1) The column for "Other Annual Compensation" has been omitted because
there is no compensation required to be reported in such column. The aggregate
amount of perquisites and other personal benefits provided to each officer
listed above is less than 10% of the total annual salary of such officer.
(2) Amounts shown as salary include professional fees of $125,000 for 1999
and 1998, and $87,500 for 1997.
(3) Class A Common Stock bonus of 50,000 shares valued at grant date at
$241,813 for 1998 and 50,000 shares valued at grant date at $231,875 for 1997.
(4) 1998 and 1997 salary amounts include non-qualified stock option
exercise compensation of $49,198 and $82,913, respectively. Amounts shown as
"All Other Compensation" represent contributions made by the Company to its
401(k) Plan for 1999, 1998 and 1997 on Mr. DeLang's behalf.
(5) 1998 salary includes non-qualified stock option exercise compensation
of $129,360. Amounts shown as salary also include compensation of $639,408,
$732,667, and $609,306 for 1999, 1998 and 1997, respectively, attributable to
services as a sound mixer. Amounts shown as "All Other Compensation" represent
contributions made by the Company under a collective bargaining agreement to the
Motion Picture Industry Pension Plan on Mr. Jenkins' behalf.
19
<PAGE>
(6) 1998 and 1997 salary amounts include non-qualified stock option
exercise compensation of $27,693 and $36,988, respectively. Amounts shown as
"All Other Compensation" represent contributions made by the Company under a
collective bargaining agreement to the Motion Picture Industry Pension Plan on
Mr. Davis' behalf.
(7) Amounts shown as "All Other Compensation" represent contributions made
by the Company to its 401(k) Plan on Mr. O'Hare's behalf.
OPTION/SAR GRANTS TABLE
The following table shows all individual grants of stock options during
the fiscal year ended August 31, 1999 to each of the executive officers named in
the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ----------------------------------------------------------------------------- ---------------------------------
% OF TOTAL
OPTIONS
GRANTED TO
EMPLOYEES EXERCISE
OPTIONS IN FISCAL OR BASE EXPIRATION
NAME GRANTED (#) YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- --------------------------- ------------------------------------------------ ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard O'Hare 10,000 14.18% $9.50 8/31/2004 34,082 62,783
Clay M. Davis 5,000 7.09% $8.50 8/31/2004 10,450 22,835
</TABLE>
OPTION EXERCISES AND VALUE TABLE
The following table shows each exercise of stock options during the
fiscal year ended August 31, 1999 by each of the executive officers named in the
Summary Compensation Table, together with respective aggregate values of
unexercised options as at August 31, 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
---------------------------------------------------------
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT AUGUST 31, 1999 AT AUGUST 31, 1999
-------------------------- ---------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ----------- -------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Salah M. Hassanein -- -- 222,600 30,400 $2,091,974 $188,115
J.R. DeLang -- -- 49,560 3,040 $442,800 $18,812
Christopher D. Jenkins -- -- 49,560 3,040 $439,093 $18,812
Clay M. Davis -- -- 23,250 9,500 $196,055 $56,286
Richard O'Hare -- -- 18,370 14,280 $142,992 $76,365
</TABLE>
Employment Agreements
The Company has employment agreements with Messrs. Jenkins, Davis and
O'Hare. Under Mr. Jenkins' agreement (expiring December 31, 2000), compensation
for sound mixing services is paid on an hourly basis at four times the minimum
supervisor union rate. Mr. Jenkins receives an additional $100,000 per year for
management and administrative services. Mr. Davis' agreement (expiring February
28, 2002) provides for a salary of $240,000, $250,000 and $260,000 for the
twelve months ending February 28, 2000, 2001 and 2002, respectively. Mr.
O'Hare's agreement (expiring August 31, 2001) provides for a salary of $260,000
and $280,000 for the twelve months ending August 31, 2000 and 2001,
respectively.
None of the foregoing agreements include any termination or
change-in-control payments. The Company's stock option plans provide that the
unvested portion of the awards will become vested and exercisable in connection
with a change-in-control.
20
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the
beneficial ownership of the Company's outstanding Common Stock as of November
11, 1999 by (i) each person known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of Common Stock, (ii) each director or
executive officer of the Company who beneficially owns any shares, and (iii) all
directors and executive officers of the Company as a group. Except as otherwise
indicated, the persons listed below have sole voting and investment power with
respect to all shares of Common Stock owned by them, except to the extent such
power may be shared with a spouse.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY
OWNED PERCENT (2) OPTIONS (3)
------------------------------- ----------------------- -------------
NAME (1) CLASS A CLASS B CLASS A CLASS B CLASS A
- -------- --------------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
M. David Cottrell................ 6,780 0 .08% 0% 6,280
Silas R. Cross................... 14,230 0 .17% 0% 9,830
Clay M. Davis.................... 37,500 0 .46% 0% 26,500
J.R. DeLang...................... 73,080 0 .89% 0% 51,080
David Haas....................... 30,200 0 .37% 0% 15,200
Coburn Haskell................... 10,080 0 .12% 0% 8,080
Richard C. Hassanein............. 32,180 0 .39% 0% 31,080
Salah M. Hassanein............... 813,843 0 9.72% 0% 237,800
Herbert L. Hutner................ 28,100 0 .34% 0% 19,000
Christopher D. Jenkins........... 73,080 0 .89% 0% 51,080
Robert I. Knudson................ 83,169 0 1.02% 0% 23,580
Jeremy Koch...................... 135,000 0 1.66% 0% 0
David P. Malm.................... 9,447(4) 0 .12% 0% 7,920
Richard O'Hare................... 22,700 0 .28% 0% 22,700
Frank Pierce..................... 15,200 0 .19% 0% 15,200
Sydney Pollack................... 7,700 0 .09% 0% 7,700
Kate Reck........................ 6,240 0 .08% 0% 6,240
Judi M. Sanzo.................... 7,620 0 .09% 0% 7,620
Zelbie Trogden................... 20,120 0 .25% 0% 20,120
Marshall Naify (8)............... 1,279,683(5) 678,838 15.52% 38.85% 107,000
Michael S. Naify (8)............. 221,347(7) 0 2.72% 0% 15,200
Robert A. Naify (8).............. 1,251,174(6) 906,290 15.18% 51.87% 107,000
Other Naify Interests (8)........ 755,178 118,508 8.51% 6.78% 0
All directors and current executive
officers as a group (21 persons). 2,927,299 678,838 33.17% 38.85% 689,210
- -----------
</TABLE>
(1) The address of each of the beneficial owners identified is 900 N.
Seward Street, Hollywood, California 90038.
(2) Based on 8,136,653 shares of Class A Common Stock and 1,747,178 shares
of Class B Common Stock outstanding at November 11, 1999. Pursuant to the rules
of the Commission, certain shares of Common Stock which a person has the right
to acquire within 60 days of the date hereof pursuant to the exercise of stock
options are deemed to be outstanding for the purpose of computing the percentage
ownership of such person but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person.
(3) Class A Common Stock options exercisable within 60 days.
(4) Includes 1,527 shares beneficially owned by Mr. Malm, which are
issuable upon conversion of certain convertible subordinated notes acquired in
connection with the Company's acquisition of Hollywood Digital.
21
<PAGE>
(5) Includes 1,172,683 shares of Class A Common Stock held by trusts for
which Mr. Naify is both trustee and beneficiary. Excludes 72,080 shares of Class
A Common Stock held by an independent trustee for the benefit of Mr. Naify's
children. Mr. Naify disclaims beneficial ownership of the shares held by the
independent trustee.
(6) Includes 1,144,174 shares of Class A Common Stock held by trusts for
which Mr. Naify is both trustee and beneficiary. Excludes 472,482 shares of
Class A Common Stock held of record or beneficially by Mr. Naify's adult
children and grandchildren as to which he disclaims beneficial ownership.
(7) Excludes 2,326 shares of Class A Common Stock held by an independent
trustee for the benefit of his child.
(8) The Naify Interests (consisting of Marshall Naify, Robert A. Naify,
various members of their families and trusts for the benefit of such members)
may be deemed to constitute a "group" for purposes of Sections 13(d) and 13(g)
of the Securities Exchange Act of 1934. The total Class A and B Stock
beneficially owned by The Naify Interests as of November 11, 1999 is 3,507,382
(41.92%) and 1,703,636 (97.51%), respectively.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) Financial Statements and Schedules are as listed in the "Index to
Financial Statements and Schedule" on page 29 of this 10-K Report.
(b) A report on Form 8-K was filed on June 21, 1999 disclosing the
acquisition by merger agreement of all the issued and outstanding
common stock of Sound One Corporation.
(c) Exhibits are as listed in the Exhibit Index on page 25 of this
10-K Report.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
The Todd-AO Corporation
December 7, 1999 By /s/ Silas R. Cross
------------------------------------
Silas R. Cross
Vice President, Treasurer
and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S><C>
December 7, 1999 By /s/ Salah M. Hassanein December 7, 1999 By /s/ Marshall Naify
---------------------- ----------------------
Salah M. Hassanein Marshall Naify
Director, President and Chairman of the
Chief Executive Officer Board of Directors
December 7, 1999 By /s/ David P. Malm December 7, 1999 By /s/ Richard Hassanein
------------------- -----------------------
David P. Malm Richard Hassanein
Director Vice President and
Director
December 7, 1999 By /s/ Sydney Pollack December 7, 1999 By /s/ Michael S. Naify
------------------- -----------------------
Sydney Pollack Michael S. Naify
Director Director
December 7, 1999 By /s/ Robert I. Knudson December 7, 1999 By /s/ Zelbie Trogden
------------------- -----------------------
Robert I. Knudson Zelbie Trogden
Director Director
December 7, 1999 By /s/ Herbert L. Hutner December 7, 1999 By /s/ A. Frank Pierce
------------------- ----------------------
Herbert L. Hutner A. Frank Pierce
Director Director
December 7, 1999 By /s/ David Haas
-------------------
David Haas
Director
</TABLE>
24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of The Todd-AO
Corporation is incorporated by reference from Registrant's
Information Statement dated May 13, 1996.
3.2 Registrant's Bylaws are incorporated by reference from the
Registrant's Proxy Statement dated April 2, 1990.
4.1 Specimen copy of class A Common Stock Certificate is incorporated by
reference from the Registrant's Registration Statement on Form S-2,
as filed on February 2, 1988 (Registration No. 33-19279).
10.1 Asset Purchase Agreement dated March 3, 1986 between the Todd-AO
Corporation and Republic Corporation is incorporated by reference
from the Registrant's Report on Form 8-K filed on March 14, 1986.
10.2 License Agreement dated April 16, 1987 between the CBS/MTM Company
and the Todd-AO Corporation in incorporated by reference from the
Registrant's Report on Form 10-K for the fiscal year ended August 31,
1987.
10.3 License Agreement dated September 27, 1991 between the CBS/MTM
Company and The Todd-AO Corporation in incorporated by reference from
the Registrant's Form 10-K for the fiscal year ended August 31, 1991.
10.7 Amended and restated lease dated as of June 18, 1992 between West
54th Street Partners L.P., successor in interest to Rita Silver,
(Landlord) and Todd-AO Studios East, Inc. (Tenant) with respect to
premises consisting of the 7th and 8th floors at 247-59 West 54th
Street, New York, NY is incorporated by reference from the
Registrant's Form 10-K for the fiscal year ended August 31, 1993.
10.11 Employment Agreement dated as of November 8, 1996 between The Todd-AO
Corporation and Christopher D. Jenkins is incorporated by reference
from the Registrant's Form 10-Q filed on April 10, 1997.
10.12 Asset Purchase Agreement dated as of August 30, 1994 by and among
Todd-AO Video Services, Paskal Video and Joseph S. Paskal is
incorporated by reference from the Registrant's Form 8-K filed on
September 14, 1994.
10.13 Lease Agreement dated as of August 31, 1994 between Joseph S. Paskal,
Trustee, and Todd-AO Video Services is incorporated by reference from
the Registrant's Form 8-K filed on September 14, 1994.
10.21 Lease intended as a Security dated December 27, 1994 between The
Todd-AO Corporation and BA Leasing and Capital Corporation is
incorporated by reference from the Registrant's Form 10-Q filed on
January 13, 1995.
10.22 Lease intended as a security dated November 3, 1997 between Todd-AO
Studios West and BA Leasing and Capital Corporation is incorporated
by reference from the Registrant's Form 10-K filed on November 19,
1997.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<S> <C>
10.23 Asset Purchase Agreement dated as of February 13, 1995 between
Todd-AO Studios West and Kaytea Rose, Inc. (dba Skywalker Sound
South) is incorporated by reference from the Registrant's form 8-K
filed on February 27, 1995.
10.24 Real Property Purchase Agreement (including Exhibits) dated as of
February 13, 1995 between Todd-AO Studios West and Kaytea Rose, Inc.
is incorporated by reference from the Registrant's Form 8-K filed on
February 27, 1995.
10.25 Assignment and Assumption Agreement dated as of February 3, 1995 by
and among Todd-AO Studios West, The Todd-AO Corporation, Lucasfilm
Ltd., Lucas Holdings, Inc., Lucas Digital Ltd. and Lantana Center is
incorporated by reference from the Registrant's Form 8-K filed on
February 27, 1995.
10.26 Lease dated as of May 21, 1989 between Lantana Center as Landlord and
Lucasfilm Ltd. as Tenant, as amended by documents dated March 27,
1990 and November 8, 1990 is incorporated by reference from the
Registrant's Form 8-K filed on February 27, 1995.
10.27 Agreement for the acquisition of the entire issued share capital of
Chrysalis Television Facilities Ltd. dated as of March 16, 1995
between FCB 1120 Ltd. (subsequently Todd-AO Europe Holdings Ltd.) and
Chrysalis Holdings Ltd. is incorporated by reference from the
Registrant's Form 8-K filed March 31, 1995.
10.28 Tax Deed dated as of March 16, 1995 between FCB 1120 Ltd. and
Chrysalis Holdings Ltd. is incorporated by reference from the
Registrant's Form 8-K filed on March 31, 1995.
10.29 Performance Guarantee dated March 16, 1995 between The Todd-AO
Corporation and Chrysalis Holding Ltd. is incorporated by reference
from the Registrant's Form 8-K filed on March 31, 1995.
10.30 Agreement for the acquisition of the entire issued share capital of
Filmatic Laboratories Ltd. dated as of April 18, 1996 between David
L. Gibbs, Ian Magowan and Todd-AO Europe Holding Company Ltd. is
incorporated by reference to the Registrant's Form 10-Q for the
quarter ended May 31, 1996.
10.31 Asset Purchase Agreement dated August 13, 1996 by and among The
Todd-AO Corporation (Purchaser), Edit Acquisition LLC (Seller), Edit
Group L.P., Patrick H. Furlong, Margie F. Furlong, and James V.
Furlong (Members) and Margie F. Furlong, Patrick H. Furlong, K.
Robert Draughon and Robert Martin (Guarantors), incorporated by
reference from the Registrant's Form 8-K and 8-K/A filed on August
28, 1996 and September 17, 1996, respectively.
10.32 Agreement and Exhibits for the Purchase and Sale of Assets dated June
18, 1997 among The Todd-AO Corporation, Todd-AO HD, Inc. and
Hollywood Digital Limited Partnership, Hollywood Digital Inc., The
Palladion Limited Partnership, HDZ Digital Limited Partnership,
Phemus Corporation, Rand Gladden, William Romeo, David Cottrell and
Michael Jackson is incorporated by reference from the Registrant's
Form 8-K filed on July 7, 1997.
10.34 Recommended Offer by Astaire and 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. is incorporated
by reference from the Registrant's Form 8-K filed on May 18, 1998.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<S> <C>
10.35 Joint Venture Agreement dated September 8, 1998 between The Todd-AO
Corporation and United Artists Theatre Circuit, Inc. is incorporated
by reference from the Registrant's Form 10-K filed on November 19,
1998.
10.36 Lease Intended as Security dated as of December 30, 1998 between BA
Leasing and Capital Corporation and The Todd-AO Corporation is
incorporated by reference from the Registrant's Form 10-Q filed on
January 13, 1999.
10.36a Appendix to Lease Intended as Security dated as of December 30, 1998
between BA Leasing and Capital Corporation and The Todd-AO
Corporation is incorporated by reference from the Registrant's Form
10-Q filed on January 13, 1999.
10.37 Merger Agreement among The Todd-AO Corporation, Todd-AO East, Inc.,
and Sound One Corporation dated as of June 8, 1999 is incorporated by
reference from the Registrant's Form 8-K filed on June 21, 1999.
10.38 Credit Agreement dated as of June 30, 1999 by and among The Todd-AO
Corporation, Union Bank of California, N.A., Societe Generale, Sanwa
Bank California, and Bank of America National Trust and Savings
Association, as Administrative Agent and Issuing Bank is filed
herewith.
10.39 Purchase Agreement dated as of September 22, 1999 between 103
Estudio, S.A. and Todd-AO, Espana is filed herewith.
11.1 Computation of Per Share Earnings.
See Note 1 of Notes to Financial Statements.
12.1 Computation of Earnings to Fixed Charges.
Not applicable.
13.1 Annual Report to Stockholders.
The Annual Report to Stockholders will consist of this Form 10-K
Report.
18.1 Changes in Accounting Principles.
See Note 1 of Notes to Financial Statements.
21.1 Subsidiaries of the Registrant
Todd-AO Studios East, Inc., incorporated in New York (parent).
SUBSIDIARIES
Sound One Corporation, incorporated in New York.
Todd-AO Studios, incorporated in California.
Todd-AO Studios West, incorporated in California.
Todd-AO Video Services, incorporated in California.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<S> <C>
Todd-AO DVD, Inc., incorporated in California.
Todd-AO Hollywood Digital, incorporated in California.
Todd-AO Europe Holding Company Ltd., incorporated in the U.K. (parent)
SUBSIDIARIES
Todd-AO UK, Ltd, incorporated in the U.K.
Todd-AO Filmatic Laboratories Ltd., incorporated in the U.K.
Tele-Cine Cell Group Ltd., organized in the U.K. (parent)
SUBSIDIARIES
Tele-Cine Ltd., incorporated in the U.K.
XTV Ltd., incorporated in the U.K.
XTV Cell, Ltd., incorporated in the U.K. (inactive).
Silver Digital Ltd., incorporated in the U.K. (inactive).
File Exchange Ltd., incorporated in the U.K. (inactive).
Todd-AO, Espana (formerly Todd-AO's Land of the Future),
incorporated in California.
Todd-AO Digital Images, incorporated in California (inactive).
Hollywood Supply Company, incorporated in California (inactive).
Todd-AO Productions, Inc., incorporated in California (inactive).
Todd-AO Preservation Services, incorporated in California (inactive).
27.1 Financial Data Schedule
Filed herewith.
</TABLE>
28
<PAGE>
THE TODD-AO CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants 30
Independent Auditors' Report 31
Consolidated Balance Sheets, August 31, 1998 and 1999 32
Consolidated Statements of Income for the Years Ended
August 31, 1997, 1998 and 1999 34
Consolidated Statements of Stockholders' Equity and Comprehensive
Income (Loss) for the Years Ended August 31, 1997, 1998 and 1999 35
Consolidated Statements of Cash Flows for the Years Ended
August 31, 1997, 1998 and 1999 36
Notes to Consolidated Financial Statements 39
Supplemental Financial Statement Schedule:
II Valuation and Qualifying Accounts For The Years Ended
August 31, 1997, 1998 and 1999 52
Schedules other than those listed above have been omitted because of the
absence of the conditions under which they are required or because the
required information, where material, is shown in the financial statements or
the notes thereto.
</TABLE>
29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Todd-AO Corporation:
We have audited the accompanying consolidated balance sheets of The
Todd-AO Corporation (a Delaware corporation) and its subsidiaries as of
August 31, 1998 and 1999, and the related consolidated statements of income,
stockholders' equity and comprehensive income (loss), and cash flows for the
years then ended. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Todd-AO
Corporation and its subsidiaries as of August 31, 1998 and 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements,
effective September 1, 1998, the Company changed its method of accounting for
the cost of start-up activities in accordance with Statements of Position No.
98-5.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the index
of financial statements is presented for purposes of complying with the
Securities and Exchange Commissions' rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
November 9, 1999
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
The Todd-AO Corporation:
We have audited the accompanying consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows of The Todd-AO
Corporation and subsidiaries (the "Company") for the year ended August 31,
1997. Our audit also included the financial statement schedule listed in the
Index at Item 14a for the year ended August 31, 1997. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the results of operations of the Company
and its cash flows for the year ended August 31, 1997 in conformity with
generally accepted accounting principles. Also in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
October 24, 1997
31
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------
1998 1999
------------ -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.............................................. $ 3,997 $ 9,739
Marketable securities.................................................. 1,490 1,317
Trade receivables
(net of allowance for doubtful accounts of $1,768 and $1,215 at
August 31, 1998 and 1999, respectively)............................. 18,164 18,169
Income taxes receivable................................................ 1,397 634
Inventories (first-in first-out basis)................................. 783 856
Deferred income taxes.................................................. 532 755
Prepaid deposits and other............................................. 3,628 3,005
------------ ------------
Total current assets................................................... 29,991 34,475
------------ ------------
INVESTMENTS............................................................ 956 892
------------ ------------
PROPERTY AND EQUIPMENT - At Cost:
Land................................................................... 4,270 4,270
Buildings.............................................................. 11,293 17,688
Leasehold improvements................................................. 15,054 18,603
Lease acquisition costs................................................ 2,187 2,187
Equipment.............................................................. 76,172 79,651
Equipment under capital leases......................................... 1,151 1,151
Construction in progress............................................... 1,466 4,803
------------ ------------
Total.................................................................. 111,593 128,353
Accumulated depreciation and amortization.............................. (38,046) (48,305)
------------ ------------
Property and equipment - net........................................... 73,547 80,048
------------ ------------
GOODWILL
(net of accumulated amortization of $1,646 and $2,875 at
August 31, 1998 and 1999, respectively)............................. 29,193 33,875
------------ ------------
OTHER ASSETS........................................................... 1,909 3,890
------------ ------------
TOTAL.................................................................. $ 135,596 $ 153,180
============ ============
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable....................................................... $ 6,464 $ 5,465
Accrued liabilities:
Payroll and related taxes........................................... 3,520 3,089
Interest............................................................ 369 762
Equipment lease..................................................... 569 1,588
Other............................................................... 3,201 4,706
Income taxes payable.............................................. 1,090 2,247
Current maturities of long-term debt................................... 537 979
Capitalized lease obligations - current................................ 422 336
Deferred income........................................................ 897 914
------------ ------------
Total current liabilities.............................................. 17,069 20,086
------------ ------------
LONG-TERM DEBT......................................................... 44,654 65,520
DEFERRED COMPENSATION AND OTHER........................................ 266 208
DEFERRED GAIN ON SALE/LEASEBACK TRANSACTIONS........................... 6,085 4,046
DEFERRED INCOME TAXES.................................................. 5,141 3,254
OTHER.................................................................. 2,061 1,231
------------ ------------
Total liabilities...................................................... 75,276 94,345
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares of $0.01 par value;
issued 8,438,700 at August 31, 1998 and 8,124,333
at August 31, 1999.................................................. 84 82
Class B; authorized 6,000,000 shares of $0.01 par value;
issued and outstanding 1,747,178 at August 31, 1998 and 1999........ 17 17
Additional capital..................................................... 40,805 37,887
Treasury stock (235,151 and 6,000 shares at cost
as of August 31, 1998 and 1999, respectively)...................... (2,338) (47)
Retained earnings...................................................... 20,538 21,432
Accumulated other comprehensive income (loss).......................... 1,214 (536)
------------ ------------
Total stockholders' equity............................................. 60,320 58,835
------------ ------------
TOTAL.................................................................. $135,596 $153,180
============ ============
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-----------------------------------------
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
REVENUES...................................................... $ 78,971 $ 102,614 $ 118,517
------------ ------------ -------------
COSTS AND EXPENSES:
Operating costs and other expenses............................ 61,755 83,034 96,890
Depreciation and amortization................................. 7,128 10,685 12,829
Interest...................................................... 920 1,807 3,617
Equipment lease expense - net................................. 265 245 1,494
Restructuring and other charges:
Equipment.................................................. -- 2,414 --
Lease costs................................................ -- 353 --
Loss on equipment lease commitments........................ -- -- 788
Other (income) expense - net.................................. (50) (573) (413)
------------ ------------ -------------
Total costs and expenses...................................... 70,018 97,965 116,031
------------ ------------ -------------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND CHANGE IN ACCOUNTING PRINCIPLE......................... 8,953 4,649 2,486
PROVISION FOR INCOME TAXES.................................. 2,948 1,230 880
------------ ------------ -------------
INCOME BEFORE CHANGE IN
ACCOUNTING PRINCIPLE....................................... 6,005 3,419 1,606
CHANGE IN ACCOUNTING PRINCIPLE,
NET OF INCOME TAXES OF $150................................ -- -- (293)
------------ ------------ -------------
NET INCOME.................................................... $ 6,005 $ 3,419 $ 1,313
============ ============ =============
Net income available to common stockholders................... $ 6,005 $ 3,419 $ 1,313
Effect of dilutive securities:
5% convertible debentures.................................. 47 302 --
------------ ------------ -------------
Net income available to common stockholders
plus assumed conversions................................... $ 6,052 $ 3,721 $ 1,313
------------ ------------ -------------
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC........................................ 9,539,312 9,987,429 9,570,187
Effect of dilutive securities:
Stock options.............................................. 549,681 519,565 262,427
5% convertible debentures.................................. 118,510 711,057 --
------------ ------------ -------------
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED...................................... 10,207,503 11,218,051 9,832,614
------------ ------------ -------------
NET INCOME PER COMMON SHARE:
Income before change in accounting principle - Basic....... $ 0.63 $ 0.34 $ 0.17
Change in accounting principle............................. -- -- (0.03)
------------ ------------ -------------
Net income - Basic......................................... $ 0.63 $ 0.34 $ 0.14
============ ============ =============
Income before change in accounting principle - Diluted..... $ 0.59 $ 0.33 $ 0.16
Change in accounting principle............................. -- -- (0.03)
------------ ------------ -------------
Net income - Diluted....................................... $ 0.59 $ 0.33 $ 0.13
============ ============ =============
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED AUGUST 31, 1997, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ACCUM. OTHER
---------------------------------------- COMPRE- COMPRE-
CLASS A HENSIVE HENSIVE
-------------------- CLASS B ADDITIONAL RETAINED TREASURY INCOME INCOME
SHARES AMOUNT AMOUNT CAPITAL EARNINGS STOCK (LOSS) (LOSS)
---------- ------- ------- ---------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1996.......... 6,555,640 $ 65 $ 17 $ 24,291 $12,267 $ -- $ (217) $ --
Exercise of stock options........... 76,564 1 -- 226 -- -- -- --
Tax benefit from exercise
of stock options................. -- -- -- 67 -- -- -- --
Purchase of treasury shares......... -- -- -- -- -- (1,047) -- --
Treasury shares cancellation........ (36,710) -- -- (305) -- 305 -- --
Treasury shares transfer to 401(k) . -- -- -- -- -- 51 -- --
Shares issued in stock offering..... 1,645,000 16 -- 15,512 -- -- -- --
Shares issued for stock award....... 50,000 1 -- 205 -- -- -- --
Unrealized gain on
investment securities............ -- -- -- -- -- -- 52 52
Gain on foreign currency translation -- -- -- -- -- -- 428 428
Cash dividends:
Class A ($.06) per share......... -- -- -- -- (475) -- -- --
Class B ($.054) per share........ -- -- -- -- (86) -- -- --
Net income.......................... -- -- -- -- 6,005 -- -- 6,005
---------- ------- ------- ---------- --------- -------- --------- ----------
BALANCE AT AUGUST 31, 1997.......... 8,290,494 83 17 39,996 17,711 (691) 263 $ 6,485
==========
Exercise of stock options........... 98,206 1 -- 341 -- -- -- --
Tax benefit from exercise
of stock options................. -- -- -- 200 -- -- -- --
Purchase of treasury shares......... -- -- -- -- -- (1,857) -- --
Treasury shares transfer to 401(k) . -- -- -- -- -- 210 -- --
Shares issued for stock award....... 50,000 -- -- 268 -- -- -- --
Unrealized gain on
investment securities............ -- -- -- -- -- -- 104 $ 104
Gain on foreign currency translation -- -- -- -- -- -- 847 847
Cash dividends:
Class A ($.06) per share......... -- -- -- -- (506) -- -- --
Class B ($.054) per share........ -- -- -- -- (86) -- -- --
Net income.......................... -- -- -- -- 3,419 -- -- 3,419
---------- ------- ------- ---------- --------- -------- --------- ----------
BALANCE AT AUGUST 31, 1998.......... 8,438,700 84 17 40,805 20,538 (2,338) 1,214 $ 4,370
==========
Exercise of stock options........... 274,080 3 -- 1,095 -- -- -- --
Tax benefit from exercise
of stock options................. -- -- -- 123 -- -- -- --
Purchase of treasury shares......... -- -- -- -- -- (3,288) -- --
Treasury shares cancellation........ (723,447) (7) -- (5,316) -- 5,323 -- --
Treasury shares transfer to 401(k) . -- -- -- -- -- 256 -- --
Shares issued as compensation....... 135,000 2 -- 1,180 -- -- -- --
Unrealized (loss) on
investment securities............ -- -- -- -- -- -- (148) $ (148)
(Loss) on foreign currency
translation....................... -- -- -- -- -- -- (1,602) (1,602)
Cash dividends:
Class A ($.045) per share........ -- -- -- -- (349 -- -- --
Class B ($.0405) per share....... -- -- -- -- (70 -- -- --
Net income.......................... -- -- -- -- 1,313 -- -- 1,313
---------- ------- ------- ---------- --------- -------- --------- ----------
BALANCE AT AUGUST 31, 1999.......... 8,124,333 $ 82 $ 17 $ 37,887 $21,432 $ (47) $ (536) $ (437)
========== ======= ======= ========== ========= ======== ========= ==========
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-----------------------------------------
1997 1998 1999
------------ ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 6,005 $ 3,419 $ 1,313
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 7,128 10,685 12,829
Restructuring and other charges........................ -- 2,767 788
Deferred income taxes.................................. 968 327 (2,695)
Tax benefit from exercise of stock options............. 67 200 123
Deferred compensation and other........................ (72) (60) (40)
Foreign currency exchange rate (gain) loss............. (21) 847 (718)
Amortization of deferred gain on
sale/leaseback transaction......................... (1,472) (2,288) (2,425)
(Gain) loss on sale of marketable securities
and investments.................................... (20) (83) (115)
Loss (gain) on disposition of fixed assets............. 103 (209) (254)
Shares issued for stock award.......................... 206 268 --
Changes in assets and liabilities (net of acquisitions):
Trade receivables, net.............................. (1,249) 2,241 1,053
Inventories and other current assets................ (1,133) (526) 645
Accounts payable and accrued liabilities............ 1,149 712 1,202
Accrued equipment lease............................. (21) 290 231
Income taxes payable, net........................... (931) 254 1,900
Provision for liabilities and other................. -- (1,277) (769)
Deferred income..................................... 759 (603) 17
------------ ------------- ------------
Net cash provided by operating activities................... 11,466 16,964 13,085
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and investments......... -- (431) (283)
Proceeds from sale of marketable securities
and investments........................................ 708 1,146 294
Proceeds from disposition of fixed assets................. 87 416 426
Capital expenditures...................................... (13,147) (24,348) (23,176)
Purchase of Sound One..................................... -- -- (12,315)
Purchase of Tele-Cine Cell Group plc...................... -- (15,741) --
Purchase of Editworks..................................... (500) -- --
Purchase of Hollywood Digital............................. (17,761) -- --
Other assets.............................................. (234) 319 1,791
------------ ------------- ------------
Net cash flows used in investing activities................. $ (30,847) $ (38,639) $ (33,263)
------------ ------------- ------------
</TABLE>
36
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.............................. $ 23,800 $ 28,101 $ 34,202
Payments on long-term debt................................ (16,309) (13,912) (14,350)
Payments on capital lease obligations..................... (603) (64) (73)
Proceeds from sale/leaseback transaction.................. -- 8,500 8,809
Proceeds from issuance of common stock.................... 15,755 342 1,098
Treasury stock purchases.................................. (996) (1,857) (3,288)
Dividends paid............................................ (561) (592) (419)
------------ ------------ ------------
Net cash flows provided by financing activities: 21,086 20,518 25,979
Effect of exchange rate changes on cash................... 37 27 (59)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS......................................... 1,742 (1,130) 5,742
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR........................................ 3,385 5,127 3,997
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR.............................................. $ 5,127 $ 3,997 $ 9,739
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 526 $ 1,696 $ 3,130
============ ============ ============
Income taxes.............................................. $ 1,725 $ 860 $ 753
============ ============ ============
</TABLE>
SUPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES:
1999:
In June 1999 the Company acquired substantially all of the outstanding
shares of Sound One Corporation. In connection with the acquisition the
Company paid cash as follows:
<TABLE>
<S> <C>
Assets acquired:
Property and equipment..................................................... $ 4,069
Trade and other receivables - net.......................................... 1,304
Inventory.................................................................. 108
Deferred tax asset......................................................... 1,000
Other assets............................................................... 1,811
Goodwill................................................................... 7,137
Liabilities assumed:
Accounts payable and accrued liabilities - net............................. 270
Bank loan.................................................................. (833)
Deferred income tax........................................................ (569)
Common stock issued as compensation............................................ (1,182)
Non-compete agreements payable to sellers...................................... (800)
-----------
Cash paid in acquisition....................................................... $ 12,315
===========
</TABLE>
37
<PAGE>
1998:
On May 8, 1998 the Company acquired substantially all of the outstanding
shares of Tele-Cine Cell Group plc. In connection with the acquisition the
Company paid cash as follows:
<TABLE>
<S> <C>
Assets acquired:
Property and equipment..................................................... $ 8,378
Trade and other receivables - net.......................................... 7,755
Investments................................................................ 119
Inventory.................................................................. 200
Goodwill................................................................... 10,699
Liabilities assumed:
Accounts payable and accrued liabilities - net............................. (2,888)
Bank loan.................................................................. (2,638)
Equipment leases........................................................... (438)
Provision for liabilities and charges...................................... (3,239)
Long-term debt issued to sellers............................................... (2,207)
-----------
Cash paid in acquisition....................................................... $ 15,741
===========
</TABLE>
1997:
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>
<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.
See notes to consolidated financial statements.
38
<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, 1999, Robert Naify, Marshall
Naify, and certain members of their families and various trusts for the benefit
of family members (the "Naify Interests") owned approximately 53% of the
outstanding shares of The Todd-AO Corporation (the "Company"), representing
approximately 80% of the total voting power.
ON JULY 30, 1999, THE COMPANY ANNOUNCED THAT IT HAD ENTERED INTO A
LETTER OF INTENT WITH LIBERTY MEDIA CORPORATION IN WHICH LIBERTY MEDIA SHALL
ACQUIRE CONTROL OF TODD-AO IN A TAX-FREE TRANSACTION. NEGOTIATIONS WITH LIBERTY
MEDIA ARE IN A FINAL STAGE, AND A DEFINITIVE MERGER AGREEMENT IS IMMINENT.
BASIS OF PRESENTATION - The consolidated financial statements include
the Company and its wholly owned subsidiaries Todd-AO Studios East, Inc. and its
wholly owned subsidiary ("Todd-AO East"), Todd-AO Studios, Todd-AO Studios West
("TSW"), Todd-AO Video Services ("TVS"), Todd-AO DVD, Inc. ("TAO DVD"), Todd-AO
Hollywood Digital ("THD"), Todd-AO Europe Holding Company, Ltd. and its wholly
owned subsidiaries ("Todd Europe"), Todd-AO Productions, Inc., Todd-AO Digital
Images, Hollywood Supply Company, Todd-AO, Espana (formerly Todd-AO's Land of
the Future), and Todd-AO Preservation Services. 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 straight-line basis
over their useful lives ranging from 15 to 40 years.
LONG-LIVED Assets - Management continuously monitors and evaluates the
realizability of its long-lived assets, including goodwill, to determine whether
their carrying values have been impaired. In evaluating the value and future
benefits of long-term assets, their carrying value is compared to management's
best estimate of undiscounted future cash flows over the remaining amortization
period. Management also considers events or changes in circumstances, which
indicate that an asset may not be recoverable. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying value of the assets exceeds the estimated fair value of the assets.
As a result of the Company's recent investment in advanced digital
technologies and the acceleration in demand by the marketplace for these
advanced technologies, certain older composite digital and analogue-based
technologies have experienced a significant reduction in demand. In fiscal year
1998 the Company recorded an impairment loss based on an appraisal of this older
equipment in the amount of $2,414. In addition, a lease impairment cost of $353
was also recognized in 1998 due to the loss of a beneficial option in the
renegotiation of a building lease.
39
<PAGE>
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.
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 - The Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS"),
during the year ending August 31, 1998 and has restated its net income per
common share disclosures for prior periods to comply with SFAS No. 128. Under
SFAS No. 128, primary EPS is replaced by "Basic" EPS, which excludes dilution
and is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. "Diluted"
EPS, which is computed similarly to fully diluted EPS, reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. When dilutive, stock options are
included as share equivalents in computing diluted earnings per share using the
treasury stock method.
During a loss period the assumed exercise of in-the-money stock options
has an antidilutive effect. As a result of the fourth quarter loss in fiscal
year 1999, the weighted average of dilutive stock options was reduced by 137,527
shares of common stock. Additionally, out-of-the money options to purchase
approximately 454,000, 543,000, and 365,000 shares of common stock were
outstanding during fiscal years ended August 31, 1997, 1998, and 1999,
respectively. They were excluded from the computation of diluted income per
share as they would have been antidilutive. As of August 31, 1999, debentures
that are convertible into 643,341 shares of common stock were excluded from the
computation of diluted income per share as they would have been antidilutive.
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.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks. The Company has entered into an interest rate
swap to alter its fixed and floating rate mix, and to effectively swap floating
rate exposure to fixed rates lower than those available to the Company if fixed
rate borrowings were made directly. Under the interest rate swap agreement, the
Company agrees with a counterparty to exchange, at specific intervals, the
difference between fixed rate and floating rate interest amounts calculated by
reference to an agreed notional principal amount.
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 52% of revenues for the year
ended August 31, 1999 and 56% for the year ended August 31, 1998. The Walt
Disney Company and its affiliated companies, the only customer to account for
more than 10% of revenues, accounted for approximately 16%, 15% and 17% of
revenues for 1999, 1998 and 1997, respectively.
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.
40
<PAGE>
STOCK-BASED COMPENSATION - In fiscal 1998, the Company adopted the
disclosure only provision of SFAS No. 123, "Accounting for Stock-Based
Compensation". 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."
CHANGE IN ACCOUNTING PRINCIPLE - The Company adopted the Statements of
Position (SOP) No. 98-5 "Reporting on the Costs of Start-Up Activities" during
fiscal year 1999. The effect of the adoption was to record an expense, net of
tax, of $293 in the current year.
COMPREHENSIVE INCOME - In fiscal year 1999, the Company adopted
Statement of SFAS No. 130, "Reporting Comprehensive Income." This statement
establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. The
implementation of SFAS No. 130 did not have an impact on the Company's
results of operations.
RECLASSIFICATIONS - Certain reclassifications have been made to the
prior years' consolidated financial statements to conform with the current
year's presentation.
RECENT ISSUED ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which is effective for all quarters of fiscal years beginning after June 15,
2000. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities.
The Company is currently reviewing the Statement and will apply such
provisions as deemed appropriate.
2. ACQUISITIONS
On June 20, 1997, the Company and its newly formed, wholly owned
subsidiary THD 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 adjusted
conversion price of $11.812 per share at any time before the maturity date.
On May 8, 1998, Todd Europe, a wholly owned United Kingdom
subsidiary of the Company, purchased substantially all of the outstanding
shares of Tele-Cine Cell Group plc. ("TeleCine"), a U.K. Corporation. The
purchase price of the shares was $17,948 (L11,011) of which $15,741 was paid
in cash and $2,207 is represented by unsecured loan notes guaranteed as to
principal only and bearing interest at a fixed rate of 4.5% payable annually
in arrears. Included above is cash in the amount of $495 which was paid by
Todd Europe for costs incurred in connection with the acquisition. TeleCine
is a London based facility that specializes in video post-production and
special effects providing services to the film and television industries.
TeleCine has recorded against acquisition reserves equipment
abandonment charges of $1,229, severance and related payments of $205 and
other charges of $561 from the date of acquisition to August 31, 1998 and
severance and related payments of $249, lease payments for unused equipment
of $481 and other charges of $217 for the year ended August 31, 1999. During
the fiscal year ended August 31, 1999, $851 of acquisition reserves no longer
required was credited to goodwill.
In June 1999 all of the issued and outstanding shares of Sound One
Corporation ("Sound One"), a New York corporation, were acquired by the Company
through a Merger Agreement signed June 8, 1999. Todd-AO East, Inc., an indirect
wholly owned subsidiary of the Company was merged into Sound One extinguishing
all of the issued and outstanding shares of common stock of Sound One in
exchange for a cash consideration of $11.50 per share. In consideration of the
purchase, the Company paid $11,962 in cash for the common stock and an
additional $353 in cash for costs incurred in connection with the acquisition.
In addition, $800 is represented by non-compete agreements. Sound One is the
leading post production sound facility in New York servicing the entertainment
industry.
41
<PAGE>
The acquisitions are being accounted for under the purchase method of
accounting. The following unaudited pro forma consolidated financial information
for the years ended August 31, 1998 and 1999 are presented as if the
acquisitions had occurred on September 1, 1997. Pro forma adjustments for Sound
One are primarily for amortization of goodwill and non-compete agreements,
changes in executive compensation, depreciation adjustments, interest expense on
borrowings in connection with the acquisition, and income taxes. Pro forma
adjustments for TeleCine are primarily to eliminate operations discontinued as
part of the acquisition plan, to adjust depreciation to estimated useful lives
of assets acquired, amortization of goodwill, interest expense on borrowings in
connection with the acquisition, and income taxes.
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Revenues.......................................................... $ 128,996 $ 130,106
=========== ===========
Net income before change in accounting principle.................. $ 5,723 $ 1,995
=========== ===========
Net income........................................................ $ 5,723 $ 1,702
=========== ===========
Net income per common share - before change in
accounting principle - Basic................................... $ 0.57 $ 0.21
=========== ===========
Net income per common share - Basic............................... $ 0.57 $ 0.18
=========== ===========
Net income per common share - before change in
accounting principle - Diluted................................. $ 0.54 $ 0.20
=========== ===========
Net income per common share - Diluted............................. $ 0.54 $ 0.17
=========== ===========
</TABLE>
3. SALE/LEASEBACK
In December 1998, November 1997 and December 1994 the Company signed
agreements with its bank to implement the sale/leaseback of certain equipment.
The agreements terminate on December 30, 2005, December 1, 2002 and December 30,
1999, respectively, and are being treated as operating leases for financial
statement purposes. On December 30, 1998, November 3, 1997 and December 30, 1994
an aggregate of $8,809, $8,500 and $11,218, respectively, of sound studio and
video equipment was sold and leased back. The total deferred gain on the
transactions to be amortized over five to seven years is $12,525. The annual
lease cost currently is approximately $3,350.
The net equipment lease expense is as follows for the years ended
August 31,
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Equipment lease costs................................ $ 1,737 $ 2,533 $ 3,690
Amortization of deferred gain
on sale of equipment.............................. (1,472) (2,288) (2,196)
--------- --------- ---------
Equipment lease expense, net......................... $ 265 $ 245 $ 1,494
========= ========= =========
Loss on equipment lease commitments.................. $ -- $ -- $ 788
========= ========= =========
</TABLE>
In December 1999, one of the Company's sale/leaseback agreements is
maturing. The Company has exercised its option to purchase for $5,699 the
equipment currently being leased under this agreement. The purchase price
exceeds the equipment's estimated fair value, as determined by an independent
valuation, by approximately $788. The Company recorded a pre-tax loss on
equipment lease commitments in this amount.
42
<PAGE>
4. LONG-TERM DEBT
Long-term debt outstanding as of August 31, 1999 and 1998 was as
follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Revolving credit facility (including multi-currency).............. $ 33,975 $ 51,790
Mortgage payable - TeleCine Charlotte Street property............. -- 5,141
Payables pursuant to non-compete agreements....................... -- 700
Notes payable (unsecured) - TeleCine acquisition (UK)............. 2,207 419
Convertible subordinated notes payable -
Hollywood Digital acquisition.................................. 8,399 7,599
Other............................................................. 610 850
----------- -----------
Total............................................................. 45,191 66,499
Less: current maturities.......................................... (537) (979)
----------- -----------
Total long-term debt.............................................. $ 44,654 $ 65,520
=========== ===========
</TABLE>
Aggregate loan maturities subsequent to August 31, 1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING TOTALS
----------
<S> <C>
2000 .......................................................................... $ 979
2001 .......................................................................... 434
2002 .......................................................................... 809
2003 .......................................................................... 96
2004 .......................................................................... 1,893
Thereafter .................................................................... 54,689
----------
Subtotal ...................................................................... 58,900
Debt convertible into common stock subsequent to
August 31, 1999 ............................................................ 7,599
----------
Total ......................................................................... $ 66,499
==========
</TABLE>
Under a new long-term credit agreement dated June 30, 1999 and
expiring on May 31, 2004, the Company may borrow up to $80,000 in revolving
loans until May 31, 2002. On that date and thereafter the revolving loan
commitment will reduce to nil by the expiration of the agreement. Prior to
May 31, 2002 the Company may request an automatic extension of the revolving
period of the facility for one year that will also extend the term period and
the expiration date of the agreement. Prior to December 31, 2000 the Company
may make a one-time request to increase the credit line by up to $20,000.
Such increase to be at the sole discretion of the Banks. The Company also has
the availability of Standby Letters of Credit up to $20,000 under the
facility. The credit facility provides for borrowings based on the Bank's
Reference, CD, and LIBOR rates. The facility includes commitment fees on the
unused balance of the credit facility. Other material restrictions include:
the Fixed Charge Coverage Ratio may not be less than 1.25:1; Other
Indebtedness (excluding up to $35,000 in Capital or Off Balance Sheet Leases,
the convertible subordinated notes issued in the Hollywood Digital
acquisition, non-recourse debt up to $50,000 of less than 100% owned Joint
Ventures, $5,000 in purchase money mortgage financing and the existing
TeleCine mortgage debt for the Charlotte Street property) many not exceed
$10,000; Leverage Ratio is not to exceed 4:1 through May 31, 2001 (decreasing
thereafter); Net Worth is not be to less than $54,000 plus net proceeds from
issuance of equity plus 50% of consolidated net income subsequent to May 31,
1998 (excluding the effect of stock repurchases up to $3,000 from the closing
date through the fiscal year ending August 31, 2000). As of August 31, 1999,
the Company was in compliance with the covenants.
In April 1999, the Company, through its indirectly wholly owned
subsidiary, TeleCine, Ltd., financed the purchase of the freehold property at
50/54 Charlotte Street, London, U.K. with a 10-year term mortgage loan in the
amount of $5,246. The loan is secured by the property. Equal payments of $105
(principal and interest) are due quarterly based on a 25-year amortization
period with the balance of the note due after 10 years. Interest is fixed at
6.7251%. The note contains a minimum net worth requirement of at least $8,965
plus 50% of earnings subsequent to fiscal year 1998.
43
<PAGE>
In January 1998, the Company entered into a three year interest rate
swap agreement for a notional amount of $10,000 to hedge the impact of
fluctuations in interest rates on its floating rate credit facility. Under
the agreement the Company is obligated to pay 5.65% in exchange for receiving
3 month LIBOR on the notional amount. Settlements are quarterly and the
contract expires in March 2001.
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 adjusted conversion price of $11.812
per share at any time before the maturity date and bear interest at 5%
payable annually. In November 1998, $800 of the notes were paid at the
election of the holders.
In November 1999, the Company exercised its right to convert the
remaining Hollywood Digital notes to common stock. These notes in the amount
of $7,599 are classified as long-term debt on the balance sheet at August 31,
1999.
In connection with the acquisition of TeleCine, Todd Europe, the
Company's U.K. wholly owned subsidiary, issued unsecured loan notes in the
amount of $2,207 guaranteed as to principal only and bearing interest at 4.5%
payable annually in arrears. $1,788 of the notes were paid down during the
current year at the election of the noteholders.
Other long-term debt consists of notes and obligations acquired in
connection with other acquisitions and bearing interest between the prime
rate and the prime rate plus 1/4%.
5. 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, 1997 1998 1999
- ---------------------- ------- ------- -------
<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............................. (2.2) (6.8) 0.0
Other, net...................................................... 1.1 (0.7) 1.7
------- ------- -------
Total........................................................... 32.9 % 26.5 % 35.7 %
======= ======= =======
</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.
Components of the income tax provision are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- --------- --------
<S> <C> <C> <C>
Current provision - domestic.................................. $1,156 $ (84) $ 312
Current provision - foreign................................... (217) 988 2,114
Deferred provision - domestic................................. 1,343 550 (1,029)
Deferred provision - foreign.................................. 666 (224) (667)
-------- --------- --------
Total......................................................... $2,948 $1,230 $ 730
======== ========= ========
Components of pre-tax income are as follows:
1997 1998 1999
-------- --------- --------
<S> <C> <C> <C>
Domestic...................................................... $7,454 $1,675 $ (2,179)
Foreign....................................................... 1,499 2,974 4,222
-------- --------- --------
Total......................................................... $8,953 $4,649 $2,043
======== ========= ========
</TABLE>
44
<PAGE>
Deferred income tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
FEDERAL STATE FOREIGN TOTAL
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
1999:
Current Asset:
Accounts receivable reserves........ $ 20 $ 8 $ 35 $ 63
Vacation pay accruals............... 223 55 0 278
State income taxes.................. (133) -- 0 (133)
General and pension provisions...... -- -- 476 476
Other............................... 55 16 -- 71
---------- ----------- ---------- -----------
TOTAL CURRENT ASSET..................... $ 165 $ 79 $ 511 $ 755
========== =========== ========== ===========
Long-Term Asset:
Deferred compensation............... $ 19 $ 5 $ -- $ 24
Net operating loss carryovers....... 2,597 1,131 58 3,786
U.K. capital allowances............. -- -- 944 944
State income tax credit carryover... -- 1,743 -- 1,743
Other............................... 119 81 -- 200
---------- ----------- ---------- -----------
Total long-term asset................... 2,735 2,960 1,002 6,697
---------- ----------- ---------- -----------
Long-Term Liability:
Depreciation........................ (5,827) (1,474) (295) (7,596)
Goodwill............................ (244) (60) -- (304)
Deferred gains on property.......... (1,420) (348) (77) (1,845)
Other............................... (191) (14) (1) (206)
---------- ----------- ---------- -----------
Total long-term liability............... (7,682) (1,896) (373) (9,951)
---------- ----------- ---------- -----------
NET LONG-TERM LIABILITY................. $ (4,947) $ 1,064 $ 629 $ (3,254)
========== =========== ========== ===========
1998:
Current Asset:
Accounts receivable reserves........ $ 21 $ 5 $ 234 $ 260
Vacation pay accruals............... 275 67 -- 342
State income taxes.................. (77) -- -- (77)
Other............................... -- 7 -- 7
---------- ----------- ---------- -----------
TOTAL CURRENT ASSET..................... $ 219 $ 79 $ 234 $ 532
========== =========== ========== ===========
Long-Term Asset:
Deferred compensation............... $ 44 $ 10 $ -- $ 54
U.K loss carryover.................. -- -- 84
84
U.K. capital allowances............. -- -- 255 255
State income tax credit carryover... -- 1,656 -- 1,656
Other............................... (5) 96 -- 91
---------- ----------- ---------- -----------
Total long-term asset................... 39 1,762 339 2,140
---------- ----------- ---------- -----------
Long-Term Liability:
Depreciation........................ (3,481) (1,192) -- (4,673)
Goodwill............................ (128) (31) -- (159)
Deferred gains on property.......... (1,869) (454) (80) (2,403)
Other............................... (53) 9 (2) (46)
---------- ----------- ---------- -----------
Total long-term liability............... (5,531) (1,668) (82) (7,281)
---------- ----------- ---------- -----------
NET LONG-TERM LIABILITY................. $ (5,492) $ 94 $ 257 $ (5,141)
========== =========== ========== ===========
</TABLE>
Pursuant to the Internal Revenue Code Section 382, the Company's
existing net operating loss carryovers and other deferred tax assets and
liabilities may be unavailable for future use in the event of significant
ownership changes of the Company's common stock.
45
<PAGE>
6. STOCKHOLDERS' EQUITY
The Company has 1,000,000 shares of $.01 par value preferred stock
authorized. As of August 31, 1999 no shares of preferred stock have been
issued or were outstanding.
The Class B stock is convertible at the option of the holder into
Class A stock and is automatically converted to Class A stock under certain
circumstances; holders have ten votes per share; transferability is
restricted; and dividends are limited to 90% of any dividends paid on Class A
stock.
The Company has a stock repurchase program under which 2,300,000
shares may be purchased from time to time in the open market or in private
transactions. As of August 31, 1999, 1,621,756 shares had been repurchased.
1,555,303 of these shares have been canceled and returned to authorized but
unissued status.
7. STOCK OPTIONS
STOCK OPTION PLANS
The Company has five stock option plans: The 1986, 1994, 1995, and
1997 Stock Option Plans and the 1998 Stock Incentive Plan. As of August 31,
1999, no stock options or shares have been issued from the 1998 Plan. These
plans provide for the granting of either non-qualified or incentive stock
options at not less than 85% and 100% of the market value of the stock on the
date of the grant, respectively. Options generally become exercisable in
installments commencing as of the beginning of a fiscal year near the date of
grant.
On December 10, 1998, the Company granted to all option holders a
one-time re-pricing adjustment with respect to all options outstanding with
exercise prices in excess of the $8.00 per share market value determined as
of that date. Option holders electing to reduce the exercise price of their
share options agreed to reduce the number of their affected option shares
outstanding by the same ratio as the price reduction.
The following summarizes stock option activity for the three years
ended August 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
------------ ---------------
<S> <C> <C>
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
Awarded..................................................... 96,000 9.92
Exercised................................................... (96,206) 3.50
Forfeited................................................... (31,984) 9.85
------------ ---------------
Options outstanding, August 31, 1998........................ 1,633,401 $ 7.35
Awarded..................................................... 70,500 9.34
Exercised................................................... (274,080) 4.00
Forfeited................................................... (53,696) 8.33
Forfeited due to repricing.................................. (176,775) 10.41
------------ ---------------
Options outstanding, August 31, 1999........................ 1,199,350 $ 6.57
============ ===============
Vested as of August 31, 1999................................ 814,528
============
</TABLE>
46
<PAGE>
As of August 31, 1999, 71,765 shares, 72,000 shares, 314,045 shares,
35,150 shares and 536,783 shares were available for grant under the 1986,
1994, 1995, 1997 and 1998 plans respectively. Common Shares have been
reserved for issuance under the plans for all options outstanding at August
31, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF AT AUGUST CONTRACTUAL EXERCISE AT AUGUST EXERCISE
EXERCISE PRICES 31, 1999 LIFE PRICE 31, 1999 PRICE
----------------- ------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 4.50 - 13.88 741,500 5 years $6.38 498,558 $5.71
3.26 - 8.00 320,258 4 years 6.37 236,152 5.79
8.00 17,742 2.3 years 8.00 10,648 8.00
8.00 119,850 7 years 8.00 69,170 8.00
----------------- ------------- -------------- -------------- -------------- --------------
$ 3.26 - 13.88 1,199,350 4.89 years $6.57 814,528 $5.96
============= ==============
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS 123.
The estimated fair value of options granted during 1999, 1998 and 1997
pursuant to SFAS 123 was approximately $490, $343 and $2,738, respectively.
Had the Company adopted SFAS 123, pro forma net income for those years would
have been $621, $2,863 and $5,461, respectively. Pro forma "basic" net income
per share would have been $0.06, $0.29 and $0.57 and "diluted" net income per
share would have been $0.06, $0.28 and $0.54 for 1999, 1998 and 1997,
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 0.43%-0.75%, volatility of 25%, a risk free
interest rate of 4.95% for 1999, 5.05% for 1998 and 6.28% for 1997 and
expected option lives of 5 to 9 years.
8. COMMITMENTS
OPERATING LEASES - Rent expense for noncancellable operating leases
for real property and equipment was $4,736, $6,524 and $8,242 for the years
ended August 31, 1997, 1998 and 1999, respectively. Minimum rentals for
operating leases for years ending after August 31, 1999 are as follows: 2000,
$14,009; 2001, $7,607; 2002, $7,142; 2003, $5,385; 2004, $4,347 and $20,021,
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.
Additionally, the Company has guaranteed the residual values of
$1,221 and $2,823 for sale/leaseback transactions maturing in 2003 and 2005.
The Company exercised its option to purchase for $5,699 the equipment
currently being leased under the sale/leaseback transaction maturing in
December 1999.
EMPLOYMENT AGREEMENTS - At August 31, 1999, the Company is committed
to compensation under long-term employment agreements with certain of its
officers and key employees as follows: 2000, $2,984; 2001, $2,009 and 2002,
$1,309.
9. 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. Contributions to the MPIPP are determined in accordance with the
provisions of negotiated labor contracts and generally are based on the
number of hours worked. The Plans are funded by employer and employee
contributions. Total pension plan expense for the Plans for the years ended
August 31, 1997, 1998, and 1999 are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
MPIPP............................................ $ 618 $ 648 $ 687
U.S. 401(k)...................................... $ 225 $ 370 $ 485
U.K. Plan........................................ $ 85 $ 95 $ 273
</TABLE>
47
<PAGE>
10. JOINT VENTURES
The Company has organized a limited liability company ("LLC") which
is known as "CDP Limited Liability Company" 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. Pending such acceptance, further development
and marketing expenditures will be minimal. Under a Joint Venture Agreement
dated September 8, 1998, the Company, UATC and Richard Vetter, author of
certain CDP patents, will have interests of 45%, 45% and 10%, respectively,
in any profits of the LLC, after the recoupment of their defined investments
in the CDP technology.
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. The Company and DCVI's German
subsidiaries, TODD-AO GERMANY GMBH and BUENA VISTA INTERNATIONAL FILM
PRODUCTION (GERMANY) GMBH have agreed to jointly build a state-of-the-art,
all-digital post production complex in Munich. The 36,000 square foot
facility will include feature and video mixing studios, film and video
dialogue recording rooms and editorial suites. The Company will manage all
technical and operational functions and DCVI will coordinate the creative
services of the studios. Additional joint ventures are contemplated for
France, Italy, Spain and Asia. The foreign language dubbing studios will
provide each of those territories with state-of-the-art theatrical and
television recording, mixing and editing facilities.
11. 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 position or results of operations.
12. BUSINESS SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," for its fiscal year ended August 31,
1999, which changed the way the Company reports information about its
operating segments. The Company's business units have been aggregated into
two reportable operating segments: sound and video services. The Other column
includes corporate related items and income and expenses not allocated to
reportable segments. The Company's reportable operating segments have been
determined in accordance with the Company's internal management structure,
which is organized based on operating activities. The accounting policies of
the operating segments are the same as those described in the summary of
significant accounting policies. The Company evaluates performance based upon
several factors, including segment income (loss) before income taxes,
interest, depreciation and amortization of intangibles.
48
<PAGE>
Summarized financial information concerning the Company's reportable
segments is shown in the following tables:
<TABLE>
<CAPTION>
SOUND VIDEO
SERVICES SERVICES OTHER TOTAL
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1999:
Revenues............................. $ 41,242 $ 77,275 $ -- $ 118,517
Income (loss) before income taxes,
interest, depreciation and
amortization of intangibles....... 4,030 17,629 (2,727) 18,932
Identifiable assets.................. 39,822 77,148 2,335 119,305
Intangible assets, net............... 7,102 26,773 -- 33,875
Capital expenditures................. 3,591 19,585 -- 23,176
Depreciation expense................. 2,191 9,396 -- 11,587
YEAR ENDED AUGUST 31, 1998:
Revenues............................. $ 42,855 $ 59,759 $ -- $ 102,614
Income (loss) before income taxes,
interest, depreciation and
amortization of intangibles....... 5,537 11,452 152 17,141
Identifiable assets.................. 34,934 68,604 2,865 106,403
Intangible assets, net............... -- 29,193 -- 29,193
Capital expenditures................. 7,147 17,201 -- 24,348
Depreciation expense................. 2,533 7,116 -- 9,649
YEAR ENDED AUGUST 31, 1997:
Revenues............................. $ 47,248 $ 31,723 $ -- $ 78,971
Income (loss) before income taxes,
interest, depreciation and
amortization of intangibles....... 9,985 7,297 (281) 17,001
Identifiable assets.................. 34,797 46,619 2,873 84,289
Intangible assets, net............... -- 19,162 -- 19,162
Capital expenditures................. 2,690 10,457 -- 13,147
Depreciation expense................. 2,959 3,787 -- 6,746
</TABLE>
The following table reconciles segment income (loss) before income
taxes, interest, depreciation and amortization of intangibles to the Company's
consolidated or combined (as applicable) net income (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
----------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Income before income taxes, interest,
depreciation and amortization of intangibles........ $ 17,001 $ 17,141 $ 18,932
Amortization of intangibles............................ (382) (1,036) (1,242)
Interest expense....................................... (920) (1,807) (3,617)
Depreciation........................................... (6,746) (9,649) (11,587)
Provision for income taxes............................. (2,948) (1,230) (880)
---------- ---------- -----------
Net income before change in
accounting principle................................ 6,005 3,419 1,606
Change in accounting principle, net.................... -- -- (293)
---------- ---------- -----------
Net income............................................. $ 6,005 $ 3,419 $ 1,313
========== ========== ===========
</TABLE>
49
<PAGE>
Information as to the Company's operations in different geographic
areas is as follows for the years ended August 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
REVENUES:
United States......................................... $ 65,436 $ 79,143 $ 79,330
United Kingdom........................................ 13,535 23,471 39,187
---------- ---------- -----------
Total................................................. $ 78,971 $102,614 $118,517
========== ========== ===========
NET INCOME (LOSS):
United States......................................... $ 4,955 $ 1,209 $ (1,169)
United Kingdom........................................ 1,050 2,210 2,775
---------- ---------- -----------
Subtotal.............................................. 6,005 3,419 1,606
United States - net change in accounting principle.... -- -- (293)
========== ========== ===========
Total................................................. $ 6,005 $ 3,419 $ 1,313
========== ========== ===========
ASSETS:
United States......................................... $ 85,569 $ 91,001 $106,258
United Kingdom........................................ 17,882 44,365 46,922
---------- ---------- -----------
Total................................................. $103,451 $135,366 $153,180
========== ========== ===========
</TABLE>
13. SUBSEQUENT EVENTS
On September 22, 1999, the Company, through its newly-formed wholly
owned subsidiary, Todd-AO, Espana, purchased a fifty percent (50%) interest
in a Barcelona-based sound facility named 103 Estudio, S.L., for $2,010. The
purchase agreement includes plans for expansion of the current Barcelona
facility, comprising state-of-the-art digital dubbing studios designed for
foreign language dubbing of feature films and television programs. New
premises near the two existing facilities have already been acquired.
Existing management shall remain in place, and the Company shall assume two
positions on the Board, thereby participating in all top management policies
and decisions of the new company, which shall be named 103 Todd-AO Estudio,
S.L.
50
<PAGE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
BASIC DILUTED
EARNINGS EARNINGS
(LOSS) (LOSS)
PER PER
COMMON COMMON
TOTAL GROSS NET INCOME SHARE SHARE
1998 REVENUES PROFIT (LOSS) OUTSTANDING OUTSTANDING
------------ ---------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
First Quarter............ $ 25,024 $ 3,262 $ 1,773 $ .18 $ .16
Second Quarter........... 22,582 1,991 1,316 .13 .12
Third Quarter............ 27,252 2,860 1,627 .16 .15
Fourth Quarter........... 27,756 537 (1,297) (.13) (.11)
------------ ---------- ----------- -------------- --------------
TOTAL.................... $ 102,614 $ 8,650 $ 3,419 $ .34(a) $ .33(a)
============ ========== =========== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
BASIC DILUTED
EARNINGS EARNINGS
(LOSS) (LOSS)
PER PER
COMMON COMMON
TOTAL GROSS NET INCOME SHARE SHARE
1998 REVENUES PROFIT (LOSS) OUTSTANDING OUTSTANDING
------------ ---------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
First Quarter............ $ 33,947 $ 4,784 $ 2,468 $ .26 $ .24
Second Quarter........... 28,388 1,167 897 .10 .09
Third Quarter............ 28,093 784 62 .01 .01
Fourth Quarter........... 28,089 569 (2,114) (.22) (.21)
------------ ---------- ----------- -------------- --------------
TOTAL.................... $ 118,517 $ 7,304 $ 1,313 $ .14(a) $ .13(a)
============ ========== =========== ============== ==============
</TABLE>
- --------------
(a) Aggregate per share amounts for each quarter may differ from annual totals
as each is independently calculated.
51
<PAGE>
<TABLE>
<CAPTION>
THE TODD-AO CORPORATION SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
YEARS ENDED AUGUST 31, 1997, 1998 AND 1999
COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN
A B C D E F
------------ --------------- ------------- ------------- ------------
ADDITIONS ADDITIONS
CHARGED ACQUIRED OR
BALANCE AT (CREDITED) TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS AND OTHER PERIOD
- -------------------------------------- ------------ --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended August 31, 1997........... $ 696 $ 106 $ 351 (a) $ (591) $ 562
============ =============== ============= ============= ============
Year ended August 31, 1998........... $ 562 $ (28) $1,220 (b) $ 14 $1,768
============ =============== ============= ============= ============
Year ended August 31, 1999........... $1,768 $(650) $ 94 (c) $ 3 $1,215
============ =============== ============= ============= ============
(a) Balance acquired in acquisition of Hollywood Digital.
(b) Balance acquired in acquisition of TeleCine.
(c) Balance acquired in acquisition of Sound One.
Allowance for acquisition reserves:
Year ended August 31, 1997........... $ -- $ -- $ -- $ -- $ --
============ =============== ============= ============= ============
Year ended August 31, 1998........... $ -- $ -- $3,995 (a) $(1,995) $2,000
============ =============== ============= ============= ============
Year ended August 31, 1999........... $2,000 $ -- $ (851)(b) $ (947) $ 202
============ =============== ============= ============= ============
(a) Balance acquired in acquisition of TeleCine ($3,995).
(b) Excess reserves credited to goodwill ($851).
</TABLE>
52
<PAGE>
EXHIBIT 10.38
CREDIT AGREEMENT
This CREDIT AGREEMENT dated as of June 30, 1999 is entered into by
and among THE TODD-AO CORPORATION, a Delaware corporation ("Borrower"), each
bank whose name is set forth on the signature pages of this Agreement and
each lender which may hereafter become a party to this Agreement
(collectively, the "Banks" and individually, a "Bank") and Bank of America
National Trust and Savings Association, as Administrative Agent and Issuing
Bank.
In consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree as follows:
SECTION 1.
DEFINITIONS AND ACCOUNTING TERMS
1.01 TERMS. The following terms used in this Agreement and in any
exhibits annexed hereto shall have the following meanings unless the context
otherwise requires.
"ACQUISITION" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a Person or any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests, membership interests or equity of any Person, or
otherwise causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than a Person
that is a Subsidiary) provided that Borrower or one of its Subsidiaries is the
surviving entity.
"ADMINISTRATIVE AGENT" means Bank of America National Trust and Savings
Association, when acting in its capacity as the Administrative Agent under any
of the Loan Documents, or any successor Administrative Agent.
"ADMINISTRATIVE AGENT'S OFFICE" means the Administrative Agent's
address and, as appropriate, account as set forth on SCHEDULE 10.06, or such
other address or account as the Administrative Agent hereafter may designate by
written notice to Borrower and the Banks.
"ADMINISTRATIVE AGENT-RELATED PERSONS" means the Administrative Agent
(including any successor agent), together with their respective Affiliates, and
the officers, directors, employees, agents and attorneys-in-fact of such Persons
and Affiliates.
"AFFILIATE" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (and the correlative terms,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise); provided that, in any event, any
Person that owns, directly or indirectly, 10% or more of the securities having
ordinary voting power for the election of directors or other governing body of a
corporation that has more than 100 record holders of such securities, or 10% or
more of the partnership or other ownership interests of any other Person that
has more than 100
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<PAGE>
record holders of such interests, will be deemed to control such corporation,
partnership or other Person.
"AGREEMENT" means this Agreement, either as originally executed or
as it may from time to time be supplemented, modified, amended, restated or
extended.
"APPLICABLE AMOUNT" means, for any Pricing Period, the per annum
amounts set forth below under Applicable Amount opposite the applicable
Pricing Leverage Ratio as calculated from the most recently delivered
Compliance Certificate delivered pursuant to SECTION 6.02(a); PROVIDED,
HOWEVER, that until the Administrative Agent receives the first such
Compliance Certificate after the Closing Date, the Applicable Amount shall be
based on the Pricing Leverage Ratio indicated on the certificate delivered on
the Closing Date pursuant to Section 4.01(h); PROVIDED, FURTHER, that, so
long as the Default Rate is not otherwise applicable, the Applicable Amount
on up to $10,000,000 aggregate face amount of TeleCine Cell Letters of Credit
shall be 1% per annum, instead of the percentage indicated in the table
below, regardless of the Pricing Leverage Ratio then in effect:
<TABLE>
<CAPTION>
APPLICABLE AMOUNT
----------------------------------------------------
LETTERS OF
CREDIT
---------------
PRICING COMMITMENT OFFSHORE RATE ALTERNATE BASE
LEVEL LEVERAGE RATIO FEE + RATE +
- ------------- --------------------------- ------------------- --------------- ----------------
<S> <C> <C> <C> <C>
1 = > 3.50 0.500% 2.50% 1.50%
2 = > 2.50:1 but < 3.50:1 0.500% 2.00% 1.00%
3 = > 2.00:1 but < 2.50:1 0.375% 1.50% 0.500%
4 = > 1.50:1 but < 2.00:1 0.300% 1.25% 0.125%
5 = > 1.00:1 but < 1.50:1 0.250% 1.00% 0
6 < 1.00:1 0.200% 0.75% 0
</TABLE>
"PRICING LEVEL CHANGE DATE" means with respect to any change
in the Pricing Leverage Ratio which results in a change in the
Applicable Amount, the earlier of (a) the date upon which Borrower
delivers a Compliance Certificate to the Administrative Agent pursuant
to SECTION 6.02(A) reflecting such changed Pricing Leverage Ratio and
(b) the date upon which Borrower is required by SECTION 6.02(a) to
deliver such Compliance Certificate; PROVIDED, HOWEVER, that if the
Compliance Certificate is not delivered by the date required by the
above Section, then, subject to the other provisions of this Agreement,
commencing on the date such Compliance Certificate was required until
such Compliance Certificate is delivered, the Applicable Amount shall
be based on highest level set forth above, and from and after the date
such Compliance Certificate is thereafter received, the Applicable
Amount shall be as determined from such Compliance Certificate.
"PRICING PERIOD" means (a) the period commencing on the
Closing Date and ending on the first Pricing Level Change Date to occur
thereafter and (b) each subsequent period
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<PAGE>
commencing on each Pricing Level Change Date and ending the day prior
to the next Pricing Level Change Date.
"ATTORNEY COSTS" means and includes all fees and disbursements of any
law firm or other external counsel and the allocated cost of internal legal
services and all disbursements of internal counsel.
"BANK" means each lender from time to time party hereto.
"BANK OF AMERICA" means Bank of America National Trust and Savings
Association, a national banking association.
"BASE RATE" means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate; and (b) the rate of interest in effect for
such day as publicly announced from time to time by Bank of America as its
"reference rate." (The "reference rate" is a rate set by Bank of America based
upon various factors including Bank of America's costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate.)
"BASE RATE LOAN" means a Dollar-denominated Loan made hereunder and
specified to be an Base Rate Loan in accordance with Section 2.
"BORROWER" has the meaning given such term in the introduction hereof.
"BORROWING" and "BORROW" each mean, a borrowing hereunder consisting of
Loans of the same type made on the same day and, other than in the case of Base
Rate Loans, having the same Interest Period.
"BORROWING DATE" means the date that a Loan is made by the Banks, which
shall be a Business Day.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which commercial banks in New York City or San Francisco are authorized or
required by law to close, AND, if the applicable Business Day relates to:
(a) an Offshore Rate Loan denominated in Dollars, any such day on which
dealings are carried on in the applicable offshore Dollar market;
(b) with respect to the euro, any such day which is:
(i) for payments or purchases of the euro, a TARGET Business
Day; and
(ii) for all other purposes, including without limitation the
giving and receiving of notices hereunder, a TARGET Business Day on
which banks are generally open for business in London, Frankfurt and in
any other principal financial center as the Administrative Agent may
from time to time determine for this purpose; and
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<PAGE>
(c) an Offshore Rate Loan denominated in any other Offshore Currency, a
day on which commercial banks are open for foreign exchange business in London,
England, and on which dealings in the relevant Offshore Currency are carried on
in the applicable offshore foreign exchange interbank market in which
disbursement of or payment in such Offshore Currency will be made or received
hereunder.
A "TARGET BUSINESS DAY" is a day when TARGET (Trans-European
Automated Real-time Gross settlement Express Transfer system), or any
successor thereto, is scheduled to be open for business.
"CAPITAL LEASE OBLIGATIONS" means all monetary obligations of a Person
under any leasing or similar arrangement which, in accordance with Generally
Accepted Accounting Principles, is classified as a capital lease.
"CLOSING DATE" means the date all conditions set forth in SECTION 4.01
are satisfied or waived by the Administrative Agent and the Banks.
"CODE" means the Internal Revenue Code of 1986, as amended, as time to
time in effect.
"COLLATERAL" means all of the collateral covered by the Collateral
Documents.
"COLLATERAL DOCUMENTS" means, collectively, the Pledge Agreement and
any other security agreement, or supplement thereto, from time to time executed
and delivered by Borrower or the Subsidiaries to secure the Obligations.
"COMMITMENT" means, for each Bank, the amount set forth as such
opposite such Bank's name on SCHEDULE 2.01, as such amount may be reduced,
adjusted or increased pursuant to the terms of this Agreement (collectively, the
combined Commitments). The respective Pro Rata Shares of the Banks are set forth
in SCHEDULE 2.01.
"COMMONLY CONTROLLED ENTITY" means an entity, whether or not
incorporated, which is under common control with Borrower within the meaning of
Section 414(c) of the Code.
"COMPLIANCE CERTIFICATE" means a certificate in the form of Exhibit B,
properly completed and signed by a Responsible Officer.
"CONTINUATION" and "CONTINUE" each mean, with respect to any Loan other
than a Base Rate Loan, the continuation of such Loan as the same type of Loan in
the same principal amount, but with a new Interest Period and an interest rate
determined as of the first day of such new Interest Period. Continuations must
occur on the last day of the Interest Period for such Loan.
"CONVERSION" and "CONVERT" each mean, with respect to any Loan, the
conversion of one type of Loan into another type of Loan. With respect to Loans
other than Base Rate Loans, Conversions must occur on the last day of the
Interest Period for such Loan.
"CONVERTIBLE SUBORDINATED NOTES" means convertible subordinated notes
in an aggregate principal amount not exceeding $8,400,000 issued by Borrower in
connection with the Hollywood Digital Acquisition and having terms and
conditions and otherwise in form and substance
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<PAGE>
satisfactory to the Requisite Banks, and any extension, renewal, refunding
and refinancing thereof in form and substance satisfactory to the Requisite
Banks; PROVIDED that after giving effect to such extension, renewal,
refunding or refinancing the principal amount thereof is not increased.
"DEBTOR RELIEF LAWS" means the Bankruptcy Code of the United States
of America, as amended from time to time, and all other applicable
liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief laws from time to time in effect
affecting the rights of creditors generally.
"DEFAULT" means any event or circumstance which, with the passing of
time, giving of notice, or both would become an Event of Default.
"DEFAULT RATE" means a fluctuating rate per annum equal to the Base
Rate plus the Applicable Amount, if any, plus 2%.
"DESIGNATED DEPOSIT ACCOUNT" means a deposit account to be
maintained by Borrower with Bank of America, as from time to time designated
by Borrower by written notification to the Administrative Agent.
"DISTRIBUTION" means, with respect to any shares of capital stock or
any warrant or option to purchase an equity security or other equity security
issued by a Person, (a) the retirement, redemption, purchase, or other
acquisition for Cash or for Property by such Person of any such security, (b)
the declaration or (without duplication) payment by such Person of any
dividend in Cash or in Property on or with respect to any such security, (c)
any Investment by such Person in the holder of 5% or more of any such
security if a purpose of such Investment is to avoid characterization of the
transaction as a Distribution and (d) any other payment in cash or Property
by such Person constituting a distribution under applicable laws with respect
to such security.
"DOLLAR EQUIVALENT" means, as of any date, (a) as to any amount
denominated in Dollars, the amount thereof at such time, and (b) as to any
amount denominated in an Offshore Currency, the equivalent amount in Dollars
based upon the Spot Rate for the purchase of Dollars with such Offshore
Currency on such date.
"DOLLARS" and the sign "$" means dollars in lawful currency of the
United States of America.
"EBITDA" means, as of any date of determination, or Borrower and its
Significant Subsidiaries on a consolidated basis, determined in accordance
with Generally Accepted Accounting Principles, an amount equal to the sum of,
without duplication, for the preceding four-quarter period ending on the date
of determination (a) such Person's net income (or net loss), (b) less the net
income attributable to joint ventures and Subsidiaries less than 100% owned,
plus, without duplication, (c) cash actually received by Borrower or its
Significant Subsidiaries from joint ventures and Subsidiaries less than 100%
owned which is not a return on capital or results from an extraordinary gain
plus (d) all depreciation expense, lease expense (excluding operating leases
but including Capital Lease and Synthetic Lease expense), interest expense,
and amortization expense of intangibles of any kind to the extent included in
the determination of such
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<PAGE>
net income (or loss), plus (e) provisions for income taxes as set forth in
Borrower's consolidated income statement, plus (f) noncash compensation in
the form of stock award grants; PROVIDED, HOWEVER, that net income (or loss)
shall be computed for these purposes without giving effect to extraordinary
losses or extraordinary gains. The EBITDA of any Significant Subsidiary
acquired by Borrower during the prior four fiscal quarters shall be included;
PROVIDED, FURTHER, that with respect to Borrower's acquisition of Sound One
Corporation on or about June 22, 1999, certain nonrecurring expenses set
forth on SCHEDULE 1.01 hereto incurred by Sound One Corporation during such
prior four-quarter period consisting of executive bonuses and employee costs
expected to be saved following the acquisition and certain expenses that
would have been capitalized by Borrower, shall be added back to EBITDA by
allocating such expenses equally over such measurement period.
"ELIGIBLE ASSIGNEE" means (a) a financial institution organized
under the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000; (b) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined capital and
surplus of at least $100,000,000, provided that such bank is acting through a
branch or agency located in the United States; (c) a Person that is primarily
engaged in the business of commercial banking and that is (i) a Subsidiary of
a Bank, (ii) a Subsidiary of a Person of which a Bank is a Subsidiary, or
(iii) a Person of which a Bank is a Subsidiary and (d) another Bank.
"EMPLOYEE BENEFIT PLAN" means "employee benefit plan" as that term
is defined in Section 3(3) of ERISA.
"EMU LEGISLATION" means (a) the Treaty on European Union (the Treaty
of Rome of March 25, 1957, as amended by the Single European Act 1986 and the
Maastricht Treaty (which was signed at Maastricht on February 1, 1992 and
came into force on November 1, 1993)), and (b) legislative measures of the
European Council (including without limitation European Council regulations)
for the introduction of, changeover to or operation of the euro, in each case
as amended or supplemented from time to time.
"ENVIRONMENTAL LAWS" means all foreign, federal, state or local
laws, statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authority, in each case relating to environmental, health, safety and land
use matters applicable to any property.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time in effect.
"EVENT OF DEFAULT" has the meaning provided for in SECTION 8.01.
"EXISTING CREDIT AGREEMENT" means that certain First Amended and
Restated Credit Agreement dated as October 20, 1997, as amended, between
Borrower, the banks party thereto and Bank of America National Trust and
Savings Association, as administrative agent and issuing bank.
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<PAGE>
"EXTENSION OF CREDIT" means (a) the Borrowing of any Loans, (b) the
Conversion or Continuation of any Loans or (c) the issuance, renewal,
increase continuation, amendment or other credit action with respect to any
Letter of Credit, including the Banks acquiring a participation in such
Letters of Credit (collectively, the "EXTENSIONS OF CREDIT").
"EURO" means the single currency of Participating Member States.
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the
caption "Federal Funds (Effective)"; or, if for any relevant day such rate is
not so published on any such preceding Business Day, the rate for such day
will be the arithmetic mean as determined by the Administrative Agent of the
rates for the last transaction in overnight Federal funds arranged prior to
9:00 a.m. (New York City time) on that day by each of three leading brokers
of Federal funds transactions in New York City selected by the Administrative
Agent.
"FIXED CHARGE COVERAGE RATIO" means, for Borrower and its
Subsidiaries on a consolidated basis, determined in accordance with Generally
Accepted Accounting Principles, the ratio of
(a) Free Available Cash Flow for the four immediately
preceding fiscal quarters TO
(b) (i) Interest Expense for the four immediately preceding
fiscal quarters plus the current portion of Funded Indebtedness (A)
INCLUDING without limitation the current portion of Capital Leases and
Synthetic Leases, but excluding balloon payments thereunder to the
extent they do not exceed, as of any date of determination, the
additional amount Borrower could borrow hereunder on such date while
maintaining compliance with all covenants hereunder, and (B) EXCLUDING
the Convertible Subordinated Notes; PLUS
(ii) all pro forma Distributions for the immediately following
four fiscal quarters.
For purposes of determining the Fixed Charge Coverage Ratio,
repurchases of Borrower's capital stock in an aggregate amount not exceeding
$3,000,000 during the period from the Closing Date through and including
August 31, 2000 shall be excluded from the calculation of Distributions.
"FRB" means the Board of Governors of the Federal Reserve System or
any governmental authority succeeding to its functions.
"FREE AVAILABLE CASH FLOW" means, as of any date of determination,
for Borrower and its Significant Subsidiaries on a consolidated basis,
determined in accordance with Generally Accepted Accounting Principles, the
sum of, without duplication, for the preceding four quarter period ending on
the date of determination (a) EBITDA, less (b) cash income taxes payable and
less (c) maintenance capital expenditures (which shall exclude capital
expenditures relating to any Property made within 12 months of the
acquisition of such Property or the Person owning such Property). The Free
Available Cash Flow of any Significant Subsidiary acquired by Borrower during
the prior four fiscal quarters shall be included.
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<PAGE>
"FUNDED INDEBTEDNESS" means, for any period, for Borrower and its
Subsidiaries on a consolidated basis, determined in accordance with Generally
Accepted Accounting Principles, an amount equal to the sum of, without
duplication:
(a) all Indebtedness for borrowed money (EXCLUDING Indebtedness of
Non-Recourse Joint Ventures and up to (pound)3,100,000 of existing the
TeleCine Cell mortgage debt on its Charlotte property) PLUS
(b) up to $5,000,000 in purchase money mortgage financing PLUS
(c) the principal portion of all Capital Leases and Synthetic Leases
PLUS
(d) indebtedness arising under acceptance facilities and the face
amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder PLUS
(e) all Guaranty Obligations
LESS
(x) amounts held as cash, cash equivalents and marketable securities
determined in accordance in Generally Accepted Accounting Principles LESS
$3,500,000.
It is understood that the TeleCine Cell Loan Notes and the TeleCine
Cell Letters of Credit shall not be double-counted for purposes of
calculating Funded Indebtedness to the extent that any payment on the
TeleCine Cell Loan Notes concurrently reduces the face amount of the TeleCine
Cell Letters of Credit by an equivalent amount, and drawings under the
TeleCine Cell Letters of Credit concurrently reduce the TeleCine Cell Loan
Notes by an equivalent amount.
"FX TRADING OFFICE" means the Foreign Exchange Trading Center #5752,
Los Angeles, California, of Bank of America, or such other of Bank of
America's offices as Bank of America may designate from time to time.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means generally accepted
accounting principles as in effect from time to time, including, without
limitation, applicable statements, bulletins and interpretations issued by
the Financial Accounting Standards Board and bulletins, opinions,
interpretations and statements issued by the American Institute of Certified
Public Accountants or its committees.
"GOVERNMENTAL AUTHORITY" means (a) any international, foreign,
federal, state, county or municipal government, or political subdivision
thereof, (b) any governmental or quasi-governmental agency, central bank or
comparable authority, authority, board, bureau, commission, department,
instrumentality or public body, or (c) any court or administrative tribunal
of competent jurisdiction.
"GUARANTORS" means each Subsidiary of Borrower (individually a
"GUARANTOR") that is a guarantor under the Guaranty or becomes a guarantor
thereunder pursuant to SECTION 6.09.
-8-
<PAGE>
"GUARANTY" means the Subsidiary Continuing Guaranty substantially in
the form of Exhibit D hereto, either as originally executed or as the same
may from time to time be supplemented, modified, amended, renewed, extended
or supplanted.
"GUARANTY OBLIGATION" means, as to any Person, any (a) guarantee by
that Person of Indebtedness of, or other obligation performable by, any other
Person or (b) assurance, agreement, letter of responsibility, letter of
awareness, undertaking or arrangement given by that Person to an obligee of any
other Person with respect to the performance of an obligation by, or the
financial condition of, such other Person, whether direct, indirect or
contingent, including any purchase or repurchase agreement covering such
obligation or any collateral security therefor, any agreement to provide funds
(by means of loans, capital contributions or otherwise) to such other Person,
any agreement to support the solvency or level of any balance sheet item of such
other Person or any "keep-well" or other arrangement of whatever nature given
for the purpose of assuring or holding harmless such obligee against loss with
respect to any obligation of such other Person; PROVIDED, HOWEVER, that the term
Guaranty Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Guaranty
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the related primary obligation, or portion thereof, covered by such
Guaranty Obligation or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by the Person in good
faith.
"HOLLYWOOD DIGITAL ACQUISITION" means the acquisition of certain
assets and the assumption of certain liabilities of Hollywood Digital Limited
Partnership, a Delaware limited partnership, by Todd-AO HD, Inc., a
California corporation.
"INDEBTEDNESS" means, as to any Person, at a particular time, all
items which would, in conformity with Generally Accepted Accounting
Principles, be classified as liabilities on a balance sheet of such Person as
at such time (excluding deferred compensation, deferred taxes, trade
accounts, programming liabilities and other accounts payable incurred in the
ordinary course of business in accordance with past practice), but in any
event including, without duplication, (a) indebtedness arising under
acceptance facilities and the face amount of all letters of credit issued for
the account of such Person and, without duplication, all drafts drawn
thereunder, (b) all liabilities secured by any Lien on any property owned by
such Person even though it has not assumed or otherwise become liable for the
payment thereof, (c) any withdrawal liability incurred under ERISA by such
Person (or, if such Person is Borrower, a Commonly Controlled Entity) to a
Multiemployer Plan, (d) all obligations of such Person as lessee under leases
which have been or should be, in accordance with Generally Accepted
Accounting Principles, recorded as Capital Lease Obligations, (e)
indebtedness relating to Synthetic Leases; and (f) all Guaranty Obligations
of such Person in respect of any of the foregoing.
"INTEREST EXPENSE" means interest expense as determined in
accordance with Generally Accepted Accounting Principles.
"INTEREST PAYMENT DATE" means, (a) with respect to any Base Rate
Loan, the last Business day of each calendar quarter and the Maturity Date,
and (b) with respect to any other type of Loan, (i) any date that such Loan
is prepaid in whole or in part, (ii) the Maturity Date, and (iii) the last
day of each Interest Period applicable to, or the maturity of, such Loan;
PROVIDED, HOWEVER, that if
-9-
<PAGE>
any Interest Period or the maturity of any such Loan exceeds three months or
90 days, interest shall also be paid on the date(s) that fall, as applicable,
three, six or nine months, or 90, 180 or 270 days, respectively, after the
beginning of such Interest Period shall also be Interest Payment Dates.
"INTEREST PERIOD" means, with respect to any Borrowing of an
Offshore Rate Loan, a period commencing on the Borrowing Date thereof (or the
date of the expiration of the then current Interest Period with respect to
any outstanding Offshore Rate Loans) to a date 1, 2, 3, 6 or 9 months, in
each case only to the extent Dollar deposits or deposits in the applicable
Offshore Currency of such duration are generally available in the applicable
offshore interbank market (or such other day as may be agreed upon by
Borrower and the Administrative Agent and the Banks), subject in all cases to
the following:
(a) If any Interest Period would otherwise end on a day which is not
an Offshore Rate Business Day, that Interest Period shall be extended to the
next succeeding Offshore Rate Business Day, unless the result of such
extension would be to extend such Interest Period into another calendar
month, in which event such Interest Period shall end on the immediately
preceding Business Day;
(b) no Interest Period for Loans shall extend beyond any Reduction
Date if the effect of establishing such an Interest Period would be that the
aggregate unpaid principal amount of all Loans having Interest Periods ending
after such Reduction Date would exceed the amount permitted to be outstanding
after such Amortization Date;
(c) no Interest Period for a Loan shall extend beyond the Maturity
Date;
(d) each Interest Period shall be interpreted, and may vary in
regard to the length of period, in accordance with the customs and practices
of the international inter-bank markets; and
(e) the first Interest Period shall commence on the date of such
Borrowing, and each succeeding Interest Period (if any) for such Loans shall
commence on the last day of the preceding Interest Period.
"INVESTMENT" means, when used in connection with any Person, any
investment by or of that Person, resulting in less than 100% of the ownership
of such Person, whether by means of purchase or other acquisition of stock or
other securities of any other Person or by means of a loan, advance creating
a debt, capital contribution, guaranty or other debt or equity participation
or interest in any other Person, including any partnership and joint venture
interests of such Person. The amount of any Investment shall be the amount
actually invested, without adjustment for subsequent increases or decreases
in the value of such Investment. "Investments" shall not include Acquisitions.
"ISSUING BANK" means Bank of America National Trust and Savings
Association.
"LENDING OFFICE" means, as to any Bank, the office or offices of
such Bank specified as its "Lending Office" or "Domestic Lending Office" or
"Offshore Lending Office", as the case may be, on SCHEDULE 10.06, or such
other office or offices as such Bank may from time to time notify Borrower
and the Administrative Agent.
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<PAGE>
"LETTER OF CREDIT" means any standby or commercial letter of credit
issued by the Issuing Bank under SECTION 2.03.
"LETTER OF CREDIT APPLICATION" means an application for issuances
of, or amendments to, letters of credit as shall at any time be in use at the
Issuing Bank.
"LETTER OF CREDIT USAGE" means, as at any date of determination, the
undrawn face amount of outstanding Letters of Credit plus the aggregate
amount of all drawings under the Letters of Credit honored by the Issuing
Bank and not theretofore reimbursed by Borrower or converted into Loans.
"LEVERAGE RATIO" means the ratio of Funded Indebtedness TO EBITDA;
PROVIDED, HOWEVER, that for purposes of calculating the Leverage Ratio as
required by SECTION 7.06 in connection with any Acquisition (the "subject
Acquisition"), not more than 80% of the EBITDA of (a) the Person being so
acquired (PROVIDED such Person will be a Significant Subsidiary immediately
following the subject Acquisition) and (b) any other Significant Subsidiary
acquired within two fiscal quarters of the date of the subject Acquisition,
may be included.
"LIEN" means any mortgage, pledge, lien, security interest,
conditional sale or other title retention agreement or other similar
encumbrance.
"LOAN" means a Loan of any type made to Borrower by any Bank in
accordance with its Pro Rata Share.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Notes, the
Guaranty, the Collateral Documents, any Request for Extension of Credit, any
Letter of Credit Application, any Compliance Certificate and any other
agreements of any type or nature hereafter executed and delivered by Borrower
or any of its Subsidiaries or Affiliates to the Administrative Agent, the
Issuing Bank or to any Bank in any way relating to or in furtherance of this
Agreement, in each case either as originally executed or as the same may from
time to time be supplemented, modified, amended, restated, extended or
supplanted.
"MATURITY DATE" means May 31, 2004 as such date may be extended from
time to time pursuant to SECTION 2.12.
"MINIMUM AMOUNT" means, with respect to each of the following
actions, the following amounts set forth opposite such action (a reference to
"Minimum Amount" shall also be deemed a reference to the multiples in excess
thereof set forth below):
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<PAGE>
<TABLE>
<CAPTION>
MULTIPLES IN EXCESS OF
TYPE OF ACTION MINIMUM AMOUNT MINIMUM AMOUNT
- ----------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Borrowing of, prepayment of, or
Conversion into, Base Rate Loans $250, 000 $100,000
- ----------------------------------------- ------------------------------------- -------------------------------------
Borrowing of, prepayment of,
Continuation of, or Conversion
into, Offshore Rate Loans $1,000,000 $500,000
- ----------------------------------------- ------------------------------------- -------------------------------------
Borrowing of, prepayment of, Lesser of (a) Dollar Lesser of (a) Dollar
Continuation of, or Conversion Equivalent of $5,000,000 and Equivalent of $1,000,000 and
into, Offshore Currency Loans (b) 100,000 units of (b) 10,000 units of Approved
Approved Offshore Currency Offshore Currencty
- ----------------------------------------- ------------------------------------- -------------------------------------
Reduction in Commitments $1,000,000 $1,000,000
- ----------------------------------------- ------------------------------------- -------------------------------------
Assignments $5,000,000
</TABLE>
"MULTIEMPLOYER PLAN" means a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"NET WORTH" means net worth as determined in accordance with
Generally Accepted Accounting Principles.
"NON-RECOURSE JOINT VENTURE" means a joint venture which is less
than 100% owned by Borrower or any Subsidiary having only Indebtedness which
is non recourse to Borrower and its Subsidiaries, other than such joint
venture. For purposes of this definition, Indebtedness shall be deemed non
recourse only if the creditor thereon has no direct or indirect recourse to
Borrower, any of its Subsidiaries (other than such joint venture) or their
respective assets (other than by reasons of a Guaranty Obligation entered
into in connection therewith and otherwise permitted by SECTION 7.01(g)),
whether by means of a judicial foreclosure or otherwise, except for customary
exceptions for fraud, misrepresentation, misappropriation of funds, waste,
criminal liability and environmental liability.
"NOTE" means the promissory note made by Borrower to a Bank
evidencing the Loans made by such Bank, substantially in the form of Exhibit
C, either as originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or supplanted
(collectively, the "NOTES").
"NOTICE OF ASSIGNMENT AND ACCEPTANCE" means a Notice of Assignment
and Acceptance substantially in the form of Exhibit F.
"OBLIGATIONS" means all present and future obligations of every kind
or nature of Borrower or any Subsidiary at any time and from time to time
owed to the Administrative Agent, any Bank, any Person entitled to
indemnification, or any one or more of them, under any one or more of the
Loan Documents, whether due or to become due, matured or unmatured,
liquidated or unliquidated,
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<PAGE>
or contingent or noncontingent, including obligations of performance as well
as obligations of payment, and including interest that accrues after the
commencement of any proceeding under any Debtor Relief Law by or against
Borrower or any Subsidiary or Affiliate of Borrower.
"OFFSHORE CURRENCY" means English Pounds Sterling and the euro.
"OFFSHORE CURRENCY COMMITMENT" means, for each Bank, such Bank's
undertaking to make Loans to Borrower or to participate in Letter of Credit
Usage denominated in Offshore Currencies in an aggregate principal amount not
exceeding a Dollar Equivalent of $40,000,000 (collectively, the "Offshore
Currency Commitments"). The Offshore Currency Commitments are part of, and
not in addition to, the combined Commitments.
"OFFSHORE CURRENCY LOAN" means an Offshore Rate Loan denominated in
an Offshore Currency.
"OFFSHORE RATE" means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the per annum rate
of interest (rounded upward to the next 1/16th of 1%) determined by the
Administrative Agent as follows:
Offshore Rate = Offshore Base Rate
---------------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"OFFSHORE RATE" means, for such Interest Period:
(a) the rate per annum (carried out to the fifth decimal
place) equal to the rate determined by the Administrative Agent to be
the offered rate that appears on the page of the Telerate Screen that
displays an average British Bankers Association Interest Settlement
Rate (such page currently being page number 3740 or 3750 ) for deposits
in deposits in the applicable Offshore Currency (for delivery on the
first day of such Interest Period) with a term equivalent to such
Interest Period, determined as of approximately 11:00 a.m. (London
time) two Business Days prior to the first day of such Interest Period,
or
(b) in the event the rate referenced in the preceding
subsection (a) does not appear on such page or service or such page or
service shall cease to be available, the rate per annum (carried to the
fifth decimal place) equal to the rate determined by the Administrative
Agent to be the offered rate on such other page or other service that
displays an average British Bankers Association Interest Settlement
Rate for deposits in the applicable Offshore Currency (for delivery on
the first day of such Interest Period) with a term equivalent to such
Interest Period, determined as of approximately 11:00 a.m. (London
time) two Business Days prior to the first day of such Interest Period,
or
(c) in the event the rates referenced in the preceding
subsections (a) and (b) are not available, the rate per annum
determined by the Administrative Agent as the rate of interest at which
deposits in the applicable Offshore Currency (for delivery on the first
day
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<PAGE>
of such Interest Period) in same day funds in the approximate amount
of the applicable Offshore Rate Loan and with a term equivalent to
such Interest Period would be offered by its London Branch to major
banks in the offshore market at their request at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such
Interest Period.
"EURODOLLAR RESERVE PERCENTAGE" means, for any day during any
Interest Period, the reserve percentage (expressed as a decimal,
rounded upward to the next 1/100th of 1%) in effect on such day,
whether or not applicable to any Lender, under regulations issued from
time to time by the Board of Governors of the Federal Reserve System
for determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) with
respect to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"). The Offshore Rate for each outstanding Offshore Rate
Loan shall be adjusted automatically as of the effective date of any
change in the Eurodollar Reserve Percentage.
The determination of the Eurodollar Reserve Percentage and the Offshore
Base Rate by the Administrative Agent shall be conclusive in the absence of
manifest error.
"OFFSHORE RATE LOAN" means a Loan that bears interest based on the
Offshore Rate, and may be an Offshore Rate Loan denominated in Dollars or in an
Offshore Currency.
"OVERNIGHT RATE" means, for any day, (a) in the case of amounts
denominated in Dollars, the Federal Funds rate and (b) for any amount
denominated in an Offshore Currency, the rate of interest per annum at which
overnight deposits in such Offshore Currency, in an amount approximately equal
to the amount with respect to which such rate is being determined, would be
offered for such day by Bank of America's principal office in London to major
banks in the London or other applicable offshore interbank market.
"PARTICIPATING MEMBER STATE" means each country which from time to time
becomes a Participating Member State as described in EMU Legislation.
"PBGC" means the Pension Benefit Guaranty Corporation created by
Section 4002(a) of ERISA, or any Governmental Authority succeeding to the
functions thereof.
"PERSON" means an individual, a partnership, a corporation (including a
business trust), a joint stock company, a trust, an unincorporated association,
a joint venture or any other entity of any type whatsoever, or any government or
any agency or political subdivision thereof.
"PLAN" means (a) with respect to Borrower, any plan described in
Section 4021(a) of ERISA and not excluded pursuant to Section 4021(b) thereof,
under which Borrower or any Commonly Controlled Entity has contributed, and (b)
with respect to any other Person, any employee benefit plan or other plan
established or maintained by such Person for the benefit of such Person's
employees and to which Title IV of ERISA applies.
"PLAN ADMINISTRATOR" has the meaning assigned to the term
"administrator" in Section 3(16)(a) of ERISA.
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<PAGE>
"PLAN SPONSOR" has the meaning assigned to the term "plan sponsor" in
Section 3(16)(B) of ERISA.
"PLEDGE AGREEMENT" means the Pledge Agreement, given by Borrower in
favor of the Administrative Agent substantially in the form of Exhibit E hereto,
either as originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or supplanted.
"PRICING LEVERAGE RATIO" means the ratio of Funded Indebtedness to
EBITDA; PROVIDED, HOWEVER, that there shall be excluded from the calculation of
Funded Indebtedness: (a) the Convertible Subordinated Notes; and (b) up to
$1,000,000 of existing TeleCine Cell Letters of Credit issued to back seller
notes issued by a subsidiary of Borrower in connection with its acquisition of
TeleCine Cell.
"PRINCIPAL STOCKHOLDERS" means Marshall Naify, Robert Naify and Salah
Hassanein.
"PROHIBITED TRANSACTION" has the respective meanings assigned to that
term in Section 4975 of the Code and in Section 406 of ERISA.
"PROPERTY" means all types of real, personal, tangible, intangible or
mixed property.
"PRO RATA SHARE" means, with respect to each Bank, the percentage of
the combined Commitments set forth opposite the name of that Bank under "Pro
Rata Share" on SCHEDULE 2.01, as such percentage may be reduced, adjusted or
increased pursuant to the terms of this Agreement.
"QUARTERLY PAYMENT DATE" means each August 31, November 30, February 28
and May 31.
"REDUCTION AMOUNT" means, with respect to any Reduction Date, the
amount necessary to reduce the then applicable combined Commitments to the level
set forth below opposite that Reduction Date, expressed as a percentage of the
combined Commitments in effect on the initial Reduction Date:
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<PAGE>
<TABLE>
<CAPTION>
MAXIMUM PERCENT OF COMBINED
COMMITMENTS REMAINING
(AS A PERCENTAGE OF INITIAL
REDUCTION DATE1 COMBINED COMMITMENTS)
---------------------------------- ----------------------------------
<S> <C>
May 31, 2002 93.75%
August 31, 2002 87.50%
November 30, 2002 81.25%
February 28, 2003 75.00%
May 31, 2003 68.75%
August 31, 2003 62.50%
November 30, 2003 56.25%
February 28, 2004 50.00%
May 31, 2004 0%
</TABLE>
"REDUCTION DATE" means each of the dates set forth under "Reduction
Date" in the definition of "Reduction Amount;" PROVIDED, HOWEVER, that if the
Maturity Date has been extended pursuant to SECTION 2.12, each Reduction date
shall be concurrently extended for the same period of time.
"REPORTABLE EVENT" means a "reportable event" described in Section
4043(b) of ERISA as to which the 30 day notice period has not been waived.
"REQUEST FOR EXTENSION OF CREDIT" means a written request
substantially in the form of Exhibit A duly completed and signed by a
Responsible Officer, or a telephonic request followed by such a written
request, in each case delivered to the Administrative Agent by Requisite
Notice.
"REQUISITE BANKS" means (a) as of any date of determination if the
Commitments are then in effect, Banks having in the aggregate 51% or more of
the combined Pro Rata Shares then in effect and (b) as of any date of
determination if the Commitments have then been terminated and there are
Loans or Letters of Credit outstanding, Banks holding Loans and Letter of
Credit Usage aggregating 51% or more of the aggregate outstanding principal
amount of the Loans and Letter of Credit Usage.
"REQUISITE NOTICE" means, unless otherwise provided herein, (a)
irrevocable written notice to the intended recipient or (b) except with
respect to Letter of Credit actions (which must be in writing), irrevocable
telephonic notice to the intended recipient, promptly followed by a written
notice to such recipient. Such notices shall be (i) delivered to such
recipient at the address or telephone number specified on SCHEDULE 10.06 or
as otherwise designated by such Person by Requisite Notice to the
Administrative Agent and (ii) if made by Borrower, given or made by a
Responsible Officer. Any written notice shall be in the form, if any,
prescribed in the applicable
- --------------
1 See definition of "Reduction Date" for possible extension of Reduction
Dates.
-16-
<PAGE>
section hereof or thereof and may be delivered as provided in SECTION 9.02.
Any notice sent by other than hardcopy shall be promptly confirmed by a
telephone call to the recipient and, if requested by the Administrative
Agent, by a manually-signed hardcopy thereof.
"REQUISITE TIME" means, with respect to any of the actions listed
below, the time set forth opposite such action (all times are California time):
<TABLE>
<CAPTION>
ACTION TIME DATE OF ACTION
- ---------------------------------------------------- --------------- ---------------------------------------
<S> <C> <C>
Delivery of Request for Extension of
Credit for, or notice for:
- - Borrowing of, prepayment of, or Same date as such Borrowing,
Conversion into, Base Rate Loans: 8:00 a.m. prepayment or Conversion
- - Borrowing of, prepayment of, Continuation
of, or Conversion into, Dollar-denominated 3 Business Days prior to such
Offshore Rate Loans 10:00 a.m. Borrowing, prepayment or Conversion
- - Borrowing of, prepayment of, Continuation
of, or Conversion into, Offshore Currency 5 Business Days prior to such
Loans 10:00 a.m. Borrowing, prepayment or Conversion
- - Letter of Credit action 11:00 a.m. 5 Business Days prior to such action
- - Voluntary reduction in or termination of 2 Business Days prior to such
Commitments 10:00 a.m. reduction or termination
Payments by Lenders or Borrower to Administrative
Agent 11:00 a.m. On date payment is due
</TABLE>
"RESPONSIBLE OFFICER" means the President, Chief Financial Officer,
Controller or Vice President of Administration of Borrower.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary of Borrower (a) having at
any time now or hereafter a net book value in accordance with Generally Accepted
Accounting Principles or, if greater, fair market value (as reasonably
determined by Borrower) exceeding 5% of the consolidated assets of Borrower and
its Subsidiaries or (b) that Borrower wishes to include in calculating the
covenants in SECTIONS 7.11 and 7.12; PROVIDED, HOWEVER, that Subsidiaries whose
sole assets consist of holding Borrower's ownership interests in joint ventures
shall not be considered Significant Subsidiaries.
"SPOT RATE" for a currency means the rate quoted by Bank of America as
the spot rate for the purchase by Bank of America of such currency with another
currency through its FX Trading Office at approximately 8:00 a.m. (San Francisco
time) on the date two Business Days prior to the date as of which the foreign
exchange computation is made.
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<PAGE>
"SUBSIDIARY" means any Person (whether now existing or hereafter
organized or acquired) of which Borrower owns, directly or indirectly, more
than fifty (50%) of the securities or other equity interests or which
Borrower otherwise controls (collectively "Subsidiaries").
"SYNTHETIC LEASE" means, with respect to any Person, (a) a so-called
synthetic lease, or (b) an agreement for the use or possession of property
creating obligations which do not appear on the balance sheet of such Person
but which, upon the insolvency or bankruptcy of such Person, may be
characterized as the Indebtedness of such Person (without regard to
accounting treatment).
"TELECINE CELL LETTERS OF CREDIT" means one or more Letters of
Credit not exceeding $18,500,000 in aggregate face amount issued
substantially concurrently with the closing of the acquisition of TeleCine
Cell Group plc by Todd-AO Europe Holding Company Limited to support, directly
or indirectly, payments under the TeleCine Cell Loan Notes.
"TELECINE CELL LOAN NOTES" means one or more promissory notes not
exceeding $18,500,000 in aggregate principal amount issued by Todd-AO Europe
Holding Company Limited, a wholly-owned Subsidiary of Borrower, to one or
more shareholders of TeleCine Cell Group plc in connection with Todd-AO
Europe Holding Company Limited's acquisition of TeleCine Cell Group plc,
which notes shall be substantially in the form previously furnished to the
Banks and the Administrative Agent.
"TYPE" of Loan means (a) a Base Rate Loan, (b) an Offshore Rate Loan
with an Interest Period of one, two, three, six or nine months thereafter, in
each case as selected by Borrower in the Request for Extension of Credit
relating thereto.
1.02 CURRENCY EQUIVALENTS GENERALLY. For all purposes of this
Agreement (but not for purposes of the preparation of any financial
statements delivered pursuant hereto), the equivalent in any Offshore
Currency or other currency of an amount in Dollars, and the equivalent in
Dollars of an amount in any Offshore Currency or other currency, shall be
determined at the Spot Rate from time to time as of any date for which the
Administrative Agent determines the Dollar Equivalent of Offshore Currency
Loans, including, without limitation (a) any date on which a Borrowing of an
Offshore Currency Loan is requested and made, (b) on the date a Letter of
Credit in an Offshore Currency is requested and Issued, (c) the last Business
Day of each month, and (d) any other date selected by the Administrative
Agent from time to time in its sole discretion.
1.03 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with Generally Accepted Accounting
Principles. When used herein, the term "financial statements" shall include
the notes and schedules thereto, but need not include such notes or schedules
when used in reference to such statements of any Person as of any date other
than the end of a fiscal year of such Person.
1.04 ROUNDING. Any financial ratios required to be maintained by
Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one
place more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
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<PAGE>
1.05 EXHIBITS AND SCHEDULES. All Exhibits and Schedules to this
Agreement, either as originally existing or as the same may from time to time
be supplemented, modified or amended, are incorporated herein by this
reference. A matter disclosed on any Schedule shall be deemed disclosed on
all Schedules.
1.06 MISCELLANEOUS TERMS. The term "or" is disjunctive; the term
"and" is conjunctive. The term "shall" is mandatory; the term "may" is
permissive. The term "including" is by way of example and not limitation.
SECTION 2.
COMMITMENTS; INTEREST, FEES, PAYMENT PROCEDURES
2.01 THE COMMITMENTS.
(a) Subject to the terms and conditions set forth in this Agreement,
each Bank severally agrees, to make, Convert and Continue Loans on a
revolving basis from time to time from the date hereof until the Maturity
Date as Borrower may request; PROVIDED, HOWEVER, that (i) the aggregate
unpaid principal amount of each Bank's Loans and Letter of Credit Usage at
any one time outstanding shall not exceed such Bank's Commitment, (ii) the
aggregate unpaid principal amount of all Loans and Letter of Credit Usage at
any one time outstanding shall not exceed the combined Commitments, and (iii)
the aggregate unpaid principal amount of all Offshore Currency Loans and
Letter of Credit Usage denominated in Offshore Currencies at any one time
outstanding shall not exceed the combined Offshore Currency Commitments.
Subject to the foregoing and other terms and conditions hereof, Borrower may
borrow, Convert, Continue, prepay and reborrow Loans as set forth herein
without premium or penalty. Offshore Currency Loans may be requested only as
Offshore Rate Loans.
(b) Loans made by each Bank shall be evidenced by one or more loan
accounts or records maintained by such Bank in the ordinary course of
business. Upon the request of any Bank made through the Administrative Agent,
such Bank's Loans may be evidenced by one or more Notes, instead of or in
addition to loan accounts. (Each such Bank may endorse on the schedules, if
any, annexed to its Note(s) the date, amount and maturity of its Loans and
payments with respect thereto.)
Such loan accounts, records or Notes shall be conclusive absent
manifest error of the amount of such Loans and payments thereon. Any failure
so to record or any error in doing so shall not, however, limit or otherwise
affect the obligation of Borrower to pay any amount owing with respect to the
Loans.
2.02 BORROWINGS, CONVERSIONS AND CONTINUATIONS OF LOANS.
(a) Borrower may irrevocably request a Borrowing, Conversion or
Continuation of Loans in a Minimum Amount therefor by delivering a duly
completed Request for Extension of Credit therefor by Requisite Notice to the
Administrative Agent not later than the Requisite Time therefor. All
Borrowings, Conversions or Continuations shall constitute Base Rate Loans
unless
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properly and timely otherwise designated as set forth in the prior sentence.
Loans may only be Converted into or Continued as Loans denominated in the
same currency as originally borrowed.
(b) Promptly following receipt of a Request for Extension of Credit,
the Administrative Agent shall notify each Bank of its Pro Rata Share thereof
by Requisite Notice. If any Bank is unable, in its sole discretion and for
any reason, to fund an Offshore Currency Loan in a requested Offshore
Currency, such Request for Extension of Credit shall be deemed withdrawn. In
the case of a Borrowing, Borrower may thereupon request Loans in another
currency. In the case of a Conversion or Continuation, the affected Loans
shall become due and payable at the end of the Interest Period therefor. In
the case of a Borrowing of Loans, each Bank shall make the funds for its Loan
in the currency of such Loans available to the Administrative Agent at the
Administrative Agent's Office not later than the Requisite Time therefor on
the Business Day specified in such Request for Extension of Credit. Upon
satisfaction or waiver of the applicable conditions set forth in Section 4,
all funds so received shall be made available to Borrower in like funds
received.
(c) The Administrative Agent shall promptly notify Borrower and the
Banks of the Offshore Rate applicable to any Offshore Rate Loan upon
determination of same.
(d) Unless the Administrative Agent and the Requisite Banks
otherwise consent, Loans with no more than six different Interest Rate
Periods shall be outstanding at any one time.
(e) No Loans other than Base Rate Loans may be requested or
continued during the existence of a Default or Event of Default. During the
existence of a Default or Event of Default, the Requisite Banks may determine
that any or all of the then outstanding Loans other than Base Rate Loans
shall be Converted to Base Rate Loans. Such Conversion shall be effective
upon notice to Borrower from the Administrative Agent and shall continue so
long as such Default or Event of Default continues to exist.
(f) If a Loan is to be made on the same date that another Loan in
the same currency is due and payable, Borrower or the Banks, as the case may
be, shall make available to the Administrative Agent the net amount of funds
giving effect to both such Loans and the effect for purposes of this
Agreement shall be the same as if separate transfers of funds had been made
with respect to each such Loan.
(g) The failure of any Bank to make any Loan on any date shall not
relieve any other Bank of any obligation to make a Loan on such date, but no
Bank shall be responsible for the failure of any other Bank to so make its
Loan.
(h) Without prejudice and in addition to any method of conversion or
rounding prescribed by any EMU Legislation and without prejudice to (i) the
liabilities for indebtedness of Borrower to the Banks under or pursuant to
this Agreement or (ii) the Banks' Commitments, any reference in this
Agreement to a minimum amount (or an integral multiple thereof) in a national
currency of a Subsequent Participant to be paid to or by the Administrative
Agent shall immediately, upon it becoming a Subsequent Participant, be
replaced by a reference to such reasonably comparable and convenient amount
(or an integral multiple thereof) in the euro unit as the Administrative
Agent may specify.
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(i) The Administrative Agent may from time to time further modify
the terms of, and practices contemplated by, this Agreement with respect to
the euro to the extent the Administrative Agent determines, in its reasonable
discretion, that such modifications are necessary or convenient to reflect
new laws, regulations, customs or practices developed in connection with the
euro. The Administrative Agent may effect such modifications, and this
Agreement shall be deemed so amended, without the consent of Borrower or the
Banks to the extent such modifications are not materially disadvantageous to
Borrower and the Banks, upon notice thereto.
2.03 LETTERS OF CREDIT.
(a) Subject to the terms and conditions hereof, at any time and from
time to time from the Closing Date through the Maturity Date, the Issuing
Bank shall issue, supplement, modify, amend, renew, or extend such Letters of
Credit denominated in Dollars or Offshore Currencies under the Commitments as
Borrower may request; PROVIDED, HOWEVER, that (i) the aggregate outstanding
Letter of Credit Usage shall not exceed $20,000,000 at any time; PROVIDED,
HOWEVER, that Letter of Credit Usage not relating to the TeleCine Cell
Letters of Credit shall not exceed $2,500,000 in the aggregate; PROVIDED,
FURTHER, that such limit shall be permanently reduced from time to time to an
amount equal to the aggregate remaining outstanding balance of the TeleCine
Cell Loan Notes but not less than an amount equal to $2,500,000, (ii) the
aggregate unpaid principal amount of all Loans and Letter of Credit Usage at
any one time outstanding shall not exceed the combined Commitments, and (iii)
the aggregate unpaid principal amount of all Offshore Currency Loans and
Letter of Credit Usage denominated in Offshore Currencies at any one time
outstanding shall not exceed the combined Offshore Currency Commitments. Each
Letter of Credit shall be in a form acceptable to the Issuing Bank. Unless
all the Banks otherwise consent in a writing delivered to the Administrative
Agent, the term of any Letter of Credit shall not exceed the Maturity Date.
(b) Borrower may irrevocably request the issuance, supplement,
modification, amendment, renewal, or extension of a Letter of Credit by
delivering a duly completed Letter of Credit Application therefor to the
Issuing Bank, with a copy to the Administrative Agent, by Requisite Notice
not later than the Requisite Time therefor. The Administrative Agent shall
promptly notify the Issuing Bank whether such Letter of Credit Application,
and the action requested pursuant thereto, conforms to the requirements of
this Agreement. Upon the issuance, supplement, modification, amendment,
renewal, or extension of a Letter of Credit, the Issuing Bank shall promptly
notify the Administrative Agent, and the Administrative Agent shall promptly
notify the Banks, of such action and the amount and terms thereof. Letters of
Credit may have automatic extension or renewal provisions ("EVERGREEN"
Letters of Credit) so long as the Issuing Bank has the right to terminate
such evergreen Letters of Credit no less frequently than annually within a
notice period to be agreed upon at the time each such Letter of Credit is
issued. This Agreement shall control in the event of any conflict with any
Letter of Credit Application.
(c) Upon the issuance of a Letter of Credit, each Bank shall be
deemed to have purchased a pro rata participation in such Letter of Credit,
as from time to time supplemented, amended, renewed, or extended, from the
Issuing Bank in an amount equal to that Bank's Pro Rata Share. Without
limiting the scope and nature of each Bank's participation in any Letter of
Credit, to the extent that the Issuing Bank has not been reimbursed by
Borrower for any payment required to be made by the Issuing Bank under any
Letter of Credit, each Bank shall, pro rata according to
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its Pro Rata Share, reimburse the Issuing Bank through the Administrative
Agent promptly upon demand for the amount of such payment. The obligation of
each Bank to so reimburse the Issuing Bank shall be absolute and
unconditional and shall not be affected by the occurrence of an Event of
Default or any other occurrence or event. Any such reimbursement shall not
relieve or otherwise impair the obligation of Borrower to reimburse the
Issuing Bank for the amount of any payment made by the Issuing Bank under any
Letter of Credit together with interest as hereinafter provided.
(d) Borrower agrees to pay to the Issuing Bank through the
Administrative Agent an amount equal to any payment made by the Issuing Bank
with respect to each Letter of Credit within one Business Day after demand
made by the Issuing Bank therefor, together with interest on such amount from
the date of any payment made by the Issuing Bank at the Default Rate. The
principal amount of any such payment shall be used to reimburse the Issuing
Bank for the payment made by it under the Letter of Credit. Each Bank that
has reimbursed the Issuing Bank for its Pro Rata Share of any payment made by
the Issuing Bank under a Letter of Credit shall thereupon acquire a pro rata
participation, to the extent of such reimbursement, in the claim of the
Issuing Bank against Borrower under this Section and shall share, in
accordance with that pro-rata participation, in any payment made by Borrower
with respect to such claim.
(e) If Borrower fails to make the payment required by subsection (d)
above within the time period therein set forth, in lieu of the reimbursement
to the Issuing Bank under such subsection, the Issuing Bank may (but is not
required to), without notice to or the consent of Borrower, instruct the
Administrative Agent to cause Loans to be made by the Banks in an aggregate
amount equal to the amount paid by the Issuing Bank with respect to that
Letter of Credit and, for this purpose, the conditions precedent set forth in
Section 4 shall not apply. The proceeds of such Loans shall be paid to the
Issuing Bank to reimburse it for the payment made by it under the Letter of
Credit. Such Loans shall be payable upon demand and shall bear interest at
the Default Rate.
(f) Once an evergreen Letter of Credit is issued, Borrower shall not
be required to annually request that the Issuing Bank permit the renewal
thereof. Borrower, the Agent and the Banks authorize (but may not require)
the Issuing Bank to, in its sole discretion, permit the renewal such
evergreen Letter of Credit if such Letter of Credit could be issued in the
first instance at such time.
(g) The obligations of Borrower under this Agreement with respect to
any Letter of Credit shall be absolute, unconditional and irrevocable and
shall be performed strictly in accordance with the terms of this Agreement
and of any application for Letter of Credit, including without limitation,
the following circumstances:
(i) any lack of validity or enforceability of the Letter of
Credit, this Agreement, any application for Letter of Credit or any
other agreement or instrument relating to any of the foregoing;
(ii) the existence of any claim, setoff, defense or other
rights that Borrower may have at any time against any beneficiary or
transferee of the Letter of Credit (or any Person
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for whom any such beneficiary or any such transferee may be acting),
the Issuing Bank or any other Person, whether in connection with this
Agreement or any unrelated transaction;
(iii) any breach of contract or other dispute between Borrower
and any beneficiary or transferee of the Letter of Credit (or any
Person for whom any such beneficiary or any such transferee may be
acting), the Issuing Bank or any other Person;
(iv) any demand, statement, tested telex or any other document
presented under a Letter of Credit which on its face appears to conform
with the terms and conditions of the Letter of Credit but proves to
have been invalid or insufficient for its intended business purpose or
to have been forged or fraudulent in any respect or to contain any
statement therein which is untrue or inaccurate in any respect
whatsoever; or
(v) any delay, extension of time, renewal, waiver, compromise
or other indulgence or modification granted or agreed to by the Issuing
Bank, with or without notice to or approval by Borrower, in respect to
any Letter of Credit.
(h) Neither the Issuing Bank nor any of its officers or directors
shall be liable or responsible for:
(i) the use that may be made of the Letters of Credit or for
any acts or omissions of the beneficiary or any transferee of the
Letters of Credit in connection therewith;
(ii) the validity, sufficiency for their intended business
purpose or genuineness of documents, or of any endorsements thereon
which on their face appear to conform to the terms and conditions of
the Letter of Credit, even if such documents should prove to be in any
or all respects invalid, insufficient for their intended business
purpose, fraudulent or forged; or
(iii) acceptance of documents that appear on their face to
conform to the terms and conditions of the Letter of Credit, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
(j) The Issuing Bank shall be entitled to the same protections
accorded to the Administrative Agent pursuant to SECTION 9.07.
(k) Unless otherwise expressly agreed by the Issuing Bank and
Borrower when a Letter of Credit is issued and subject to applicable laws,
performance under Letters of Credit by the Issuing Bank, its correspondents,
and beneficiaries will be governed by (i) with respect to standby Letters of
Credit, the rules of the "International Standby Practices 1998" (ISP98) or
such later revision as may be published by the International Chamber of
Commerce (the "ICC"), and (ii) with respect to commercial Letters of Credit,
the rules of the Uniform Customs and Practice for Documentary Credits, as
published in its most recent version by the ICC on the date any commercial
Letter of Credit is issued, and including the ICC decision published by the
Commission on Banking Technique and Practice on April 6, 1998 regarding the
European single currency (euro).
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(l) Concurrently with the issuance of each Letter of Credit,
Borrower shall pay a letter of credit issuance fee to the Issuing Bank, for
the sole account of the Issuing Bank, in an amount set forth in a letter
agreement between Borrower and the Issuing Bank. Borrower shall also
concurrently pay to the Administrative Agent, for the ratable account of the
Banks in accordance with their Pro Rata Share, a standby letter of credit fee
in an amount equal to the Applicable Amount times the face amount of such
Letter of Credit through the termination or expiration of such Letter of
Credit. The letter of credit issuance fee and the standby letter of credit
fee are nonrefundable.
(m) On or before the Maturity Date, Borrower shall, if any Letter of
Credit remains outstanding and partially or wholly undrawn, immediately
deliver to the Issuing Bank an irrevocable letter of credit from an issuer
acceptable to the Issuing Bank in its sole discretion, in form and substance
satisfactory to the Issuing Bank, in a stated amount not less than the Letter
of Credit Usage. The Issuing Bank shall hold such letter of credit as
collateral for Borrower's obligations to reimburse the Issuing Bank for any
drawings under such Letter of Credit. The Issuing Bank shall return such
letter of credit to Borrower upon all of such Letter(s) of Credit having
expired, becoming void or otherwise become unavailable for further drawing,
or the face amount thereof being reduced, or after the Maturity Date, to the
extent any cash collateral has not been applied to such drawings, and the
Issuing Bank having no further obligation thereunder, as the case may be. The
commissions payable with respect to Letters of Credit will continue to accrue
during any period that collateral is being held.
2.04 PREPAYMENTS.
(a) Upon Requisite Notice to the Administrative Agent not later than
the Requisite Time therefor, Borrower may at any time and from time to time
voluntarily prepay Loans in the Minimum Amount therefor. The Administrative
Agent will promptly notify each Bank thereof and of such Bank's Pro Rata
Share of such prepayment.
(b) If, at any time (i) Letter of Credit Usage plus the outstanding
aggregate principal amount of Loans made exceeds the combined Commitments, or
(ii) the outstanding aggregate principal amount of Offshore Currency Loans
plus Letter of Credit Usage denominated in Offshore Currencies exceed the
combined Offshore Currency Commitments, in each case whether by reason of the
termination or any reduction of the Commitments, because of a recalculation
of the Dollar Equivalent of outstanding Offshore Currency Loans pursuant to
SECTION 1.03 or otherwise, Borrower shall immediately prepay the Loans and/or
deposit cash to be held by the Administrative Agent Bank in an
interest-bearing cash collateral account as collateral for Letter of Credit
Usage hereunder in an aggregate amount equal to such excess.
(c) Any prepayment of a Loan other than a Base Rate Loan shall be
accompanied by all accrued interest thereon, together with the costs set
forth in SECTION 3.06.
2.05 VOLUNTARY REDUCTION OR TERMINATION OF COMMITMENTS. Upon
Requisite Notice to the Administrative Agent not later than the Requisite
Time therefor, Borrower shall have the right, at any time and from time to
time, without penalty or charge, upon giving Requisite Notice not later than
the Requisite Time therefor, to reduce, permanently and irrevocably, reduce
the Commitments in the Minimum Amount therefor, or terminate, the then unused
portion of the
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Commitments, provided that any such reduction or termination shall be
accompanied by payment of all accrued and unpaid commitment fees with respect
to the portion of the Commitments being reduced or terminated. The
Administrative Agent shall promptly notify the Banks of any request for
reduction or termination of the Commitments under this Section. Each Bank's
Commitment shall be reduced by an amount equal to such Bank's Pro Rata Share
times the amount of such reduction. Any voluntary reduction in the combined
Commitments shall become effective on the date requested by Borrower and
shall be applied against future Reduction Amounts as selected by Borrower at
time of such reduction.
2.06 MANDATORY REDUCTIONS IN COMMITMENTS.
(a) The combined Commitments shall automatically and ratably be
reduced on each Reduction Date by the applicable Reduction Amount.
(b) All accrued commitment fees to, but not including the effective
date of each reduction shall be paid on the effective date thereof such
reduction.
2.07 PRINCIPAL AND INTEREST.
(a) If not sooner paid, Borrower shall pay, and promises to pay, the
outstanding principal amount of each Loan on the Maturity Date in the
currency of the Loan.
(b) Subject to the subsection (c), Borrower shall pay interest on
the unpaid principal amount of the Loans in the currency of such Loans
(before and after default, before and after maturity, before and after
judgment, and before and after the commencement of any proceeding under any
Debtor Relief Law) from the date borrowed until paid in full (whether by
acceleration or otherwise) on each Interest Payment Date for each type of
Loan at a rate per annum equal to the applicable interest rate determined in
accordance with the definition thereof, plus, if applicable, any Applicable
Amount.
(c) If any amount payable by Borrower under any Loan Document is not
paid when due (without regard to any applicable grace periods), it shall
thereafter bear interest at a fluctuating interest rate per annum at all
times equal to the Default Rate. Accrued and unpaid interest on past due
amounts (including, without limitation, interest on past due interest) shall
be compounded monthly, on the last day of each calendar month, to the fullest
extent permitted by applicable laws and payable upon demand.
2.08 FEES.
(a) COMMITMENT FEE. Borrower shall pay to the Administrative Agent,
for the ratable accounts of the Banks pro rata according to their Pro Rata
Share, a commitment fee equal to the Applicable Amount times the actual daily
amount by which the combined Commitments exceed the sum of the aggregate
unpaid principal Dollar Equivalent amount of each Bank's Loans and Letter of
Credit Usage. The commitment fee shall accrue from the Closing Date until the
Maturity Date and shall be payable quarterly in arrears on each Quarterly
Payment Date and on the Maturity Date. The commitment fee shall be calculated
quarterly in arrears; if there is any change in the Applicable Amount during
any quarter, the actual daily amount shall be computed and multiplied
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by the Applicable Amount separately for each period that such Applicable
Amount was in effect during such quarter.
(b) AGENCY FEES. Borrower shall pay to the Administrative Agent an
agency fee in such amounts and at such times as heretofore agreed upon by
letter agreement between Borrower and the Administrative Agent. The agency
fee is for the services to be performed by the Administrative Agent in acting
as Administrative Agent and is fully earned on the date paid. The agency fee
paid to the Administrative Agent is solely for its own account and is
nonrefundable.
(c) AMENDMENT FEE. Borrower shall pay to the Administrative Agent on
the Closing Date for the account of each Bank party to the Existing Credit
Agreement an amendment fee equal to 15 basis points of each Bank's Commitment
to the extent such Commitment is less than or equal to that under the
Existing Credit Agreement and 25 basis points of each Bank's Commitment to
the extent such Commitment is greater than that under the Existing Credit
Agreement.
(d) ARRANGEMENT FEE. Borrower shall pay to the Administrative Agent
on the Closing Date for the account of the Arranger an arrangement fee as
heretofore agreed upon by letter agreement between Borrower and the Arranger.
2.09 COMPUTATION OF INTEREST AND FEES. Computation of interest on
Offshore Rate Loans shall be calculated on the basis of a year of 360 days
and the actual number of days elapsed, which results in a higher yield to the
Banks than a method based on a year of 365 or 366 days, as the case may be,
and the actual number of days elapsed. Computation of interest on all other
types of Loans and all fees under this Agreement shall be calculated on the
basis of a year of 365 or 366 days, as the case may be, and the actual number
of days elapsed. Interest shall accrue on each Loan for the day on which the
Loan is made; interest shall not accrue on a Loan, or any portion thereof,
for the day on which the Loan or such portion is paid. Any Loan that is
repaid on the same day on which it is made shall bear interest for one day.
Notwithstanding anything in this Agreement to the contrary, interest in
excess of the maximum amount permitted by applicable laws shall not accrue or
be payable hereunder, and any amount paid as interest hereunder which would
otherwise be in excess of such maximum permitted amount shall instead be
treated as a payment of principal.
2.10 MANNER AND TREATMENT OF PAYMENTS AMONG THE BANKS, BORROWER AND
THE ADMINISTRATIVE AGENT.
(a) Unless otherwise provided herein, all payments by Borrower or
any Bank hereunder shall be made to the Administrative Agent at the
Administrative Agent's Office not later than the Requisite Time for such type
of payment. All payments received after such Requisite Time shall be deemed
received on the next succeeding Business Day. All payments shall be made in
immediately available funds in lawful money of the United States of America
provided, that payments with respect to Offshore Currency Loans shall be made
in the applicable Offshore Currency.
(b) Upon satisfaction of any applicable terms and conditions set
forth herein, the Administrative Agent shall promptly make any amounts
received in accordance with the prior subsection available in like funds
received as follows: (i) if payable to Borrower, by crediting the
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Designated Deposit Account, and (ii) if payable to any Bank, by wire transfer
to such Bank at the address specified in SCHEDULE 10.06. The Administrative
Agent's determination, or any Bank's determination not contradictory thereto,
of any amount payable hereunder shall be conclusive in the absence of
manifest error.
(c) Subject to the definition of "Interest Period," if any payment
to be made by Borrower or any Guarantor shall come due on a day other than a
Business Day, payment shall instead be considered due on the next succeeding
Business Day and the extension of time shall be reflected in computing
interest and fees.
(d) Unless Borrower or any Bank has notified the Administrative
Agent prior to the date any payment to be made by it is due, that it does not
intend to remit such payment, the Administrative Agent may, in its
discretion, assume that Borrower or the Bank, as the case may be, has timely
remitted such payment and may, in its discretion and in reliance thereon,
make available such payment to the Person entitled thereto. If such payment
was not in fact remitted to the Administrative Agent, then:
(i) if Borrower failed to make such payment, each Bank shall
forthwith on demand repay to the Administrative Agent the amount of
such assumed payment made available to such Bank, together with
interest thereon in respect of each day from and including the date
such amount was made available by the Administrative Agent to such Bank
to the date such amount is repaid to the Administrative Agent at the
Overnight Rate; and
(ii) if any Bank failed to make such payment, such Bank shall
on the Business Day following such Borrowing Date make pay to the
Administrative Agent the amount of such assumed payment made available
to Borrower, together with interest thereon in respect of each day from
and including the date such amount was made available by the
Administrative Agent to Borrower to the date such amount is paid to the
Administrative Agent at the Overnight Rate. Nothing herein shall be
deemed to relieve any Bank from its obligation to fulfill its
Commitment or to prejudice any rights which the Administrative Agent or
Borrower may have against any Bank as a result of any default by such
Bank hereunder.
(e) The Administrative Agent shall not be liable to any party to
this Agreement in any way whatsoever for any delay, or the consequences of
any delay, in the crediting to any account of any amount denominated in the
euro.
2.11 FUNDING SOURCES. Nothing in this Agreement shall be deemed to
obligate any Bank to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by any Bank that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
2.12 EXTENSION OF MATURITY DATE AND REDUCTION DATES. At the request
of Borrower and with the written consent of all of the Banks (which may be
given or withheld in the sole and absolute discretion of each Bank) the
Maturity Date and each Reduction Date may be extended for one-year periods
pursuant to this Section, provided no Default or Event of Default has
occurred
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and is continuing at the time of such request or at the time of such
extension. Not earlier than 45 days prior to the each anniversary of the
Closing Date occurring prior to the initial Reduction Date, nor later than
any such anniversary date, Borrower may request by Requisite Notice made to
the Administrative Agent (who shall promptly notify the Banks) a one year
extension of the Maturity Date and corresponding one year extension of each
Reduction Date. Such request shall include a certificate signed by a
Responsible Officer stating that (a) the representations and warranties
contained in SECTION 5 (except with respect to any representation or warranty
which specifically refers to an earlier date) are true and correct on and as
of the date of such certificate and (b) no Default or Event of Default has
occurred and is continuing. Each Bank shall, within 15 Business days of the
Administrative Agent delivering such notice to such Bank, notify in writing
the Administrative Agent whether it consents to or declines such request. If
a Bank fails to respond, it shall be deemed to have declined such request.
The Administrative Agent shall, after receiving the notifications from all of
the Banks or the expiration of such period, whichever is earlier, notify
Borrower and the Banks of the results thereof. If all of the Banks have
consented, and no Default or Event of Default has occurred and is continuing,
then the Maturity Date and each Reduction Date shall be extended for one year.
If the Requisite Banks consent to the request for extension, but one
or more Banks declines or is deemed to have declined such request for such
extension, and the conditions for such an extension could have been satisfied
but for such Bank(s) declining, Borrower may cause such Bank(s) to be removed
as a Bank(s) under this Agreement or the Commitments of such Banks to be
terminated pursuant to SECTION 10.23, whereupon the Maturity Date and each
Reduction Date shall be extended for one year upon satisfaction of the
conditions set forth above.
2.13 INCREASE IN COMMITMENTS.
(a) At any time until December 31, 2000, Borrower may make a
one-time request to increase the combined Commitments up to an aggregate
$100,000,000 in minimum increments of $10,000,000, upon Requisite Notice to
the Administrative Agent, accompanied by such documents evidencing corporate
approval thereof as the Administrative Agent may reasonably request. The
Administrative Agent shall promptly notify each Bank of such request. Each
Bank shall have 30 days to respond whether, in its sole discretion, (i) it
agrees to increase its Commitment by an amount equal to its Pro Rata Share of
such requested increase, (ii) it agrees to increase its Commitment by an
amount less than its Pro Rata Share of such requested increase or (iii) it
does not agree to increase its Commitment. Any Bank that has not responded
within the above time period shall be deemed not to have elected not to
increase its Commitment.
(b) To the extent that any Bank declines, or is deemed to have
declined, to participate in any such increase to the full extent of its Pro
Rata Share (a "DECLINING BANK"), Borrower may request, through the
Administrative Agent, that one or more other Banks, in their sole discretion,
further increase their Commitment(s) by the amount of the increase declined
by the Declining Bank(s). Borrower shall execute and deliver amended Notes,
as necessary, and the Administrative Agent shall distribute an amended
SCHEDULE 2.01 (which shall thereafter be incorporated into this Agreement),
to reflect any increase in the Commitments and each Bank's Pro Rata Share
thereof.
(c) In order to make all Bank's interests in any outstanding Loans
ratable in accordance with any revised Pro Rata Shares after giving effect to
any increase in the Commitments, Borrower
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shall pay or prepay, if necessary, on the effective date of any such
increase, all outstanding Loans and pay, to the extent applicable, any
amounts due under SECTION 3.06. Borrower may then reborrow, if it desires to
do so, such Loans from the Banks in accordance with their revised Pro Rata
Shares. The Bank's Pro Rata Shares of Letter of Credit Usage shall also be
deemed adjusted, on the effective of any such increase, so that each Bank's
pro rata share thereof is equal to its revised Pro Rata Share.
2.14 COLLATERAL AND GUARANTIES. All Obligations shall be secured by
the Collateral and guarantied by the Guaranty.
SECTION 3.
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 TAXES. Each payment of any amount payable by Borrower or any
Guarantor under this Agreement or any other Loan Document shall be made free
and clear of, and without reduction by reason of, any Applicable Taxes. To
the extent that Borrower or any Guarantor is obligated by applicable laws to
make any deduction or withholding on account of Applicable Taxes from any
amount payable to any Bank or the Issuing Bank under this Agreement, Borrower
or such Guarantor promptly notify the Administrative Agent of such fact and
shall (a) make such deduction or withholding and pay the same to the relevant
Governmental Authority and (b) pay such additional amount directly to that
Bank or the Issuing Bank as is necessary to result in that Bank's receiving a
net after-Applicable Tax amount equal to the amount to which that Bank would
have been entitled under this Agreement absent such deduction or withholding.
3.02 INCREASED COSTS. If any Bank or the Issuing Bank determines
that any laws have the effect of increasing its cost of agreeing to make or
making, funding or participating in, funding or maintaining any Loans or
Letters of Credit, then Borrower shall, upon demand by such Bank or the
Issuing Bank (with a copy of such demand to the Administrative Agent), pay to
the Administrative Agent for the account of such Bank or the Issuing Bank
additional amounts sufficient to compensate such Bank for the amount of such
increased cost reasonably allocable to Borrower's obligations under this
Agreement. If Borrower so notifies the Administrative Agent within five
Business Days after any Bank or the Issuing Bank notifies Borrower of any
demand for compensation, Borrower may Convert any relevant outstanding
Dollar-denominated Loans of such Bank into Base Rate Loans.
3.03 CAPITAL ADEQUACY. If any Bank or the Issuing Bank determines
that any law regarding capital adequacy, or compliance by such Bank or the
Issuing Bank (or its Lending Office) or any corporation controlling the Bank
or the Issuing Bank, with any request, guideline or directive regarding
capital adequacy (whether or not having the force of law) of any Governmental
Authority not imposed as a result of such Bank's, the Issuing Bank's or such
corporation's failure to comply with any other laws, affects or would affect
the amount of capital required or expected to be maintained by such Bank, the
Issuing Bank, or any corporation controlling such Bank or the Issuing Bank
and (taking into consideration such Bank's, the Issuing Bank's or such
corporation's policies with respect to capital adequacy and such Bank's or
the Issuing Bank's desired return on capital) determines in good faith that
the amount of such capital is increased, or the rate of return on capital is
reduced, as a consequence of its obligations under this Agreement, then upon
demand
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of such Bank or the Issuing Bank (with a copy to the Administrative Agent),
Borrower shall pay to such Bank or the Issuing Bank, from time to time as
specified in good faith by such Bank or the Issuing Bank, additional amounts
sufficient to compensate such Bank or the Issuing Bank in light of such
circumstances, to the extent reasonably allocable to such obligations under
this Agreement.
3.04 ILLEGALITY. If any Bank determines that any law has made it
unlawful, or that any Governmental Authority has asserted that it is
unlawful, for any Bank or its applicable Lending Office to make, maintain or
fund Offshore Rate Loans, or materially restricts the authority of such Bank
to purchase or sell, or to take deposits of, Dollars or the applicable
Offshore Currency in the applicable offshore interbank market, or to
determine or charge interest rates based upon the Offshore Rate, then, on
notice thereof by the Bank to Borrower through the Administrative Agent, any
obligation of that Bank to make Offshore Rate Loans shall be suspended until
the Bank notifies the Administrative Agent and Borrower that the
circumstances giving rise to such determination no longer exist. Upon receipt
of such notice, Borrower shall, upon demand from such Bank (with a copy to
the Administrative Agent), prepay or Convert all Dollar-denominated Offshore
Rate Loans of that Bank, either on the last day of the Interest Period
thereof, if the Bank may lawfully continue to maintain such Offshore Rate
Loans to such day, or immediately, if the Bank may not lawfully continue to
maintain such Offshore Rate Loan. Each Bank agrees to designate a different
Lending Office if such designation will avoid the need for such notice and
will not, in the good faith judgment of such Bank, otherwise be materially
disadvantageous to such Bank.
3.05 INABILITY TO DETERMINE RATES. If, in connection with an Request
for Extension of Credit, the Administrative Agent determines that (a)
deposits in Dollars or the applicable Offshore Currency are not being offered
to Banks in the applicable offshore interbank market for the applicable
amount and Interest Period of the requested Loan, (b) adequate and reasonable
means do not exist for determining the underlying interest rate (other than
the Base Rate) for the Loans requested therein, or (c) such underlying
interest rates do not adequately and fairly reflect the cost to the Banks of
funding such Loan, the Administrative Agent will promptly so notify Borrower
and each Bank. Thereafter, the obligation of the Banks to make or maintain
Loans based upon such affected interest rate shall be suspended until the
Administrative Agent revokes such notice. Upon receipt of such notice,
Borrower may revoke any pending Request for Extension of Credit for such type
of Loan or, failing that, be deemed to have converted any such Request for
Extension of Credit Dollar-denominated Loans into a request for Base Rate
Loans in the amount specified in therein.
3.06 BREAKFUNDING COSTS. Upon Continuation, Conversion, payment or
prepayment of any Loan other than a Base Rate Loan on a day other than the
last day in the applicable Interest Period (whether voluntary, mandatory,
automatic, by reason of acceleration, or otherwise and including any such
action required under this Section 3), or upon the failure of Borrower (for a
reason other than the failure of a Bank to make an Loan) to borrow, Continue
or Convert any Loan other than a Base Rate Loan on the date or in the amount
specified in any Request for Extension of Credit, then Borrower shall, upon
demand made by any Bank (with a copy to the Administrative Agent), reimburse
each Bank and hold each Bank harmless from any loss or expense which the Bank
may sustain or incur as a consequence thereof, including any such loss or
expense arising
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from the liquidation or reemployment of funds obtained by it to maintain such
Loan or from fees payable to terminate the deposits from which such funds
were obtained.
3.07 MATTERS APPLICABLE TO ALL REQUESTS FOR COMPENSATION
(a) The Administrative Agent and any Bank, shall provide reasonable
detail to Borrower regarding the manner in which the amount of any payment to
the Administrative Agent or that Bank, under this Section 3 has been
determined, concurrently with demand for such payment. The Administrative
Agent's or any Bank's determination of any amount payable under this Section
3 shall be conclusive in the absence of manifest error.
(b) For purposes of calculating amounts payable under this Section 3
any Loans shall be deemed to have been funded at the applicable interest rate
set forth in the definition thereof whether or not such Loan was, in fact, so
funded.
(c) All of Borrower's obligations under this Section 3 shall survive
termination of the Commitments and payment in full of all Obligations.
SECTION 4.
CONDITIONS
4.01 INITIAL EXTENSION OF CREDIT. The obligation of each Bank to
make the initial Loan to be made by it, or the obligation of the Issuing Bank
to issue the initial Letter of Credit (as applicable), is subject to delivery
to the Administrative Agent of the following, in form and substance
satisfactory to the Administrative Agent (unless all of the Banks, in their
sole and absolute discretion, shall agree otherwise):
(a) This Agreement duly executed by Borrower, the Banks and the
Administrative Agent.
(b) The Guaranty duly executed by each Guarantor.
(c) The Pledge Agreement duly executed by Borrower and the
Administrative Agent, together with all stock certificates representing any
Pledged Securities (as defined in the Pledge Agreement) not already in the
possession of the Administrative Agent, and signed and undated stock powers
for each such certificate; PROVIDED, HOWEVER, that with respect to Sound One
Corporation, Borrower shall deliver stock certificates and stock powers
representing not less than 80% of the capital stock of Sound One Corporation
within 30 days of the Closing Date and stock certificates and stock powers
representing the remainder of the capital stock of Sound One Corporation
within 60 days of the Closing Date.
(d) The signed certificate of the President, a Senior Vice
President, or a Vice President and the Secretary or an Assistant Secretary of
Borrower and each Guarantor, dated as of the Closing Date, certifying as to
(i) a true and correct copy of resolutions adopted by the Board of Directors
of Borrower and such Guarantor authorizing the execution, delivery and
performance by Borrower and such Guarantor of this Agreement and all other
Loan Documents to which it is a
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party and (ii) the incumbency and specimen signatures of officers of Borrower
and each Guarantor executing and delivering a Loan Document.
(e) Notes executed by Borrower in favor of each Bank requesting a
Note, each in a principal amount equal to that Bank's Pro Rata Share.
(f) Written opinions, dated the Closing Date, of Judi Sanzo, General
Counsel of Borrower and each Guarantor.
(g) To the extent not previously delivered to Bank of America or to
the extent there has been any change therein since being so delivered, (i) a
true and correct copy of the by-laws of Borrower and such Guarantor as in
effect on such date and (ii) a photocopy of the Certificate of Incorporation
of Borrower and each Guarantor and each amendment, if any, thereto, certified
by the Secretary of Borrower or such Guarantor as being the complete copy of
such document as in effect on the date hereof.
(h) A certificate signed by a Responsible Officer (i) certifying
that all representations and warranties of Borrower contained in Section 5
are true and correct, (ii) certifying that Borrower and each Guarantor are in
compliance with all the terms and provisions of the Loan Documents to which
each is a party, (iii) certifying that, after giving effect to the initial
Loan (or initial Letter of Credit, as applicable), no Default or Event of
Default exists, and ( iv) setting forth the Pricing Leverage Ratio as of the
last day of the most recently ended fiscal quarter of Borrower.
(i) Payment to the Administrative Agent such fees as are required to
be paid on or prior to the Closing Date pursuant to SECTION 2.08.
(j) Payment of Attorney Costs of Bank of America to the extent
invoiced prior to or on the Closing Date, plus such additional amounts of
Attorney Costs as shall constitute Bank of America's reasonable estimate of
Attorney Costs incurred or to be incurred by it through the closing
proceedings (provided that such estimate shall not thereafter preclude final
settling of accounts between Borrower and Bank of America).
(k) Such other evidence as the Administrative Agent or the Banks may
reasonably request to establish the consummation of the transactions
contemplated hereby, the taking of all proceedings in connection herewith and
compliance with the conditions set forth in this Agreement.
Any document required or requested pursuant to this SECTION 4.01 may be
furnished by facsimile transmission provided that original documents (where
applicable) are furnished within 5 business days after the facsimile
transmission.
4.02 CONDITIONS OF LENDING -- ALL LOANS AND ALL LETTERS OF CREDIT.
The obligations of each Bank to make any Extension of Credit are subject to
the fulfillment of the following conditions precedent:
(a) On each Borrowing Date, and after giving effect to the Loans to
be made or Letters of Credit to be issued on each such Borrowing Date,
except, in the case where the aggregate
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principal amount of the Loans being made or Letters of Credit being issued on
such Borrowing Date equals or is less than the aggregate principal amount of
the Loans maturing or Letters of Credit expiring on such Borrowing Date, (i)
there shall exist no Default or Event of Default and (ii) the representations
and warranties contained in this Agreement shall be true, correct and
complete in all material respects on and as of such date to the extent as
though made on and as of such date, except with respect to any representation
or warranty which specifically refers to an earlier date;
(b) All documents required by the provisions of this Agreement to be
executed or delivered to the Administrative Agent on or before the applicable
Borrowing Date shall have been executed and shall have been delivered to the
Administrative Agent on or before such Borrowing Date;
(c) the Administrative Agent shall have timely received a duly
completed Request for Extension of Credit or Letter of Credit Application, as
applicable, by Requisite Notice by the Requisite Time therefor; and
(d) the Administrative Agent shall have received, in form and
substance satisfactory to the Administrative Agent, such other assurances,
certificates, documents or consents related to the foregoing as the
Administrative Agent or Requisite Banks reasonably may require.
SECTION 5.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Administrative Agent and the
Banks that:
5.01 DUE INCORPORATION; GOOD STANDING. Borrower is a Delaware
corporation duly organized and existing under the laws of Delaware, and, to
the best of Borrower's knowledge, is properly licensed and in good standing
in, and where necessary to maintain Borrower's rights and privileges has
complied with the fictitious name statute of, every jurisdiction in which
Borrower is doing business. Each Guarantor is a duly organized and existing
corporation under the laws of the state of its incorporation, and, to the
best of Borrower's knowledge, is properly licensed and in good standing in,
and where necessary to maintain such Guarantor's rights and privileges has
complied with the fictitious name statute of, every jurisdiction in which
such Guarantor is doing business.
5.02 CORPORATE POWER; AUTHORIZATION. The execution, delivery and
performance of this Agreement and each other Loan Document to which Borrower
is a party are within Borrower's powers, have been duly authorized, and are
not in conflict with the terms of any charter, bylaw or other organization
papers of Borrower, or any instrument or agreement to which Borrower is a
party or by which Borrower is bound or affected. The execution, delivery and
performance of each Loan Document to which each Guarantor is a party are
within such Guarantor's powers, have been duly authorized, and are not in
conflict with the terms of any charter, bylaw or other organization papers of
such Guarantor, or any instrument or agreement to which such Guarantor is a
party or by which such Guarantor is bound or affected.
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5.03 GOVERNMENT ACTION. No approval, consent, exemption or other
action by, or notice to or filing with, any Governmental Authority is
necessary in connection with the execution, delivery, performance or
enforcement of this Agreement or any other Loan Document to which Borrower or
a Guarantor is a party, except as may have been obtained and certified copies
of which have been delivered to the Administrative Agent.
5.04 NO LEGAL BAR. There is no law, rule or regulation, nor is there
any judgment, decree or order of any court or governmental authority binding
on Borrower or any Guarantor, which would be contravened by the execution,
delivery, performance or enforcement of this Agreement or any other Loan
Document to which Borrower or a Guarantor is a party.
5.05 ENFORCEABLE OBLIGATION. This Agreement and each other Loan
Document to which Borrower or a Guarantor is a party is a legal, valid and
binding agreement of Borrower and each Guarantor, enforceable against
Borrower and each Guarantor in accordance with its terms, and Loan Document,
when executed and delivered, will be similarly legal, valid, binding and
enforceable.
5.06 OWNERSHIP OF PROPERTY; LIENS. Borrower and each Subsidiary of
Borrower has good and marketable title to its properties and assets free and
clear of all Liens, except for:
(a) taxes which have resulted in a Lien but are not yet
delinquent; and
(b) Liens permitted under SECTION 7.02;
and the execution, delivery or performance of this Agreement and each other Loan
Document to which Borrower or a Guarantor is a party will not result in the
creation of any such Lien other than in favor of the Administrative Agent and
the Banks.
5.07 LITIGATION. There are no suits, proceedings, claims or disputes
pending or, to the knowledge of Borrower or any Subsidiary of Borrower,
threatened against or affecting Borrower or any Subsidiary or its respective
properties, the adverse determination of which could affect Borrower's or a
Guarantor's financial condition or operations, taken as a whole, or could
impair Borrower's or a Guarantor's ability to perform its obligations
hereunder or any other Loan Document to which Borrower or a Guarantor is a
party.
5.08 NO DEFAULT. No event has occurred and is continuing or would
result from the incurring of obligations by Borrower or any Guarantor under
this Agreement or any other Loan Document to which Borrower or a Guarantor is
a party which is a Default, or is, or with the passing of time or giving of
notice or both would be, an Event of Default.
5.09 SIGNIFICANT SUBSIDIARIES. Borrower has only the Significant
Subsidiaries listed on SCHEDULE 5.09, as amended from time to time pursuant
to SECTION 6.09.
5.10 OWNERSHIP OF STOCK. The Principal Stockholders own directly or
as trustees under trusts established for the benefit of themselves and/or
members of their immediate families, in the aggregate at least 20% of the
capital stock of Borrower and control at least 50% of the total voting rights
accruing under the capital stock of Borrower; provided, that, for purposes of
determining
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compliance with this covenant, each of the Principal Stockholders shall be
deemed to own shares registered in his name (unless he has delegated or
otherwise transferred or assigned voting rights in such shares)
notwithstanding that an existing spouse may be deemed to have rights in such
shares under applicable community property laws.
5.11 NO CONFLICTING AGREEMENTS. Neither Borrower nor any Subsidiary
is in default under any agreement to which it is a party or by which it or
any of its Property is bound the effect of which could have a material
adverse effect on the business or operations of Borrower and its
Subsidiaries, taken as a whole, or could impair Borrower's or a Guarantor's
ability to perform its obligations hereunder or under any Loan Document to
which Borrower or any Guarantor is a party. No provision of (i) the articles
of incorporation, charter, bylaws, preferred stock or any shareholder
agreement of Borrower or any Subsidiary, (ii) any existing mortgage or
indenture, (iii) any other contract or agreement (which is, individually or
in the aggregate, material to the consolidated financial condition, business
or operations of Borrower and its Subsidiaries), (iv) any statute (including,
without limitation, any applicable usury or similar law), rule or regulation,
and (v) any judgment, decree or order (which is, individually or in the
aggregate, material to the consolidated financial condition, business or
operations of Borrower and its Subsidiaries), in either case binding on
Borrower or any Subsidiary or affecting the Property of Borrower or any
Subsidiary; conflicts with, or requires any consent under, or would in any
way prevent the execution, delivery or carrying out of the terms of this
Agreement or any other Loan Document, and the taking of any such action will
not constitute a default under, or result in the creation or imposition of,
or obligation to create, any Lien upon the Property of Borrower or any
Subsidiary pursuant to the terms of any such mortgage, indenture, contract or
agreement (other than any right to setoff or banker's lien or attachment that
the Banks may have under applicable law).
5.12 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed, and has paid, or has made
adequate provision for the payment of, all taxes shown to be due and payable
on said returns or in any assessments made against it, and no tax liens have
been filed and no claims are being asserted with respect to such taxes which
are required by Generally Accepted Accounting Principles to be reflected in
the financial statements of Borrower and are not so reflected therein. The
charges, accruals and reserves on the books of Borrower and each Subsidiary
with respect to all federal, state, local and other taxes are considered by
the management of Borrower to be adequate, and Borrower knows of no unpaid
assessment which is due and payable against Borrower or any Subsidiary,
except (a) those not yet delinquent, (b) those not substantial in aggregate
amount, (c) such thereof as are being contested in good faith and by
appropriate proceedings diligently conducted, or (d) those involving foreign
taxes and assessments which are involved in a good faith dispute with respect
to tax or other matters.
5.13 FINANCIAL STATEMENTS. Borrower has heretofore delivered to the
Administrative Agent copies of (a) the preliminary audited balance sheet and
income statement of Borrower as of August 31, 1998 for the Fiscal Year then
ended and (b) the unaudited consolidated balance sheet of Borrower as of
February 28, 1999 for the two Fiscal Quarters then ended, and the related
consolidated statements of operations, shareholder's equity and changes in
cash flows for periods covered thereby (such statements being sometimes
referred to herein as the "FINANCIAL STATEMENTS"). Both Financial Statements
fairly present the consolidated financial condition and the consolidated
results of operations of Borrower as of the date and for the periods
indicated
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therein, and the Financial Statements have been prepared in conformity with
Generally Accepted Accounting Principles (except as disclosed in the notes
thereto). As of the Closing Date, except (i) as reflected in the Financial
Statements or in the footnotes thereto, or (ii) as otherwise disclosed in
writing to the Administrative Agent and the Banks prior to the date hereof,
neither Borrower nor any Subsidiary has any obligation or liability of any
kind (whether fixed, accrued, contingent, unmatured or otherwise) which is
material to Borrower and the Subsidiaries on a consolidated basis and which,
in accordance with Generally Accepted Accounting Principles consistently
applied, should have been recorded or disclosed in such Financial Statements
and were not, other than those incurred in the ordinary course of their
respective businesses since the date of such Financial Statements. Since
February 28, 1999 Borrower and each Subsidiary has conducted its business
only in the ordinary course, and there has been no adverse change in the
financial condition of Borrower and its Subsidiaries taken as a whole which
is material to Borrower and its Subsidiaries on a consolidated basis, except
in each case as disclosed in writing to the Administrative Agent prior to the
Closing Date.
5.14 COMPLIANCE WITH APPLICABLE LAWS. Neither Borrower nor any
Subsidiary is in default with respect to any judgment, order, writ,
injunction, decree or decision of any Governmental Authority which default
could have a material adverse effect on the financial condition, operations
or Property of Borrower and its Subsidiaries, taken as a whole, or could
impair Borrower's or a Guarantor's ability to perform its obligations
hereunder or under any other Loan Document to which Borrower or any Guarantor
is a party. Borrower and each Subsidiary is complying in all material
respects with all applicable statutes and regulations, including ERISA and
applicable occupational, safety and health and other labor laws, of all
Governmental Bodies, a violation of which could have a material adverse
effect on the financial condition, operations or Property of Borrower and its
Subsidiaries, taken as a whole, or could impair Borrower's or a Guarantor's
ability to perform its obligations hereunder or any other Loan Document to
which Borrower or any Guarantor is a party.
5.15 GOVERNMENTAL REGULATIONS. Neither Borrower nor any Subsidiary
is subject to any statute or regulation which regulates the incurring by
Borrower of indebtedness for borrowed money, except for applicable usury laws.
5.16 PROPERTY. Borrower and each Subsidiary has good and valid title
to, or good and valid leasehold interests in, all of its Property, title to
(or leasehold interest in) which is material to Borrower and its Subsidiaries
taken as a whole, subject to no Liens, except such thereof as are not
prohibited by the terms of this Agreement.
5.17 FEDERAL RESERVE REGULATIONS. Borrower is not engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any margin stock
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, as amended. No part of the proceeds of the Loans will be
used, directly or indirectly, for a purpose which violates any law, rule or
regulation of any Governmental Authority, including, without limitation, the
provisions of Regulations G, T, U, or X of said Board, as amended.
5.18 NO MISREPRESENTATION. No representation or warranty contained
herein or in any document to be executed and delivered in connection herewith
and no certificate or report
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furnished or to be furnished by Borrower or any Subsidiary in connection with
the transactions contemplated hereby, contains or will contain a misstatement
of material fact, or omits or will omit to state a material fact required to
be stated in order to make the statements herein or therein contained (taken
as a whole) not misleading in the light of the circumstances under which made.
5.19 PLANS. From and after the Closing Date, each Plan established,
maintained or participated in by Borrower and each Subsidiary shall be in
material compliance with the applicable provisions of ERISA and the Code, and
Borrower and each Subsidiary shall file all material reports required to be
filed by ERISA and the Code with respect to any Plan. Borrower and each
Subsidiary shall meet all material requirements imposed by ERISA and the Code
with respect to the funding of all Plans. Since the effective date of ERISA,
there have not been, nor are there now existing, any events or conditions
which would permit any Plan to be terminated by the PBGC under circumstances
which would cause Borrower to incur a material liability under Title IV of
ERISA. Since the effective date of ERISA, no Reportable Event has occurred
with respect to any Plan and no Plan has been terminated in whole or in part,
other than the Plan established by Todd-AO Studios East, Inc. and its
predecessor, Trans/Audio, Inc., that was terminated at the time of
acquisition of such company by Borrower. No withdrawals from any Plans have
occurred which could subject Borrower or any of its Subsidiaries to any
material liability.
5.20 INVESTMENT COMPANY ACT. Borrower is not an "investment company"
or a company "controlled" by an "investment company," within the meaning of
the Investment Company Act of 1940, as amended.
5.21 PUBLIC UTILITY HOLDING COMPANY ACT. Borrower is not a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
5.22 SECURITY INTERESTS. Upon the execution and delivery of the
Pledge Agreement, the Pledge Agreement will create a valid first priority
security interest in the Pledged Collateral and upon delivery of the Pledged
Collateral to the Administrative Agent (or its designee) all action necessary
to perfect the security interest so created has been taken and completed.
5.23 ENVIRONMENTAL COMPLIANCE. Borrower and its Subsidiaries conduct
in the ordinary course of business a review of the effect of existing
Environmental Laws and claims alleging potential liability or responsibility
for violation of any Environmental Law on their respective businesses,
operations and properties, and as a result thereof Borrower has reasonably
concluded that such Environmental Laws and claims do not, individually or in
the aggregate, have a Material Adverse Effect.
5.24 YEAR 2000. Borrower has (a) initiated a review and assessment
of all areas within its and each of its Subsidiaries' business and operations
(including those affected by customers and vendors) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications and devices containing imbedded computer chips used by Borrower
or any of its Subsidiaries (or their respective customers and vendors) may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (b) developed a
plan and timeline for addressing the Year 2000 Problem on a
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timely basis, and (c) to date, implemented that plan in accordance with that
timetable. Based on the foregoing, Borrower believes that all computer
applications and devices containing imbedded computer chips (including those
of its and its Subsidiaries' customers and vendors) that are material to its
or any of its Subsidiaries' business and operations are reasonably expected
on a timely basis to be able to perform properly date-sensitive functions for
all dates before and after January 1, 2000 (that is, be "Year 2000
compliant"), except to the extent that a failure to do so could not
reasonably be expected to have a material adverse effect upon Borrower and
its Subsidiaries, taken as a whole, or could impair Borrower's or a
Guarantor's ability to perform its obligations hereunder or under any other
Loan Document to which Borrower or any Guarantor is a party.
SECTION 6.
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as the Commitments shall
remain available, and until the full and final payment of all indebtedness
incurred hereunder, it will, and will cause each of its Subsidiaries to,
unless the Requisite Banks waive compliance in writing:
6.01 FINANCIAL AND OTHER INFORMATION. Deliver to the
Administrative Agent:
(a) as soon as available but no later than 60 days after the end of
each of the first three fiscal quarters of Borrower the unaudited
consolidated balance sheet of Borrower and its Subsidiaries as at the end of
such fiscal quarter, and the unaudited consolidated statement of income and
retained earnings and of changes in cash flow of Borrower and its
Subsidiaries for such fiscal quarter and that portion of the fiscal year
ending with such quarter, certified by a Responsible Officer of Borrower as
being prepared in accordance with Generally Accepted Accounting Principles
and complete and correct and fairly presenting the financial condition and
results of operations of Borrower and its Subsidiaries; and
(b) as soon as available but no later than 120 days after the end of
each of its fiscal years, a complete copy of an audit report of Borrower and
its Subsidiaries which shall include at least the consolidated balance sheet
of Borrower and its Subsidiaries as of the close of such year, and the
consolidated statement of income and retained earnings and of changes in cash
flows of Borrower for such year, prepared in accordance with Generally
Accepted Accounting Principles and fairly presenting Borrower's financial
position and results of operations, certified by Arthur Andersen, or other
independent public accounting firm of recognized national standing selected
by Borrower and satisfactory to the Administrative Agent and the Requisite
Banks. Such certificate shall not be qualified or limited because of
restricted or limited examination by such accountant of any material portion
of Borrower's records nor contain any exceptions with respect to possible
errors generated by financial reporting and related systems due to the Year
2000 problem.
6.02 CERTIFICATES, NOTICES AND OTHER INFORMATION. Deliver to the
Administrative Agent in form and detail satisfactory to the Agent and the
Requisite Banks, with sufficient copies for each Bank:
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(a) Concurrently with the financial statements required pursuant to
Sections 6.01(a) and 6.01(b), a Compliance Certificate signed by a
Responsible Officer; and
(b) such other statements, lists of property and accounts, budgets,
forecasts or reports as the Administrative Agent may reasonably request.
6.03 PROMPT NOTICE. Immediately give written notice to the
Administrative Agent of:
(a) all litigation affecting Borrower or any of its Subsidiaries as
a defendant and where the amount claimed in a single litigation action is in
excess of $500,000 or when the aggregate amount claimed in all litigation
actions is in excess of $1,000,000;
(b) any substantial dispute which may exist between Borrower and any
Governmental Authority;
(c) any proposal by any public authority to acquire the assets or
business of Borrower or to compete with Borrower;
(d) any Event of Default or Default; and
(e) any other matter which has resulted or might result in a
material adverse change in Borrower's financial condition or operations or
impairment in Borrower's or a Guarantor's ability to perform its obligations
hereunder or any other Loan Document to which Borrower or any Guarantor is a
party.
6.04 MAINTAIN EXISTENCE. Except as permitted by SECTION 7.03,
maintain and preserve its existence and all rights, privileges and franchises
now enjoyed, and keep all its properties in good working order and condition.
6.05 PAYMENT OF OBLIGATIONS. Pay all obligations, including tax
claims, when due, except such as may be contested in good faith by
appropriate proceedings and Borrower has established reserves on its books
which are reasonable and adequate.
6.06 COMPLIANCE WITH LEGAL REQUIREMENTS. At all times comply with
all laws, rules, regulations, orders and directions of any Governmental
Authority having jurisdiction over it or its business and conduct its
operations and keep and maintain its property in compliance with all
Environmental Laws.
6.07 INSURANCE. Maintain and keep in force on all of its property
such insurance as is normal for the industry in which Borrower conducts its
business and is satisfactory to the Requisite Banks as to amount, nature and
carrier covering fire damage (including use and occupancy), public liability,
product liability, property damage and workers' compensation, and deliver to
the Administrative Agent upon request a schedule certified to be correct by a
Responsible Officer of Borrower setting forth all insurance in force as of
the date of such schedule.
6.08 BOOKS AND RECORDS. Maintain adequate books, accounts and
records in accordance with Generally Accepted Accounting Principles, and
permit employees or agents of the Administrative Agent at any reasonable time
and as often as may reasonably be desired to inspect
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its properties, and to examine or audit its books, accounts and records and
make copies and memoranda thereof and to discuss the business, operations,
properties and financial and other conditions of Borrower and its
Subsidiaries with officers of Borrower.
6.09 FUTURE SIGNIFICANT SUBSIDIARIES; PLEDGES OF STOCK. Cause any of
present or future Significant Subsidiaries (other than Non-Recourse Joint
Ventures) (as soon as any such future Significant Subsidiary becomes a
Significant Subsidiary of Borrower) that is not a Guarantor to (a) execute
and deliver to the Administrative Agent a continuing guaranty in form and
substance satisfactory to the Administrative Agent, together with
documentation of the type set forth in SECTIONS 4.01(D), 4.03(G) and 4.03(H)
as to such Significant Subsidiary, or (b) if pre-existing Indebtedness of any
new Significant Subsidiary prohibits such a guaranty, such a guaranty given
by a foreign Significant Subsidiary would be taxable, Borrower will instead
pledge all its equity interests in such new Significant Subsidiary (or as
much as it can without such pledge being taxable) pursuant to the Pledge
Agreement or a supplement thereto, together with delivery of the Pledged
Collateral accompanied by appropriate stock powers endorsed in blank.
Borrower shall notify the Administrative Agent of the creation or acquisition
of any new Significant Subsidiary, and SCHEDULE 5.09 shall be deemed amended
by the addition of such new Subsidiary (whether or the Administrative Agent
distributes a reviewed SCHEDULE 5.09).
6.10 USE OF PROCEEDS. Use the proceeds of the Loans for general
working capital and general corporate purposes and acquisitions.
SECTION 7.
NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as the Commitments shall
remain available, and until full and final payment of all indebtedness incurred
hereunder, without the prior written consent of the Requisite Banks, it will
not, and will not permit any Subsidiary to:
7.01 LIMITATION ON INDEBTEDNESS. Incur or suffer to exist any
indebtedness for borrowed money, or become liable as a surety, guarantor,
accommodation endorser, or otherwise for or upon the obligation of any other
person, firm or corporation; except for:
(a) the acquisition of goods, supplies or merchandise on normal
trade credit;
(b) Indebtedness incurred on or before the Closing Date listed on
SCHEDULE 7.01 and any extension, renewal, refunding and refinancing thereof;
provided that after giving effect to such extension, renewal, refunding or
refinancing the principal amount thereof is not increased;
(c) Indebtedness of Non-Recourse Joint Ventures not exceeding,
together with Investments permitted under SECTION 7.05(b), $50,000,000 in the
aggregate at any time outstanding;
(d) Indebtedness consisting of Capital Leases and related to
Synthetic Leases not exceeding $35,000,000 in the aggregate outstanding at
any time;
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(e) intercompany obligations of Borrower or any Guarantor otherwise
permitted hereunder;
(f) the Convertible Subordinated Notes;
(g) the TeleCine Cell Loan Notes;
(h) up to $5,000,000 in the aggregate in purchase money mortgage
financing;
(i) up to (pound)3,100,000 of existing TeleCine Cell mortgage debt
on its Charlotte property; and
(j) other Indebtedness, including purchase-money financing, not
exceeding $10,000,000 in the aggregate outstanding at any time.
7.02 LIMITATION ON LIENS. Create, assume or suffer to exist any
Lien on or of any of its property, real or personal, whether now owned or
hereafter acquired, except for:
(a) Liens for current taxes, assessments or other governmental
charges which are not delinquent or remain payable without any penalty or the
validity of which is contested in good faith by appropriate proceedings upon
stay of execution of the enforcement thereof;
(b) Liens securing Indebtedness permitted by SECTION 7.01(c);
PROVIDED such Liens are on and limited to the assets of the joint venture
incurring such Indebtedness;
(c) Liens securing Indebtedness permitted by SECTIONS 7.01(h), (i)
and (j); PROVIDED such Liens are on and limited to the capital assets
acquired, constructed or financed with the proceeds of such Indebtedness;
(d) Liens in connection with Capital Leases permitted by SECTION
7.01(d); provided such Liens are on and limited to the assets of the subject
of such Capital Leases; and
(e) Liens in connection with equipment leases not exceeding $250,000
in the aggregate at any time which were assumed in connection with the
Hollywood Digital Acquisition, and any extension, renewal, refunding and
refinancing thereof; provided that after giving effect to such extension,
renewal, refunding or refinancing the principal amount thereof is not
increased.
7.03 LIQUIDATION, MERGER, ETC. Liquidate or dissolve, or enter into
any consolidation, merger, partnership, joint venture or other combination,
or sell, lease or dispose of its business or assets as a whole or such as in
the opinion of the Requisite Banks constitute a substantial portion thereof
except:
(a) mergers and consolidations of a Subsidiary of Borrower into
Borrower or a Subsidiary (with Borrower or its Subsidiary as the surviving
entity) or of Borrower or Subsidiaries of Borrower with each other, provided
that Borrower and each of such Subsidiaries have executed such amendments to
the Loan Documents as the Administrative Agent may reasonably determine are
appropriate as a result of such merger; and
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(b) a merger or consolidation of Borrower or any Subsidiary with any
other Person, provided that (i) either (A) Borrower or its Subsidiary is the
surviving entity, or (B) the surviving entity is a corporation organized
under the laws of a State of the United States of America or the District of
Columbia and, as of the date of such merger or consolidation, expressly
assumes, by an appropriate instrument, the Obligations of Borrower or its
Subsidiary, as the case may be, and (ii) giving effect thereto on a pro-forma
basis, no Default or Event of Default exists or would result therefrom.
7.04 DISPOSITION OF ASSETS. Dispose, nor permit any of its
Subsidiaries to dispose, of any of its assets or enter into any sale and
leaseback agreement covering any of its fixed or capital assets; except that
Borrower and its Subsidiaries may dispose of assets no longer used or useful
in the business of Borrower or such Subsidiary, if the net book value of such
assets is not in excess of $2,000,000 in the aggregate.
7.05 LIMITATION ON INVESTMENTS. Make any Investments, except:
(a) Investments in cash, cash equivalents and marketable securities
(as defined in accordance with Generally Accepted Accounting Principles);
provided that the aggregate value of all marketable securities not rated at
least investment grade by a rating agency of national standing shall not at
any time exceed one-third of the total value of all such cash, cash
equivalents and marketable securities;
(b) Investments in foreign joint ventures located in the United
Kingdom, Spain, France or Germany engaged in businesses providing post
production services for film, television, transmission and related media,
provided, that Borrower's and its Subsidiaries' share of such investments,
together with Indebtedness permitted under SECTION 7.01(c), shall not exceed
$50,000,000 in the aggregate at any time outstanding valued at cost;
(c) Investments in other Persons not exceeding $10,000,000 in the
aggregate at any time outstanding;
(d) Investments in or loans to Guarantors that are 100% owned
directly or indirectly by Borrower; and
(e) loans to officers of Borrower not exceeding $150,000 in the
aggregate outstanding at any time;
(f) repurchases of Borrower's capital stock in an aggregate amount
not exceeding $3,000,000 during the period from the Closing Date through and
including August 31, 2000;
provided that in all cases (i) no Default or Event of Default has occurred
under this Agreement or will occur after giving effect to any such
acquisition, (ii) any rights to repayment of any loans are pledged to the
Administrative Agent and the Banks on terms and conditions satisfactory to
Administrative Agent and the Banks, and (iii) Borrower shall not cause,
permit or suffer any restrictions on dividends, distributions or other
upstreaming of money to Borrower by any Subsidiary now owned or hereafter
acquired by Borrower.
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7.06 LIMITATION ON ACQUISITIONS. Make any Acquisition unless (a)
prior to completing such Acquisition, Borrower delivers to the Administrative
Agent a Compliance Certificate demonstrating that, after giving effect to
such Acquisition, Borrower would be in compliance with SECTIONS 7.10, 7.11
and 7.12 on a pro forma basis and (b) no Default or Event of Default has
occurring or is continuing or would result from such Acquisition.
7.07 CONTRACTS. Enter into, or permit any of its Subsidiaries to
enter into, any contracts, leases, indentures, or other agreements except in
the ordinary course of its business as presently conducted, except for
Acquisitions and Investments permitted by SECTION 7.05(c).
7.08 BUSINESS ACTIVITIES. Engage in, or permit any of its
Subsidiaries to engage in, any business activities or operations
substantially different from or unrelated to businesses providing post
production and transmission services for film, television and related media,
except for Investments permitted by SECTION 7.05(c).
7.09 COMPLIANCE WITH ERISA. Terminate, within the meaning of Title
IV of ERISA, any Plan so as to result in any material liability to the PBGC,
(b) engage in any "prohibited transaction" (as defined in Section 4975 of the
Internal Revenue Code of 1986, as amended) involving any Plan that would
result in material liability for an excise tax or civil penalty in connection
therewith, (c) incur or suffer to exist any material "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived,
involving any Plan, or (d) allow or suffer to exist any event or condition,
which could have a material adverse effect on Borrower and its Subsidiaries,
taken as a whole, or could impair Borrower's or a Guarantor's ability to
perform its obligations hereunder or any other Loan Document to which
Borrower or any Guarantor is a party.
7.10 MINIMUM NET WORTH. Permit the net worth of Borrower and its
Subsidiaries on a consolidated basis at any time to be less than the sum of
(a) [$54,000,000] plus (b) 50% of Borrower's consolidated net income for each
fiscal quarter (without deduction for any net loss) commencing with the
Fiscal Quarter ending subsequent to May 31, 1998, plus (c) 100% of the net
proceeds received by Borrower or any of its Subsidiaries from the issuance of
equity by Borrower or any Subsidiary. For purposes of this covenant net worth
shall be equal to shareholders' equity of Borrower and its Subsidiaries on a
consolidated basis, determined in accordance with Generally Accepted
Accounting Principles. This covenant shall be calculated excluding the effect
on shareholders' equity of repurchases of Borrower's capital stock in an
aggregate amount not exceeding $3,000,000 during the period from the Closing
Date through and including August 31, 2000.
7.11 FIXED CHARGE COVERAGE RATIO. Permit at any time the Fixed
Charge Coverage Ratio to be less than 1.25 to 1.00.
7.12 LEVERAGE RATIO. Permit at any time the Leverage Ratio to exceed
the ratio set forth below opposite the indicated period:
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<TABLE>
<CAPTION>
MAXIMUM LEVERAGE
PERIOD RATIO
- ---------------------------------------------- ----------------------
<S> <C>
Closing - May 31, 2001 4:00 to 1
June 1, 2001 - November 30, 2001 3:50 to 1
December 1, 2001 and thereafter 3:00 to 1
</TABLE>
7.13 NO RESTRICTIONS ON UPSTREAMING CASH FROM SIGNIFICANT
SUBSIDIARIES. Permit any restrictions on any Significant Subsidiary directly
or indirectly upstreaming cash to Borrower.
SECTION 8.
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
8.01 EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
(a) Borrower or any Guarantor shall fail to pay, any principal when
due, whether at maturity, on demand, upon acceleration or otherwise; or
(b) Borrower or any Guarantor shall fail to pay, when due, any
amount of interest, fees, expenses, indemnity payments or any other amount
payable by Borrower or any Guarantor to the Administrative Agent or any Bank
under this Agreement within 10 days of the date when such amounts are due,
whether at maturity, on a specified date, on demand, upon acceleration or
otherwise; or
(c) Any representation or warranty hereunder or any other Loan
Document or in connection with any transaction contemplated hereby or in any
financial statement furnished to the Administrative Agent shall prove to have
been false or misleading in any material respect when made or when deemed to
have been made; or
(d) Borrower shall breach or default under SECTION 4.01(c), 6.11,
7.10, 7.11 or 7.12; or
(e) Borrower or any Guarantor shall breach, or default under, any
other term, condition, provision or covenant contained in this Agreement or
any other Loan Document and such breach or default is not remedied to the
Requisite Bank's satisfaction within 30 days after the occurrence thereof; or
(f) Borrower or any of its Subsidiaries institutes or consents to
the institution of any proceeding under a Debtor Relief Law relating to it or
to all or any material part of its Property, or is unable or admits in
writing its inability to pay its debts as they mature, or makes an assignment
for the benefit of creditors; or applies for or consents to the appointment
of any receiver, trustee, custodian, conservator, liquidator, rehabilitator
or similar officer for it or for all or any material part of its Property; or
any receiver, trustee, custodian, conservator, liquidator, rehabilitator or
similar officer is appointed without the application or consent of that
Person and the appointment continues undischarged or unstayed for 60 calendar
days; or any proceeding under a Debtor Relief
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Law relating to any such Person or to all or any part of its Property is
instituted without the consent of that Person and continues undismissed or
unstayed for 60 calendar days; or
(g) All, or such as in the opinion of the Requisite Banks
constitutes substantially all, of the property of Borrower or any Guarantor
shall be condemned, seized or appropriated; or
(h) Any breach or default shall occur under any other agreement or
agreements involving the borrowing of money or the extension of credit where
the principal amount outstanding under such agreement or agreements is in the
amount of $100,000 or more, and under which Borrower or any Subsidiary may be
obligated as borrower or guarantor, if such default consists of the failure
to pay any indebtedness when due or if such default permits or causes (or
upon a lapse of time or notice or both would permit or cause) the
acceleration of any indebtedness or the termination of any commitment to
lend; or
(i) Unless the Requisite Banks shall have consented thereto (which
consent shall not be unreasonably withheld), the Principal Stockholders shall
cease to own, either directly or as trustees under trusts established for the
benefit of themselves and/or members of their immediate families, in the
aggregate at least 20% of the capital stock of Borrower or the voting rights
accruing under the shares issued by Borrower shall cease to be 50% controlled
by the Principal Stockholders, either directly or as trustees under trusts
established for the benefit of themselves and/or members of their immediate
families; PROVIDED, HOWEVER, that for purposes of determining whether an
Event of Default has occurred under this SECTION 8.01(i), each Principal
Stockholder shall be deemed to own shares registered in his name (unless he
has delegated or otherwise transferred or assigned voting rights in such
shares) notwithstanding that an existing spouse may be deemed to have rights
in such shares under applicable community property laws; PROVIDED, FURTHER,
that no Event of Default shall be deemed to have occurred by virtue of the
death of any Principal Stockholder; or
(j) The occurrence of (i) a Reportable Event with respect to, or the
institution of proceedings to have a trustee appointed to administer or to
terminate, any Plan, which Reportable Event or institution of proceedings is
likely to result in the termination of such Plan and such termination could
have a material adverse effect upon the business operations, assets or
financial condition of Borrower and its Subsidiaries, taken as a whole, or
could impair Borrower's or a Guarantor's ability to perform its obligations
hereunder or under any other Loan Document to which Borrower or any Guarantor
is a party, and the continuance of the same unremedied for 30 Business Days
after notice of such Reportable Event pursuant to Section 4043 of ERISA is
given or such proceedings are instituted, as the case may be or (ii)
PROVIDED, HOWEVER, that such event shall automatically be deemed to have a
materially adverse effect upon Borrower and its Subsidiaries, taken as a
whole, or could impair Borrower's or a Guarantor's ability to perform its
obligations hereunder or under any other Loan Document to which Borrower or
any Guarantor is a party, if a "prohibited transaction" described in Section
406 of ERISA or 4975(c) of the Internal Revenue Code of 1986, as amended, or
a notice of intention to terminate a Plan under Section 4041 of ERISA shall
have been filed; or a notice shall be received by the plan administrator of a
Plan that the PBGC has instituted proceedings to terminate such Plan or
appoint a trustee to administer such Plan; or Borrower or any Subsidiary
shall withdraw from a Plan; or a trustee will be appointed by a United States
District Court to administer any Plan with vested unfunded liabilities; or
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(k) The occurrence of any event which Requisite Banks believes could
have a material adverse effect upon Borrower and its Subsidiaries, taken as a
whole, or could impair Borrower's or a Guarantor's ability to perform its
obligations hereunder or under any other Loan Document to which Borrower or
any Guarantor is a party; or
(l) Borrower or any Guarantor defaults under any term, covenant or
agreement in the Guaranty or the Pledge Agreement; or the Guaranty or the
Pledge Agreement is for any reason partially (including with respect to
future advances) or wholly revoked or invalidated, or otherwise ceases to be
in full force and effect in accordance with its terms, or Borrower or any
Guarantor contests in any manner the validity or enforceability thereof or
denies that it has any further liability or obligation thereunder.
8.02 REMEDIES UPON EVENT OF DEFAULT. Without limiting any other
rights or remedies of the Administrative Agent or the Banks provided for
elsewhere in this Agreement, or the other Loan Documents, or by applicable
law, or in equity, or otherwise:
(a) Upon the occurrence, and during the continuance, of any Event of
Default other than an Event of Default described in SECTION 8.01(f):
(i) the Commitments and all other obligations of the
Administrative Agent or the Banks and all rights of Borrower and any
Guarantor under the Loan Documents shall be suspended without notice to
or demand upon Borrower, which are expressly waived by Borrower, except
that all of the Banks or the Requisite Banks, as required hereunder,
may waive an Event of Default or, without waiving, determine, upon
terms and conditions satisfactory to the Banks or Requisite Banks, as
the case may be, to reinstate the Commitments and make further
Extensions of Credit, which waiver or determination shall apply equally
to, and shall be binding upon, all the Banks;
(ii) the Issuing Bank may, with the approval of the
Administrative Agent on behalf of the Requisite Banks, demand immediate
payment by Borrower of an amount equal to the aggregate amount of all
outstanding Letters of Credit to be held by the Issuing Bank in an
interest-bearing cash collateral account as collateral hereunder; and
(iii) the Requisite Banks may request the Administrative Agent
to, and the Administrative Agent thereupon shall, terminate the
Commitments and/or declare all or any part of the unpaid principal of
all Loans, all interest accrued and unpaid thereon and all other
amounts payable under the Loan Documents to be forthwith due and
payable, whereupon the same shall become and be forthwith due and
payable, without protest, presentment, notice of dishonor, demand or
further notice of any kind, all of which are expressly waived by
Borrower.
(b) Upon the occurrence of any Event of Default described in SECTION
8.01(f):
(i) the Commitments and all other obligations of the
Administrative Agent or the Banks and all rights of Borrower and any
Guarantor under the Loan Documents shall terminate without notice to or
demand upon Borrower, which are expressly waived by Borrower, except
that all the Banks may waive the Event of Default or, without waiving,
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determine, upon terms and conditions satisfactory to all the Banks, to
reinstate the Commitments and make further Extensions of Credit, which
determination shall apply equally to, and shall be binding upon, all
the Banks;
(ii) an amount equal to the aggregate amount of all
outstanding Letters of Credit shall be immediately due and payable to
the Issuing Bank without notice to or demand upon Borrower, which are
expressly waived by Borrower, to be held by the Issuing Bank in an
interest-bearing cash collateral account as collateral hereunder; and
(iii) the unpaid principal of all Loans, all interest accrued
and unpaid thereon and all other amounts payable under the Loan
Documents shall be forthwith due and payable, without protest,
presentment, notice of dishonor, demand or further notice of any kind,
all of which are expressly waived by Borrower.
(c) Upon the occurrence of any Event of Default, the Banks and the
Administrative Agent, or any of them, without notice to (except as expressly
provided for in any Loan Document) or demand upon Borrower, which are
expressly waived by Borrower (except as to notices expressly provided for in
any Loan Document), may proceed (but only with the consent of the Requisite
Banks) to protect, exercise and enforce their rights and remedies under the
Loan Documents against Borrower and any Guarantor and such other rights and
remedies as are provided by law or equity.
(d) The order and manner in which the Banks' rights and remedies are
to be exercised shall be determined by the Requisite Banks in their sole
discretion, and all payments received by the Administrative Agent and the
Banks, or any of them, shall be applied first to Attorney Costs incurred by
the Administrative Agent or any Bank, and thereafter paid pro rata to the
Banks in the same proportions that the aggregate Obligations owed to each
Bank under the Loan Documents bear to the aggregate Obligations owed under
the Loan Documents to all the Banks, without priority or preference among the
Banks. Regardless of how each Bank may treat payments for the purpose of its
own accounting, for the purpose of computing Borrower's Obligations
hereunder, payments shall be applied first, to the costs and expenses of the
Administrative Agent and the Banks, as set forth above, second, to the
payment of accrued and unpaid interest due under any Loan Documents to and
including the date of such application (ratably, and without duplication,
according to the accrued and unpaid interest due under each of the Loan
Documents), and third, to the payment of all other amounts (including
principal and fees) then owing to the Administrative Agent or the Banks under
the Loan Documents. No application of payments will cure any Event of
Default, or prevent acceleration, or continued acceleration, of amounts
payable under the Loan Documents, or prevent the exercise, or continued
exercise, of rights or remedies of the Banks hereunder or thereunder or at
laws or in equity.
SECTION 9.
THE ADMINISTRATIVE AGENT
9.01 APPOINTMENT AND AUTHORIZATION; "ADMINISTRATIVE AGENT".
(a) Each Bank hereby irrevocably (subject to SECTION 9.09) appoints,
designates and authorizes the Administrative Agent to take such action on its
behalf under the provisions of this
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Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the
Administrative Agent shall not have any duties or responsibilities, except
those expressly set forth herein, nor shall the Administrative Agent have or
be deemed to have any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Loan Document or otherwise
exist against the Administrative Agent. Without limiting the generality of
the foregoing sentence, the use of the term "AGENT" in this Agreement with
reference to the Administrative Agent is not intended to connote any
fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter
of market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks with respect
to any Letters of Credit Issued by it and the documents associated therewith
until such time and except for so long as the Administrative Agent may agree
at the request of the Requisite Banks to act for such Issuing Bank with
respect thereto; PROVIDED, HOWEVER, that the Issuing Bank shall have all of
the benefits and immunities (i) provided to the Administrative Agent in this
Section 9 with respect to any acts taken or omissions suffered by the Issuing
Bank in connection with Letters of Credit Issued by it or proposed to be
Issued by it and the application and agreements for letters of credit
pertaining to the Letters of Credit as fully as if the term "Administrative
Agent", as used in this Section 9, included the Issuing Bank with respect to
such acts or omissions, and (ii) as additionally provided in this Agreement
with respect to the Issuing Bank.
9.02 DELEGATION OF DUTIES. The Administrative Agent may execute any
of its duties under this Agreement or any other Loan Document by or through
agents, employees or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agent
or attorney-in-fact that it selects with reasonable care.
9.03 LIABILITY OF ADMINISTRATIVE AGENT. None of the Administrative
Agent-Related Persons shall (i) be liable for any action taken or omitted to
be taken by any of them under or in connection with this Agreement or any
other Loan Document or the transactions contemplated hereby (except for its
own gross negligence or willful misconduct), or (ii) be responsible in any
manner to any of the Banks for any recital, statement, representation or
warranty made by Borrower or any Subsidiary or Affiliate of Borrower, or any
officer thereof, contained in this Agreement or in any other Loan Document,
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Administrative Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement
or any other Loan Document, or for any failure of Borrower or any other party
to any Loan Document to perform its obligations hereunder or thereunder. No
Administrative Agent-Related Person shall be under any obligation to any Bank
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to
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inspect the properties, books or records of Borrower or any of Borrower's
Subsidiaries or Affiliates.
9.04 RELIANCE BY ADMINISTRATIVE AGENT.
(a) The Administrative Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper
Person or Persons, and upon advice and statements of legal counsel (including
counsel to Borrower), independent accountants and other experts selected by
the Administrative Agent. The Administrative Agent shall be fully justified
in failing or refusing to take any action under this Agreement or any other
Loan Document unless it shall first receive such advice or concurrence of the
Requisite Banks as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Administrative Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent
of the Requisite Banks and such request and any action taken or failure to
act pursuant thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in SECTION 4.01, each Bank that has executed this Agreement shall
be deemed to have consented to, approved or accepted or to be satisfied with,
each document or other matter either sent by the Administrative Agent to such
Bank for consent, approval, acceptance or satisfaction, or required
thereunder to be consented to or approved by or acceptable or satisfactory to
the Bank.
9.05 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal,
interest and fees required to be paid to the Administrative Agent for the
account of the Banks, unless the Administrative Agent shall have received
written notice from a Bank or Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". The Administrative Agent will notify the Banks of its
receipt of any such notice. The Administrative Agent shall take such action
with respect to such Default or Event of Default as may be requested by the
Requisite Banks in accordance with Section 8; PROVIDED, HOWEVER, that unless
and until the Administrative Agent has received any such request, the
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Banks.
9.06 CREDIT DECISION. Each Bank acknowledges that none of the
Administrative Agent-Related Persons has made any representation or warranty
to it, and that no act by the Administrative Agent hereinafter taken,
including any review of the affairs of Borrower and its Subsidiaries, shall
be deemed to constitute any representation or warranty by any Administrative
Agent-Related Person to any Bank. Each Bank represents to the Administrative
Agent that it has, independently and without reliance upon any Administrative
Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
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creditworthiness of Borrower and its Subsidiaries, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made
its own decision to enter into this Agreement and to extend credit to
Borrower hereunder. Each Bank also represents that it will, independently and
without reliance upon any Administrative Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking
or not taking action under this Agreement and the other Loan Documents, and
to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrower. Except for notices, reports and other documents
expressly herein required to be furnished to the Banks by the Administrative
Agent, the Administrative Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the
business, prospects, operations, property, financial and other condition or
creditworthiness of Borrower which may come into the possession of any of the
Administrative Agent-Related Persons.
9.07 INDEMNIFICATION OF ADMINISTRATIVE AGENT. Whether or not the
transactions contemplated hereby are consummated, the Banks shall indemnify
upon demand the Administrative Agent-Related Persons (to the extent not
reimbursed by or on behalf of Borrower and without limiting the obligation of
Borrower to do so), pro rata, from and against any and all Indemnified
Liabilities; PROVIDED, HOWEVER, that no Bank shall be liable for the payment
to the Administrative Agent-Related Persons of any portion of such
Indemnified Liabilities resulting solely from such Person's gross negligence
or willful misconduct. Without limitation of the foregoing, each Bank shall
reimburse the Administrative Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including Attorney Costs) incurred by the
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect
of rights or responsibilities under, this Agreement, any other Loan Document,
or any document contemplated by or referred to herein, to the extent that the
Administrative Agent is not reimbursed for such expenses by or on behalf of
Borrower. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of the
Administrative Agent.
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9.08 ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. Bank of America
and its Affiliates may make loans to, issue letters of credit for the account
of, accept deposits from, acquire equity interests in and generally engage in
any kind of banking, trust, financial advisory, underwriting or other
business with Borrower and its Subsidiaries and Affiliates as though Bank of
America were not the Administrative Agent or the Issuing Bank hereunder and
without notice to or consent of the Banks. The Banks acknowledge that,
pursuant to such activities, Bank of America or its Affiliates may receive
information regarding Borrower or its Affiliates (including information that
may be subject to confidentiality obligations in favor of Borrower or such
Subsidiary) and acknowledge that the Administrative Agent shall be under no
obligation to provide such information to them. With respect to its Loans,
Bank of America shall have the same rights and powers under this Agreement as
any other Bank and may exercise the same as though it were not the
Administrative Agent or the Issuing Bank.
9.09 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may,
and at the request of the Requisite Banks shall, resign as Administrative
Agent upon 30 days' notice to the Banks. If the Administrative Agent resigns
under this Agreement, the Requisite Banks shall appoint from among the Banks
a successor administrative agent for the Banks which successor administrative
agent shall be approved by Borrower. If no successor administrative agent is
appointed prior to the effective date of the resignation of the
Administrative Agent, the Administrative Agent may appoint, after consulting
with the Banks and Borrower, a successor administrative agent from among the
Banks. Upon the acceptance of its appointment as successor administrative
agent hereunder, such successor administrative agent shall succeed to all the
rights, powers and duties of the retiring Administrative Agent and the term
"Administrative Agent" shall mean such successor administrative agent and the
retiring Administrative Agent's appointment, powers and duties as
Administrative Agent shall be terminated. After any retiring Administrative
Agent's resignation hereunder as Administrative Agent, the provisions of this
Section 9 and Sections 10.03 and 10.11 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Administrative Agent
under this Agreement. If no successor administrative agent has accepted
appointment as Administrative Agent by the date which is 30 days following a
retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become
effective, the Administrative Agent shall continue to hold any Collateral in
its possession and the Banks shall perform all of the duties of the
Administrative Agent hereunder until such time, if any, as the Requisite
Banks appoint a successor agent as provided for above. Notwithstanding the
foregoing, however, Bank of America may not be removed as the Administrative
Agent at the request of the Requisite Banks unless Bank of America shall also
simultaneously be replaced as "Issuing Bank" hereunder pursuant to
documentation in form and substance reasonably satisfactory to Bank of
America.
9.10 PROPORTIONATE INTEREST IN ANY COLLATERAL. The Administrative
Agent, on behalf of all the Banks, shall hold in accordance with the Loan
Documents all items of any collateral or interests therein received or held
by the Administrative Agent. Subject to the Administrative Agent's and the
Banks' rights to reimbursement for their costs and expenses hereunder
(including Attorney Costs incurred by the Administrative Agent or a Bank) and
subject to the application of payments in accordance with Section 2), each
Bank shall have an interest in the Banks' interest in the Collateral or
interests therein in the same proportions that the aggregate Obligations owed
such
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Bank under the Loan Documents bear to the aggregate Obligations owed under
the Loan Documents to all the Banks, without priority or preference among the
Banks.
9.11 FORECLOSURE ON COLLATERAL. In the event of foreclosure or
enforcement of the Lien created by any of the Collateral Documents, title to
the Collateral covered thereby shall be taken and held by the Administrative
Agent (or an Affiliate or designee thereof) pro rata for the benefit of the
Banks in accordance with their Pro Rata Share and shall be administered in
accordance with the standard form of collateral holding participation
agreement used by the Administrative Agent in comparable syndicated credit
facilities.
SECTION 10.
MISCELLANEOUS
10.01 CUMULATIVE REMEDIES; NO WAIVER. The rights, powers, privileges
and remedies of the Administrative Agent and the Banks provided herein or
other Loan Document are cumulative and not exclusive of any right, power,
privilege or remedy provided by laws or equity. No failure or delay on the
part of the Administrative Agent or any Bank in exercising any right, power,
privilege or remedy may be, or may be deemed to be, a waiver thereof; nor may
any single or partial exercise of any right, power, privilege or remedy
preclude any other or further exercise of the same or any other right, power,
privilege or remedy. The terms and conditions of Section 9 are inserted for
the sole benefit of the Administrative Agent and the Banks; the same may be
waived in whole or in part, with or without terms or conditions, in respect
of any Loan or Letter of Credit without prejudicing the Administrative
Agent's or the Banks' rights to assert them in whole or in part in respect of
any other Loan.
10.02 AMENDMENTS; CONSENTS. No amendment, modification, supplement,
extension, termination or waiver of any provision of this Agreement or any
other Loan Document, no approval or consent thereunder, and no consent to any
departure by Borrower or any Guarantor therefrom, may in any event be
effective unless in writing signed by the Requisite Banks (and, in the case
of any amendment, modification or supplement of or to any Loan Document to
which Borrower is a party, signed by Borrower and, in the case of any
amendment, modification or supplement to Section 9, signed by the
Administrative Agent), and then only in the specific instance and for the
specific purpose given; and, without the approval in writing of all the
Banks, no amendment, modification, supplement, termination, waiver or consent
may be effective:
(a) To amend or modify the principal of, or the amount of principal,
principal prepayments or the rate of interest payable on, any Loan, or the
amount of the Commitment or the Pro Rata Share of any Bank (except as
contemplated by SECTION 2.13) or the amount of any commitment fee payable to
any Bank, or any other fee or amount payable to any Bank under the Loan
Documents or to waive an Event of Default consisting of the failure of
Borrower to pay when due principal, interest or any commitment fee;
(b) To postpone any date fixed for any payment of principal of,
prepayment of principal of or any installment of interest on, any Loan or any
installment of any commitment fee, or to extend the term of the Commitment,
or to release the Guaranty;
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(c) To amend the provisions of the definition of "Requisite Banks,"
Sections 4 or 9 or this Section;
(d) To release any material portion of the Collateral (except as
otherwise expressly provided in any Loan Document); or
(e) To amend any provision of this Agreement that expressly requires
the consent or approval of all the Banks.
Any amendment, modification, supplement, termination, waiver or consent
pursuant to this Section shall apply equally to, and shall be binding upon, all
the Banks and the Administrative Agent.
10.03 ATTORNEY COSTS, EXPENSES AND TAXES. Borrower shall pay within
five Business Days after demand, accompanied by an invoice therefor, the
reasonable costs and expenses of the Administrative Agent in connection with
the negotiation, preparation, syndication, execution and delivery of the Loan
Documents (subject to any limitations set forth in a letter agreement between
Borrower and the Arranger entered into prior to the Closing Date) and any
amendment thereto or waiver thereof. Borrower shall also pay on demand,
accompanied by an invoice therefor, the reasonable costs and expenses of the
Administrative Agent and the Banks in connection with the refinancing,
restructuring, reorganization (including a bankruptcy reorganization) and
enforcement or attempted enforcement of the Loan Documents, and any matter
related thereto. The foregoing costs and expenses shall include filing fees,
recording fees, title insurance fees, appraisal fees, search fees, and other
out-of-pocket expenses and Attorney Costs incurred by the Agent or any Bank,
and independent public accountants and other outside experts retained by the
Administrative Agent or any Bank, whether or not such costs and expenses are
incurred or suffered by the Administrative Agent or any Bank in connection
with or during the course of any bankruptcy or insolvency proceedings of
Borrower or any Subsidiary thereof. Such costs and expenses shall also
include the administrative costs of the Administrative Agent reasonably
attributable to the administration of this Agreement and the other Loan
Documents. Borrower shall pay any and all Applicable Taxes and all costs,
expenses, fees and charges payable or determined to be payable in connection
with the filing or recording of this Agreement, any other Loan Document or
any other instrument or writing to be delivered hereunder or thereunder, or
in connection with any transaction pursuant hereto or thereto, and shall
reimburse, hold harmless and indemnify the Administrative Agent and the Banks
from and against any and all loss, liability or legal or other expense with
respect to or resulting from any delay in paying or failure to pay any such
tax, cost, expense, fee or charge or that any of them may suffer or incur by
reason of the failure of Borrower or any Guarantor to perform any of its
Obligations. Any amount payable to the Administrative Agent or any Bank under
this Section shall bear interest from the second Business Day following the
date of demand for payment at the Default Rate.
10.04 NATURE OF BANKS' OBLIGATIONS. The obligations of the Banks
hereunder are several and not joint or joint and several. Nothing contained
in this Agreement or any other Loan Document and no action taken by the
Administrative Agent or the Banks or any of them pursuant hereto or thereto
may, or may be deemed to, make the Banks a partnership, an association, a
joint venture or other entity, either among themselves or with Borrower or
any Affiliate of Borrower. Each Bank's obligation to make any Loan pursuant
hereto is several and not joint or joint and
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several, and in the case of the initial Loan only is conditioned upon the
performance by all other Banks of their obligations to make initial Loans. A
default by any Bank will not increase the Pro Rata Share attributable to any
other Bank. Any Bank not in default may, if it desires, assume in such
proportion as the nondefaulting Banks agree the obligations of any Bank in
default, but is not obligated to do so. The Administrative Agent agrees that
it will use its best efforts either to induce the other Banks to assume the
obligations of a Bank in default or to obtain another Bank, reasonably
satisfactory to Borrower, to replace such a Bank in default.
10.05 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or in any other Loan
Document, or in any certificate or other writing delivered by or on behalf of
any one or more of Borrower to any Loan Document, will survive the making of
the Loans hereunder and the execution and delivery of any Notes, and have
been or will be relied upon by the Administrative Agent and each Bank,
notwithstanding any investigation made by the Administrative Agent or any
Bank or on their behalf.
10.06 NOTICES. Except as otherwise provided in any Loan Document,
notices, requests, demands, directions, agreements and documents delivered in
connection with the Loan Documents (collectively, "COMMUNICATIONS") shall be
transmitted by Requisite Notice to the number and address set forth on
SCHEDULE 10.02, may be delivered by the following modes of delivery and shall
be effective as follows:
<TABLE>
<CAPTION>
MODE OF DELIVERY EFFECTIVE ON EARLIER OF ACTUAL RECEIPT AND:
- -------------------------------- -------------------------------------------------------
<S> <C>
Courier Scheduled delivery date
Facsimile When transmission in legible form complete
Mail Fourth Business Day after deposit in U.S. mail first
class postage pre-paid
Personal delivery When received
Electronic mail/ When received
digital transmission
Telephone When conversation completed
</TABLE>
PROVIDED, HOWEVER, that communications delivered to the Administrative Agent
pursuant to SECTION 2 or 9 shall not be effective until actually received by
the Administrative Agent. The Administrative Agent and any Bank shall be
entitled to rely and act on any notice purportedly given by or on behalf of
Borrower or a Guarantor even if such notice (i) was not made in a manner
specified herein, (ii) was incomplete, (iii) was not preceded or followed by
any other notice specified herein, or (iv) the terms of such notice as
understood by the recipient varied from any subsequent related notice
provided for herein. Borrower shall indemnify the Administrative Agent and
any Bank from any loss, cost, expense or liability as a result of relying on
any notice permitted herein.
10.07 EXECUTION OF LOAN DOCUMENTS. Unless the Administrative Agent
otherwise specifies with respect to any Loan Document, (a) this Agreement and
any other Loan Document may be executed in any number of counterparts and any
party hereto or thereto may execute any
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counterpart, each of which when executed and delivered will be deemed to be
an original and all of which counterparts of this Agreement or any other Loan
Document, as the case may be, when taken together will be deemed to be but
one and the same instrument and (b) execution of any such counterpart may be
evidenced by a telecopier transmission of the signature of such party. The
execution of this Agreement or any other Loan Document by any party hereto or
thereto will not become effective until counterparts hereof or thereof, as
the case may be, have been executed by all the parties hereto or thereto.
10.08 BINDING EFFECT; ASSIGNMENT
(a) This Agreement and the other Loan Documents to which Borrower is
a party will be binding upon and inure to the benefit of Borrower, the
Administrative Agent, each of the Banks, and their respective successors and
assigns, except that, Borrower may not assign its rights hereunder or
thereunder or any interest herein or therein without the prior written
consent of all the Banks. Each Bank represents that it is not acquiring its
Loans with a view to the distribution thereof within the meaning of the
Securities Act of 1933, as amended (subject to any requirement that
disposition of such Loans must be within the control of such Bank). Any Bank
may at any time pledge its Note or any other instrument evidencing its rights
as a Bank under this Agreement to a Federal Reserve Bank, but no such pledge
shall release that Bank from its obligations hereunder or grant to such
Federal Reserve Bank the rights of a Bank hereunder absent foreclosure of
such pledge.
(b) From time to time following the Closing Date, each Bank may
assign to one or more Eligible Assignees all or any portion of its Pro Rata
Share; provided that (i) such assignment, if not to a Bank or an Affiliate of
the assigning Bank, shall be consented to by Borrower at all times other than
during the existence of an Event of Default and the Administrative Agent
(which approval of Borrower shall not be unreasonably withheld or delayed),
(ii) a copy of a Notice of Assignment and Acceptance shall be delivered to
the Administrative Agent, (iii) except in the case of an assignment to an
Affiliate of the assigning Bank, to another Bank or of the entire remaining
Commitment of the assigning Bank, the assignment shall not assign a Pro Rata
Share equivalent to less than the Minimum Amount therefor, and (iv) the
effective date of any such assignment shall be as specified in the Notice of
Assignment and Acceptance, but not earlier than the date which is five
Business Days after the date the Administrative Agent has received the Notice
of Assignment and Acceptance. Upon acceptance by the Administrative Agent of
such Notice Assignment and Acceptance, the Eligible Assignee named therein
shall be a Bank for all purposes of this Agreement, with the Pro Rata Share
therein set forth and, to the extent of such Pro Rata Share, the assigning
Bank shall be released from its further obligations under this Agreement.
Borrower agrees that they shall execute and deliver upon request (against
delivery by the assigning Bank to Borrower of any Note) to such assignee
Bank, one or more Notes evidencing that assignee Bank's Pro Rata Share, and
to the assigning Bank if requested, one or more Notes evidencing the
remaining balance Pro Rata Share retained by the assigning Bank.
(c) By executing and delivering a Notice of Assignment and
Acceptance, the Eligible Assignee thereunder acknowledges and agrees that:
(i) other than the representation and warranty that it is the legal and
beneficial owner of the Pro Rata Share being assigned thereby free and clear
of any adverse claim, the assigning Bank has made no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in
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connection with this Agreement or the execution, legality, validity,
enforceability, genuineness or sufficiency of this Agreement or any other
Loan Document; (ii) the assigning Bank has made no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrower or the performance by Borrower of the Obligations; (iii) it has
received a copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to SECTION 6.01 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) it
will, independently and without reliance upon the Administrative Agent or any
Bank and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not
taking action under this Agreement; (v) it appoints and authorizes the
Administrative Agent to take such action and to exercise such powers under
this Agreement as are delegated to the Administrative Agent by this
Agreement; and (vi) it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed
by it as a Bank.
(d) After receipt of a completed Notice of Assignment and
Acceptance, and receipt of an assignment fee of $2,500 from such Eligible
Assignee, the Administrative Agent shall, promptly following the effective
date thereof, provide to Borrower and the Banks a revised SCHEDULE 10.06
giving effect thereto.
(e) Each Bank may from time to time grant participations to one or
more banks or other financial institutions (including another Bank) in a
portion of its Pro Rata Share; provided, however, that (i) such Bank's
obligations under this Agreement shall remain unchanged, (ii) such Bank shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) the participating banks or other financial
institutions shall not be a Bank hereunder for any purpose except, if the
participation agreement so provides, for the purposes of Section 3 (but only
to the extent that the cost of such benefits to Borrower does not exceed the
cost which Borrower would have incurred in respect of such Bank absent the
participation) and Section 10.09 (subject to Section 10.10), (iv) Borrower,
the Administrative Agent and the other Banks shall continue to deal solely
and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement, (v) the participation shall not restrict an
increase in the Commitment or in the granting Bank's Pro Rata Share, so long
as the amount of the participation interest is not affected thereby and (vi)
the consent of the holder of such participation interest shall not be
required for amendments or waivers of provisions of the Loan Documents other
than those which (A) extend the Maturity Date as to such participant or any
other date upon which any payment of money is due to such participant, (B)
reduce the rate of interest owing to such participant, any fee or any other
monetary amount owing to such participant or (C) reduce the amount of any
installment of principal owing to such participant.
10.09 RIGHT OF SETOFF. If an Event of Default has occurred and is
continuing, the Administrative Agent or any Bank but in each case only with
the consent of the Requisite Banks) may exercise its rights under Section 9
of the Uniform Commercial Code and other applicable laws and, to the extent
permitted by applicable laws, apply any funds in any deposit account
maintained with it by Borrower and/or any Property of Borrower in its
possession against the Obligations.
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10.10 SHARING OF SETOFFS. Each Bank severally agrees that if it,
through the exercise of any right of setoff, banker's lien or counterclaim
against Borrower, or otherwise, receives payment of the Obligations held by
it that is ratably more than any other Bank, through any means, receives in
payment of the Obligations held by that Bank, then, subject to applicable
laws: (a) the Bank exercising the right of setoff, banker's lien or
counterclaim or otherwise receiving such payment shall purchase, and shall be
deemed to have simultaneously purchased, from the other Bank a participation
in the Obligations held by the other Bank and shall pay to the other Bank a
purchase price in an amount so that the share of the Obligations held by each
Bank after the exercise of the right of setoff, banker's lien or counterclaim
or receipt of payment shall be in the same proportion that existed prior to
the exercise of the right of setoff, banker's lien or counterclaim or receipt
of payment; and (b) such other adjustments and purchases of participations
shall be made from time to time as shall be equitable to ensure that all of
the Banks share any payment obtained in respect of the Obligations ratably in
accordance with each Bank's share of the Obligations immediately prior to,
and without taking into account, the payment; provided that, if all or any
portion of a disproportionate payment obtained as a result of the exercise of
the right of setoff, banker's lien, counterclaim or otherwise is thereafter
recovered from the purchasing Bank by Borrower or any Person claiming through
or succeeding to the rights of Borrower, the purchase of a participation
shall be rescinded and the purchase price thereof shall be restored to the
extent of the recovery, but without interest. Each Bank that purchases a
participation in the Obligations pursuant to this Section shall from and
after the purchase have the right to give all notices, requests, demands,
directions and other communications under this Agreement with respect to the
portion of the Obligations purchased to the same extent as though the
purchasing Bank were the original owner of the Obligations purchased.
Borrower expressly consent to the foregoing arrangements and agree that any
Bank holding a participation in an Obligation so purchased may exercise any
and all rights of setoff, banker's lien or counterclaim with respect to the
participation as fully as if the Bank were the original owner of the
Obligation purchased.
10.11 INDEMNITY BY BORROWER. Borrower agrees to indemnify, save and
hold harmless the Administrative Agent and each Bank and their respective
Affiliates, directors, officers, agents, attorneys and employees
(collectively the "INDEMNITEES") from and against: (a) any and all claims,
demands, actions or causes of action (except a claim, demand, action, or
cause of action for Bank Taxes) if the claim, demand, action or cause of
action arises out of or relates to any act or omission (or alleged act or
omission) of Borrower, its Affiliates or any of their officers, directors or
stockholders relating to the Commitment, the use or contemplated use of
proceeds of any Loan, or the relationship of Borrower and the Banks under
this Agreement; (b) any administrative or investigative proceeding by any
Governmental Authority arising out of or related to a claim, demand, action
or cause of action described in subsection (a) above; and (c) any and all
liabilities, losses, costs or expenses (including Attorney Costs) that any
Indemnitee suffers or incurs as a result of the assertion of any foregoing
claim, demand, action or cause of action; provided that no Indemnitee shall
be entitled to indemnification for any loss caused by its own gross
negligence or willful misconduct or for any loss asserted against it by
another Indemnitee.
10.12 NONLIABILITY OF THE BANKS. Borrower acknowledges and agrees
that:
(a) Any inspections of any Property of Borrower made by or through
the Administrative Agent or the Banks are for purposes of administration of
the Loan only and
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Borrower is not entitled to rely upon the same (whether or not such
inspections are at the expense of Borrower);
(b) By accepting or approving anything required to be observed,
performed, fulfilled or given to the Administrative Agent or the Banks
pursuant to the Loan Documents, neither the Administrative Agent nor the
Banks shall be deemed to have warranted or represented the sufficiency,
legality, effectiveness or legal effect of the same, or of any term,
provision or condition thereof, and such acceptance or approval thereof shall
not constitute a warranty or representation to anyone with respect thereto by
the Administrative Agent or the Banks;
(c) The relationship between Borrower and the Administrative Agent
and the Banks is, and shall at all times remain, solely that of borrowers and
lenders; neither the Administrative Agent nor the Banks shall under any
circumstance be construed to be partners or joint venturers of Borrower or
its Affiliates; neither the Administrative Agent nor the Banks shall under
any circumstance be deemed to be in a relationship of confidence or trust or
a fiduciary relationship with Borrower or its Affiliates, or to owe any
fiduciary duty to Borrower or its Affiliates; neither the Administrative
Agent nor the Banks undertake or assume any responsibility or duty to
Borrower or its Affiliates to select, review, inspect, supervise, pass
judgment upon or inform Borrower or its Affiliates of any matter in
connection with their Property or the operations of Borrower or its
Affiliates; Borrower and its Affiliates shall rely entirely upon their own
judgment with respect to such matters; and any review, inspection,
supervision, exercise of judgment or supply of information undertaken or
assumed by the Administrative Agent or the Banks in connection with such
matters is solely for the protection of the Administrative Agent and the
Banks and neither Borrower nor any other Person is entitled to rely thereon;
and
(d) The Administrative Agent and the Banks shall not be responsible
or liable to any Person for any loss, damage, liability or claim of any kind
relating to injury or death to Persons or damage to Property caused by the
actions, inaction or negligence of Borrower and/or its Affiliates and
Borrower hereby indemnify and hold the Administrative Agent and the Banks
harmless from any such loss, damage, liability or claim.
10.13 NO THIRD PARTIES BENEFITED. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties
of Borrower, the Administrative Agent and the Banks in connection with the
Loans, and is made for the sole benefit of Borrower, the Administrative Agent
and the Banks, and the Administrative Agent's and the Banks' successors and
assigns. Except as provided in Sections 10.08 and 10.11, no other Person
shall have any rights of any nature hereunder or by reason hereof.
10.14 FURTHER ASSURANCES. Borrower and its Subsidiaries shall, at
their expense and without expense to the Banks or the Administrative Agent,
do, execute and deliver such further acts and documents as any Bank or the
Administrative Agent from time to time reasonably requires for the assuring
and confirming unto the Banks or the Administrative Agent of the rights
hereby created or intended now or hereafter so to be, or for carrying out the
intention or facilitating the performance of the terms of any Loan Document.
10.15 INTEGRATION. This Agreement, together with the other Loan
Documents and any letter agreements referred to herein, comprises the
complete and integrated agreement of the
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parties on the subject matter hereof and supersedes all prior agreements,
written or oral, on the subject matter hereof. In the event of any conflict
between the provisions of this Agreement and those of any other Loan
Document, the provisions of this Agreement shall control and govern; provided
that the inclusion of supplemental rights or remedies in favor of the
Administrative Agent or the Banks in any other Loan Document shall not be
deemed a conflict with this Agreement. Each Loan Document was drafted with
the joint participation of the respective parties thereto and shall be
construed neither against nor in favor of any party, but rather in accordance
with the fair meaning thereof.
10.16 FAILURE TO CHARGE NOT SUBSEQUENT WAIVER. Any decision by the
Administrative Agent or any Bank not to require payment of any interest
(including Default Interest), fee, cost or other amount payable under any
Loan Document, or to calculate any amount payable by a particular method, on
any occasion shall in no way limit or be deemed a waiver of the
Administrative Agent's or such Bank's right to require full payment of any
interest (including Default Interest), fee, cost or other amount payable
under any Loan Document, or to calculate an amount payable by another method
that is not inconsistent with this Agreement, on any other or subsequent
occasion.
10.17 GOVERNING LAW. Except to the extent otherwise provided
therein, each Loan Document shall be governed by, and construed and enforced
in accordance with, the local laws of California.
10.18 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document
that is held to be inoperative, unenforceable or invalid as to any party or
in any jurisdiction shall, as to that party or jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining provisions or the
operation, enforceability or validity of that provision as to any other party
or in any other jurisdiction, and to this end the provisions of all Loan
Documents are declared to be severable.
10.19 HEADINGS. Section headings in this Agreement and the other
Loan Documents are included for convenience of reference only and are not
part of this Agreement or the other Loan Documents for any other purpose.
10.20 TIME OF THE ESSENCE. Time is of the essence of the Loan
Documents.
10.21 FOREIGN BANKS AND PARTICIPANTS. Each Bank, and each holder of
a participation interest herein, that is a "foreign corporation, partnership
or trust" within the meaning of the Code shall deliver to the Administrative
Agent, within 20 days after the Closing Date (or after accepting an
assignment or receiving a participation interest herein) two duly signed
completed copies of either Form 1001 (relating to such Person and entitling
it to a complete exemption from withholding on all payments to be made to
such Person by Borrower pursuant to this Agreement) or Form 4224 (relating to
all payments to be made to such Person by Borrower pursuant to this
Agreement) of the United States Internal Revenue Service or such other
evidence (including, if reasonably necessary, Form W-9) satisfactory to
Borrower and the Administrative Agent that no withholding under the federal
income tax laws is required with respect to such Person. Thereafter and from
time to time, each such Person shall (a) promptly submit to the
Administrative Agent such additional duly completed and signed copies of one
of such forms (or such successor forms as shall be adopted from time to time
by the relevant United States taxing authorities) as may then be
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available under then current United States laws and regulations to avoid, or
such evidence as is satisfactory to Borrower and the Administrative Agent of
any available exemption from, United States withholding taxes in respect of
all payments to be made to such Person by Borrower pursuant to this Agreement
and (b) take such steps as shall not be materially disadvantageous to it, in
the reasonable judgment of such Bank, and as may be reasonably necessary
(including the re-designation of its Lending Office, if any) to avoid any
requirement of applicable laws that Borrower make any deduction or
withholding for taxes from amounts payable to such Person. If such Persons
fails to deliver the above forms or other documentation, then the
Administrative Agent may withhold from any interest payment to such Person an
amount equivalent to the applicable withholding tax imposed by Sections 1441
and 1442 of the Code, without reduction. If any Governmental Authority
asserts that the Administrative Agent did not properly withhold any tax or
other amount from payments made in respect of such Person, such Person shall
indemnify the Administrative Agent therefor, including all penalties and
interest and costs and expenses (including Attorney Costs) of the
Administrative Agent. The obligation of the Banks under this subsection shall
survive the payment of all Obligations and the resignation or replacement of
the Administrative Agent.
10.22 TERMINATION OF EXISTING CREDIT AGREEMENT. This Agreement
supercedes the Existing Credit Agreement; PROVIDED, HOWEVER, that letters of
credit outstanding under the Existing Credit Agreement shall be deemed to
continue as Letters of Credit outstanding hereunder. All loans outstanding
under the Existing Credit Agreement shall be repaid, together will all
accrued fees, interest and any breakfunding costs owing thereunder , on the
Closing Date, and concurrently with such payment, the parties thereunder that
no commitments or obligations remain outstanding thereunder.
10.23 REMOVAL OF A BANK; REDUCTION IN COMMITMENTS. Under any
circumstances set forth in this Agreement providing that Borrower shall have
the right to remove a Bank as a party to this Agreement, such Bank shall,
upon notice from Borrower, execute and deliver a Notice of Assignment and
Acceptance covering that Bank's Pro Rata Share of the Commitments in favor of
such Eligible Assignee as Borrower may designate, subject to (a) payment in
full by such Eligible Assignee of all principal, interest and fees owing to
such Bank through the date of assignment and (b) delivery by such Eligible
Assignee of such appropriate assurances and indemnities (which may include
letters of credit) as such Bank may reasonably require with respect to its
participation interest in any Letters of Credit then outstanding.
Alternatively, Borrower may reduce the Commitments (and, for this purpose,
the Minimum Amounts for Commitment reductions shall not apply) by an amount
equal to that Bank's Pro Rata Share of the Commitments, pay and provide to
such Bank the amounts, assurances and indemnities described in (a) and (b)
above and release such Bank from its Pro Rata Share of the Commitments.
10.24 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTY HERETO
OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED
THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN
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CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
10.25 PURPORTED ORAL AMENDMENTS. BORROWER EXPRESSLY ACKNOWLEDGE THAT
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED,
OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN INSTRUMENT
IN WRITING THAT COMPLIES WITH SECTION 10.02. BORROWER AGREES THAT THEY WILL
NOT RELY ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL OR WRITTEN
STATEMENTS BY ANY REPRESENTATIVE OF THE Administrative Agent OR ANY BANK THAT
DOES NOT COMPLY WITH SECTION 10.02 TO EFFECT AN AMENDMENT, MODIFICATION,
WAIVER OR SUPPLEMENT TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
THE TODD-AO CORPORATION,
A DELAWARE CORPORATION
By:
--------------------------------------
Salah Hassanein
President and Chief Executive Officer
S-1
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, AS
ADMINISTRATIVE AGENT
By:
--------------------------------------
Janice Hammond
Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, AS ISSUING
BANK AND A BANK
By:
--------------------------------------
Matthew Koenig
Managing Director
S-2
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UNION BANK OF CALIFORNIA, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-3
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SOCIETE GENERALE
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-4
<PAGE>
SANWA BANK CALIFORNIA
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-5
<PAGE>
DRAFT OF DECEMBER 7, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Credit Agreement
Dated as of June 30, 1999
among
The Todd-AO Corporation
Bank of America National Trust
and Savings Association,
as Administrative Agent,
and
Letter of Credit Issuing Bank
and
The Other Financial
Institutions Party Hereto
Bank of America National Trust
and Savings Association
Sole Lead Arranger and Sole Book Manager
[BANK OF AMERICAN LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
Section 1. DEFINITIONS AND ACCOUNTING TERMS.......................................................................1
1.01 Terms...........................................................................................1
1.02 Currency Equivalents Generally.................................................................18
1.03 Accounting Terms...............................................................................18
1.04 Rounding.......................................................................................18
1.05 Exhibits and Schedules.........................................................................19
1.06 Miscellaneous Terms............................................................................19
Section 2. COMMITMENTS; INTEREST, FEES, PAYMENT PROCEDURES.......................................................19
2.01 The Commitments................................................................................19
2.02 Borrowings, Conversions and Continuations of Loans.............................................19
2.03 Letters of Credit..............................................................................21
2.04 Prepayments....................................................................................24
2.05 Voluntary Reduction or Termination of Commitments..............................................24
2.06 Mandatory Reductions in Commitments............................................................25
2.07 Principal and Interest.........................................................................25
2.08 Fees...........................................................................................25
2.09 Computation of Interest and Fees...............................................................26
2.10 Manner and Treatment of Payments among the Banks, Borrower and the Administrative
Agent..........................................................................................26
2.11 Funding Sources................................................................................27
2.12 Extension of Maturity Date and Reduction Dates.................................................27
2.13 Increase in Commitments........................................................................28
2.14 Collateral and Guaranties......................................................................29
Section 3. TAXES, YIELD PROTECTION AND ILLEGALITY................................................................29
3.01 Taxes..........................................................................................29
3.02 Increased Costs................................................................................29
3.03 Capital Adequacy...............................................................................29
3.04 Illegality.....................................................................................30
3.05 Inability to Determine Rates...................................................................30
3.06 Breakfunding Costs.............................................................................30
3.07 Matters Applicable to all Requests for Compensation............................................31
Section 4. CONDITIONS............................................................................................31
4.01 Initial Extension of Credit....................................................................31
4.02 Conditions of Lending -- All Loans and all Letters of Credit...................................32
Section 5. REPRESENTATIONS AND WARRANTIES........................................................................33
5.01 Due Incorporation; Good Standing...............................................................33
5.02 Corporate Power; Authorization.................................................................33
5.03 Government Action..............................................................................34
5.04 No Legal Bar...................................................................................34
5.05 Enforceable Obligation.........................................................................34
5.06 Ownership of Property; Liens...................................................................34
5.07 Litigation.....................................................................................34
5.08 No Default.....................................................................................34
</TABLE>
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<TABLE>
<S> <C> <C>
5.09 Significant Subsidiaries.......................................................................34
5.10 Ownership of Stock.............................................................................34
5.11 No Conflicting Agreements......................................................................35
5.12 Taxes..........................................................................................35
5.13 Financial Statements...........................................................................35
5.14 Compliance with Applicable Laws................................................................36
5.15 Governmental Regulations.......................................................................36
5.16 Property.......................................................................................36
5.17 Federal Reserve Regulations....................................................................36
5.18 No Misrepresentation...........................................................................36
5.19 Plans..........................................................................................37
5.20 Investment Company Act.........................................................................37
5.21 Public Utility Holding Company Act.............................................................37
5.22 Security Interests.............................................................................37
5.23 Environmental Compliance.......................................................................37
5.24 Year 2000......................................................................................37
Section 6. AFFIRMATIVE COVENANTS.................................................................................38
6.01 Financial and Other Information................................................................38
6.02 Certificates, Notices and Other Information....................................................38
6.03 Prompt Notice..................................................................................39
6.04 Maintain Existence.............................................................................39
6.05 Payment of Obligations.........................................................................39
6.06 Compliance With Legal Requirements.............................................................39
6.07 Insurance......................................................................................39
6.08 Books and Records..............................................................................39
6.09 Future Significant Subsidiaries; Pledges of Stock..............................................40
6.10 Use of Proceeds................................................................................40
Section 7. NEGATIVE COVENANTS....................................................................................40
7.01 Limitation On Indebtedness.....................................................................40
7.02 Limitation On Liens............................................................................41
7.03 Liquidation, Merger, etc.......................................................................41
7.04 Disposition of Assets..........................................................................42
7.05 Limitation on Investments......................................................................42
7.06 Limitation on Acquisitions.....................................................................43
7.07 Contracts......................................................................................43
7.08 Business Activities............................................................................43
7.09 Compliance with ERISA..........................................................................43
7.10 Minimum Net Worth..............................................................................43
7.11 Fixed Charge Coverage Ratio....................................................................43
7.12 Leverage Ratio.................................................................................43
7.13 No Restrictions on Upstreaming Cash from Significant Subsidiaries..............................44
Section 8. EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT..................................................44
8.01 Events of Default..............................................................................44
8.02 Remedies Upon Event of Default.................................................................46
Section 9. THE ADMINISTRATIVE AGENT..............................................................................47
9.01 Appointment and Authorization; "Administrative Agent"..........................................47
</TABLE>
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<TABLE>
<S> <C> <C>
9.02 Delegation of Duties...........................................................................48
9.03 Liability of Administrative Agent..............................................................48
9.04 Reliance by Administrative Agent...............................................................49
9.05 Notice of Default..............................................................................49
9.06 Credit Decision................................................................................49
9.07 Indemnification of Administrative Agent........................................................50
9.08 Administrative Agent in Individual Capacity....................................................51
9.09 Successor Administrative Agent.................................................................51
9.10 Proportionate Interest in any Collateral.......................................................51
9.11 Foreclosure on Collateral......................................................................52
Section 10. MISCELLANEOUS........................................................................................52
10.01 Cumulative Remedies; No Waiver.................................................................52
10.02 Amendments; Consents...........................................................................52
10.03 Attorney Costs, Expenses and Taxes.............................................................53
10.04 Nature of Banks'Obligations....................................................................53
10.05 Survival of Representations and Warranties.....................................................54
10.06 Notices........................................................................................54
10.07 Execution of Loan Documents....................................................................54
10.08 Binding Effect; Assignment.....................................................................55
10.09 Right of Setoff................................................................................56
10.10 Sharing of Setoffs.............................................................................57
10.11 Indemnity by Borrower..........................................................................57
10.12 Nonliability of the Banks......................................................................57
10.13 No Third Parties Benefited.....................................................................58
10.14 Further Assurances.............................................................................58
10.15 Integration....................................................................................58
10.16 Failure to Charge Not Subsequent Waiver........................................................59
10.17 Governing Law..................................................................................59
10.18 Severability of Provisions.....................................................................59
10.19 Headings.......................................................................................59
10.20 Time of the Essence............................................................................59
10.21 Foreign Banks and Participants.................................................................59
10.22 Termination of Existing Credit Agreement.......................................................60
10.23 Removal of a Bank; Reduction in Commitments....................................................60
10.24 Waiver of Right to Trial by Jury...............................................................60
10.25 Purported Oral Amendments......................................................................61
</TABLE>
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EXHIBITS
<TABLE>
<CAPTION>
FORM OF:
<S> <C>
A Request for Extension of Credit
B Compliance Certificate
C Promissory Note
D Guaranty
E Pledge Agreement
F Notice of Assignment and Acceptance
SCHEDULES
1.01 Sound One Non-Recurring Expenses
2.01 Commitments and Pro Rata Shares
5.09 Subsidiaries
7.01 Existing Indebtedness
10.06 Lending Offices and Notice Addresses
</TABLE>
<PAGE>
EXHIBIT 10.39
PURCHASE AGREEMENT
This Purchase Agreement is made on 22nd of September 1999 ("this Agreement")
between the following parties:
103 ESTUDIO, S.A., a Spanish company (hereinafter "103 ESTUDIO, S.A." or "the
Company"), with a registered office in Barcelona, C/Marques de Sentmenat, num.
59, represented by Mrs. Carmen Merino, with National Identity card no. in her
capacity as Manager, and
TODD-AO ESPANA, a subsidiary company of THE TODD-AO CORPORATION, registered in
the State of California in the United States, with an office in Los Angeles,
California, represented by Mr. Salah M. Hassanein, with passport no.035936678 in
his capacity as President and CEO.
For the purposes of this Agreement reference to TODD-AO ESPANA includes THE
TODD-AO CORPORATION and all those affiliates of which THE TODD-AO CORPORATION
holds at least 50% of the voting rights.
RECITALS
WHEREAS, THE TODD-AO CORPORATION and 103 ESTUDIO, S.A. have agreed to develop,
operate and exploit together a dubbing studio on the terms and conditions set
out herein; and
WHEREAS, THE TODD-AO CORPORATION, through TODD-AO ESPANA, is willing to acquire
a 50% interest in 103 ESTUDIO, S.A. in order to carry out THE PROJECT; and
WHEREAS, as a consequence of the above, 103 ESTUDIO S.A. and THE TODD-AO
CORPORATION signed a Letter of Intent dated March 26, 1999, stating their
intention to complete the acquisition by THE TODD-AO CORPORATION, or by a
subsidiary thereof, of 50% of the capital of 103 ESTUDIO, S.A., on the terms and
conditions established in this Agreement and in that Letter of Intent.
WHEREAS, according to the mentioned Letter of Intent, the formalization of the
transaction would be subject to the completion of this Agreement, revised
Articles of Association and a Stockholders' Agreement; and
<PAGE>
WHEREAS, according to section (b) of the Letter of Intent, 103 ESTUDIO, S.A. has
decided not to form an unincorporated joint venture.
WHEREAS, consequently, and in accordance with section (c) of the Letter of
Intent, 103 ESTUDIO, S.A. agrees to convert its present S.A. to an S.L.
corporation; and
WHEREAS, by virtue of the agreements established in the Letter of Intent, the
mutual promises contained in this formal contract and otherwise, THE PARTIES
AGREE AS FOLLOWS:
CLAUSES
PURPOSE OF THE AGREEMENT
103 ESTUDIO, S.A. and TODD-AO ESPANA (referred to as the Parties in this
Agreement) hereby declare and acknowledge that they have entered this Agreement
for the purpose of developing and managing a dubbing studio that will provide
recording, editing and. mixing stages and related facilities in support of film
and video products, contemplating as well, as the relationship progresses, to
develop a business plan to offer additional related services, such as video
transfer, etc., on the terms and conditions contained in this Agreement.
All characteristics and specifications of THE PROJECT, including its location,
premises and financing are reflected in the document attached as Appendix I.
Any modification to THE PROJECT after the signature of this Agreement shall be
approved in accordance with the terms of the Stockholders' Agreement dated the
date hereof by and among all the shareholders of 103 ESTUDIO, S.L, including
TODD-AO ESPANA ("the Stockholders' Agreement"), attached hereto as Appendix II.
1.- CONVERSION OF 103 ESTUDIO, S. A. INTO AN S. L.
1.1. - Both parties, ratify in its totality the content of the Letter of Intent
which will be carried out according to the terms and conditions established in
this Agreement.
1.2. - 103 ESTUDIO, S.A. will convert itself from a S.A. to a S.L. according to
the minutes of an Extraordinary Universal General Meeting of 103 Estudio, S.A.
and Articles of Association attached as Appendix III, which both parties
acknowledge and accept. The attached Appendix III includes the change in share
capital as contemplated by this Agreement and the Stockholders' Agreement.
2
<PAGE>
2. - INCREASE OF CAPITAL OF 103 ESTUDIO, S.A.
2.1. - Simultaneously with the conversion set forth above, 103 ESTUDlO, S.L.
will amend its Articles of Association to increase the share capital in
accordance with paragraph 1.2 above.
2.2.- TODD-AO ESPANA shall own 50% of the total capital of 103 ESTUDIO, S.L. in
accordance with the Letter of Intent and shall purchase such percentage on the
terms and conditions set forth in this Agreement.
2.3.- 103 ESTUDIO, S.L. shall issue new ordinary participations to its present
shareholders in exchange for the shares of 103 ESTUDIO, S.A. owned by such
shareholders. 103 ESTUDIO, S.L. shall issue an equal number of new ordinary
participations to TODD-AO ESPANA for a purchase price of Pts. 300.000.000, of
which Pts. 70.800.000 shall represent the par value, according to the Balance
Sheet of 103 ESTUDIO, S.A. on the day before the formalization (closing) date in
the Notary's office, and the balance of which shall be considered surplus. After
issuing all such new participations, the present shareholders of 103 ESTUDIO,
S.A. will own 50% of the ordinary participations of 103 ESTUDIO, S.L. and
TODD-AO ESPANA shall own 50% of the ordinary participations of 103 ESTUDIO, S.L.
and no other participations of capital of 103 ESTUDIO, S.L. shall be issued and
outstanding.
2.4. - For the purposes of the aforesaid increase of capital, each of the
current shareholders of 103 ESTUDIO, S.A. will renounce their preferential right
of subscription of the shares to be purchased by TODD-AO ESPANA, which may
relate to them legally or through the Articles of Association, pursuant to the
waiver included as part of the Minutes of the General Meeting in Appendix III.
2.5. - For its part, TODD-AO ESPANA at its discretion, will subscribe to
purchase the participations resulting from the increase of capital referred to
above. The price for which this participation will be acquired will be Pts.
300.000.000, with Pts. 70,800,000 as the nominal value of the shares and Pts.
229.200.000 as paid-in surplus.
2.6. - A duly empowered person will appear to represent TODD-AO ESPANA mentioned
in section 2.5, at the Notary's office appointed by 103 ESTUDIO, S.A., on the
formalization (closing) date to purchase the participations described in section
2.5, which must be fully paid up, for the amount of Pts. 300.000.000,
3
<PAGE>
3.- NAME, REGISTERED OFFICE AND DURATION
3.1. - The name of 103 ESTUDIO, S.L. shall be changed as soon as possible after
the closing date to 103 TODD-AO ESTUDIO. The Individual Stockholders (as defined
in the Stockholders' Agreement) shall vote their participations in favor of such
change in name of the corporation.
4.- DECLARATIONS
103 ESTUDIO, S.A., Carmen Merino and Manuel Garcia each, individually and
jointly, affirms and guarantees to THE TODD-AO CORPORATION the following
(which shall be true and correct after the conversion of 103 ESTUDIO, S.A. to
an S.L. corporation):
4.1. - That the Company is a Sociedad Anonima (limited company), duly
constituted in accordance with Spanish law and entered in the Barcelona
Companies Register, in which have also been registered, furthermore, all the
resolutions which, according to the law, it is obligatory to register, and
that at this moment there does not exist any resolution of the administration
body of the Company or the General Meeting of shareholders awaiting entry,
all the legally required steps having been complied with. That the Company
has such administrative and other authorizations and licenses as are
necessary to carry on the activities of the Company business and corporate
objectives, and such authorizations as are necessary for the operation and
development of its business.
4.2. - The Articles of Association attached as Appendix III will be the true
and correct Articles of Association of the Company as an S.L. corporation on
the date of the acquisition of the participations by TODD-AO ESPANA. All of
the participations of 103 ESTUDIO, S.L. to be issued in exchange for shares
of 103 ESTUDIO, S.A pursuant to section 1 above, and all of the
participations to be issued to TODD-AO ESPANA pursuant to section 2 above,
have been duly authorized and will be duly and validly issued and outstanding
(upon payment therefor), are without liability for the obligations of the
Company and are not subject to preferential or preemptive rights of any kind.
The participations to be acquired by TODD-AO ESPANA will be issued by the
Company free and clear of any and all liens and encumbrances of any kind.
4.3. - That after the date of this Agreement, the Company will operate its
business in accordance with the clauses of the Stockholder's Agreement.
4.4. - That the Company is the legal and only owner of all the fixed assets,
buildings, machinery, installations and furniture which are included in the
assets of the Balance Sheet attached as part of Appendix III to this Agreement,
and that over these currently there are no mortgages, charges,
4
<PAGE>
distraints, or other encumbrances other than those mortgages included in such
Balance Sheet; and that no mortgage action or action of any other nature has
been brought against the Company which could affect the ownership or
possession of these assets.
4.5. - That the Company has no holding or ownership interest, of record or
beneficially, in any other company, partnership, person, group or other entity.
All of the material contracts and documents of the Company are in full force and
effect and no default exists under any such contract or document, and the
Company has not done any act or thing that would cause a default under any such
contract or document. There are no disputes with any party under any such
contract or document.
4.6. - That the Company has no other employees than those listed in Appendix IV,
which sets out the categories, professional qualifications, conditions of
employment, salaries and bonuses; there being listed all the workers and
employees, with respect to contracts, who are under General Regulations; and
that the Company has not agreed to any new contracts (other than those disclosed
to TODD-AO ESPANA) or bargaining agreements of any nature which oblige it to
grant terms of employment, salary payments or pecuniary benefits higher than
those which are of legal obligation or which the Company has previously agreed
to pay for persons in the same position.
4.7. - That the Company's responsibilities with regard to employment, in matters
of pensions, payments and compensations to employees, are those which appear and
are appropriately entered in its books of accounts, and that at this time it
does not owe any sum to Social Security nor to employees, as legally required.
Attached at Appendix V is a certificate from the Social Security Treasury, dated
November 18, 1998, certifying that the Company was up to date with its payments.
Also attached as Appendix VI are copies of payments made to the Social Security
subsequent to 31st August, 1999.
4.8. - That all the accounts receivable which the Company has against third
parties are fully collectible; that the financial statements of the Company
presented to TODD-AO ESPANA, attached as Appendix VII, have been audited by
Arthur Andersen, are true and correct in all respects and accurately reflect the
financial condition of the Company as of their date, and no event has occurred
which would cause the Company to believe that such financial statements are not
true and correct as of their date.
4.9.- That the Company has no outstanding or threatened litigation nor do any
facts exist which could give rise to possible litigation in the future.
5
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4.10 - Subject to paragraph 2.4, the share capital of the Company is
currently distributed among the members in the percentage set out as part of
the Minutes of the General Meeting attached as Appendix III to this
Agreement, and will not be changed after the date of this Agreement until the
increase in capital contemplated by section 2 takes place.
4.11.- That the Company has complied, is in compliance and will comply with all
its taxation obligations, being current with the payment of all taxes and
obligations. Attached as Appendix VIII is a certificate from the Taxation Agency
dated November 24, 1998 applicable to the Company certifying the presentation of
the relevant taxation returns and the payment of all taxes due at that date.
Also attached as Appendix IX are copies of receipts of payments of Corporation
Tax, V.A.T. and employee withholding taxes due since that date.
4.12.- That the Company has not given guarantees or undertakings in favor of
third parties, nor do agreements exist which could cause the Company to become a
debtor, either directly or on a contingent basis, and that the Company will not
make any commitment of this nature after the date of this Agreement.
4.13.- That after the date of the financial statements attached as Appendix III
no dividends or other distributions or payments have been, and after the date of
this Agreement, no dividends or other distributions will be, authorized,
distributed or paid to the shareholders of the Company, whether or not related
to the share capital or reserves of the Company, with the exception of those
distributions related to the business of the Company for the year 1998, up to a
maximum of Pts. 19.000.000,
4.14.- That the Company has disclosed to TODD-AO ESPANA all information relating
to the Company and its business, prospects, financial condition, liabilities
(both direct and contingent), assets and other matters that may be material or
important to TODD-AO ESPANA in making its decision to enter into this Agreement
and acquire the share capital of 103 ESTUDIO, S.L. as set forth in paragraph 2.3
above. Any and all such information disclosed to TODD-AO ESPANA, whether in
writing or orally, is, on the date of this Agreement, and on the closing date
will be, true and correct in all material respects and does not omit any facts
or other information that would make the information disclosed misleading.
4.15.- That no previous filing, registration or approval of any Spanish
governmental authority is necessary in connection with the signature of this
Agreement. This Agreement, the Stockholders' Agreement and the Articles of
Association of 103 ESTUDIO, S.L., are, or will be as of the closing date, duly
executed and delivered by the Company and such agreements and the
6
<PAGE>
transactions contemplated thereby are enforceable against the Company in
accordance with their respective terms.
4.16.- Attached as part of Appendix III is a list of all of the shareholders
of the Company and the amount of the participation of each shareholder, after
giving effect to the exchange of shares by the existing shareholders of 103
ESTUDIO, S.A. pursuant to paragraph 1 above and the acquisition of
participation by TODD-AO ESPANA, pursuant to paragraph 2 above. The Company
does not have any obligation to issue any additional participations to any
other person and has not reached any agreement relating to allowing any
participation by any other person.
5.- GUARANTEES; INDEMNIFICATION
5.1. - In consideration of the fact that TODD-AO ESPANA has not previously been
among the shareholders of 103 ESTUDIO, S.A. and, therefore, is not subject to
the contingencies of any type which could arise to the latter through acts
previous to the entry of TODD-AO ESPANA as a participant, Carmen Merino and
Manolo Garcia, as directors of 103 ESTUDIO, S.A., state that all the facts and
declarations set out in Section 4 of this Agreement and the appendices are
accurate and true and that, therefore, TODD-AO ESPANA must be indemnified for
any claims, debts, damages and prejudices which could be produced, known or
unknown, as a consequence of the incorrectness or inaccuracy or such facts and
declarations, especially with reference to, but not limited to, taxation, labour
and Social Security obligations which could arise as a consequence of
inspections in 103 ESTUDIO, S.A. on the part of the competent authorities.
5.2 - To the extent set forth in the Indemnification Agreement attached as
Appendix X, Carmen Merino and Manolo Garcia hereby agree to indemnify and hold
harmless TODD-AO ESPANA for any and all damages, liabilities and expenses that
may be incurred by TODD-AO ESPANA.
6. - COSTS, TAXES AND COMMISSIONS
6.1. - All the costs and taxes arising from the transactions to which this
Agreement refers will be assumed in equal parts by the parties signing, except
for those incurred under section 4, which will be assumed by Carmen Merino and
Manolo Garcia in accordance with Appendix X.
6.2.- Considering the leading position of THE TODD-AO CORPORATION with regard to
the activities to be developed in relation to THE PROJECT, and its capacity to
provide new customers, 103 ESTUDIO, S.L. will pay to THE TODD-AO CORPORATION a
yearly commission of $75,000 (Seventy-five thousand US dollars), whether or not
THE TODD-AO CORPORATION obtains new customers for the Company.
7
<PAGE>
6.3.-. Commission shall first be paid on the first anniversary of this Agreement
and on each anniversary thereafter. Such commission shall be paid until the
accumulated dividends distributed to the shareholders equal $2,000,000 (Two
million U.S. dollars) or until such time as TODD-AO ESPANA is no longer a
participant in the Company. TODD-AO ESPANA shall not be required to return any
portion of such commission in the event of any sale or transfer of its shares of
the Company.
7. - CONDITIONS PRECEDENT TO CLOSING
TODD-AO ESPANA'S obligation to acquire their participation pursuant to section 2
above, is subject in all respects to the satisfaction or waiver of the following
conditions:
7.1.- This Agreement and the transactions contemplated hereby have been
approved by the shareholders of 103 ESTUDIO, S.A. in accordance with applicable
law.
7.2.- Subject to the consents and approvals required under Section 7.6 below
all consents and approvals of third parties and governmental authorities, if
any, have been obtained to the extent required under relevant contracts and
law in Spain. No governmental authority or court shall have issued any
injunction or order or enacted any rule or law which would make the
transactions contemplated by this Agreement illegal or invalid.
7.3.- The Company has completed simultaneously the share exchange and
conversion to an S.L. corporation as contemplated by section 1 above in
accordance with applicable law.
7.4.- All of the declarations by the Company in section 4 above are true and
correct on the closing date as evidenced by Appendix X signed by Carmen
Merino and Manuel Garcia, as officers and directors of the Company.
7.5.- The Stockholders' Agreement is being fully executed and delivered by
the all of the shareholders of the Company and all changes in the management
structure of the Company contemplated thereby are completed simultaneously
with the closing of the agreement.
7.6- The Minutes and all necessary documents have been executed
simultaneously and will be filed as required by the Public Notary and
presented by the Company to the Companies Register.
7.7.- The Indemnification Agreement by Carmen Merino and Manuel Garcia set
forth in Appendix X has been simultaneously executed and delivered to TODD-AO
ESPANA.
8
<PAGE>
7.8.- No material change other than those approved by TODD-AO ESPANA has
occurred in the business or condition of the Company since the date of the
financial statements attached hereto as Appendix VII.
7.9. - The participation to be acquired by TODD-AO ESPANA is duly issued by
the Company, free and clear of any and all liens, preferential and preemptive
rights, and free of the obligations of the Company.
7.10.- All of the undertakings and agreements of the Company set forth in this
Agreement and the stockholders' Agreement have been and/or are simultaneously
performed by the Company prior to or on the closing date.
8. - ASSIGNMENT
8.1. - All rights and obligations, including the guarantees attached as Appendix
X acquired by TODD-AO ESPANA according to this Agreement may be assigned in
favor of any subsidiary of THE TODD-AO CORPORATION. Notwithstanding such
assignment, THE TODD-AO CORPORATION will be considered, jointly and severally,
responsible for the financial fulfillment of the investment in the shares of the
Company in accordance with this Agreement.
8.2.- This Agreement is not assignable by 103 ESTUDIO, S.A. except to 103
ESTUDIO, S.L.
9. - MISCELLANEOUS
9.1. - WAIVER. No waiver of any breach of this Agreement or any of the terms of
this Agreement shall be effective unless the waiver is in writing and signed by
the party against whom the waiver is claimed. No waiver of any breach shall
operate as a waiver of any other breach or subsequent breach,
9.2. - ENTIRE UNDERSTANDING. This Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter of this Agreement and
merges all prior discussions between them and none of the parties shall be bound
by any conditions, definitions, warranties or representations with respect to
the subject matter of this Agreement other than expressly provided in this
Agreement as duly set forth and each of the parties acknowledges to the other
party and to each of them that except as set forth in this Agreement it has not
relied on any representation made by or on behalf of any other party.
9
<PAGE>
9.3.- NON-DISCLOSURE. The parties hereto have executed that certain
Non-Disclosure Agreement. The parties hereto agree that the terms and
provisions of the Non-Disclosure Agreement shall be deemed to apply to the
provisions this Agreement.
9.4. - No press release of any kind regarding THE PROJECT is permitted without
the express prior written permission from both parties, with the exception of
all those activities necessary for the development of the PROJECT and as may be
required by law (whether Spanish or US).
10.- NOTICES
10.1.- In addition to any method prescribed by the laws of Spain from time to
time, notice may be given by one party to another party or parties at the
address of the relevant party set out m this Agreement, or such other address as
is notified by the relevant party to the other parties from time to time, by way
of the following methods:
a. - Delivering a copy of such notice to the party personally or if that party
is a corporation, leaving a copy thereof at its address appearing herein with a
duly authorized representative thereof, or
b. - Forwarding a copy of such notice to the party by registered post or telex
or telegram or facsimile transmission (with confirmation of transmission), and
such notice shall not be deemed to have been delivered until it has been
received by the party to whom it is addressed, provided however, that:
i). - notice sent by telex shall be deemed to be duly served in accordance with
this clause when the sender receives the answerback code of the recipient
acknowledging receipt thereof, and
ii). - a facsimile shall be deemed to be duly delivered in accordance with this
clause when a confirmation is received by the sender stating the date, time of
facsimile transmission and the number of pages in such transmission.
All notices shall be addressed as shown below:
If to the Company:
103 Todd-AO Estudio S.L.
C/ Marques de Sentmenat 59
Barcelona 08029
10
<PAGE>
If to TODD-AO ESPANA:
Todd-AO Espana
900 N. Seward Street
Hollywood, California 90038
Attention: Salah M. Hassanein
Fax No. 323-466-2327
With a copy to:
The Todd-AO Corporation
514 Via de la Valle, Suite 300A
Solana Beach, CA 92075
Attention: Judi Sanzo, General Counsel
Facsimile: 619-509-9785
11.- APPLICABLE LAW AND SOLUTION OF CONTROVERSIES
This Agreement and the transactions contemplated by it will be governed by
Spanish law. All disputes arising in connection with this Agreement shall be
finally settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce, by one or more arbitrators appointed in
accordance with the mentioned rules. The arbitration will take place at the
city of Geneva, Switzerland.
IN WITNESS WHEREOF, duly authorized persons of the parties hereto have signed
this Agreement, together with its appendices, in duplicate, as of the date first
above given.
103 ESTUDIO, S.A. TODD-AO ESPANA
By /s/ CARMEN MERINO By /s/ SALAH M. HASSANEIN
--------------------------------- ----------------------------------
Name: Carmen Merino Name: Salah M. Hassanein
Title: Managing Director Title: President and CEO
11
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0
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