AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1996

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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FOUR MEDIA COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 7819 95-4599440
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

2813 WEST ALAMEDA AVENUE
BURBANK, CA 91505-4455
(818) 840-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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ROBERT T. WALSTON
FOUR MEDIA COMPANY
2813 WEST ALAMEDA AVENUE
BURBANK, CA 91505-4455
TEL: (818) 840-7000
FAX: (818) 846-5197
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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COPIES TO:
YVONNE E. CHESTER, ESQ. SCOTT T. SMITH, ESQ.
TROY & GOULD PROFESSIONAL CORPORATION PILLSBURY MADISON & SUTRO LLP
1801 CENTURY PARK EAST, SUITE 1600 2700 SAND HILL ROAD
LOS ANGELES, CALIFORNIA 90067 MENLO PARK, CALIFORNIA 94025-7111
TEL: (310) 553-4441 TEL: (415) 233-4500
FAX: (310) 201-4746 FAX: (415) 233-4545

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act"), check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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CALCULATION OF REGISTRATION FEE

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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock, $.01 par value....................... $97,750,000 $29,622
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(1) Estimated solely for the purpose of calculating the registration fee.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

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FOUR MEDIA COMPANY

CROSS-REFERENCE SHEET

FORM S-1 ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
-------------------------------- ------------------

1. Forepart of the Registration Statement Outside Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page; Back Cover Page;
Pages of Prospectus Additional Information
3. Summary Information, Risk Factors and Risk Factors; Selected Financial Data
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Underwriting;
Risk Factors
6. Dilution Dilution
7. Selling Security Holders Principal and Selling Stockholders
8. Plan of Distribution Outside Front Cover Pages; Underwriting
9. Description of Securities to Be Outside Front Cover Page; Prospectus
Registered Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Outside Front Cover Page; Prospectus
Registrant Summary; The Company; Risk Factors;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital Stock;
Shares Eligible for Future Sale; Additional
Information; Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 8, 1996

PROSPECTUS
SHARES

[LOGO]

FOUR MEDIA COMPANY

COMMON STOCK

---------------

Of the shares of Common Stock, $.01 par value per share ("Common
Stock"), of Four Media Company (the "Company"), offered hereby, shares are
being offered by the Company and shares are being offered by the sole
stockholder of the Company (the "Selling Stockholder"). See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares by the Selling Stockholder.

Prior to this offering there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $ and $ per share. See "Underwriting" for factors
which will be considered in determining the initial public offering price.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "FOUR."

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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE SECURITIES OFFERED HEREBY, SEE "RISK FACTORS" BEGINNING ON
PAGE 6.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO THE SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
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Per Share........................ $ $ $ $
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Total(3)......................... $ $ $ $
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(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deduction of expenses payable by the Company estimated at $800,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock, on the same terms and conditions as
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."

The shares are being offered by the Underwriters, subject to prior sale,
when, as, and if delivered to and accepted by the Underwriters, and subject to
various prior conditions, including the right to reject orders in whole or in
part. It is expected that delivery of share certificates will be made against
payment therefor at the offices of Furman Selz LLC in New York, New York, on or
about November , 1996.

FURMAN SELZ

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The date of this Prospectus is , 1996

[PICTURES]

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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements (and
related notes thereto) included elsewhere in this Prospectus. The discussion in
this Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section entitled "Risk
Factors" and elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus assumes the completion of the Reorganization
described under "The Company" herein and no exercise of the Underwriters' over-
allotment option.

THE COMPANY

Four Media Company is a leading provider of technical, creative and broadcast
services to owners, producers and distributors of television programming,
feature films and other entertainment content in the United States and Asia.
The name Four Media Company is derived from the Company's core competencies in
film, video, sound and data. The Company's services integrate and apply a
variety of systems and processes to enhance content creation and distribution.
The Company seeks to capitalize on growth in domestic and international demand
for original entertainment content and for existing television and film
libraries without taking production or ownership risk with respect to any
specific television program, feature film or other content.

During the past three fiscal years, the Company has invested $58.1 million in
infrastructure, primarily for new digital systems and equipment. In addition,
the Company has successfully identified, acquired and integrated four
complementary businesses. The Company acquired the assets of three companies in
connection with its formation in 1993, acquired the assets of a fourth company
in 1994, and capitalized and commenced its Singapore broadcast operations in
1995. As a result of its investments and acquisitions, the Company is one of
the largest independent (not affiliated with or related to a content owner)
providers of technical and creative services to the entertainment industry in
terms of total revenues, employees and number of customers, and is one of the
most diversified providers of those services.

The Company has organized its activities into four divisions, each of which
offers services that are integral to the creation, enhancement and/or
distribution of entertainment content. Through its four divisions, the Company
provides services to a diverse base of customers, including major domestic
studios (and their international divisions), independent producers and owners
of television and film libraries, and broadcast networks.

Studio Services. The studio services division, located in Burbank,
California, provides owners of television and film libraries with facilities
and services necessary to manage, format and distribute content worldwide.

Broadcast Services. The broadcast services division, located in Burbank and
the Republic of Singapore, provides domestic and international programmers with
facilities and services necessary to assemble and distribute programming via
satellite to viewers in the United States, Canada and Asia.

Television Services. The television services division, located in Burbank and
Santa Monica, California, provides producers of original television programming
with technical and creative services necessary to conform original film or
video principal photography to a final product suitable for airing on network,
syndicated, cable or foreign television.

Visual Effects Services. The visual effects services division, located in
Burbank and Santa Monica, commenced operations in January 1995 and provides
creators of special visual effects with certain services required to digitally
create or manipulate images in high resolution formats for integration into
feature films.

The Company believes that several trends in the entertainment industry will
have a positive impact on the Company's business, including growth in worldwide
demand for original entertainment content, the development of new markets for
existing content libraries, greater demand for innovation and creative quality
in entertainment markets and wider application of digital technologies to
content manipulation and distribution, including the emergence of new
distribution channels. The Company believes that its current and prospective
customers increasingly will outsource services and "buy" rather than "make"
technical and creative services as the creation and distribution of content
becomes more technology driven and capital intensive. Also, the Company
anticipates that as entertainment companies continue to consolidate, they
increasingly will seek services from full-service providers such as the
Company.

The Company intends to pursue the following growth strategies:

. Pursue Consolidation Opportunities. The Company believes that its
industry is highly fragmented and presents numerous consolidation
opportunities. The Company plans to pursue acquisitions that complement
existing operations, increase market share and diversify product lines.

. Offer Complete Outsourcing Solutions. The Company offers complete
outsourcing solutions by bundling services, which reduce the capital
costs and certain financial and operating risks of customers.

. Provide Superior Customer Service. The Company will continue to develop
its information systems to enhance efficiency and provide timely and
accurate information to its customers.

. Establish Strategic Alliances. The Company seeks to generate additional
revenue from its technological resources and facilities by establishing
strategic alliances with content creators and others.

. Capitalize on Increasing Application of Digital Technology. The Company
intends to capitalize on new methods of digitizing, storing, retrieving
and manipulating content as well as increased demand for high quality
motion video for use in multimedia applications and new content
distribution channels.

THE OFFERING

Common Stock offered by the Company.............. shares
Common Stock offered by the Selling Stockholder.. shares
Common Stock outstanding after the Offering...... shares(1)
Use of proceeds to the Company................... For repayment of certain
indebtedness, capital
expenditures, working
capital and other general
corporate purposes,
including acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol........... FOUR

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(1) Excludes shares of Common Stock issuable upon exercise of options
granted at the effective time of the offering and which have an exercise
price equal to the offering price.

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

FISCAL YEARS ENDED
------------------------------------------
JULY 31, 1994 JULY 30, 1995 AUGUST 4, 1996
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STATEMENT OF OPERATIONS DATA:
Revenues........................... $42,261 $61,004 $70,028
Income from operations............. 2,488 5,149 5,336
Net income......................... 1,235 3,220 2,424
OTHER DATA:
EBITDA(1).......................... $ 5,772 $11,390 $15,501

AS OF AUGUST 4, 1996
----------------------
ACTUAL AS ADJUSTED(2)
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BALANCE SHEET DATA:
Cash, including restricted cash........................ $ 6,021
Working capital........................................ 1,642
Total assets........................................... 81,827
Total debt(3).......................................... 49,131
Total stockholder's equity............................. 22,143

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(1) "EBITDA" is defined herein as earnings before interest, taxes, depreciation
and amortization, excluding gains and losses on asset sales and
nonrecurring charges. EBITDA does not take into account normal capital
expenditures and does not represent cash generated from operating
activities in accordance with generally accepted accounting principles
("GAAP"), is not to be considered as an alternative to net income or any
other GAAP measurements as a measure of operating performance and is not
indicative of cash available to fund all cash needs. The Company's
definition of EBITDA may not be identical to similarly titled measures of
other companies. The Company believes that in addition to cash flows and
net income, EBITDA is a useful financial performance measurement for
assessing the operating performance of the Company because, together with
net income and cash flows, EBITDA widely is used to provide investors with
an additional basis to evaluate the ability of the Company to incur and
service debt and to fund acquisitions or invest in new technologies. To
evaluate EBITDA and the trends it depicts, the components of EBITDA, such
as net revenues, cost of services, and sales, general and administrative
expenses, should be considered. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." A reconciliation of net
income to EBITDA is as follows:

FISCAL YEARS ENDED
------------------------------------------
JULY 31, 1994 JULY 30, 1995 AUGUST 4, 1996
------------- ------------- --------------

Net income................. $1,235 $ 3,220 $ 2,424
Add (deduct):
Interest expense, net... 1,253 2,917 3,906
Income tax benefits..... -- (988) (994)
Depreciation and
amortization........... 3,284 6,241 10,165
------ ------- -------
EBITDA..................... $5,772 $11,390 $15,501
====== ======= =======

(2) Adjusted to give effect to the sale of shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of
$ per share, after deducting underwriting discounts and commissions and
estimated offering expenses, and the application of the estimated net
proceeds therefrom as described in "Use of Proceeds."
(3) Includes a bank revolving line of credit, current and long term portions of
a bank term loan, short and long term notes payable, capital lease
obligations and a subordinated note due to the Company's sole stockholder.

RISK FACTORS

Prospective investors should carefully consider the following matters,
together with the other information contained in this Prospectus, in
evaluating the Company and its business before making an investment decision
with respect to the shares of Common Stock offered hereby.

LOSS OF RELATIONSHIPS WITH KEY CUSTOMERS

Revenue Concentration. A significant portion of the Company's revenues is
derived from a small number of customers. Nine customers, MTV Asia LDC ("MTV
Asia"), Sony Pictures Corporation, TVN Entertainment Corporation ("TVN"),
Warner Bros., Paramount Pictures (a subsidiary of Viacom, Inc.), The Walt
Disney Company, Twentieth Century Fox, Universal Pictures and Hallmark
Entertainment, Inc., accounted for 55.0% of the Company's revenues in fiscal
1996. The Company expects that these customers will continue to account for a
significant portion of the Company's revenues in future periods. Except for
MTV Asia and TVN, none of these customers has a contractual relationship with
the Company or is obligated to purchase any specified level of services from
the Company. Accordingly, there can be no assurance that revenues generated
from these customers, individually or in the aggregate, will reach or exceed
historical levels in any future period. Any substantial decrease in services
provided to one or more of these customers would have a material adverse
effect on the Company's results of operations and financial condition.

Relationship with MTV Asia. MTV Asia, partially owned by Viacom
International Inc., accounted for 15% of the Company's consolidated revenues
in fiscal 1996 and 97% of the revenues of 4MC Asia, the Company's Singapore
subsidiary, during such period. 4MC Asia provides broadcast services to MTV
Asia under a contract which expires in April 2002 and provides for certain
minimum performance standards including, among other things, maintenance by
4MC Asia of specified staffing levels and on-air reliability. MTV Asia has the
right to terminate the contract at any time if, among other things, 4MC Asia
fails to meet the performance standards or certain key employees cease to be
employed by the Company. See "Risk Factors--Dependence on Key Personnel." MTV
Asia also has the right to terminate the contract any time after April 14,
2000 upon payment of specified amounts to 4MC Asia. Termination of the MTV
Asia contract would have a material adverse effect on the Company's results of
operations and financial condition. Further, there can be no assurance that
the MTV Asia contract will be renewed upon expiration. Any such failure to
renew could have a material adverse effect on the Company's business.

Relationship with TVN. TVN accounted for 7% of the Company's revenues during
fiscal 1996. The Company provides broadcast services to TVN under a contract
which expires in January 1998. In early 1996, the Company and TVN agreed to
renew and extend their long-term contractual relationship (which had lapsed,
but continued on a month-to-month basis through mid-1995) to provide for,
among other things, the repayment by TVN of $3.3 million of outstanding
accounts receivable over a three-year period and the potential performance of
additional services by the Company. The Company agreed to these terms in view
of: (i) the revenues historically collected by the Company from the TVN
relationship; (ii) the prospect of new services based upon TVN's expansion;
and (iii) the complementary nature of TVN's requirements with the Company's
anticipated conversion of its broadcast infrastructure from analog to digital
technology. TVN is current with respect to its payment obligations under the
contract. There can be no assurance, however, that TVN will ultimately repay
all outstanding amounts due to the Company, fulfill its obligations under the
contract or reach agreement with the Company with respect to additional
services.

Minimum Performance Standards; Possible Termination of Contracts or
Liquidated Damages. Most of the Company's customer contracts, including those
with MTV Asia and TVN, contain provisions that require the Company to meet
specified performance standards. Failure to meet specified performance
standards could result in the termination of the contract or payment of
liquidated damages, the amount of which depends on the nature and duration of
the nonperformance. The Company paid a total of $12,500 in monetary damages
during the last three fiscal years.

Conversion to In-House Operations. Many of the major studios and other
customers of the Company have substantial capabilities to perform several or
all of the services offered by the Company, and evaluate from time-to-time
whether to perform those services in-house. For example, in 1995, The Disney
Channel, a subsidiary of The Walt Disney Company, changed its operating
strategy in 1995 and moved its network origination and uplink operations in-
house. The Disney Channel accounted for 6.2%, 4.2%, and 1.1% of the Company's
revenues in fiscal 1994, 1995 and 1996, respectively. A decision by other
major customers to move in-house services they currently purchase from the
Company could have a material adverse effect on the Company's results of
operations.

INCURRENCE OF SUBSTANTIAL INCREMENTAL COSTS AND CAPITAL EXPENDITURES PRIOR TO
GENERATION OF REVENUES

The Company incurs substantial incremental costs (primarily labor) and makes
significant capital expenditures prior to generating revenues. For example,
the Company plans to expand its television services operations during fiscal
1997. This expansion is expected to increase labor and depreciation expense
significantly, through the addition of new personnel at increased compensation
levels and through the purchase of new equipment and the construction of
infrastructure. The Company will incur such costs before the equipment and
infrastructure will generate revenues or achieve capacity utilization and
before the new services will gain market acceptance. The incurrence of
incremental costs prior to the generation of revenues will have an immediate
adverse effect on the Company's net income. In addition, the Company may elect
to discontinue services that fail to generate sufficient levels of revenue and
write off the net book value of the assets related to such services. Failure
of the Company to generate anticipated levels of revenue or the write-off of
assets will have an immediate and adverse effect on the Company's results of
operations and financial condition.

RISK OF IMPLEMENTING NEW TECHNOLOGY; TECHNOLOGICAL OBSOLESCENCE

A key growth strategy of the Company is to integrate new systems and
equipment in its facilities and offer new services to customers. The Company
may experience difficulties in deploying new technologies that could delay or
prevent the successful introduction of new services. There can be no assurance
that the deployment of new technology or introduction of new services by the
Company will achieve market acceptance. Failure of the Company to implement
new technology and develop new services successfully or the failure of new
technology and services to achieve market acceptance could have a material
adverse effect on the Company's results of operations.

The systems and equipment utilized by the Company in providing certain
services to customers are subject to rapid technological change and
obsolescence, as well as evolving customer needs and industry standards. In
addition, the Company's competitors may introduce services embodying new
technology which could render the Company's existing services obsolete or
unmarketable. The Company thus may be required to undertake significant
capital expenditures to maintain its technological and competitive position in
the industry. There can be no assurance that the Company will have sufficient
capital or be able to obtain sufficient financing to fund such capital
expenditures, or that subsequent technological change will not make acquired
infrastructure obsolete before the Company recovers its investment.

DEPENDENCE ON KEY PERSONNEL

The Company's future success depends in large part on the continued service
of its executive officers (see "Management"), its key creative artists and
skilled technicians, and other key personnel. A significant percentage of the
Company's revenues can be attributed to services requiring highly compensated
creative technicians. In some instances, certain of the Company's customers
specify by name the personnel that are to work on their projects. Competition
for highly qualified employees is intense and the process of locating key
technical, creative and management personnel with the combination of skills
and attributes required to execute the Company's strategy is often lengthy.
There can be no assurance that the Company will continue to attract, motivate
and retain key personnel. Failure by the Company to retain and attract
qualified key personnel could have a material adverse effect on the Company's
business and results of operations.

4MC Asia's contract with MTV Asia permits MTV Asia to terminate the contract
if both Robert T. Walston, Chairman and Chief Executive Officer, and Gavin W.
Schutz, Vice President and Chief Technology Officer, cease to be employed by
the Company and replacements acceptable to MTV Asia are not found. Termination
of this agreement would have a material adverse effect on the Company's
results of operations and financial condition. In addition, the Company is
negotiating a new loan agreement under which the cessation of Mr. Walston's
employment would constitute an event of default and, at the option of the
lenders, result in the acceleration of outstanding loans. Any such
acceleration could have a material adverse effect on the Company's financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

RISKS OF ACQUISITION GROWTH STRATEGY

Ability to Implement Strategy. An important element of the Company's growth
strategy is the acquisition of complementary businesses which may enhance the
Company's operations and profitability. Execution of its growth strategy
requires the Company's existing management to, among other things:
(i) identify acquisition candidates for sale at reasonable prices; (ii) obtain
financing for acquisitions; (iii) consummate identified acquisitions; (iv)
hire, train and assimilate new personnel; and (v) in some instances, invest
substantial funds to enhance the capabilities of the acquired business. There
can be no assurance that the Company will successfully identify, finance,
consummate or assimilate acquisitions. Further, the Company's focus on
acquisition opportunities could lessen the effectiveness of management with
respect to existing operations, which could have a material adverse effect on
the Company's results of operations. In addition, certain of the Company's
larger, better capitalized competitors may seek to acquire some of the same
types of companies that the Company seeks to acquire. Such competition for
acquisitions may increase acquisition prices and related costs and result in
fewer acquisition opportunities, which could have a material adverse effect on
the Company's growth.

Potential Adverse Financial Impacts of Acquisitions. With respect to certain
of the Company's past acquisitions, it generally has taken two years before
the necessary balance sheet restructuring, consolidation with the Company's
existing operations and/or repositioning of marketing strategies, personnel or
equipment has been achieved and the acquisition has been successful from a
financial and operational perspective. The Company expects that certain of its
future acquisitions will take an equal or longer period of time to become
successful, if they ever are successful. Accordingly, the Company expects that
certain future acquisitions will have a material adverse effect on the
business, results of operations and financial condition of the Company for a
minimum period of two years. The Company expects that its future acquisitions
often will involve the recording of a significant amount of goodwill and
deferred charges on its balance sheet. In addition, the Company also might
record deferred charges related to noncompetition agreements. Amortization of
goodwill and deferred charges will reduce net income, which may have an
adverse effect on the Company's results of operations.

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company has experienced significant quarterly fluctuations in operating
results and anticipates that these fluctuations will continue. These
fluctuations have been caused by a number of factors, including: (i) with
respect to the Company's studio services division, seasonal and sometimes
fluctuating demand for programming by international broadcasters and other
content buyers, increased labor costs and uneven capacity utilization due to
customer mandated delays, and unanticipated production downtime due to
equipment failure, work stoppages or the absence of key personnel; (ii) with
respect to the Company's broadcast services division, the expiration of month-
to-month service contracts, the unpredictable use of the Company's facilities
for the broadcast of news stories and special events, and the inability of the
Company to remarket its unused transponder capacity consistently; (iii) with
respect to the Company's television services division, the unpredictability of
television production schedules; and (iv) with respect to the Company's visual
effects services division, the absorption by the Company of cost overruns in
fixed price contracts and delays in meeting completion deadlines (for reasons
other than the fault of the Company). The Company therefore believes that
quarter-to-quarter comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

COMPETITION

The Company experiences intense competition in each of its business
segments. Although the Company believes no one competitor offers a comparable
range of services, some of the Company's current and potential competitors,
particularly those who perform services in-house, have substantially greater
financial, technical, creative, marketing and other resources than the
Company. The Company's competitors may devote substantially greater resources
to the development and marketing of new competitive services. The Company
expects that competition will increase substantially as a result of industry
consolidations and alliances, as well as the emergence of new competitors.
Increased competition could result in price reductions, reduced profit margins
or loss of market share, all of which would have a material adverse effect on
the Company's results of operations. See "Business--Competition."

DEPENDENCE ON ENTERTAINMENT INDUSTRY

The Company's business is dependent on the success of the motion picture and
television industries, which success in turn is highly dependent upon a number
of factors, including the quality of content produced, the availability of
alternative forms of entertainment and leisure activities, general economic
conditions and international demand for content originated in the United
States. The Company's business also is subject to downturns in the event of a
strike by any creative or other personnel integral to the production of motion
pictures or television programming.

RISKS ASSOCIATED WITH SINGAPORE OPERATIONS

Foreign Exchange Rate Fluctuations. The Company provides certain of its
broadcast services in Singapore through its Singapore subsidiary, 4MC Asia.
Substantially all of 4MC Asia's transactions are denominated in Singapore
dollars, including its bank borrowings. Although 4MC Asia is not subject to
foreign exchange transaction gains or losses, its financial statements are
translated into United States dollars as part of the Company's consolidated
financial reporting. Fluctuations in the exchange rate therefore will affect
the Company's consolidated balance sheets and may, upon repatriation of funds
from 4MC Asia to the Company and payment of related income taxes, affect the
Company's net income. Over the past two years the Singapore dollar has been
stable relative to the United States dollar. However, the continued stability
of the exchange rate is subject to numerous factors, all of which are beyond
the Company's control. There can be no assurance that the Company will not
experience material losses as a result of changes in the relative value of the
Singapore dollar as compared to the United States dollar. The Company
currently does not engage in any hedging activities to mitigate its exchange
rate risk. In the event the Company engages in hedging activities in the
future, there can be no assurance that the Company will not experience losses
as a result of such hedging activities.

Foreign Country Operating Risks. In addition to exchange rate risks, the
Company's Singapore operations are subject to a number of risks inherent in
international operations, including unexpected changes in regulatory
requirements, burdens of complying with a variety of foreign laws, tariffs and
other trade barriers, and political and economic instability. Although the
Company believes that Singapore is currently a friendly environment for
foreign corporations, there can be no assurance that the foregoing factors
will not have a material adverse effect on the Company's future results of
operations.

Loss of Tax Exemption. In 1995, the government of the Republic of Singapore
granted 4MC Asia a seven-year tax exemption as a "pioneer status" company. The
tax exemption is conditioned upon 4MC Asia meeting certain investment
requirements. Although the Company believes that it will meet these
requirements, there can be no assurance that it will do so. The termination or
expiration of the tax exemption would have a material adverse effect on the
Company's results of operations. The Company is subject to taxation in the
United States to the extent that 4MC Asia's income is repatriated from
Singapore, less applicable taxes paid in Singapore.

NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
will be determined by negotiation among the Company, the Selling Stockholder
and the representative of the Underwriters based on several factors and may
not be indicative of the market price of the Common Stock after this offering.
See "Underwriting." The market price of the shares of Common Stock is likely
to be highly volatile and may be affected significantly by factors such as
fluctuations in the Company's quarterly or annual results of operations; a
shortfall in revenues, EBITDA or earnings compared to public securities market
analysts' expectations; changes in analysts' recommendations or projections;
announcements by the Company or by its competitors; delays in or cancellations
of projects; general market conditions or other factors. In addition, the
stock market is subject to significant price and volume fluctuations, some of
which may be unrelated or disproportionate to the operating performance of the
companies affected. Broad market and industry sector fluctuations may
adversely affect the market price of the Common Stock.

CONCENTRATION OF OWNERSHIP

Upon completion of this offering, the present executive officers and
directors of the Company and their affiliates will beneficially own
approximately % of the outstanding shares of Common Stock (approximately %
if the Underwriters' over-allotment option is exercised in full). Accordingly,
these stockholders will have the ability to control or significantly influence
all matters requiring approval by the stockholders of the Company, including
the election of directors and approval of significant corporate transactions.
Such a level of ownership may have the effect of delaying, deferring or
preventing a change in the control of the Company. See "Principal and Selling
Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act of 1933, as amended
(the "Securities Act"), and lock-up agreements executed by all of the officers
and directors and the sole stockholder of the Company under which such
security holders have agreed not to sell or otherwise dispose of any of their
shares for a period of 180 days after the date of this Prospectus, in the case
of the sole stockholder, and three years after the date of this Prospectus, in
the case of the officers and directors, without the prior written consent of
Furman Selz LLC. Furman Selz LLC may, however, in its sole discretion and at
any time without notice, release all or any portion of the shares subject to
lock-up agreements. In addition to the shares of Common Stock offered
hereby (assuming no exercise of the Underwriters' over-allotment option),
there will be shares of Common Stock outstanding as of the date of this
Prospectus, all of which are "restricted" shares under the Securities Act. As
a result of the lock-up agreements described above and the provisions of Rules
144(k), 144 and 701, the restricted shares will be available for sale in the
public market as follows: (i) shares may be eligible for immediate sale
on the date of this Prospectus; (ii) shares will be eligible for sale
days after the date of this Prospectus upon expiration of lock-up
agreements; and (iii) shares will be eligible for sale at various dates
after upon expiration of lock-up agreements. See "Shares Eligible for
Future Sale."

RISK OF LOSS FROM EARTHQUAKES, FIRE OR OTHER CATASTROPHIC EVENTS

The Company is subject to the risk of loss arising from earthquakes, fires
and other catastrophic events due to the concentration of its business
activities and operations in specific structures. Because of the large amount
of specialized equipment combined with customized listening and viewing
environments, the Company's operations cannot temporarily be relocated to
mitigate the occurrence of a catastrophic event. The Company also may be
unable to broadcast signals for an extended period of time. Consequently, the
Company carries insurance for property loss and business interruption
resulting from such events, subject to deductibles. Although the Company
believes that it possesses adequate insurance coverage for damage to its
property and the disruption of its business from earthquakes, fire and other
casualties, there can be no assurance that such insurance would be sufficient
to cover all of the Company's losses.

RENEWAL OF FCC LICENSES

Transmissions from the Company's domestic broadcast division's earth station
to satellites must be made pursuant to license granted by the Federal
Communications Commission ("FCC"). See "Business--Government Regulations."
While the FCC generally renews satellite earth stations routinely, there can
be no assurance that the Company's licenses will be renewed at their
expiration dates, which could have a material adverse effect on the Company.

IMMEDIATE AND SUBSTANTIAL DILUTION

Investors purchasing shares of Common Stock in this offering will incur
immediate and substantial dilution. To the extent that outstanding options to
purchase the Common Stock are exercised, there will be further dilution. See
"Dilution."

ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK

Certain provisions of the Company's Certificate of Incorporation and By-Laws
may be deemed to have anti-takeover effects and may delay, defer or prevent a
tender offer, proxy contest or takeover attempt that a stockholder might
consider to be in such stockholder's best interest, including those attempts
that might result in a premium over the market price for the shares held by
such stockholder. See "Description of Capital Stock." In addition, the Board
of Directors, without further stockholder approval, may issue preferred stock
that could have the effect of delaying, deterring or preventing a change in
control of the Company. The issuance of preferred stock could also adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. The Company has no present plans to issue any
preferred stock. See "Description of Capital Stock--Preferred Stock."

THE COMPANY

Four Media Company was incorporated in Delaware in September 1996 as a
holding company to acquire the capital stock of three operating companies:
4MC-Burbank, Inc. ("4MC Burbank"); Four Media Company Asia PTE Ltd. ("4MC
Asia"); and Digital Magic Company ("DMC"). This acquisition is referred to
herein as the "Reorganization" and is expected to be completed in November
1996. 4MC Burbank was formed in July 1993 to acquire substantially all of the
assets of Compact Video Group, Inc., Compact Video Services, Inc., Image
Transform, Inc. and Meridian Studios, Inc. DMC was formed in October 1994 to
acquire substantially all of the assets of Digital Magic & Transfer Company
("DM&T"). 4MC Asia was formed in January 1995 to build and operate the
Company's Singapore broadcast facilities. Unless the context otherwise
requires, all references herein to the "Company" refer to Four Media Company
and its direct and indirect subsidiaries. The Company's principal executive
offices are located at 2813 West Alameda Avenue, Burbank, California 91505,
and its telephone number is (818) 840-7000.

USE OF PROCEEDS

The net proceeds to the Company from the sale of Common Stock offered by the
Company hereby, after deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be $ ($ if the
Underwriters' over-allotment option is exercised in full). From these net
proceeds, the Company intends to use approximately $ million to repay
outstanding debt consisting of (i) approximately $ million outstanding
under a bank senior term and revolving credit facility which is due in July
1998 and bears interest at an annual rate of 8.5% (in the case of the term
loan) and prime plus 1.5% (in the case of the revolving credit facility), and
was incurred to provide working capital; (ii) approximately $ million of
notes payable and capital leases which are due at various times through 2001
and bear interest at fixed rates ranging between 9.0% and 12.0% per year; and
(iii) approximately $ million plus accrued interest outstanding under a
note payable to Technical Services Partners, L.P. ("TSP"), the Company's sole
stockholder, which is due in August 1998 and bears interest at 10% per annum
(see "Certain Transactions"). The Company intends to use a portion of the
remaining net proceeds of the offering, together with its cash flow from
operations and amounts available under bank credit facilities, to fund planned
capital expenditures. The Company expects to spend an estimated $15.0 million
over the next two years to upgrade its domestic broadcast and television sound
facilities. The Company intends to use any remaining proceeds for working
capital and general corporate purposes.

A significant element of the Company's strategy is to pursue acquisitions
that complement its existing business. The Company regularly engages in
discussions with potential acquisition candidates. Although the Company
currently has no commitments or agreements to effect any acquisition, if the
Company were to make an acquisition, it may use a portion of the remaining net
proceeds to fund all or a portion of the purchase price of the acquired
business.

Pending such uses, the net proceeds will be placed in interest bearing bank
accounts or invested in United States government securities, certificates of
deposit of major banks, high grade commercial paper or investment grade
securities determined to be appropriate by the Company. The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholder. See "Principal and Selling Stockholders."

DIVIDEND POLICY

The Company has never declared or paid a cash dividend on its Common Stock
and does not anticipate paying any cash dividends or other distributions on
its Common Stock in the foreseeable future. The Company's bank loans prohibit
the payment of dividends or other distributions to the Company from its
subsidiaries without lender approval, and would thus limit the ability of the
Company to pay dividends. The current policy of the Company's Board of
Directors is to reinvest earnings to finance the expansion of the Company's
business.

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) on an
actual basis as of August 4, 1996 and (ii) as adjusted to reflect the sale by
the Company of shares of Common Stock offered hereby at an assumed initial
public offering price of $ per share and the application of the net proceeds
therefrom as described under "Use of Proceeds."

AUGUST 4, 1996
-------------------------
ACTUAL(1) AS ADJUSTED
----------- ------------
(DOLLARS IN THOUSANDS)

Long-term debt and capital lease obligations,
including current portion........................... $49,131
Stockholder's equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding....... -- --
Common stock, $.01 par value; 50,000,000 shares
authorized, shares issued and outstanding as
of August 4, 1996; shares issued and outstanding
as adjusted........................................ --
Additional paid-in capital.......................... 15,010
Foreign currency translation adjustment............. 254 254
Retained earnings................................... 6,879 6,879
----------- ----------
Total stockholder's equity......................... 22,143
----------- ----------
Total capitalization.............................. $ 71,274
=========== ==========

- --------------------
(1) Derived from the Company's audited Consolidated Financial Statements
included elsewhere in this Prospectus. See "Consolidated Financial
Statements."

DILUTION

The net tangible book value of the Company as of August 4, 1996 was $
million or approximately $ per share of Common Stock (after giving effect
to the Reorganization). Net tangible book value per share represents the
amount of the Company's tangible assets less total liabilities, divided by
shares of Common Stock outstanding.

After giving effect to the sale of shares of Common Stock offered by the
Company hereby and after deduction of underwriting discounts and commissions
and estimated offering expenses payable by the Company, the Company's pro
forma net tangible book value as of August 4, 1996 would have been $ , or
$ per share of Common Stock. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors. The following table illustrates
the per share dilution:

Assumed initial public offering price per share......................... $
Net tangible book value per share as of August 4, 1996................. $
Increase per share attributable to new investors.......................
---
Pro forma net tangible book value per share after the offering..........
---
Dilution per share to new investors..................................... $
===

The following table sets forth, on a pro forma basis as of August 4, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid (at an assumed initial public offering price of $ per
share) and the average price per share paid by the existing stockholder and by
purchasers of Common Stock in this offering:

SHARES PURCHASED TOTAL CONSIDERATION
------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- --------- --------- ---------- -------------

Existing
stockholder(1)(2)...... % % $
New investors(1)........ % %
------- --------- --------- ---------
Total.................. 100.0% $ %
======= ========= ========= =========

- --------------------
(1) The sale of Common Stock by the Selling Stockholder in this offering will
reduce the number of shares of Common Stock held by it to , or
approximately % (or approximately % if the Underwriters' over-
allotment option is exercised in full), and will increase the number of
shares held by new investors to , or approximately % (
shares, or approximately % if the Underwriters' over-allotment option is
exercised in full), of the total number of shares of Common Stock
outstanding under this offering. See "Principal and Selling Stockholders."

(2) Does not include shares of Common Stock issuable upon exercise of
stock options outstanding as of August 4, 1996, with exercise prices
ranging from $ to $ per share, or approximately
additional shares issuable upon the exercise of stock options expected to
be granted after fiscal 1996, each with an exercise price of $ per
share. See "Management--Stock Plans." To the extent outstanding stock
options are exercised, there will be further dilution to new investors.

SELECTED FINANCIAL DATA

The selected financial data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for, and as of the end of, each of
the fiscal years ended July 31, 1994, July 30, 1995 and August 4, 1996 and the
accountants report thereon, are derived from the financial statements of the
Company, which financial statements have been audited by Coopers & Lybrand,
L.L.P., independent accountants. The financial statements as of July 31, 1994,
July 30, 1995 and August 4, 1996 are included elsewhere in this Prospectus.
The Company has no operating history prior to August 4, 1993.

FISCAL YEARS ENDED
------------------------------------------------
JULY 31, 1994 JULY 30, 1995 AUGUST 4, 1996
--------------- --------------- ----------------
(IN THOUSANDS)

STATEMENT OF OPERATIONS DATA:
Revenues:
Studio....................... $15,746 $20,677 $23,468
Broadcast.................... 10,876 16,163 20,901
Television................... 15,639 22,712 23,343
Visual effects............... -- 1,452 2,316
------- ------- -------
Total revenues.............. 42,261 61,004 70,028
------- ------- -------
Cost of services:
Personnel.................... 17,096 22,795 25,344
Material..................... 4,240 6,424 7,354
Facilities................... 3,774 3,917 4,692
Other........................ 3,752 5,560 6,021
------- ------- -------
Total cost of services...... 28,862 38,696 43,411
------- ------- -------
Gross profit............... 13,399 22,308 26,617
------- ------- -------
Operating expenses:
Sales, general and
administrative.............. 7,627 10,918 11,116
Depreciation and
amortization................ 3,284 6,241 10,165
------- ------- -------
Total operating expenses.... 10,911 17,159 21,281
------- ------- -------
Income from operations..... 2,488 5,149 5,336
Interest expense, net......... 1,253 2,917 3,906
------- ------- -------
Income before income tax
benefits.................. 1,235 2,232 1,430
Income tax benefits........... -- (988) (994)
------- ------- -------
Net income................. $ 1,235 $ 3,220 $ 2,424
======= ======= =======
OTHER DATA:
EBITDA........................ $ 5,772 $11,390 $15,501

AS OF
------------------------------------------------
JULY 31, 1994 JULY 30, 1995 AUGUST 4, 1996
--------------- --------------- ----------------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash, including restricted
cash......................... $ 4,691 $ 7,368 $ 6,021
Working capital............... 4,674 5,665 1,642
Total assets(1)............... 32,982 71,780 81,827
Total debt(2)................. 21,556 41,942 49,131
Total stockholder's equity.... 6,245 19,617 22,143

- --------------------
(1) The Company's balance sheet reflects no intangible assets.
(2) Includes current and long-term portions of (i) a bank term loan; (ii)
equipment notes payable; (iii) capital lease obligations; and (iv) a
subordinated note due to the Company's sole stockholder, TSP.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following should be read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. When used
in the following discussion, the words "believes," "anticipates," "intends,"
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected,
including, but not limited to, those set forth in "Risk Factors." Readers are
cautioned not to place undue reliance on forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

OVERVIEW

The Company is a leading provider of technical and creative services to
owners, producers and distributors of television programming, feature films
and other entertainment content. The Company's services integrate and apply a
variety of systems and processes to enhance content creation and distribution.
The Company seeks to capitalize on domestic and international growth in demand
for original entertainment content as well as from the exploitation of
existing television and film libraries without taking production or ownership
risk with respect to any specific television program, feature film or other
content.

The Company's business is divided into broadcast, studio, television and
visual effects services. In each of its four business divisions, the Company
offers most of the systems and technical solutions that constitute the
processes that are integral to the creation, enhancement and distribution of
entertainment content. The studio services division, located in Burbank,
California manages, formats and distributes existing content libraries to end
users in the United States and internationally. The broadcast services
division, located in Burbank and the Republic of Singapore, assembles and
distributes cable television channels and programming via satellite to viewers
in the United States, Canada and Asia. The television services division,
located in Burbank and Santa Monica, California assembles film or video
principal photography into a form suitable for domestic network, syndicated,
cable or foreign television. The visual effects division, located in Santa
Monica, digitally creates and manipulates images in high resolution formats
for use in feature films. The following table sets forth revenues by business
division and as a percentage of consolidated revenues for the periods
indicated:

FISCAL YEARS ENDED
--------------------------------------------------------
JULY 31, 1994 JULY 30, 1995 AUGUST 4, 1996
------------------ ------------------ ------------------
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)

Revenues by division:
Studio.............. $15,746 37.3% $20,677 33.9% $23,468 33.5%
Broadcast........... 10,876 25.7 16,163 26.5 20,901 29.9
Television.......... 15,639 37.0 22,712 37.2 23,343 33.3
Visual effects...... 0 0.0 1,452 2.4 2,316 3.3
------- ----- ------- ----- ------- -----
Total revenues.... $42,261 100.0% $61,004 100.0% $70,028 100.0%
======= ===== ======= ===== ======= =====

Revenues increased from $42.3 million in fiscal 1994 to $70.0 million in
fiscal 1996 representing a compound annual growth rate ("CAGR") of 28.7%. The
Company attributes this growth rate to several factors including: (i) an
increase in demand for the Company's services resulting from the growth in
worldwide demand for entertainment content; (ii) an expansion of capacity
resulting from its extensive investment in new digital infrastructure; (iii)
successful acquisitions and international expansion; (iv) the diversification
of its service offerings; and (v) the increasing acceptance of its bundled
service outsourcing solutions.

The Company believes that EBITDA is an important measure of its financial
performance. "EBITDA" is defined as earnings before interest, taxes,
depreciation and amortization, excluding gains and losses on asset sales and
nonrecurring charges. The Company's investments in new infrastructure, machine
capacity and technology have produced a relatively high depreciation expense
and will remain a significant non-cash charge to earnings. It is the Company's
policy to depreciate equipment and other capitalized items over a period of
three to seven years. Because of the diversification of the Company's
services, the Company is often able to use equipment beyond its scheduled
useful life. EBITDA is calculated before depreciation and amortization charges
and, in businesses with significant non-cash expenses, widely is used as a
measure of cash flow available to pay interest, repay debt, make acquisitions
or invest in capital equipment and new technologies. As a result, the Company
intends to report EBITDA as a measure of financial performance. EBITDA
increased from $5.8 million in fiscal 1994 to $15.5 million in fiscal 1996
representing a CAGR of 63.9%. The Company attributes this growth rate to
several factors including (i) its CAGR in revenues of 28.7% from fiscal 1994
to fiscal 1996; (ii) an improvement in its gross profit resulting from the
efficiency of its new Singapore operations and new domestic infrastructure;
and (iii) the ability to leverage existing corporate overhead to manage
expanded domestic and international operations.

EBITDA does not represent cash generated from operating activities in
accordance with generally accepted accounting principles ("GAAP") and should
not be considered in isolation or as a substitute for other measures of
performance prepared in accordance with GAAP. EBITDA does not reflect that
portion of the Company's capital expenditures which may be required to
maintain the Company's market share, revenues and leadership position in its
industry. Moreover, not all EBITDA will be available to pay interest or repay
debt.

RESULTS OF OPERATIONS

The following table sets forth the percentage of revenues represented by
certain line items in the Company's statement of operations and EBITDA:

FISCAL YEARS ENDED
---------------------------
JULY 31, JULY 30, AUGUST 4,
1994 1995 1996
-------- -------- ---------

Revenues: .......................................... 100.0% 100.0% 100.0%
Cost of services:
Personnel......................................... 40.5 37.4 36.2
Material.......................................... 10.0 10.5 10.5
Facilities........................................ 8.9 6.4 6.7
Other............................................. 8.9 9.1 8.6
----- ----- -----
Total cost of services.......................... 68.3 63.4 62.0
----- ----- -----
Gross profit.................................. 31.7 36.6 38.0
----- ----- -----
Operating expenses:
Sales, general and administrative................. 18.0 17.9 15.9
Depreciation and amortization..................... 7.8 10.2 14.5
----- ----- -----
Total operating expenses........................ 25.8 28.1 30.4
----- ----- -----
Income from operations........................ 5.9 8.5 7.6
Interest expense, net............................... 3.0 4.8 5.5
----- ----- -----
Income before income tax benefits............. 2.9 3.7 2.1
Income tax benefits................................. -- (1.6) (1.4)
----- ----- -----
Net income.................................... 2.9% 5.3% 3.5%
===== ===== =====
EBITDA.............................................. 13.7% 18.7% 22.1%

FISCAL YEAR ENDED AUGUST 4, 1996 COMPARED TO FISCAL YEAR ENDED JULY 30, 1995

Revenues. Total revenues for fiscal 1996 increased 15% to $70.0 million
compared to $61.0 million in fiscal 1995. The revenue increase was
attributable primarily to the factors set forth below.

Studio services revenues for fiscal 1996 increased 14% to $23.5 million
compared to $20.7 million in fiscal 1995. Professional duplication led the
growth in the studio services division during fiscal 1996, increasing 35%. The
Company responded to increased demand for its services by adding machine
capacity, upgrading technology, improving service reliability and completing a
new archive during the period. The archive provides capacity to store, manage
and distribute up to 400,000 master videotapes and film elements and the
Company estimates that it has available space for approximately 200,000
additional units. The Company intends to continue to develop infrastructure
and add machine capacity in response to market demand and opportunities to
fill unused archive capacity.

Broadcast services revenues for fiscal 1996 increased 29% to $20.9 million
compared to $16.2 million in fiscal 1995. The increase reflects the inclusion
of a full year of operating results of the Company's Singapore operations and
the expansion of such operations (fiscal 1996 revenues of $11.0 million
compared to fiscal 1995 revenues of $4.0 million). The results of the
Singapore operations consist almost entirely of revenues under a long-term
contract with MTV Asia. The Company does not expect revenues from MTV Asia to
increase significantly over the remaining term of the contract. The increase
in Singapore partially was offset by a decline in domestic broadcast revenues
due to the expiration of a service agreement with the Disney Channel in the
second quarter of fiscal 1996, resulting in a decline in revenues from this
source of $1.8 million over the prior fiscal year. The Company believes that
the deployment of compression technology for broadcast applications and the
expansion of cable channel capacity resulting from the anticipated
introduction of digital set-top boxes will increase demand for its broadcast
services. Accordingly, the Company intends to increase the competitiveness of
its domestic broadcast operations by expanding the capacity and range of its
service offerings.

Television revenues for fiscal 1996 increased 3% to $23.3 million compared
to $22.7 million in fiscal 1995. The increase was a result of the inclusion of
a full year of operating results of the Company's Santa Monica operations
(1996 revenues of $10.6 million compared to 1995 revenues of $8.9 million).
This increase partially was offset by a reduction in revenues due to the loss
of key creative talent in sound mixing and editing and reduced capacity
utilization resulting from the inefficiencies associated with the continued
operation of analog equipment. The Company recently completed construction of
a new digital television services facility in Burbank, which is designed to
replace existing analog infrastructure and equipment and to enhance the
competitiveness of the Company's Burbank-based television operations.

Visual effects revenues for fiscal 1996 increased 53% to $2.3 million
compared to $1.5 million in fiscal 1995. The revenue increase was the result
of an increase in the Company's high resolution digital image processing
capacity and increased sales and marketing activity. During fiscal 1996, the
visual effects division completed projects for a number of prominent customers
including Twentieth Century Fox, Paramount, New Line Cinema and The Walt
Disney Company's Miramax Films unit.

Gross Profit. Gross profit for fiscal 1996 increased 19.3% to $26.6 million
(38.0% of revenues) compared to $22.3 million (36.6% of revenues) in fiscal
1995. The improvement of 1.4% in the Company's gross profit was attributable
primarily to the inclusion of a full year of operating results of the
Company's Singapore operations. This improvement partially was offset by (i) a
reduction in the gross profit in the Company's television operations, and (ii)
costs associated with the start-up and operation of the Company's new archive
facility.

Sales, General and Administrative Expenses. Sales, general and
administrative expenses for fiscal 1996 increased 1.8% to $11.1 million (15.9%
of revenues) compared to $10.9 million (17.9% of revenues) in fiscal 1995. The
improvement of 2.0% in sales, general and administrative expenses as a
percentage of revenues is a result of relatively low sales, general and
administrative expenses associated with the Singapore operations and

the Company's ability to leverage its existing corporate overhead to manage
expanded domestic and international operations. In addition, insurance
proceeds received, which offset expenses incurred of $900,000, further reduced
sales, general and administrative expenses.

Depreciation and Amortization. Depreciation and amortization for fiscal 1996
increased 65% to $10.2 million compared to $6.2 million in fiscal 1995. The
increase is primarily the result of $18.9 million in capital expenditures made
during fiscal 1996.

Income Taxes. Income taxes for fiscal 1996 reflected the recognition, for
financial accounting purposes, of a $1.0 million tax benefit. Recognition of
this tax benefit accounted for 41% of the Company's net income in fiscal 1996.
Recognition of tax benefits in fiscal 1996 resulted from the Company's
profitability in its third year of operations which made recognition of future
tax deductions (arising from, among other things, net operating loss
carryforwards) more certain. Continued profitability in future fiscal years
will result in the Company recognizing income tax expense as it exhausts its
existing tax credits and net operating loss carryforwards.

Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
fiscal 1996 increased 35.9% to $15.5 million compared to $11.4 million in
fiscal 1995. The increase in EBITDA is a result of an increase in revenues, an
improvement in gross profit and a reduction in sales, general and
administrative expenses as a percentage of revenues.

FISCAL YEAR ENDED JULY 30, 1995 COMPARED TO FISCAL YEAR ENDED JULY 31, 1994

Revenues. Total revenues for fiscal 1995 increased 44% to $61.0 million
compared to $42.3 million in fiscal 1994. The revenue increase was
attributable primarily to the factors set forth below.

Studio services revenues for fiscal 1995 increased 32% to $20.7 million
compared to $15.7 million in fiscal 1994. This increase was primarily
attributable to the integration of its various studio service operations into
a single new facility during the second quarter of 1995, which increased
capacity, quality and service reliability. In response to customer demand and
inadequate internal storage capacity, the Company commenced construction of a
new archive facility during fiscal 1995 to support future revenue growth in
studio services.

Broadcast revenues for fiscal 1995 increased 49% to $16.2 million compared
to $10.9 million in fiscal 1994. The revenue increase was primarily the result
of the initiation of operations in Singapore, which generated $4.0 million of
revenues in fiscal 1995. In addition, the domestic broadcast operation added
two long-term contract customers ($800,000) and one short-term customer
($600,000).

Television revenues for fiscal 1995 increased 46% to $22.7 million compared
to $15.6 million in fiscal 1994. The revenue increase was primarily the result
of the acquisition of the assets of DM&T in October 1994, which generated
revenues of $7.5 million in fiscal 1995. The increase in revenues provided by
the Company's Santa Monica operations was partially offset by a $400,000
decline in revenues generated by the Burbank television operations resulting
from the loss of key creative talent in sound mixing and reduced capacity
utilization due to the inefficiencies associated with the continued operation
of analog equipment.

Visual effects revenues were $1.5 million in fiscal 1995, representing
approximately seven months of operations. These revenues primarily were
attributable to visual effects services for eight feature films. In June 1995,
the Company expanded its high resolution processing capacity.

Gross Profit. Gross profit for fiscal 1995 increased 66.4% to $22.3 million
(36.6% of revenues) compared to $13.4 million (31.7% of revenues) in fiscal
1994. The improvement of 4.9% in the Company's gross profit was attributable
primarily to the efficiencies of the new Singapore broadcast facility
experienced during fiscal 1995 (approximately three and one-half months of
operations) and the contribution of higher margin services resulting from the
acquisition of the DM&T assets (approximately nine months of operations).

Sales, General and Administrative Expenses. Sales, general and
administrative expenses for fiscal 1995 increased 43% to $10.9 million (17.9%
of revenues) compared to $7.6 million (18.0% of revenues) in fiscal 1994. The
improvement in sales, general and administrative expenses as a percentage of
total revenues was primarily the result of efficiencies gained in the
elimination of duplicative staff positions and expenses resulting from the
acquisition of the DM&T assets in October 1995.

Depreciation and Amortization. Depreciation and amortization for fiscal 1995
increased 88% to $6.2 million compared to $3.3 million in fiscal 1994. The
increase is primarily the result of $30.3 million in capital expenditures made
during fiscal 1995.

Income Taxes. Income taxes for fiscal 1995 reflected the recognition, for
financial accounting purposes, of a $1.0 million tax benefit. Recognition of
this tax benefit in 1995 accounted for 31% of the Company's net income in
fiscal 1995. Recognition of these tax benefits resulted from the Company's
profitability in its second year of operations which made recognition of
future tax deductions (arising from, among other things, net operating loss
carryforwards) more certain.

Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
fiscal 1995 increased 96.6% to $11.4 million compared to $5.8 million in
fiscal 1994. The increase in EBITDA is a result of an increase in revenues,
improvement in gross profit, and a reduction in sales, general and
administrative expenses as a percentage of revenues.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception in August 1993, the Company has financed its operations
through a combination of debt (including term debt, equipment notes, capital
leases and subordinated debt from its sole stockholder) and cash flow from
operating activities. In fiscal 1994 and 1995, the Company issued subordinated
notes of $10.0 million and $9.0 million to its sole stockholder and obtained
additional third-party financing in the form of term debt, equipment notes and
capital leases of $2.2 million, $21.6 million and $11.5 million in fiscal
1994, 1995 and 1996, respectively. The Company's net cash flow provided by
operating activities was $3.0 million, $4.6 million and $9.4 million in fiscal
1994, 1995 and 1996, respectively.

During the three year period ended August 4, 1996, the Company invested
$58.1 million to convert its infrastructure from analog to component digital,
develop management information systems, consolidate various operations, expand
into the Asian market and create new businesses. The Company's capital
expenditures illustrate a systematic concentration of infrastructure and
equipment investment across each business division, with 69.8% of total
capital expenditures in studio services in fiscal 1994, 57.9% of total capital
expenditures in broadcast services in fiscal 1995 and 62.6% of total capital
expenditures in television services in fiscal 1996. For a description of these
capital expenditures, see "Business--Strategic Accomplishments." The following
table sets forth capital expenditures in each business division as well as
capital expenditures associated with new management information systems by
amount and percentage of total capital expenditures for the periods indicated.

FISCAL YEARS ENDED
-------------------------------------------------------
JULY 31, 1994 JULY 30, 1995(1) AUGUST 4, 1996
----------------- ------------------ ------------------
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)

Capital expenditures(2):
Studio................ $6,166 69.8% $ 5,072 16.7% $ 3,175 16.8%
Broadcast............. 518 5.9 17,519 57.9 2,411 12.7
Television............ 1,499 16.9 3,291 10.9 11,853 62.6
Visual effects........ -- -- 2,525 8.3 413 2.2
Management information
systems.............. 656 7.4 1,878 6.2 1,084 5.7
------ ----- ------- ----- ------- -----
Total capital
expenditures....... $8,839 100.0% $30,285 100.0% $18,936 100.0%
====== ===== ======= ===== ======= =====

- --------------------
(1) The above table reflects $1,066,000 of organization costs for 4MC Asia.
(2) The capital expenditures reflected in the above table do not include the
net assets written off pertaining to the January 1994 earthquake of
$1,860,000 and $567,000 for the fiscal years ended July 30, 1995 and
August 4, 1996, respectively.

With the completion of its new television services facility in September
1996, the Company believes that substantially all of the major infrastructure
upgrades required to make its facilities state-of-the-art have been completed,
except for an estimated $15.0 million to be expended over the next two years
for domestic broadcast and television sound facilities. The Company believes
that the level of capital expenditures for its existing operations in the next
few years should be significantly reduced from that of the previous three
years. Nevertheless, new technologies could be developed which would render
some or a substantial portion of the Company's infrastructure or equipment
obsolete, or the pressure of competition or customer demands could require the
Company to further rebuild or upgrade its infrastructure and equipment. In
addition, the Company could acquire businesses requiring significant capital
investment or purchase real property. In any such case, the Company may incur
significant additional capital expenditures. The Company has no commitments or
agreements to make any such acquisitions or purchases except for the purchase
of certain real property located in Burbank (see "Business--Properties" for a
description of the purchase of such property).

In August 1996, the Company commenced negotiation of a loan agreement with
CIT Group/Business Credit, Inc. and CIT Group/Equipment Financing, Inc. (the
"CIT Facility") which will provide for secured revolving and term loan
facilities of up to $34.0 million to 4MC Burbank and DMC guaranteed by the
Company. The agreement provides for three separate loan facilities: (i) a
$16.0 million term loan, which bears interest at a rate of LIBOR plus 2.75% or
prime as it changes ("PAC") plus .75% and is payable in 84 equal monthly
principal payments commencing November 1997; (ii) an $11.0 million revolving
line of credit which bears interest at a rate of LIBOR plus 2.5% or PAC plus
.50%; and (iii) a $7.0 million capital expenditure line of credit which bears
interest at a rate of LIBOR plus 2.75% or PAC plus .75% and is payable in 60
equal monthly installments commencing the month after funding. The Company
may, at its option, elect a fixed interest rate for the term loan at the five-
year treasury rate plus 3.35%. Total availability under the revolving line of
credit is subject to certain limitations related to the amount of 4MC
Burbank's and DMC's accounts receivable and inventory.

The obligations of 4MC Burbank and DMC under the CIT Facility will be
secured by substantially all of the assets of 4MC Burbank and DMC. The
obligations are also guaranteed by the Company and secured by a pledge of the
capital stock of 4MC Burbank and DMC. The CIT Facility will contain
restrictive covenants that, among other things, and with certain exceptions,
will limit the ability of 4MC Burbank and DMC to pay dividends or make other
distributions to the Company or to incur additional indebtedness. 4MC Burbank
and DMC also will be required to satisfy certain financial covenants and
tests, including the maintenance of minimum net worth, working capital, fixed
charge coverage ratios and leverage ratios.

In February 1995, 4MC Asia borrowed $16.9 million Singapore dollars ($11.8
million U.S. dollars as of August 4, 1996) under a term loan facility with the
Hong Kong and Shanghai Banking Corporation Limited ("HKSB") to fund the
construction of its Singapore broadcast facility. The term loan bears interest
at an annual rate equal to the HKSB prime rate plus 1.25% and is payable in 60
monthly installments commencing April 1997. The term loan is secured by
substantially all of the assets of 4MC Asia and is guaranteed by 4MC Burbank
(which guarantee will be assumed by the Company upon completion of the
Reorganization). The term loan facility contains restrictive covenants that,
among other things, will prohibit 4MC Asia from incurring additional
indebtedness or paying any dividend or making any other distribution to the
Company, other than under certain conditions the repayment of intercompany
debt in an amount not to exceed $3.0 million Singapore dollars in each of the
first two years of the loan. The term loan will become due and payable, at the
option of HKSB, upon the termination of 4MC Asia's contract with MTV Asia or
the occurrence of certain other events of default.

The Company has entered into various capital lease and equipment notes
related to the purchase of equipment. As of August 4, 1996, the Company's
total obligations under capital leases and outstanding

equipment notes were $18.5 million. These notes are due at various times
through 2001 and bear interest at rates of 8.0% to 11.9%. The Company intends
to repay substantially all of these notes (with proceeds from the offering)
over the next 12 to 18 months as prepayment penalties diminish or lapse.

The Company is negotiating to obtain approximately $8.4 million in secured
debt financing to fund a portion of the purchase price of the Burbank property
which houses the Company's archive facility. The Company currently occupies
approximately 50% of this facility. See "Business--Properties."

The Company believes that the remaining proceeds of this offering (after
repayment of certain outstanding debt, see "Use of Proceeds"), combined with
cash flow from operations and amounts available under the CIT Facility, will
be sufficient to meet its anticipated working capital and capital expenditure
requirements through the end of 1997. The Company may, however, be required to
seek additional debt and/or equity financing to support a more rapid than
planned expansion, respond to competitive pressures or customer demands, or
meet unanticipated requirements. In addition, the Company regularly engages in
discussions regarding the acquisition of complementary businesses. Although
the Company has no commitments or agreements to effect any acquisition, if the
Company were to make an acquisition, it may be required to obtain additional
debt and/or equity capital.

FOREIGN EXCHANGE

Substantially all of 4MC Asia's transactions are denominated in Singapore
dollars, including its bank borrowings. Although 4MC Asia is not subject to
foreign exchange transaction gains or losses, its financial statements are
translated into United States dollars as part of the Company's consolidated
financial reporting. Fluctuations in the exchange rate therefore will affect
the Company's consolidated balance sheets and may, upon repatriation of funds
from 4MC Asia to the Company and payment of related income taxes, affect the
Company's net income. Over the past two years the Singapore dollar has been
stable relative to the United States dollar. However, the continued stability
of the exchange rate is subject to numerous factors, all of which are beyond
the Company's control.

QUARTERLY REVENUE FLUCTUATIONS

The Company's results from operations are dependent upon several market
factors that are beyond its control, including: (i) the size of the domestic
and international markets for the exploitation of content libraries; (ii) the
ability of specialty programmers to find, acquire and market domestic capacity
for new channels and pay-per-view services; (iii) the ability of the major
entertainment companies to launch their domestic cable channels in
international markets (e.g., Asia); (iv) the demand for original programming
for airing on network and/or cable channels; (v) the acceptance of digital
methods of image production and manipulation by producers of feature films and
television programming; and (vi) the viewing audience's demand for higher
levels of production value in film and television programming.

Revenues derived from the Company's television division are seasonal in
nature, generally beginning in September and ending in May. As a result, the
Company historically has experienced its lowest operating results in the
fourth quarter, and first quarter results generally are lower than second and
third quarter results. In addition, the Company's television division can
experience fluctuations in quarterly financial results for reasons beyond the
Company's control including a work stoppage or other event resulting in delays
in production schedules; changes in or extensions of vacation time around
holidays; network cancellations of projects at mid-season; and changes in
staffing, location or budgets of production companies. These factors result in
idle capacity until replacement work can be found. The expansion of the
Company's studio and broadcast services businesses have mitigated, to a
certain extent, the seasonality of the Company's revenues, EBITDA and net
income in prior periods. However, the completion of the Company's new
television facility in Burbank, increased revenues generated by the Company's
Santa Monica facility and future expansion of television operations would
likely create more seasonal variation in the Company's revenues, EBITDA and
net income in current and future fiscal years. See "Risk Factors--Potential
Fluctuations in Operating Results; Seasonality."

The following table presents (in thousands), by fiscal quarter, unaudited
information derived from the Company's Consolidated Statements of Operations
for the two fiscal years ended August 4, 1996.

FISCAL QUARTERS ENDED
-----------------------------------------------------------------------------
FISCAL 1995 FISCAL 1996
-------------------------------------- -------------------------------------
OCT. 31, JAN. 31, APRIL 30, JULY 30, OCT. 31, JAN. 31, APRIL 30, AUG. 4,
1994 1995 1995 1995 1995 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- -------

STATEMENT OF OPERATIONS
DATA:
Revenues:
Studio................. $ 4,269 $ 5,134 $ 5,727 $ 5,547 $ 5,746 $ 6,008 $ 5,840 $ 5,874
Broadcast.............. 2,838 2,973 4,530 5,822 5,489 5,088 5,065 5,259
Television............. 3,532 6,705 7,315 5,160 5,631 5,684 7,058 4,970
Visual effects......... 0 510 313 629 766 305 515 730
------- ------- ------- ------- ------- ------- ------- -------
Total revenues......... 10,639 15,322 17,885 17,158 17,632 17,085 18,478 16,833
------- ------- ------- ------- ------- ------- ------- -------
Cost of services:
Personnel.............. 4,427 5,768 6,362 6,238 6,527 6,280 6,286 6,251
Material............... 1,204 1,637 1,903 1,680 1,920 1,809 1,816 1,809
Facilities............. 749 936 1,018 1,214 1,124 1,181 1,144 1,243
Other.................. 965 1,491 1,579 1,525 1,504 1,707 1,437 1,373
------- ------- ------- ------- ------- ------- ------- -------
Total cost of
services.............. 7,345 9,832 10,862 10,657 11,075 10,977 10,683 10,676
------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......... 3,294 5,490 7,023 6,501 6,557 6,108 7,795 6,157
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales, general and
administrative........ 1,997 2,654 2,898 3,369 3,030 2,871 2,646 2,569
Depreciation and
amortization.......... 883 1,176 1,931 2,251 2,497 2,508 2,561 2,599
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 2,880 3,830 4,829 5,620 5,527 5,379 5,207 5,168
------- ------- ------- ------- ------- ------- ------- -------
Income from
operations........... 414 1,660 2,194 881 1,030 729 2,588 989
Interest expense, net... 391 640 772 1,114 921 1,073 993 919
------- ------- ------- ------- ------- ------- ------- -------
Income before income
tax benefits......... 23 1,020 1,422 (233) 109 (344) 1,595 70
Income tax benefits..... (250) (204) (284) (250) (204) (250) (317) (223)
------- ------- ------- ------- ------- ------- ------- -------
Net income............ $ 273 $ 1,224 $ 1,706 $ 17 $ 313 $ (94) $ 1,912 $ 293
======= ======= ======= ======= ======= ======= ======= =======
OTHER DATA:
EBITDA.................. $ 1,297 $ 2,836 $ 4,125 $ 3,132 $ 3,527 $ 3,237 $ 5,149 $ 3,588

BUSINESS

OVERVIEW

The Company is a leading provider of technical, creative and broadcast
services to owners, producers and distributors of television programming,
feature films and other entertainment content in the United States and Asia.
The name Four Media Company is derived from the Company's core competencies in
film, video, sound and data. The Company's services integrate and apply a
variety of systems and processes to enhance content creation and distribution.
The Company seeks to capitalize on growth in domestic and international demand
for original entertainment content and for existing television and film
libraries without taking production or ownership risk with respect to any
specific television program, feature film or other content.

During the past three fiscal years, the Company has invested $58.1 million
in infrastructure, primarily for new digital systems and equipment. In
addition, the Company has successfully identified, acquired and integrated
four complementary businesses. The Company acquired the assets of three
companies in connection with its formation in 1993, acquired the assets of a
fourth company in 1994, and capitalized and commenced its Singapore broadcast
operations in 1995. As a result of its investments and acquisitions, the
Company is one of the largest independent (not affiliated with or related to a
content owner) providers of technical and creative services to the
entertainment industry in terms of total revenues, employees and number of
customers, and is one of the most diversified providers of those services.

The Company has organized its activities into four divisions, each of which
offers services that are integral to the creation, enhancement and/or
distribution of entertainment content.

Studio Services. The studio services division provides owners of television
and film libraries with all of the facilities and services necessary to
manage, format and distribute content worldwide. These services include
restoring and preserving damaged content, archiving original elements and
working masters, creating working masters from original elements, duplicating
masters for professional applications and formatting masters to meet specific
end-user standards and requirements. The studio services division seeks to
offer customers lower operating costs, improved response time and reliability,
access to new technology, and adherence to quality standards that are
recognized by the international technical community. The division's customer
base includes the major domestic studios (and their international divisions)
as well as independent owners of television and film libraries. Studio
services operations are conducted in Burbank.

Broadcast Services. The broadcast services division provides domestic and
international programmers with the facilities and services necessary to
assemble and distribute programming via satellite to viewers in the United
States, Canada and Asia. These services include assembly of programming
provided by the customer into a 24-hour "network" format; creating
interstitial and promotional graphics and other material that support the
brand identity of the programming; providing production support and facilities
for the timely creation of original programming, such as announce and news
segments; and providing automated systems to broadcast the programming via
playback and uplink facilities. In addition, the broadcast services division
provides facilities and services for the delivery of syndicated television
programming in the United States and Canada and also transmits special events,
sports or news stories for insertion in a network, cable system or direct-to-
home broadcast. The division's customer base includes major entertainment
companies offering worldwide network programming, independent content owners
offering niche market programming, and pay-per-view channels marketing movies
and special events to the cable industry and direct-to-home viewers. Broadcast
services operations are conducted in Burbank and the Republic of Singapore.

Television Services. The television services division provides producers of
original television programming with the technical and certain of the creative
services that are necessary to conform original film or video principal
photography to a final product suitable for airing on network, syndicated,
cable or foreign television. These services include developing negative in the
Company's film laboratory; converting developed negative to videotape and/or
digital formats; creating music and sound effects; mixing sound elements for
laydown to the final program master; creating visual effects; integrating
visual effects in the final program master;

correcting color; removing artifacts and scratches from the program master;
formatting for commercial integration; and delivering (via tape or satellite)
the program master for broadcast. The division's customer base includes most
of the major domestic studios and broadcast networks that are engaged in the
production of original programming as well as a large number of independent
production companies. Television services operations are conducted in Burbank
and Santa Monica.

Visual Effects Services. The visual effects services division commenced
operations in January 1995 and provides creators of special visual effects
with certain services required to digitally create or manipulate images in
high resolution formats for integration in feature films. These services
include developing negative and correcting color in the Company's film
laboratory; digitally scanning film; and digitally compositing multiple layers
of effects and recording the result on film. The division's customer base
includes most of the major domestic studios as well as independent visual
effects supervisors. Visual effects operations are conducted in Burbank and
Santa Monica.

MARKETS

The entertainment industry creates motion pictures, television programming,
and interactive multimedia content for distribution through theatrical
exhibition, home video, pay and basic cable television, direct-to-home,
private cable, broadcast television, on-line services and video games. Content
is released into a "first-run" distribution channel, and later into one or
more additional channels or media. In addition to newly-produced content, film
and television libraries may be released repeatedly into distribution.
Entertainment content produced in the United States is exported, and is in
increasingly high demand internationally. The Company believes that several
trends in the entertainment industry will have a positive impact on the
Company's business, including growth in worldwide demand for original
entertainment content, the development of new markets for existing content
libraries, greater demand for innovation and creative quality in entertainment
markets and wider application of digital technologies to content manipulation
and distribution, including the emergence of new distribution channels.

The Motion Picture Industry. The motion picture industry encompasses the
production, distribution and domestic exhibition of feature-length motion
pictures, including their distribution in home video, television and other
ancillary markets. While the domestic motion picture industry is dominated by
the major studios, including Paramount Pictures, Sony Pictures Entertainment
(Columbia/Tri-Star), Twentieth Century Fox, Universal Pictures, The Walt
Disney Company and Warner Bros., independent production companies also play an
important role in the production of motion pictures for domestic and
international feature film markets. The major studios release as many as 200
new feature films a year and domestic independent producers and distributors
account for an estimated 180 films a year.

In 1995, the worldwide revenue of United States motion picture distributors
totaled $18.3 billion, an increase of 6.2% over 1994. Recent growth in
international revenue has far exceeded growth in North American revenues, with
international revenue now accounting for nearly half of total revenue.
According to an August 1996 communications industry forecast, it is expected
that by the year 2000, international revenue from motion pictures produced in
the United States will surpass North American revenue. The Company's studio
services division provides services that support the preparation and delivery
of feature films for distribution in domestic and international home video,
television and other ancillary markets.

The Television Production Industry. The North American (United States and
Canada) television production and distribution industry serves the largest
broadcast market in the world, with a population of approximately 290 million
and more than 95 million homes. In North America, programming is delivered to
the end user via conventional broadcast networks, cable channels, individual
television stations and satellite delivery systems. The number of broadcast
television networks in the United States continues to increase, with United
Paramount Network and the Warner Bros. Network recently joining the
established networks, ABC, NBC, CBS and Fox. The established networks
penetrate nearly 100% of domestic television households and provide the

most effective access to a broad-based mass audience for television
advertisers. Spending for television advertising, which drives the production
of new programming and the sale of existing content libraries, reached a
record level of $37.5 billion in 1995, compared to $29.0 billion in 1990.

The demand for entertainment content has increased significantly as a result
of the introduction of new broadcast networks, direct broadcast satellite
systems, pay television, increased cable penetration and the growth of home
video. The new television networks have created the need for more hours of
original programming and competition for viewers has increased the demand for
innovation and creative quality resulting in higher levels of spending. In
1995, United States television broadcasters (including cable) spent
approximately $8.9 billion for programming, compared to $7.2 billion in 1990.
The Company's television services division supports the creation of television
programming for domestic distribution and the Company's broadcast services
division supports the delivery of programming through various channels of
distribution including cable and satellite delivery systems.

In the last decade, the privatization of broadcasting systems outside the
United States, the proliferation of broadcast licenses, and the introduction
of sophisticated delivery technologies, such as cable and satellite
transmission systems, have led to significant growth of broadcasting and cable
television markets outside North America. European television is the most
visible example of the growth in programming outlets. Over the last 15 years,
European governments have encouraged a major expansion of the public and
private broadcasting sectors. For example, Germany and France each have added
six broadcast networks and the United Kingdom has added four. The introduction
of new television broadcast systems is just beginning in Asia and Eastern
Europe. Most foreign broadcasters require a mix of both indigenous programming
to satisfy the local content requirements of their broadcast licenses and
popular international programming, largely produced in the United States. The
substantial growth of broadcast markets outside North America has also
increased the demand for entertainment content produced in the United States.
The Company's television services division supports the creation of
programming for international distribution, the Company's studio services
division supports the preparation of content to be viewed in international
markets, and the Company's broadcast division supports the distribution of
cable channels in Asia and is seeking to establish a presence in other
developing international markets.

The Multimedia Industry. The interactive multimedia industry encompasses
video games, and on-line and interactive services. While certain segments of
the industry such as video games are well established, the multimedia industry
is an emerging business with significant growth potential. According to an
industry forecast, revenues derived from the sale of video game systems and
game software were $4.5 billion in 1995. Improvements in technology, the
availability of communication bandwidth, the proliferation of distribution
channels for entertainment products and services, and the involvement of large
entertainment companies, together, signify a critical mass to support such
growth. On-line services offer the consumer access to the Internet and the
World Wide Web via internet access providers such as Netcom(R) and UUNet(R),
and to services such as America On-line(R) and Prodigy(R) which offer both
internet access and proprietary features. Numerous companies provide Web site
design and creation, such as Digital Planet(R), Dimension X(R) and
Starware(R), that integrate various forms of media including live action
video, animation, graphics and audio. Other interactive on-line services such
as video-on-demand are being deployed by cable television operators and
certain of the regional telephone companies. Although the Company currently
derives no significant revenues from these market segments, the Company
believes that its creative and technical processes will be marketable to the
multimedia industry specifically in the areas of video compression,
digitization, 2D and 3D graphics, and authoring for the more complex platforms
and applications such as digital versatile disk ("DVD") and server-based on-
demand services.

STRATEGIC ACCOMPLISHMENTS

The Company has implemented its business plan and capitalized on industry
trends and opportunities to accomplish the following:

Studio Services. In fiscal 1994, the Company identified a growth opportunity
in servicing technical and operational needs related to the domestic and
international distribution of entertainment content. The Company pursued this
opportunity by improving and upgrading its infrastructure, constructing an
archive and developing and implementing a management information system to
provide customers with instant access to information regarding the status of
their assets, work-in-process and shipments. Since 1993, the Company has
invested approximately $14.4 million in its studio services facilities. The
facilities occupy approximately 82,000 square feet of new space (in two
buildings) and feature a state-of-the-art digital infrastructure. Studio
services revenues have increased to $23.5 million in fiscal 1996 compared to
$15.7 million in fiscal 1994. The Company intends to capitalize on the
emergence of growth opportunities related to the domestic and international
distribution of content and the digitization and compression of content for
new distribution and multimedia applications by continuing to add capacity to
its studio services facilities.

Broadcast Services. In fiscal 1995, the Company determined that it could
capitalize on its core competencies and customer relationships and expand its
broadcast operations internationally. The Company evaluated expansion in
Europe, South America, Asia and Africa. After extensive research, the Company
selected Asia and established a new broadcast facility in Singapore. The
Company selected Asia because of (i) the availability of powerful transponder
capacity serving the entire Asian and Asean populations; (ii) the growing
popularity and acceptance of television as an entertainment vehicle in various
Asian and Asean cultures; (iii) the ability of the region to draw advertising
dollars based upon the emergence of a large middle class with disposable
income; and (iv) the large number of international and local programmers
seeking access to the region using cost-efficient satellite delivery systems.

The Company invested approximately $19.6 million to design and construct its
Singapore broadcast facility. The all digital and fully integrated broadcast
facility occupies approximately 20,000 square feet of newly developed space.
MTV Asia is the Company's first major customer in Singapore. The Company's
long-term contract with MTV Asia provides a base upon which to build other
business. The value of the Singapore operation is derived from (i) MTV Asia's
long-term commitment to the Company; (ii) the growth potential of the region
in general and Singapore as a broadcast hub specifically; (iii) the
availability of the facility's excess capacity to generate revenues outside
the MTV Asia relationship; and (iv) the ability of the Company to apply its
outsourcing model to domestic or international customers in any location.
Broadcast services revenues increased to $20.9 million in fiscal 1996 compared
to $10.9 million in fiscal 1994. The Company intends to rebuild its domestic
broadcast facility to accommodate the transmission of digitally compressed
signals and server-based playback systems by the end of fiscal 1998.

Television Services. In 1994, the Company acquired the assets of DM&T, a
facility specializing in providing visual effects for television. The Company
invested a total of $15.3 million in the facility, including approximately
$7.7 million to acquire the DM&T assets and an additional $4.3 million for the
purchase of component digital equipment and other improvements. The Company
believes that its facility is among the most technologically advanced
television services facilities in the Los Angeles area. In 1996, the Company
completed construction of a new television facility in Burbank providing new
server-based technology targeted at the episodic television market. The
Company studied the migration to a file server environment for all digital
non-linear assembly of television programming and implemented a new design
incorporating server-based technology. In addition, the Company incorporated
four Rank Cintel URSA Gold(R) telecines in the new infrastructure to provide
high quality pictures as well as seamless transition from telecine to off-line
and on-line applications. The Company invested approximately $16.4 million to
design and construct the Burbank facility.

The Company intends to exploit the depth of the Company's television service
offerings by pursuing revenue opportunities related to the production and
distribution of original television programming--one of the largest segments
of the Los Angeles entertainment market. The Company offers the television
industry a full range of services in desirable geographic locations, a fully
integrated infrastructure designed to reduce turnaround time and increase
creative flexibility, and segmented service offerings. Television services
revenues increased to $23.3 million in fiscal 1996 compared to $15.6 million
in fiscal 1994.

Visual Effects Services. In fiscal 1995, the Company determined that it
could apply its core competencies in the digital manipulation of images for
television to high resolution visual effects for feature films. The Company
retained a highly respected creative staff and acquired certain high
resolution equipment including a Quantel(R) Domino(R) computer and a Silicon
Graphics(R) computer that runs Discreet Logic(R) Inferno(R) software. In
addition, the Company acquired six Silicon Graphics(R) workstations running a
variety of software for high resolution animation applications, and film
scanning and recording equipment required to digitize high resolution images.
As of August 4, 1996, the Company's total capital investment in the visual
effects operation was approximately $2.9 million. The Company has attracted
visual effects projects for medium budget feature films and portions of
projects for large budget major motion pictures. The Company anticipates
making additional investments in high resolution capacity in response to
demand. Visual effects services revenues increased to $2.3 million in fiscal
1996 compared to $1.5 million in fiscal 1995.

GROWTH STRATEGY

The Company seeks to benefit from the increasing worldwide demand for
original entertainment content and the development of new markets for existing
television and film libraries. The Company intends to increase its market
share and to establish a brand identity in the markets it serves by executing
the following growth strategies:

. Pursue Consolidation Opportunities. The Company plans to pursue
acquisitions that complement existing operations, increase market share
and diversify product lines. The Company participates in a highly
fragmented industry in which many small, entrepreneurial companies
compete for market share. Many do not have the size, diversity,
liquidity or capital resources required to modernize infrastructure or
derive efficiencies from economies of scale. The Company has
successfully identified, acquired and integrated four complementary
business. The Company acquired the assets of three companies in
connection with its formation in 1993, acquired the assets of DM&T in
1994, and capitalized and commenced its broadcast operations in
Singapore in 1995.

. Offer Complete Outsourcing Solutions. The Company intends to expand the
range of outsourcing solutions it provides to customers by bundling
services into a variety of combinations. This innovative outsourcing
approach provides customers several benefits including (i) lower capital
investment and operating costs than in-house alternatives; (ii) more
control over processes by using a single vendor; (iii) access to current
technology without the necessity of continuously upgrading equipment;
(iv) no diversion of technical, administrative and managerial resources
to non-core activities; (v) access to a diverse group of broadly
experienced technical and creative professionals; (vi) the ability to
enforce contractual standards of performance, thereby improving
accountability and reliability; and (vii) the ability to reduce
financial risk by identifying and fixing all of the costs associated
with a particular process.

. Utilize Leading Technologies. The Company plans to continue its
investment in component digital equipment and other leading technologies
in order to enhance its reputation for technological leadership in its
industry. During the three years ended August 4, 1996, the Company
invested $58.1 million to expand the scope and scale of its operations,
broaden its service offerings, expand internationally and convert the
majority of its infrastructure and equipment to be compatible with new
digital content formats. The Company believes that continued investment
in infrastructure and the deployment of digital technology will position
the Company to benefit from the domestic and international growth in
entertainment content production and distribution.

. Provide Superior Customer Service. The Company will continue to develop
its information systems to enhance efficiency and provide timely and
accurate information to its customers. The Company has invested
approximately $3.6 million to design, develop and implement a management
information system that provides timely and accurate information to
customers about the status of archived material, work orders, shipments
and deliveries.

. Expand Internationally. The Company intends to expand internationally in
response to specific customer demand, particularly where the Company's
technical expertise, financial strength and the ability to execute
quickly are competitive advantages. The Company has demonstrated its
ability to respond quickly to international expansion opportunities. For
example, it commenced negotiations with MTV Networks in August 1994
regarding a contract for services in Asia, and after locating,
designing, building and staffing a $19.6 million state-of-the-art
digital broadcast facility in Singapore, commenced the broadcast of two
MTV Asia channels, MTV Aseana and MTV Pan China, in April 1995. The
Company intends to capitalize on its experience in Singapore by pursuing
similar opportunities in other locations.

. Establish Strategic Alliances. The Company seeks to generate additional
revenue from its technological resources and facilities by establishing
strategic alliances with content creators and others. In fiscal 1996,
the Company entered into an agreement with Silverhammer, Inc., a design
and production firm specializing in the creation of network and
corporate visual promotions, identities, in-show graphics and internet
home pages. The agreement specifies that the Company will be
Silverhammer's exclusive service provider and permits the Company to
acquire an equity position in Silverhammer.

. Capitalize on the Increasing Application of Digital Technology. The
Company intends to capitalize on new methods of digitizing, storing,
retrieving and manipulating content as well as increased demand for high
quality motion video for use in multimedia applications and new content
distribution channels. For example, the Company anticipates
opportunities in authoring and mastering content for DVD and video on
demand applications. The Company believes that compression technologies,
such as MPEG II, will gain acceptance in the broadcast and cable
industries and facilitate the expansion of channel capacity and
programming opportunities. The Company purchased compression equipment
in fiscal 1996 in anticipation of the development of a market for
compression applications. In addition, the Company currently is
developing the capability to transmit digitally compressed signals to
domestic satellites.

PRODUCTS AND SERVICES

The Company has defined its operating divisions in terms of the
entertainment industry market segments each serves. Each entertainment
industry market segment is driven by diverse but related economic factors, and
as a result, the Company is not solely dependent upon any single market
segment within the entertainment industry. The Company intends to maintain and
expand the diversity of its revenue sources and views such diversity as a
significant competitive operating and financial advantage.

For each of its operating divisions, the Company has defined a set of
services which support the entire technical and creative process of its
customers: studio services--"Content Preparation Process;" broadcast
services--"Network Delivery Process;" television services--"Original
Programming Delivery Process;" and visual effects--"Effects Creation Process."

STUDIO SERVICES

The studio services division offers a broad range of facilities and
technical services to owners of television and film libraries. The division
provides all of the services necessary to manage, format and distribute
content on an international scale. These services include archiving original
elements and working masters, restoring and preserving damaged content,
creating working masters from original elements, duplicating masters for
professional applications, and formatting masters to meet specific end-user
standards and requirements. The Company offers the customer lower operating
costs, improved response time and reliability, access to new technology, and
adherence to standards of quality that are recognized by the international
technical community.

The Company's Content Preparation Process consists of the services outlined
in the chart below. While the Company markets these services as a cost-
effective package, service offerings are available individually and priced
separately.

The Content Preparation Process

Audio
Restoration Transfer Layback
Archive -- -- -- Conversion
Preservation Transform
Duplication

Archive. The storage and handling of videotape and film elements require
specialized security and environmental control procedures. Throughout the
entertainment industry, content representing millions of dollars of future
revenue is stored in physically small units that are subject to the risk of
loss resulting from physical deterioration, natural disaster, unauthorized
duplication or theft. The Company's archive is designed to store approximately
400,000 master videotapes and film elements in an environment protected from
temperature and humidity variation, seismic disturbance, fire, theft and other
external events. In addition to the physical security of the archive, content
owners require frequent and regular access to their libraries. Speed and
accuracy of access is a critical value added factor. The Company believes that
its archive, built at a cost of $3.1 million in fiscal 1994, is the largest
among independent service providers and among the most advanced with respect
to security, environmental control and access features.

Restoration. Substantially all film elements originating prior to 1983 have
faded, degraded or have been damaged in some way. Generally, damaged negatives
cannot be utilized in the Content Delivery Process because the resulting
broadcast submaster will not meet the minimum quality standards required in
domestic and foreign markets. The Company's technicians restore damaged film
negative to original and sometimes enhanced quality through the use of
proprietary optical and electronic equipment and techniques. The Company
believes it is well recognized for its ability to complete technically
challenging restoration assignments.

Preservation. Modern film stock, introduced in 1983, has a shelf life
exceeding 100 years. Because images recorded on old film stock degrade over
time resulting in the loss of color and in extreme cases the integrity of the
film itself, older film frequently is converted to a new archival film stock
medium. Film is the preferred archival medium because it has the highest image
resolution of any image storage medium. Using a proprietary process, the
Company takes the original (or restored) negative and creates an archival
answer print and interpositive (i.e., a new negative). The Company believes
that, due to technical and operational advances in its proprietary
preservation process, it is a market leader in the preservation of existing
film content.

Transfer. Substantially all film content ultimately is distributed to the
home video, broadcast, cable or pay-per-view television markets, requiring
that film images be transferred to video images. Each frame must be color
corrected and adapted to the size and aspect ratio of a television screen in
order to ensure the highest level of

conformity to the original film version. Because certain film formats require
transfers with special characteristics, it is not unusual for a motion picture
to be mastered in many different versions. For example, anamorphic
(Cinemascope) formats require mastering in at least two aspect ratios
(pan/scan and letter box) and certain international broadcasters have other
requirements. The Company transfers film to videotape using Ursa Gold(R)
telecine equipment and DaVinci(R) digital color correction systems recently
installed at a cost of $6.4 million. This equipment produces the highest
quality transfers available in the industry. Technological developments, such
as the anticipated domestic introduction of television sets with 16 x 9 aspect
ratios and the implementation of advanced definition television systems for
terrestrial and satellite broadcasting, if they occur, should contribute to
the growth of the Company's film-to-tape transfer business in the future.

Transform. Production companies may choose to originate their work on
videotape even though the ultimate market is a theatrical release on film. The
Company developed a proprietary process called Transform(R) to convert
videotape to film. Transform(R) uses an electron beam recorder and a patented
color imaging system to transform video pictures from all current broadcast
standards to 16mm or 35mm film. The process involves transferring red, blue
and green video images sequentially to a 16mm fine grain intermediate film
stock using an electron beam modulated with the video image. These fine grain
separations are then sequentially step-printed onto color negative film stock.
The Transform(R) process is applicable to advertising commercials and
interstitial programming material (less than 90 seconds in running length) as
well as theatrical length presentations including feature films, concerts and
special events. The Company currently transforms numerous short segments,
special events, and six to ten feature films per year.

Audio Layback. Audio layback is the process of creating duplicate videotape
masters with sound tracks that are different from the original recorded master
sound track. Content owners selling their assets in foreign markets require
the replacement of dialog with voices speaking local languages. In some cases,
all of the audio elements, including dialog, sound effects, music and laughs,
must be recreated, remixed and synchronized with the original videotape. Audio
sources are premixed foreign language tracks or tracks that contain music and
effects only. The latter is used to make a final videotape product that will
be sent to a foreign country to permit addition of a foreign dialogue track to
the existing music and effects track. The Company attracts audio layback
business by offering (i) optimum sound quality; (ii) synchronization of audio
to picture within a half frame accuracy; (iii) consistent quality and
accuracy; (iv) quick turnaround; and (v) competitive pricing.

Conversion. Conversion is the process of changing the frame rates of a video
signal from one video standard (such as the United States standard) to another
(such as the European standard). Through the utilization of Digital Electronic
Film Transfer and Phase Correlation technologies, the Company provides the
highest quality conversion services available. The Company's primary
competitive advantages are its state-of-the-art equipment and its detailed
knowledge of the international markets with respect to quality-control
requirements and technical specifications.

Duplication. The final step in the Content Preparation Process is the
creation of submasters for distribution to professional end users. Master
tapes are used to make submasters in NTSC, PAL and other formats. Videotape
content is copied for use in intermediate processes, such as editing, on-air
backup and screening, and for final delivery to cable and pay-per-view
programmers, broadcast networks, television stations, airlines, home video
duplicators and foreign distributors. The Company duplicates videotape in all
international standards in 22 tape formats. The Company believes that its
professional duplication facility is technically advanced and has unique
characteristics that significantly increase equipment capacity utilization
while reducing error rates and labor costs.

BROADCAST SERVICES

The broadcast services division offers a broad range of facilities and
technical and creative services to domestic and international programmers. The
Company provides all of the facilities and services necessary to assemble and
distribute programming via satellite to viewers in the United States, Canada
and Asia. These services include assembling programming provided by the
customer into a 24-hour "network" format, creating

interstitial and promotional graphics and other material that support the
brand identity of the programming, providing production support and facilities
for the timely creation of original programming such as announce and news
segments, and providing automated systems to deliver the programming to air
via playback and uplink facilities. In addition, the Company provides
broadcast facilities and services for the delivery of syndicated television
programming in the United States and Canada and transmits special events,
sports or news stories for insertion in a network, cable system or direct-to-
home broadcast. The Company's customer base consists of the major studios and
entertainment companies offering world-wide network programming, independent
content owners offering niche market programming and pay-per-view channels
marketing movies and special events to the cable industry and direct-to-home
viewers. Broadcast service operations are conducted in Burbank and the
Republic of Singapore.

The Company's Network Delivery Process consists of the services outlined in
the chart below. While the Company markets these services as a cost-effective
package, service offerings are available individually and priced separately.

The Network Delivery Process

Production Network Uplink
Promotion -- Assembly -- Origination -- Satellite
Audio Transponder

Production and Promotion. A broadcaster's identity and continuity during the
broadcast day are established and enhanced when an on-camera personality
(presenter) is used to introduce the channel or the channel's programming.
Timely broadcast programming, such as news, requires immediate and precise
coordination of on-camera talent, the script, the pre-recorded videotape and
graphic materials and the broadcast schedule. The Company operates a state-of-
the-art production studio in Singapore with three cameras, production and
audio control rooms, videotape playback and record, multi-language prompter,
computerized lighting, and dressing and makeup rooms. The studio is fully
configured for host, news and chroma key segments. A one-camera field crew is
also available for electronic field production recording, and the Company
offers live-to-satellite interview and other on-camera services. On-screen
marketing and broadcast continuity also depend on on-air promotional material
to support the channel's brand identity and the channel's programming. The
Company, working in conjunction with the customer's producers, offers a
complete on-air promotional service, including graphics, editing, voice-over
record, sound effects editing, sound mixing and music composition.

Audio. Programming designed for distribution in markets other than those for
which it was originally produced is prepared for export through language
translation and either subtitling or voice dubbing. The Company provides
dubbed language versioning with an audio layback and conform service that
supports various audio and videotape formats to create an international
language-specific master videotape. The Company's Burbank facility also
creates music and effects tracks from programming shot before an audience to
prepare television sitcoms for dialog record and international distribution.
The Company's Singapore facility supports subtitling with translation
coordination and a complete on-screen and closed-caption subtitling facility.
Subtitling currently is available in Chinese and English; other languages can
be added in response to customer need.

Assembly. Prior to broadcast, program and interstitial material is checked
for quality control and may be pre-compiled into final broadcast form prior to
on-air playback. Interstitial pre-compilation is performed in Company editing
facilities, often using proprietary systems and software which permit the
efficient assembly of high production value visual effects. Syndicated
programming is also prepared for distribution with commercials and similar
elements inserted prior to distribution. Control procedures are used to ensure
on-air reliability. The Company provides programming to almost all United
States broadcast television stations through daily satellite feeds and tape
shipments. A variety of movie and show formatting and time compression
services are available

to prepare programming for distribution. Commercial, promotional, billboard,
warning, logo and other integration, as well as closed captioning for the
hearing impaired and source identification encoding, is performed. The Company
also provides program log and traffic support to programmers; affiliate
relations and station coordination; library storage of broadcast master tapes;
and a syndication program library and recycled videotape inventory.

Network Origination. The Company provides videotape playback and origination
to cable, pay-per-view and direct-to-home networks and services. The Company
accepts daily program schedules, programs, promos and advertising, and
delivers 24 hours of seamless daily programming to cable affiliates and home
satellite subscribers. The Company uses automated robotics systems for
broadcast playback, which include proprietary systems and software. The
Company also operates industry-standard encryption and/or compression systems
as needed for customer satellite distribution. The Company uses a customized
approach to satisfy each customer's timeliness, flexibility and reliability
requirements. Playback systems are both videotape and video server-based, and
subtitling and "local avail" (head and commercial insertion) are supported.
Quality control, tape storage and trafficking services are also offered by the
Company. Currently, the Company supports over twenty 24-hour channels from its
Burbank facility, and two 24-hour channels originate from the Singapore
facility.

Uplink and Satellite Transponders. The Company's Burbank facility operates a
C-band video-oriented satellite earth station facility with eight
transmit/receive antennas and over 30 transmit chains. Catalina Transmission
Corp. ("Catalina"), a wholly owned subsidiary of 4MC Burbank, is licensed by
the FCC and operates as a common carrier. Facilities are staffed 24 hours a
day and also are used for downlink and turnaround services. The Company
communicates with two transponders on the Galaxy IV(R) satellite in support of
the Company's syndication and Canadian distribution business segments.
Catalina accesses various "satellite neighborhoods" daily, including basic and
premium cable, broadcast syndication and direct-to-home markets. The Company
resells transponder capacity for ad hoc and other occasional use and bundles
its transponder capacity with other broadcast services to provide a complete
broadcast package at a fixed price.

TELEVISION SERVICES

The television services division provides a broad range of facilities and
technical and creative services directed to producers of original television
programming. The Company provides all of the technical and certain of the
creative services that are necessary to conform original film or video
principal photography to a final product suitable for network, syndicated,
cable or foreign television. These services include developing negative in the
Company's film laboratory, converting developed negative to video tape and/or
digital formats, creating music and sound effects, mixing all sound elements
for laydown to the final program master, creating visual effects in the final
program master, color correction, dirt and scratch removal, formatting for
commercial integrating and physical delivery via tape or digital delivery via
satellite of the program master for air. The Company's customer base includes
most of the major studios and broadcast networks that produce original
programming as well as a large number of independent production companies.
Television operations are conducted in Burbank and Santa Monica.

The Company's Programming Delivery Process consists of the services outlined
in the chart below. While the Company markets these services as a cost-
effective package, service offerings are available individually and priced
separately.

The Original Programming Delivery Process

Audio
Negative Off-Line Visual Assembly
Developing -- Editing -- Effects -- Formatting

Transfer Duplication

Digitization

Negative Developing. Because of the creative freedom, high resolution image
quality and flexibility attained by working with film, the majority of prime
time network and first run syndicated television programming originates on
film. "Dailies" (camera original negative shot during each day) for one hour
dramas, situation comedies and movies-of-the-week are delivered to the
Company's film laboratory to be developed overnight. The Company's film
laboratory specializes in negative developing for television applications and
has increased its television related activities in each year since the
Company's inception.

Transfer and Digitization. The transfer department accepts developed
negative from a laboratory and transfers the film to videotape. The transfer
process enables the customer to view the previous day's work on videotape and
begin the creative process of editing the footage. The transfer process is one
of the most technically and creatively challenging of any of the Company's
services. The Company must integrate various forms of audio and encode the
video picture with feet and frame numbers from the original film. The Company
utilizes state-of-the-art URSA Gold(R) telecine equipment adapted for
television specifications. The Company believes that its equipment produces
the highest quality results attainable in the industry today in part because
it uses only URSA Gold(R) technology for television transfer services.

Off-Line Editing. The Company delivers low resolution digitized images to
the customer for processing by various non-linear editing work stations, such
as the Avid(R), Media Composer(R), Lightworks(R) and Heavyworks(R). Using
these or similar systems, the customer determines the programming content and
creates an edit decision list, which will eventually be used to assemble the
source material into a final product suitable for broadcast. The Company
provides and fully supports non-linear off-line editing with personnel and
equipment for use by the customer within the Company's facilities or at other
locations designated by the customer. In addition, the Company is currently
constructing communications infrastructure to provide digitized images
directly from the film-to-tape transfer room to work stations via dedicated
phone lines.

Audio. After the customer has made substantially all of the creative
decisions necessary to determine the programming content, the Company offers
various services to enhance and conform the audio to the video image. The
Company creates sound effects, assists in replacing dialog and re-records all
the audio elements for integration with the final video product. The Company
designs sound effects to give life to the visual images with a proprietary
library of over 30,000 digital sound effects. Dialog replacement is sometimes
required to improve quality, replace lost dialog or eliminate extraneous noise
from the original recording. Re-recording combines sound effects, dialog,
music and laughter together to complete the final product. In addition, the
re-recording process allows the enhancement of the listening experience by
adding specialized sound treatments, such as stereo, Dolby(R) SR(R) and
Surroundsound(R). The Company's primary audio markets are situation comedies
and one-hour dramas. Finally, the Company has two theater sized re-recording
stages targeted at the feature film and made-for-TV movie markets. The Company
employs an award winning staff in both areas and is well respected for its
technical and creative contribution.

Visual Effects. Visual effects are used to enhance the visual experience of
the viewing audience by supplementing images obtained in principal photography
with computer generated images. Most often, visual effects create images that
cannot be created by any other means on a cost effective basis. DMC, the
Company's visual effects operation located in Santa Monica, specializes in
creating visual effects for television. DMC's compositing suites are
configured for nine layers of color correction and eight layers of compositing
with powerful wipe generators. These devices are used to generate bends,
warps, morphs, 3D shapes and transformations in real time. DMC also offers an
array of graphics and animation workstations using a variety of software to
accomplish unique effects, including 3D animation. The Company believes that
DMC is a leader in providing visual effects for the television industry as
evidenced by its involvement in numerous award winning series, including Star
Trek(R)--The Next Generation(R), Star Trek(R)--Deep Space Nine(R) and Star
Trek(R)--Voyager(R).

Assembly, Formatting and Duplication. Once all of the creative decisions
have been made by the customer, including the integration of sound and visual
effects, the Company employs the edit decision list to assemble the source
material into its final form. To accomplish this, the Company utilizes a
combination of

component digital linear assembly systems and super computer based non-linear
assembly systems. The Company believes that its assembly systems, which will
become fully operational in the last three months of 1996, are among the most
technologically advanced in the industry. In addition, the Company utilizes
sophisticated computer graphics equipment to generate titles and characters
and to format the program to meet specific network requirements (e.g., time
compression and commercial blocks). Finally, the Company creates multiple
"masters" for delivery to the network for broadcast, archival and other
purposes designated by the customer.

VISUAL EFFECTS SERVICES

The visual effects division offers a broad range of facilities and technical
and creative services to creators of special visual effects for feature films
and television. The Company provides services required to digitally create or
manipulate images in high resolution formats for integration into feature
films as well as certain television applications. These services include
negative developing and color correction utilizing the Company's film
laboratory facilities, film scanning and recording and digital compositing.
The Company bundles its visual effects services in order to lower the cost of
certain visual effects, improve response time and the consistency of results,
and to provide customers access to new technology. The Company's customer base
includes most of the major studios as well as independent visual effects
supervisors contracted by producers of feature films. Visual effects
operations are conducted in Burbank and Santa Monica.

The Company's Effect Creation Process consists of the services outlined in
the chart below. While the Company markets these services as a package,
service offerings are available individually and priced separately.

The Effect Creation Process

Correction
Pre- -- Design -- Scanning -- Developing
Production Creation Recording
Printing
Consulting

Pre-Production and Principal Photography Consulting. Using a script provided
by the production company, the Company provides a written outline for
implementing the effects, time frame and preliminary effects budget. The
Company makes recommendations on how best to realize each visual effect,
taking into consideration the complexity of the desired effect, the production
schedule and budget. Even projects that would not normally be considered a
special effect feature will make use of digital techniques to create sets,
backgrounds, lighting, crowds and other effects. The Company creates story
boards in order to reach an understanding as to which elements will be shot
and by whom prior to principal photography. Upon request, the Company will
provide a visual effects supervisor to assist in the principal photography
that will later be incorporated in a digital effect. Often, the Company
assembles a film crew to shoot elements that are necessary to properly
integrate a visual effect into a particular scene.

Effect Design and Creation. In order to reduce costs and meet shorter
release schedules, the studios have recently begun reducing the amount of time
available for the Effect Creation Process from twelve months to four months.
This acceleration is often at odds with the responsibility of the visual
effects supervisor to evaluate many effect alternatives before making a final
selection. In order to minimize costs, the Company first designs effects in
low (i.e., video) resolution. Once the design is approved, the Company creates
visual effects in high (i.e., film) resolution using powerful super computers,
such as the Domino(R) Double Four(R) and the Silicon Graphics(R) Onyx Reality
Engine II(R). The Domino(R) is used for high speed digital image creation,
animation, compositing, retouching, rotoscoping, motion and color correction.
The Reality Engine(R) runs a variety of software packages, including
Inferno(R) by Discrete Logic(R), which is capable of creating elaborate
digital multi-plane matte paintings and live action effect composites. The
Company also employs other Silicon Graphics(R) work stations to run
specialized software, including Alias(R), Soft Image(R) and Elastic Reality(R)
for 3D animation applications.

Film Scanning and Recording. An integral part of the Effect Creation Process
is the digitizing of principal photography so that images can be created or
manipulated in a digital work station. The Company digitizes film on an
Oxberry(R) 6400 film scanner and transfers the digital information to a
central file server where it can be accessed by any of the Company's work
stations. Once the effect is completed and approved by the visual effects
supervisor, the Company downloads the digital information to a Celco(R)
Extreme Effects(R) digital film recorder, which records the digital
information on film. The completed conversion can then be assembled with the
film negative.

Color Correction, Negative Developing and Prints. Throughout the Effect
Creation Process the visual effects supervisor relies upon the film laboratory
to process and print the visual effects segments so that they can be viewed in
film resolution. In preparing the final cut it is often difficult to integrate
the effect seamlessly with the principal photography on a timely or cost
efficient basis. The Company's film laboratory offers a proprietary color
correction process designed to give the visual effects supervisor more control
over the integration of the digitally created images with the principal
photography. The Company believes that it has the only visual effects
operation that offers this film laboratory quality control feature.

CUSTOMERS

The Company's customer base includes the major studios, independent owners
of television and film libraries, programmers, producers of original
television programming and creators of visual effects. As of August 4, 1996,
the Company had over 2,000 active accounts included in its customer base. The
Company is committed to building and retaining a loyal customer base by
providing a broad range of service offerings, state-of-the-art equipment and
technology, and superior customer service at competitive prices.

The Company's ten largest customers accounted for 57.4% of total revenues in
fiscal 1996, compared to 52.2% in fiscal 1995. In addition, 29.5% of the
Company's revenues were generated by the six major domestic studios (Disney,
MCA/Universal, Sony/Columbia, Viacom/Paramount, Warner Bros. and Twentieth
Century Fox) in fiscal 1996, compared to in fiscal 1995. The increase in
revenue concentration among the Company's top ten revenue producing customers
is the result of the substantial increase in revenues from MTV Asia and the
expansion of the Company's relationship with Sony/Columbia. The Company
believes that the increase in the percentage of its revenues generated by the
major studios reflects the expansion of services provided by each of the
Company's operating divisions together with greater customer acceptance of the
Company's ability to provide complete outsourcing solutions.

In the Company's television and visual effects divisions, customer
relationships also can be measured by the number and types of projects
completed by the Company during the production season. During the 1995-1996
television season, the Company provided one or more services to 67 episodic
television programs. In the 1996-1997 season, the Company expects to provide
one or more services to 79 episodic television programs. The Company believes
that the increase in its television customer base is the result of an
increased volume of television production, the construction of a new
television facility in Burbank and significantly improved coordination between
the Burbank and Santa Monica television facilities. In fiscal 1995 and 1996,
the Company provided one or more visual effects services to eight and 13
feature film projects, respectively.

TECHNOLOGY

The Company purchases hardware and software developed and manufactured by
others and integrates various systems and technologies in a proprietary manner
to accomplish the objectives of customers. The integration of hardware and
software often requires the development of new proprietary systems and
infrastructure by the Company. From time to time, the Company forms strategic
alliances with hardware and software manufacturers to jointly develop a
specific application. Examples of informal strategic alliances involving joint
development projects include: (i) BTS(R) and NVision(R) component digital
routing systems; (ii) Snell & Wilcox, Alchemist(R), phase correlation
standards conversion equipment; (iii) Rank Cintel URSA Gold(R) technology
deployment for television and feature mastering applications; (iv) Sony Corp.
LMS(R) automated robotic broadcast systems; and (v) Quantel, Inc.(R) Edit
Box(R) and Clip Box(R) file server and non-linear editing technology for
episodic television assembly.

The Company substantially has completed the deployment of new component
digital infrastructure in its television and studio services divisions. The
Company believes that this infrastructure is state-of-the-art and sets the
industry standard for performance, efficiency and reliability. The Company
intends to upgrade its broadcast services operation in Burbank to accommodate
new digital technologies and convert the remaining analog portions of the
Company's television business to component digital as it becomes technically
and operationally feasible. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

COMPETITION

Los Angeles is the center of domestic television and feature film production
and the exploitation of content libraries. It is also the largest and most
competitive market in the world in terms of total revenue potential in the
Company's studio, television and visual effects business segments. The
entertainment services industry in Los Angeles is highly fragmented, and no
single industry participant, including the Company, has a dominant market
share in any service offering. The Company believes that it is unique,
however, among industry competitors in terms of the breadth of its operating
divisions and the depth of service offerings within each business segment.

The Company experiences intense competition in each of its business
segments. Although the Company believes no one competitor offers a comparable
range of services, some of the Company's current and potential competitors,
particularly those who perform services in-house, have substantially greater
financial, technical, creative, marketing and other resources than the
Company. The Company's competitors may devote substantially greater resources
to the development and marketing of new competitive services. The Company
expects that competition will increase substantially as a result of industry
consolidations and alliances, as well as the emergence of new competitors. The
Company also actively competes with industry participants operating niche or
specialty businesses. In addition, certain of the Company's current and
prospective customers conduct in-house operations that the Company considers
competitive. For example, Warner Bros., a major customer, conducts extensive
in-house operations in several of the Company's business segments. The Company
believes that all of its services offerings are competitive with in-house
operations and other independent service providers.

The Company entered the international broadcast market with the completion
of its Singapore facility in 1995, and it will seek to provide services to
domestic and foreign programmers in regional television markets in Asia and
abroad. The Company competes with local service providers that may have
competitive advantages resulting from their experience in the region,
including in Singapore and elsewhere in Asia, who have well established
customer relationships and business operations.

EMPLOYEES

The Company employs creative, technical, engineering, administrative and
managerial staff in each operating division. In addition, the Company has
centralized certain financial and administrative functions, including
accounting, credit, billing, payroll and human resources. As of August 4,
1996, the Company had a total of 549 full time employees, 393 of which were
located in Burbank, 74 full time employees in Santa Monica and 82 full time
employees in Singapore.

The Company has entered into employment agreements with certain members of
its creative staff to secure their services. The Company believes that it
provides compensation and benefits that are competitive with the market for
persons with the skills required by the Company. The Company has experienced
no work stoppages since its formation in 1993, and considers its relations
with employees to be good.

PROPERTIES

The Company's principal executive offices, together with its facilities for
domestic broadcast, television and studio services, are located in four
buildings in the Burbank Media District. The Company leases these facilities,
which in the aggregate occupy approximately 86,000 square feet, under
agreements with terms expiring between January 1999 and October 1999, and
options to renew extending through October 2014. In addition, the

Company leases 44,807 square feet in a 90,000 square foot facility in Burbank
to house its archive. The Company has entered into a Purchase and Sale
Agreement to purchase this property for $11.3 million. The Company's visual
effects division and a portion of its television division are located in Santa
Monica in a 29,000 square foot facility, which is leased under an agreement
that expires in October 1999 and may be renewed at the Company's option
through October 2004. The Company's film laboratory is located in an 18,000
square foot facility in Burbank, and is owned by the Company. The film
laboratory services both the television and the studio services divisions. The
Company leases 20,000 square feet in Singapore to house its Singapore
broadcast facility. The lease expires in December 1996, and may be renewed at
the Company's option through December 2001. The Company believes that all of
its facilities substantially comply with applicable environmental and other
laws and regulations. The Company believes that its facilities are adequate
for its current needs and that additional space will be available as needed
for future expansion.

GOVERNMENT REGULATION

Transmissions from the Company's domestic broadcast division's earth station
to satellites must be made pursuant to license granted by the FCC. Catalina
holds three satellite earth station licenses and other authorizations required
for the operation of the Company's business. The license for Catalina's
transportable earth station normally is granted for a period of a year and has
been routinely renewed. The two licenses for its fixed earth stations normally
are granted for a period of ten years with one expiring in 2001 and the other
expiring in 2004. The FCC generally renews licenses for satellite earth
stations routinely, but there can be no assurance that the Company's licenses
will be renewed at their expiration dates or that such renewals will be for
full terms. In addition, FCC licensing decisions or changes in United States
government policies limiting or increasing the cost of access to satellites
could adversely affect the Company. No FCC authorization is required for
reception of transmission from domestic satellites from points within the
United States. The Company relies on third party licenses or authorizations
when it transmits domestic satellite traffic through earth stations operated
by such third parties. The FCC establishes technical standards for satellite
transmission equipment which change from time to time, and also requires
coordination of earth stations with land-based microwave systems at certain
frequencies to assure noninterference. Transmission equipment must also be
installed and operated in a manner that avoids exposing humans to harmful
levels of radio-frequency radiation. The placement of earth stations or other
antennae is typically subject to regulation under local zoning ordinances.

LITIGATION

The Company is involved in two legal proceedings with the International
Alliance of Theatrical Stage Employees ("IATSE"), the union which formerly
represented approximately 100 employees of Compact. In the first case,
entitled ATS Acquisition Corp., Inc. v. National Labor Relations Board
("NLRB") Case No. 31-CA-20089, IATSE argued that the Company should have
bargained with it as a labor law "successor" following the sale of Compact's
assets to the Company in August 1993. The Company refused to bargain with
IATSE, contending that only a broad, company-wide bargaining unit was
appropriate. In a decision issued in July, 1996, the NLRB ordered the Company
to bargain with IATSE with regard to certain of the Compact bargaining unit
employees. The Company has continued to express its disagreement with this
bargaining unit. Since the NLRB's orders are not self-executing, the Company
anticipates that the NLRB will seek enforcement of its order in the United
States Court of Appeals. The Company will continue to assert that only
company-wide bargaining is appropriate following a secret ballot election
conducted among its employees. The Company will fulfill its legal obligations
if bargaining is eventually ordered by the courts. However, the National Labor
Relations Act does not require a party to compromise its position in
collective bargaining. Moreover, the NLRB has confirmed the Company's position
that it lawfully implemented its own wages, benefits and working conditions
when it acquired the assets owned by Compact in 1993 and denied the union's
request for back pay. The NLRB's bargaining order, therefore, provides for no
backpay liability to the Company.

The second action, entitled IATSE, et. al. v. ATS Acquisition Corp., Inc.,
et. al., United States District Court Case No. CB 93-5574-JGD(x), was filed by
IATSE against the Company in United States District Court for the Central
District of California on September 14, 1993. This lawsuit essentially alleges
that the Company is an

alter ego or "disguised continuance" of Compact and is therefore bound by
Compact's collective bargaining agreement with IATSE. The Company believes
this lawsuit is baseless. In any event, in 1996, the court stayed further
proceedings in the matter pending completion of the NLRB proceedings referred
to above. Accordingly, the Company has not been forced to defend this lawsuit
and believes that the resolution of Case No. 31-CA-20089 will determine the
final outcome of legal disputes with IATSE, and that the Company will
ultimately prevail in that matter.

In addition, the Company is subject from time to time to litigation arising
in the ordinary course of its business, and the Company believes that no such
litigation is pending (including the IATSE matters referred to above) that
would have a material adverse effect on the Company's results of operations or
financial condition.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages as of
August 4, 1996 are as follows:

NAME AGE POSITION
---- --- --------

Robert T. Walston....... 38 Chairman of the Board and Chief Executive Officer
John H. Donlon.......... 51 President and Director
John H. Sabin........... 56 Vice President, Chief Financial Officer and Director
Gavin W. Schutz......... 40 Vice President, Chief Technology Officer and Director
Robert Bailey........... 38 Vice President, Director of Marketing and Director
James T. Conlon......... 48 Vice President and Director of International Operations
Shimon Topor(1)......... 52 Director
Edward Kirtman(1)....... 44 Director

- --------------------
(1) Member of Compensation Committee

Robert T. Walston is the founder of the Company and has served as Chairman
and Chief Executive Officer since August 1993. From 1991 until he founded the
Company, Mr. Walston served as a Vice President and Director of Steinhardt
Group, Inc. where he directed the firm's sourcing and financial analysis of
acquisitions of middle market companies. From 1988 to 1991, Mr. Walston was a
Vice President of Dean Witter Reynolds, Inc. where he worked on merger and
acquisition assignments and debt and equity offerings. Mr. Walston received a
BBA from Baylor University and an MBA from the University of Texas at Austin.

John H. Donlon has served as President and a Director of the Company since
August 1993. Prior to joining the Company, Mr. Donlon was President and Chief
Executive Officer of Compact Video Group, Inc., a provider of feature
mastering and standards conversion services to the entertainment industry,
from 1984 to 1993. From 1981 to 1984, Mr. Donlon was employed by Technicolor,
Inc. as President of Technicolor's videocassette subsidiary and from 1977 to
1981 as Vice President and Director of Technicolor's Laboratory Operations.
Mr. Donlon received degrees from the Georgia Institute of Technology and the
University of Florida.

John H. Sabin has served as Vice President, Chief Financial Officer and a
Director of the Company since August 1993. Prior to joining the Company he was
a Senior Vice President and Chief Financial Officer of Compact Video Group,
Inc., a provider of post-production services to the television industry. From
1988 to 1993 he was an Executive Vice President of Kenmare Capital Corp., a
private holding company involved in merchant banking activities. From 1978 to
1988, he was a Vice President and Chief Financial Officer of Robert Bruce
Industries, a publicly held multi-division apparel manufacturer and
wholesaler. Mr. Sabin received a BS degree in Industrial Administration from
Iowa State University.

Gavin W. Schutz has served as Vice President and Chief Technology Officer of
the Company since August 1993, and was elected a Director of the Company in
September 1996. Prior to joining the Company he was Director of Engineering of
Image Transform, Inc., a provider of feature mastering and standards
conversion services to the entertainment industry, from 1980 to 1993. Mr.
Schutz is responsible for the design of digital video standards converters,
time and smear correctors and video noise reduction using four field non-
recursive digital filtering algorithms. Mr. Schutz received a BS degree in
Electronic Engineering from the South Australia Institute of Technology.

Robert Bailey has served as Vice President and Director of Marketing of the
Company since August 1996, and was elected a Director of the Company in
September 1996. From 1993 to 1996 he served as Vice President and Director of
Marketing for the Company's studio and television services divisions. Prior to
joining the Company he was a Vice President of Image Transform, Inc., a
provider of feature mastering and standards

conversion services to the entertainment industry, from 1985 to 1993. From
1977 to 1985, he was creator/producer of "Hollywood Detective" for the A&E
Channel, Producer/Director of "Eye on L.A." for ABC and Producer of
"Remmington Steele" for MTM Productions. Mr. Bailey received a BA from the
University of Southern California.

James T. Conlon has served as Vice President of the Company since August
1993, and Director of International Operations since 1994. From 1984 to 1993,
he was Director of Engineering, Director of Distribution Services and Manager
of Satellite Services at Compact Video Group, Inc. From 1975 to 1984, he held
various positions at Trans American Video and assisted the creative
development of Paramount's "Entertainment Tonight" and Merv Griffin
Productions' "Jeopardy". Mr. Conlon received a BS degree in Computer Science
from Pratt Institute and a MBA from the University of Southern California.

Shimon Topor has served as a Director of the Company since August 1993. He
has been a general partner in all of the private investment partnerships
controlled by Michael H. Steinhardt since 1985. Prior to joining the
Steinhardt organization, he managed the international operations of Bank
Hapoalim, served as Chairman and Chief Executive Officer of Israel Continental
Bank, and Senior Vice President of the Ampal Corporation. Mr. Topor received a
law degree from Hebrew University Law School.

Edward Kirtman has served as a Director of the Company since August 1993. He
has been a general partner in all of the private investment partnerships
controlled by Michael H. Steinhardt since 1995. From 1986 to 1994 he served as
the Chief Financial Officer of the Steinhardt organization's real estate
investment corporations and partnerships. Prior to joining the Steinhardt
organization, Mr. Kirtman was an Assistant Vice President of Heller Financial,
Inc. Mr. Kirtman received a BBA from Baruch College.

The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors. The Board of Directors is divided into
three classes. Class I, with terms expiring in 1999, is comprised of
Messrs. Walston, Topor and Kirtman. Class II, with the terms expiring in 1998,
is comprised of Messrs. Donlon, Sabin and Schutz. Class III, with terms
expiring in 1997, is comprised of Mr. Bailey. There are no family
relationships among any of the executive officers and directors of the
Company.

DIRECTOR COMPENSATION

The Company's non-employee directors are paid a fee of $1,000 for each
meeting attended of the Board of Directors or of a committee of the Board, and
all directors are reimbursed for expenses incurred in attending such meetings.
The Company has recently established a stock option plan that provides for
automatic stock option grants to non-employee directors commencing upon the
consummation of this offering. See "Management--Stock Plans" and "Certain
Transactions."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company's Compensation Committee was formed in September 1996 to review
and approve the compensation and benefits for the Company's executive
officers, administer the Company's stock option and other benefit plans and
make recommendations to the Board of Directors regarding such matters. The
Committee is currently composed of Messrs. Topor and Kirtman. Prior to
formation of the Compensation Committee, the entire Board of Directors
administered executive compensation programs. No interlocking relationships
exist between any member of the Company's Compensation Committee and any
member of any other company's board of directors or compensation committee.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Certificate of Incorporation limits the liability of the
Company's directors for monetary damages to the maximum extent permitted under
the laws of the State of Delaware. Such limitation of liability has no effect
on the availability of equitable remedies, such as injunctive relief or
rescission.

The Company's Bylaws provide that the Company will indemnify its directors
and officers and may indemnify its employees and agents (other than officers
and directors) against certain liabilities to the maximum extent permitted
under the laws of the State of Delaware. The Company has entered into
indemnity agreements with each of its current directors and executive officers
that provide for indemnification of, and advancement of expenses to, such
persons to the maximum extent permitted under the laws of the State of
Delaware, including by reason of action or inaction occurring in the past and
circumstances in which indemnification and advancement of expenses are
discretionary under Delaware law.

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid to the Chief Executive
Officer and the other four most highly compensated executive officers whose
salary equals or exceeds $100,000 (collectively, the "Named Officers"), for
services rendered to the Company in all capacities during the fiscal year
ended August 4, 1996.

SUMMARY COMPENSATION TABLE

COMPENSATION
---------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION
--------------------------- -------- ------- --------------- ------------

Robert T. Walston,
Chairman and Chief Executive
Officer......................... $240,000 $ -- $3,508 $--
John H. Donlon,
President....................... 253,493 -- 4,449 --
John H. Sabin,
Vice President and Chief
Financial Officer............... 174,965 -- 3,617 --
Gavin W. Schutz,
Vice President and Chief
Technology Officer.............. 175,000 40,000 2,673 --
Robert Bailey,
Vice President and Director of
Marketing....................... 125,000 40,000 -- --

- --------------------
(1) Represents the Company's 401(k) contributions for these individuals for
the 12 months ended December 31, 1995.

No Named Officer received a stock option grant during fiscal 1996. The
following table sets forth certain information concerning the number and value
of unexercised stock options held as of August 4, 1996 for each of the Named
Officers who hold stock options.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT FISCAL YEAR END
SHARES FISCAL YEAR END ($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------

John H. Donlon..........
John H. Sabin...........
Gavin W. Schutz.........
Robert Bailey...........

- --------------------
(1) Based on the difference between the deemed fair market value of the
securities underlying the options at August 4, 1996 (which for purposes of
this table, is assumed to be $ per share) and the exercise price.

STOCK PLANS

1993 Stock Options. The Company granted stock options to four executive
officers of the Company on September 7, 1993. These options are exercisable
for shares of Common stock at $ per share, the fair market value on the
date of grant. These stock options vest over a six-year period at the rate of
16.7% per year. As of August 4, 1996 none of these options have been
exercised.

1997 Stock Plan. The Company's 1997 Stock Plan (the "1997 Plan") will be
submitted for approval by the Board of Directors and sole stockholder in
October 1996. The 1997 Plan provides for the granting to employees (including
officers and employee directors) of incentive stock options and for the
granting to employees (including officers and employee directors) of
nonstatutory stock options and stock purchase rights ("SPRs"). A total of
shares of Common Stock has been reserved for issuance under the 1997
Plan, which number will be increased on August 1 of each year, beginning in
1997, by a number of shares equal to five percent of the Company's outstanding
Common Stock as of such dates. The maximum number of shares of Common Stock
available for issuance pursuant to incentive stock option grants under the
1997 Plan is .

The 1997 Plan will be administered by the Board of Directors or a committee
designated by the Board (the "Administrator"). Options and SPRs granted under
the 1997 Plan are not generally transferable by the optionee except by will or
by the laws of descent and distribution, and are exercisable during the
lifetime of the optionee only by such optionee. Generally, options granted
under the 1997 Plan must be exercised within thirty days of the end of an
optionee's status as an employee of the Company, or within twelve months after
such optionee's termination by death or disability, but in no event later than
the expiration of the option term. The exercise price of all incentive and
nonstatutory stock options granted under the 1997 Plan will be determined by
the Administrator. With respect to any owner of 10% or more of the Company's
outstanding capital stock (a "10% Stockholder"), the exercise price of any
incentive stock option granted must equal at least 110% of the fair market
value on the grant date. The exercise price of incentive stock options for all
other employees must be no less than 100% of the fair market value per share
on the grant date. The maximum term of an option granted under the 1997 Plan
may not exceed ten years from the date of grant (five years in the case of an
incentive stock option granted to a 10% Stockholder). In the case of SPRs,
unless the Administrator determines otherwise, the Company will have a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). Such repurchase option lapses at a rate determined by the
Administrator. The purchase price for shares repurchased by the Company will
be the original price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company.

1997 Director Option Plan. Non-employee directors will be entitled to
participate in the 1997 Director Option Plan (the "Director Plan"). The
Director Plan will be submitted for approval by the Board of Directors and
sole stockholder in October 1996, but will not become effective until the
effective date of this offering. A total of shares of Common Stock has
been reserved for issuance under the Director Plan.

The Director Plan provides for an automatic grant of an option to purchase
shares of Common Stock (the "First Option") to each non-employee director
who first becomes a non-employee director (other than an employee director who
ceases to be an employee but remains a director) after the effective date of
the Director Plan. The option is to be granted on the date such person becomes
a non-employee director. Beginning on the third anniversary of the date he or
she became an outside director, each non-employee director will automatically
be granted an option to purchase shares (a "Subsequent Option") each year
on the date of such anniversary, provided he or she is then a non-employee
director. Each non-employee director will be eligible to receive a Subsequent
Option, regardless of whether such non-employee director was eligible to
receive a First Option. First Options and each Subsequent Option will have a
term of five years. One-quarter of the shares subject to a First Option will
vest one year after its date of grant and an additional one quarter will vest
at the end of each year thereafter, provided that the optionee continues to
serve as a director on such dates. All of the shares subject to a Subsequent
Option will vest one year after the date of the option grant, provided that
the optionee continues to serve as a director on such date. The exercise
prices of the First Option and each Subsequent Option will be 100% of the fair
market value per share of the Company's Common Stock on the date of the grant
of the option.

CERTAIN TRANSACTIONS

ACQUISITION OF COMPACT ASSETS BY SOLE STOCKHOLDER

4MC Burbank was incorporated in July 1993 as a wholly owned subsidiary of
TSP, a partnership formed for the purpose of acquiring certain net assets of
Compact Video Group, Inc., Compact Video Services, Inc., Image Transform, Inc.
and Meridian Studios, Inc. (collectively "Compact"). In August 1993, TSP was
capitalized by cash from private investment funds managed by Michael H.
Steinhardt and his affiliates and assets from Compact, providing for a total
capitalization at the time of formation of approximately $5.0 million. The
initial equity interest in TSP of the private investment funds managed by
Mr. Steinhardt was 80%. TSP contributed all of its cash and noncash assets to
4MC Burbank in exchange for all of the capital stock of 4MC Burbank. In
connection with this contribution, 4MC Burbank entered into a loan agreement
with Compact's primary lender with respect to approximately $10.6 million of
previously outstanding debt of Compact.

As a result of subsequent capital investments in TSP during fiscal 1994 and
1995, the equity interests of the private investment funds managed by
Mr. Steinhardt increased to 95.46%, 98.05% and 98.05% as of July 31, 1994,
July 30, 1995 and August 4, 1996, respectively.

In connection with the acquisition of Compact in 1993, the Company's Chief
Executive Officer was granted a profit interest in TSP for identifying,
analyzing and consummating the acquisition. The profit interest is equal to
10% of the excess, if any, by which the distributions (in cash or in kind)
from TSP exceed the partners' total investment in TSP plus a return of 9% per
annum. No amounts have been earned or paid under this profit interest. Upon
completion of this offering, at an assumed initial public offering price of
$ , Mr. Walston as a result of his profit interest in TSP will beneficially
own % of the Company's Common Stock.

LOANS FROM SOLE STOCKHOLDER

In August 1993, TSP agreed to provide 4MC Burbank with up to $10.0 million
pursuant to a subordinated note, which bears interest at 10% per annum and is
due in August 1998. In November 1994, TSP agreed to provide 4MC Burbank with
up to an additional $9.0 million on the same terms as the August 1993 note.

During fiscal 1994 and 1995, TSP advanced to 4MC Burbank $8.4 million and
$10.6 million, respectively, under these arrangements. In July 1995, TSP
contributed the $10.0 million principal amount of the August 1993 note to the
capital of 4MC Burbank. The remaining $9.0 million principal amount of, and
accrued interest on, the November 1994 note will be repaid using a portion of
the proceeds of this offering.

SERVICES PROVIDED TO STEINHARDT BAER PICTURES COMPANY

The Steinhardt Baer Pictures Company ("SBPC") is owned by Thomas Baer and S.
Pictures Company, Inc. (a corporation wholly owned by Michael H. Steinhardt).
SBPC holds limited partnership interests in a series of limited partnerships,
each of which owns the rights to a single motion picture (the "Movie LPs").
Mr. Baer was a director of 4MC Burbank from September 1993 until August 1996.
At various times during the period from 1993 to 1995, the Movie LPs engaged
4MC Burbank and/or its subsidiaries to provide services. The aggregate value
of services rendered by 4MC Burbank and its subsidiaries to the Movie LPs
totaled $188,000 in fiscal 1994, $2,000 in fiscal 1995 and $1,000 in fiscal
1996.

CONSULTING AGREEMENT WITH FORMER DIRECTOR

Donald Ross was a director of 4MC Burbank from March 1995 through August
1996. Since the Company's acquisition of the DM&T assets, Mr. Ross, through a
wholly owned company, has provided certain financial and administrative
services to 4MC Burbank and DMC on an independent contractor basis. During
fiscal 1995 and 1996, 4MC Burbank paid Mr. Ross an aggregate of $147,000 and
$205,000, respectively. No amounts were paid to Mr. Ross in fiscal 1994. Mr.
Ross is no longer a director of, or independent contractor for, the Company.

INDEMNITY AGREEMENTS

The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director and executive officer of the
Company (the "Indemnitees"). The Indemnity Agreements provide that the Company
will indemnify each Indemnitee against payment of and liability for any and
all expenses actually and reasonably incurred by the Indemnitee in defending
or investigating a claim, by reason of the fact that the Indemnitee is or was
a director and/or officer of the Company or is or was serving at the request
of the Company as a director, officer, employee or agent of another
corporation, partnership, or other enterprise, provided it is determined that
the Indemnitee acted in good faith and reasonably believed his actions to be
in the best interests of the Company.

REORGANIZATION

In connection with the Reorganization, TSP will contribute all of the shares
of capital stock of 4MC Burbank to the Company .

The Company believes that the above transactions were, and any future
transactions between the Company and any affiliate thereof will be, on terms
no less favorable than those that generally are available from unaffiliated
third parties.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of October , 1996, and
as adjusted to reflect the sale of Common Stock offered hereby, by: (i) each
person who is known by the Company to own beneficially more than 5% of the
Common Stock; (ii) the Selling Stockholder; (iii) each of the Company's
directors; (iv) each of the Named Officers; and (v) all directors and
executive officers as a group.

SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED AFTER
PRIOR TO OFFERING(1) SHARES OFFERING(1)
---------------------------- TO BE ----------------------
NAME OF BENEFICIAL SOLD IN
OWNERS NUMBER PERCENT OFFERING NUMBER PERCENT
- ------------------ ------------ ------------- -------- --------- ----------

Technical Services
Partners, L.P.(2)......
Robert T. Walston(3)....
John H. Donlon(4).......
John H. Sabin(5)........
Gavin W. Schutz(6)......
Robert Bailey(7)........
Shimon Topor(2)(8)......
Edward Kirtman(2)(8)....
All directors and
executive officers as a
group
(7 persons)(9).........

- --------------------
(1) Assumes no exercise of the Underwriters' over-allotment option. Applicable
percentage of ownership is based on shares of Common Stock outstanding
as of October , 1996. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission. In computing the
number of shares beneficially owned by a person and the percentage
ownership of that person, shares of Common Stock subject to options held
by that person that are currently exercisable or exercisable within
60 days of October , 1996 at a price less than or equal to the market
price are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each stockholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such stockholder's name.
(2) Each of such stockholder's address is c/o Steinhardt Management Company,
Inc., 605 Third Avenue, 33rd Floor, New York, NY 10158.
(3) Mr. Walston's address is c/o Four Media Company, 2813 West Alameda Avenue,
Burbank, California 91505. As a result of his profit interest in TSP, Mr.
Walston will beneficially own shares of the Company's Common Stock. See
"Certain Transactions." As of , 1996, options to purchase shares
of the Company's Common Stock were currently exercisable. If all of such
options had been exercised, Mr. Walston would have beneficially owned %
of the Common Stock of the Company before the offering and % after the
offering.
(4) Includes shares issuable upon exercise of vested options.
(5) Includes shares issuable upon exercise of vested options.
(6) Includes shares issuable upon exercise of vested options.
(7) Includes shares issuable upon exercise of vested options.
(8) These shares are owned by TSP. Messrs. Topor and Kirtman are executive
officers of the general partner of TSP, and general partners of certain of
the limited partners of TSP. Neither Mr. Topor nor Mr. Kirtman own any
shares of Common Stock directly, but may be considered the beneficial
owner of the securities listed above. However, Messrs. Topor and Kirtman
disclaim beneficial ownership of such shares.
(9) Includes shares issuable upon exercise of vested options.

DESCRIPTION OF CAPITAL STOCK

At the closing of this offering, the authorized capital stock of the Company
will consist of 50,000,000 shares of Common Stock, $.01 par value and
5,000,000 shares of undesignated Preferred Stock, $.01 par value.

COMMON STOCK

As of October , 1996, there were shares of Common Stock held of record
by the Company's sole stockholder. Holders of Common Stock are entitled to one
vote per share on all matters to be voted upon by the stockholders, including
the election of directors. As of October , 1996, options to purchase an
aggregate of shares of Common Stock were also outstanding. See
"Management." Subject to preferences that may be applicable to any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In
the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior liquidation rights of any
outstanding Preferred Stock. The Common Stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and non-assessable, and the shares of Common Stock to be
outstanding upon completion of this offering will be fully paid and non-
assessable.

PREFERRED STOCK

The Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions without any further vote or action by the
stockholders. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. The issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control. The Company has
no present plan to issue any shares of Preferred Stock.

CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS

Certain provisions of the Company's Certificate of Incorporation (the
"Certificate") and Bylaws summarized in the following paragraph may be deemed
to have anti-takeover effects and may delay, defer or prevent a tender offer,
proxy contest or takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including those attempts that might result
in a premium over the market price for the shares held by such stockholder.

The Company's Certificate and Bylaws provide that: (i) the Board of
Directors shall be divided into three classes of directors, with the term of
each class being for a period of three years and expiring in a different year;
(ii) the number of directors shall be fixed by the Board of Directors, but
shall consist of no less than three nor more than 11 directors; (iii) a
majority of the Board of Directors then in office, although less than a
quorum, has the authority to fill any vacancies on the Board of Directors;
(iv) a stockholder give advance notice of a proposal or director nomination
that such stockholder desires to present at the annual meeting; (v) the Bylaws
of the Company may be amended only by the Board of Directors or by two-thirds
of the Company's voting stock; (vi) any action by the stockholders be taken
only at an annual or special meeting of stockholders and not by written
consent; and (vii) a special meeting of stockholders may be called only by the
Chairman of the Board of Directors or a majority of the directors then in
office, though less than a quorum.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is U.S.
Stock Transfer Corporation.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering. there has been no public market for the Company's
Common Stock. Sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock.

Upon completion of this offering, the Company will have an aggregate of
shares of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining shares of Common Stock are held by the
Company's sole stockholder, TSP, and are "restricted" securities within the
meaning of Rule 144 under the Securities Act. Beginning 90 days after the date
of this Prospectus, and absent consideration of the contractual restrictions
described below, all of these shares would be eligible for sale by TSP in
reliance upon Rule 144 promulgated under the Securities Act. In addition,
absent the restrictions described below, if TSP were to effect a distribution
of the shares of Common Stock it holds to its constituent partners, up to
of these shares may become available for immediate sale in the public market
without restriction pursuant to Rule 144(k).

The Company's officers and directors and TSP have agreed not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or enter into any similar agreement that
transfers, in whole or in part, the economic risk of ownership of the Common
Stock, for a period of 180 days from the date of this Prospectus, in the case
of TSP, and three years from the date of this Prospectus, in the case of the
Company's officers and directors, without the prior written consent of Furman
Selz LLC. Furman Selz LLC may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. In addition, TSP has agreed that it will not effect a distribution
of the shares of Common Stock it holds to its constituent partners without
obtaining an agreement of the distributee to be bound by the terms of TSP's
lock-up agreement. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144 and 144(k), no shares will be eligible for immediate sale on the
effective date of this offering and, unless earlier released from the lock-up
agreements, shares of Common Stock will be eligible for sale
after the effective date of this offering, subject to the volume limitations
of Rule 144 in the case of shares held by TSP or any of its distributees who
are "affiliates" of the Company.

Additionally, pursuant to Rules 144 and 701, beginning after the
effective date of this offering, upon the expiration of contractual lock-up
restrictions, an aggregate of approximately shares will be vested and
eligible for sale upon the exercise of outstanding stock options.

In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least two years but less than
three years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares of Common Stock (approximately shares immediately after the
offering) or (ii) the average weekly trading volume during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission. Sales pursuant to Rule 144 are subject
to certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned his or her shares for at least three years is entitled to
sell such shares pursuant to Rule 144(k) without regard to the limitations
described above. In general, under Rule 701 under the Securities Act as
currently in effect, any employee, consultant or advisor of the Company who
purchases shares from the Company in connection with a compensatory stock or
option plan or other written agreement related to compensation is eligible to
resell such shares 90 days after the effective date of the offering in
reliance on Rule 144, but without compliance with certain restrictions
contained in Rule 144.

At , 1996, the Company had reserved an aggregate of shares of
Common Stock for issuance pursuant to the 1997 Plan, and options to purchase
approximately shares were outstanding under the 1997 Plan. In addition,
shares of Common Stock are reserved for issuance under the Director Plan.
No options are outstanding under the Director Plan. As soon as practicable
following the offering, the Company intends to file registration statements
under the Securities Act to register shares of Common Stock reserved for
issuance under the 1997 Plan and the Director Plan. Such registration
statements will automatically become effective immediately upon filing.
Substantially all of such shares will be eligible for immediate public sale.

UNDERWRITING

Each of the Underwriters named below (the "Underwriters"), for which Furman
Selz LLC is acting as the representative (the "Representative"), has severally
agreed, subject to the terms and conditions of the Underwriting Agreement, to
purchase from the Company and the Selling Stockholder, and the Company and the
Selling Stockholder have agreed to sell to each of the Underwriters, the
number of shares of Common Stock set forth opposite its name below.

UNDERWRITER NUMBER OF SHARES
----------- ----------------

Furman Selz LLC...........................................

The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock listed above are subject to the
approval of certain legal matters by counsel and various other conditions. The
Underwriting Agreement also provides that the Underwriters are committed to
purchase all of such shares of Common Stock offered hereby, if any are
purchased (without consideration of any shares that may be purchased through
the Underwriters' over-allotment option).

The Representative has advised the Company and the Selling Stockholder that
the Underwriters propose to offer the shares of Common Stock to the public
initially at the public offering price set forth on the cover of this
Prospectus and to certain dealers at such price less a concession of not in
excess of $ per share. The Underwriters may allow, and such selected
dealers may reallow, a concession not in excess of $ per share to certain
other dealers. After the initial public offering of the shares of Common
Stock, the public offering price and other selling terms may be changed by the
Representative.

Prior to the offering made hereby, there has been no public market for the
Common Stock. Accordingly, the initial public offering price for the Common
Stock will be determined by negotiation among the Company, the Selling
Stockholder and the Representative. Among the factors to be considered in such
negotiations are the Company's results of operations and current financial
condition, estimates of the business potential and prospects of the Company,
the experience of the Company's management, the economics of the industry in
general, the general condition of the equities market and other relevant
factors. There can be no assurance that any active trading market will develop
for the Common Stock or as to the price at which the Common Stock may trade in
the public market from time to time subsequent to the offering made hereby.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the public offering price set forth
on the cover page of this Prospectus, less underwriting discounts and
commissions. To the extent that the Underwriters exercise this option, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase such number of additional shares of Common Stock as is proportionate
to such Underwriter's initial commitment to purchase shares from the Company.
The Underwriters may exercise such option solely to cover over-allotments, if
any, incurred in the sale of the shares of Common Stock offered hereby.

The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required
to make in respect thereof.

The Company and the holders of shares of Common Stock in the aggregate,
including TSP and each officer and director of the Company, have agreed,
subject to certain exceptions, not to offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock,
or enter into any similar agreement that transfers, in whole or in part, the
economic risk of ownership of the Common Stock, for varying periods from the
date of the Underwriting Agreement, without the prior written consent of
Furman Selz LLC.

The Representative has informed the Company and the Selling Stockholder that
the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "FOUR."

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Troy & Gould Professional Corporation, Los Angeles,
California. Certain legal matters will be passed upon for the Underwriters by
Pillsbury Madison & Sutro LLP, Menlo Park, California.

EXPERTS

The consolidated balance sheets of 4MC-Burbank, Inc. as of July 30, 1995 and
August 4, 1996 and the consolidated statements of operations, stockholder's
equity, and cash flows for each of the three fiscal years in the period ended
August 4, 1996, and the balance sheet of Four Media Company at October 1,
1996, included in this prospectus have been included in reliance on the
reports of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedule thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed as part thereof. Statements contained in this Prospectus regarding the
contents of any contract or other document are not necessarily complete, and,
in each instance reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement, and the exhibits and schedule thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048, and copies of all or any part of the
Registration Statement may be obtained from such offices upon the payment of
the fees prescribed by the Commission. In addition, the Registration Statement
may be accessed electronically at the Commission's site on the World Wide Web
located at http://www.sec.gov.

The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent accountants and
quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.

INDEX TO FINANCIAL STATEMENTS

4MC-Burbank, Inc.
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets at July 30, 1995 and August 4, 1996.......... F-3
Consolidated Statements of Operations for the fiscal years ended July 31,
1994, July 30, 1995 and August 4, 1996.................................. F-4
Consolidated Statements of Stockholder's Equity for the fiscal years
ended July 31, 1994, July 30, 1995 and August 4, 1996................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended July 31,
1994, July 30, 1995 and August 4, 1996.................................. F-6
Notes to Consolidated Financial Statements............................... F-7
Four Media Company
Report of Independent Accountants........................................ F-17
Balance Sheet at October 1, 1996......................................... F-18
Notes to Financial Statements............................................ F-19

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
4MC-Burbank, Inc.
Burbank, California

We have audited the accompanying consolidated balance sheets of 4MC-Burbank,
Inc. (the "Company") as of July 30, 1995 and August 4, 1996, and the related
consolidated statements of operations, stockholder's equity, and cash flows
for each of the three fiscal years in the periods ended July 31, 1994, July
30, 1995 and August 4, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of 4MC-Burbank, Inc. as of July 30, 1995 and August 4, 1996, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the periods ended July 31, 1994, July 30, 1995 and
August 4, 1996, in conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Los Angeles, California
September 25, 1996

F-2

4MC-BURBANK, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

JULY 30, AUGUST 4,
1995 1996
-------- ---------

ASSETS
Current assets:
Cash....................................................... $ 6,651 $ 5,312
Restricted cash............................................ 717 709
Trade accounts receivable, net of allowance for doubtful
accounts of $563 and $823 as of July 30, 1995 and August
4, 1996, respectively..................................... 9,745 8,622
Inventory.................................................. 695 867
Prepaid expenses and other current assets.................. 1,548 2,838
------- -------
Total current assets..................................... 19,356 18,348
Property, plant and equipment, net.......................... 49,410 57,665
Deferred taxes.............................................. 1,000 2,000
Long-term receivable........................................ -- 2,008
Other assets................................................ 2,014 1,806
------- -------
Total assets............................................. $71,780 $81,827
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease
obligations............................................... $ 3,470 $ 6,153
Accounts payable........................................... 5,010 5,803
Accrued and other liabilities.............................. 5,211 4,750
------- -------
Total current liabilities................................ 13,691 16,706
Long-term debt and capital lease obligations................ 29,472 33,978
Subordinated debt, due to stockholder....................... 9,000 9,000
------- -------
Total liabilities........................................ 52,163 59,684
Commitments and contingencies (Note 7)
Stockholder's equity:
Common stock, $.01 par value; 1,000 shares authorized,
issued and outstanding.................................... -- --
Additional paid-in capital................................. 15,010 15,010
Foreign currency translation adjustment.................... 152 254
Retained earnings.......................................... 4,455 6,879
------- -------
Total stockholder's equity............................... 19,617 22,143
------- -------
Total liabilities and stockholder's equity............... $71,780 $81,827
======= =======

The accompanying notes are an integral part of these consolidated financial
statements.

F-3

4MC-BURBANK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

FISCAL YEARS ENDED
----------------------------
JULY 31, JULY 30, AUGUST 4,
1994 1995 1996
-------- -------- ---------

Revenues:
Studio............................................ $15,746 $20,677 $23,468
Broadcast......................................... 10,876 16,163 20,901
Television........................................ 15,639 22,712 23,343
Visual effects.................................... -- 1,452 2,316
------- ------- -------
Total revenues................................... 42,261 61,004 70,028
------- ------- -------
Cost of services:
Personnel......................................... 17,096 22,795 25,344
Material.......................................... 4,240 6,424 7,354
Facilities........................................ 3,774 3,917 4,692
Other............................................. 3,752 5,560 6,021
------- ------- -------
Total cost of services........................... 28,862 38,696 43,411
------- ------- -------
Gross profit.................................... 13,399 22,308 26,617
------- ------- -------
Operating expenses:
Sales, general and administrative................. 7,627 10,918 11,116
Depreciation and amortization..................... 3,284 6,241 10,165
------- ------- -------
Total operating expenses......................... 10,911 17,159 21,281
------- ------- -------
Income from operations.......................... 2,488 5,149 5,336
Interest expense, net.............................. 1,253 2,917 3,906
------- ------- -------
Income before income tax benefits............... 1,235 2,232 1,430
Income tax benefits................................ -- (988) (994)
------- ------- -------
Net income...................................... $ 1,235 $ 3,220 $ 2,424
======= ======= =======

The accompanying notes are an integral part of these consolidated financial
statements.

F-4

4MC-BURBANK, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

FOREIGN
COMMON STOCK ADDITIONAL CURRENCY TOTAL
------------- PAID-IN TRANSLATION RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS EQUITY
------ ------ ---------- ----------- -------- -------------

Issuance of common
stock.................. 1,000 $-- $ 5,010 $-- $ -- $ 5,010
Net income.............. 1,235 1,235
----- ---- ------- ---- ------ -------
Balance, July 31, 1994.. 1,000 5,010 1,235 6,245
Stockholder subordinated
debt conversion........ 10,000 10,000
Net income.............. 3,220 3,220
Foreign currency
translation
adjustments............ 152 152
----- ---- ------- ---- ------ -------
Balance, July 30, 1995.. 1,000 15,010 152 4,455 19,617
Net income.............. 2,424 2,424
Foreign currency
translation
adjustments............ 102 102
----- ---- ------- ---- ------ -------
Balance, August 4,
1996................... 1,000 $-- $15,010 $254 $6,879 $22,143
===== ==== ======= ==== ====== =======

The accompanying notes are an integral part of these consolidated financial
statements.

F-5

4MC-BURBANK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

FISCAL YEARS ENDED
-----------------------------
JULY 31, JULY 30, AUGUST 4,
1994 1995 1996
-------- -------- ---------

Cash flows from operating activities:
Net income........................................ $ 1,235 $ 3,220 $ 2,424
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 3,284 6,241 10,165
Provision for doubtful accounts.................. 183 215 580
Deferred taxes................................... -- (1,000) (1,000)
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash.......... -- (717) 8
Increase in trade and long term receivables..... (668) (4,644) (1,469)
Increase in inventory........................... (39) (277) (172)
Increase in prepaid expenses and other current
assets......................................... (694) (606) (1,289)
Increase in accounts payable.................... 1,862 3,148 792
Decrease in accrued and other liabilities....... (2,116) (992) (652)
------- ------- --------
Net cash provided by operating activities...... 3,047 4,588 9,387
Cash flows from investing activities:
Purchases of property, plant and equipment........ (7,877) (25,077) (10,318)
Organization costs for 4MC Asia................... -- (1,066) --
Acquisition of business........................... -- (4,759) --
------- ------- --------
Net cash used in investing activities.......... (7,877) (30,902) (10,318)
Cash flows from financing activities:
Proceeds from subordinated promissory note........ 8,400 10,600 --
Proceeds from term loans.......................... -- 12,070 --
Proceeds from term loan financing of acquisition.. -- 3,542 --
Proceeds from equipment notes..................... 1,261 3,723 3,685
Proceeds from issuance of common stock in exchange
for note payable................................. 4,000 -- --
Repayment of note payable......................... (4,000) -- --
Repayment of equipment notes and capital lease
obligations...................................... (689) (1,833) (4,095)
------- ------- --------
Net cash provided by (used in) financing
activities.................................... 8,972 28,102 (410)
Effect of exchange rate changes on cash............ -- 172 2
------- ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 4,142 1,960 (1,339)
Cash and cash equivalents at beginning of year..... 549 4,691 6,651
------- ------- --------
Cash and cash equivalents at end of year........... $ 4,691 $ 6,651 $ 5,312
======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid during the fiscal year for:
Interest......................................... $ 926 $ 3,664 $ 3,406
Income taxes..................................... -- -- --
Non cash investing and financing activities:
Capital lease obligations incurred............... $ 963 $ 2,284 $ 7,851

The accompanying notes are an integral part of these consolidated financial
statements.

F-6

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION

4MC-Burbank, Inc. (the "Company") is a provider of technical and creative
services to owners, producers and distributors of television programming,
feature films and other entertainment content. Through the integration of
available technologies, the Company applies a variety of systems and processes
to enhance entertainment content and dissemination.

The Company's business is divided into studio, broadcast, television and
visual effects services. The studio services division located in Burbank,
California, manages, formats and distributes existing content libraries. The
broadcast services division, located in Burbank, and the Republic of
Singapore, assembles and distributes television networks and programming via
satellite to viewers in the United States, Canada and Asia. The television
services division, located in Burbank and Santa Monica, California, assembles
film or video principal photography into a form suitable for network,
syndicated, cable or foreign television. The visual effects division, located
in Santa Monica, digitally creates and manipulates images in high-resolution
formats for use in feature films.

The Company was incorporated in July 1993 as a wholly owned subsidiary of
Technical Services Partners, L.P. ("TSP"), a limited partnership formed for
the purpose of acquiring certain defined net assets of Compact Video Group,
Inc., Compact Video Services, Inc., Image Transform, Inc. and Meridian
Studios, Inc. (collectively "Compact").

On August 4, 1993, TSP acquired substantially all of the assets of Compact
and transferred those assets to the Company. This acquisition was accounted
for under the purchase method and included $5,010,000 of capitalization,
$6,506,000 in assumed liabilities and acquisition costs and $10,550,000 in a
new term loan with Compact's previous primary lender.

On October 26, 1994, 4MC Acquisition Corp., a wholly owned subsidiary of the
Company, acquired substantially all of the assets of Digital Magic & Transfer
Company ("DM&T") for $50,000 in cash, $3,542,000 in equipment notes and
$4,048,000 in assumed liabilities and acquisition costs. The acquisition was
accounted for under the purchase method. Subsequent to this acquisition, 4MC
Acquisition Corp. changed its name to Digital Magic Company ("DMC").

On February 13, 1995, Four Media Company Asia PTE Ltd. ("4MC Asia"), a
wholly owned subsidiary of the Company registered in the Republic of
Singapore, entered into an agreement with a customer to provide production,
post production and network origination services. The agreement has a seven
year term and provides for early termination by the customer after five years
by paying a fee, as defined in the agreement, not to exceed $3,500,000.

Results of operations include the 51 1/2 weeks ended July 31, 1994, the 52
weeks ended July 30, 1995 and the 53 weeks ended August 4, 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements include
the accounts of 4MC-Burbank, Inc. and its wholly owned subsidiaries, DMC and
4MC Asia. All intercompany accounts and transactions have been eliminated.

Foreign Currency Translation. All balance sheet accounts of 4MC Asia are
translated at the current exchange rate as of the end of the year. Statement
of operation items are translated at average currency exchange rates. The
resulting translation adjustment is recorded as a separate component of
stockholder's equity. The

F-7

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

functional currency in which 4MC Asia transacts business is the Singapore
dollar. Transaction gains and losses included in operations were not
significant in fiscal 1995 or 1996.

Cash and Cash Equivalents. The Statement of Cash Flows classifies changes in
cash (short-term, highly liquid investments readily convertible into cash with
an original maturity of three months or less at the date of purchase)
according to operating, investing or financing activities. At times, cash
balances may be in excess of Federal Deposit Insurance Corporation insurance
limits.

Inventory. Inventories are stated at the lower of cost (first-in, first-out)
or market, and are comprised of raw materials and supplies.

Property, Plant and Equipment. Property, plant and equipment acquired from
Compact and DM&T were recorded at their acquisition cost which resulted in a
reduction of their historical carrying value in accordance with Accounting
Principles Board (APB) Opinion No. 16. Additions to property, plant and
equipment subsequent to the date of acquisition are recorded at cost.

Depreciation and Amortization. Depreciation of property, plant and equipment
is computed by use of the straight-line method based on the estimated useful
lives of 3 to 7 years of the respective assets, except for leasehold
improvements, which are amortized using the straight-line method over the life
of the improvement or the length of the lease, whichever is shorter.
Amortization of assets recorded under capital leases is based on the term of
the lease. Interest costs incurred during construction totaling $490,000 and
$142,000 were capitalized for the years ended July 30, 1995 and August 4,
1996, respectively, and are being amortized over the related assets estimated
useful lives. When properties are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts, and the
resulting gain or loss is credited or charged to operations. The policy of the
Company is to charge amounts expended for maintenance and repairs to current
year expense and to capitalize expenditures for major replacements and
betterments.

Other Assets. Other assets include costs incurred by 4MC Asia prior to the
commencement of operations and a lease interest associated with the
acquisition of the assets of DM&T. These assets are amortized on the straight-
line method over five to seven years. Other assets also include software
development costs. The Company capitalizes internal software development costs
when technological feasibility has been established. Capitalization ends when
the software is put into service. Amortization of software development costs
is computed by use of the straight-line method over three years.

Use of Estimates. The preparation of financial statements is in accordance
with generally accepted accounting principles and requires management to make
estimates and assumptions for the reporting period and as of the financial
statement date. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses. Actual results could differ
from those estimates.

Recently Issued Accounting Standards. In March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No.
121 established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company is required to adopt the provisions of SFAS No.
121 for fiscal 1997, and the Company believes that upon its adoption there
should be no impact to results of operations.

F-8

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

In November 1995, the FASB also issued SFAS No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123"). SFAS No. 123 establishes new accounting
standards for the measurement and recognition of stock-based awards prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees" however,
under this opinion, the Company will be required to disclose the pro forma
effect of stock-based awards on net income and earnings per share as if SFAS
No. 123 had been adopted. SFAS No. 123 is effective for fiscal 1997. The
Company intends to use the provisions of APB Opinion No. 25 in accounting for
stock-based awards. As such, this standard will have no impact on the
Company's results of operations upon adoption.

Fair Values of Financial Instruments. SFAS No. 107 "Disclosure About Fair
Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of fair
value information about most financial instruments both on and off the balance
sheet, if it is practicable to estimate. SFAS No. 107 excludes certain
financial instruments such as certain insurance contracts and all non-
financial instruments from its disclosure requirements. A financial instrument
is defined as a contractual obligation that ultimately ends with the delivery
of cash or an ownership interest in an entity. Disclosure regarding the fair
value of financial instruments are derived using external market sources,
estimates using present value or other valuation techniques. Cash, accounts
receivable, accounts payable, accrued and other liabilities and short-term
revolving credit agreements and variable rate long-term debt instruments
approximate their fair value.

Advertising. Advertising costs are expensed as incurred and included in
sales, general and administrative expenses. Advertising expenses amounted to
$288,000, $476,000 and $287,000 in the years ended July 31, 1994, July 30,
1995 and August 4, 1996, respectively.

3. BUSINESS AND CREDIT CONCENTRATIONS

The Company grants credit to its customers, substantially all of whom are
participants in the entertainment industry. The Company reviews a customer's
credit history before extending credit. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
specific customers, historical trends, and other information. For the fiscal
year ended August 4, 1996 one customer accounted for 10% of the Company's
domestic sales and 12% of net accounts receivable. For the fiscal year ended
July 30, 1995, no single customer accounted for a significant amount of the
Company's domestic sales. For the fiscal year ended July 31, 1994, the
Company's two largest customers accounted for 16% and 10% of sales and 7% and
15% of net accounts receivable. During the fiscal year ended August 4, 1996,
the Company entered into a long term agreement for services with a customer
and as a part of the agreement the Company deferred payment in the amount of
$3,300,000. This amount is payable over three years in monthly installments of
principal and interest at 8%. There can be no assurance that this customer
ultimately will repay all outstanding amounts due to the Company.

Approximately 30% and 57% of the Company's net income for the years ended
July 30, 1995 and August 4, 1996, respectively, related to 4MC Asia. For the
year ended August 4, 1996, 97% of 4MC Asia revenues and 15.3% of the Company's
consolidated total revenues were generated by one customer. This customer
accounted for 5% of the Company's consolidated net accounts receivable.

F-9

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. PROPERTY, PLANT AND EQUIPMENT

The following is a summary of property, plant and equipment (in thousands):

JULY 30, AUGUST 4,
1995 1996
-------- ---------

Land....................................................... $ 925 $ 925
Buildings and building improvements........................ 4,511 4,689
Machinery and equipment.................................... 46,801 62,399
------- -------
52,237 68,013
Less, accumulated depreciation and amortization............ 9,092 18,717
------- -------
43,145 49,296
Construction in progress................................... 6,265 8,369
------- -------
Property, plant and equipment, net....................... $49,410 $57,665
======= =======
Included above is property and equipment under capital
leases of:
Machinery and equipment.................................. 3,350 11,856
Less, accumulated amortization........................... 542 1,756
------- -------
Property and equipment under capital leases, net......... $ 2,808 $10,100
======= =======

During the years ended July 31, 1994, July 30, 1995 and August 4, 1996, the
Company expensed maintenance, repairs and spare parts in amounts of
$1,389,000, $1,889,000 and $1,795,000, respectively.

During the year ended August 4, 1996, the Company settled its claim arising
from the January 17, 1994 earthquake for $4,093,000. Of this amount $2,333,000
was received as partial settlement during the year ended July 30, 1995 and the
remainder amounting to $1,760,000 was received in the 1996 fiscal year.
Insurance proceeds in excess of the net book value of destroyed assets and
repair costs of damaged assets were approximately $1,098,000. Of this amount
$198,000 and $900,000 was credited to sales, general and administrative
expense as a recovery under the business interruption coverage of expenses
incurred in 1995 and 1996, respectively.

5. INCOME TAXES

Deferred income taxes are determined in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each year-end based on enacted tax laws and statutory rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established to reduce deferred tax assets to the
amount expected to be realized.

F-10

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. INCOME TAXES, CONTINUED

The income tax provision (benefit) consisted of the following (in
thousands):

JULY 31, JULY 30, AUGUST 4,
1994 1995 1996
-------- -------- ---------

Current:
Federal........................................ $ 380 $ -- $ 26
State.......................................... 115 12 11
Deferred
Federal........................................ (380) (768) (791)
State.......................................... (115) (232) (240)
----- ----- -----
Total........................................ $ -- $(988) $(994)
===== ===== =====

The significant components of the deferred tax asset consisted of the
following (in thousands):

JULY 31, JULY 30, AUGUST 4,
1994 1995 1996
-------- -------- ---------

Deferred tax asset:
Allowance for doubtful accounts.............. $ 209 $ 226 $ 339
Plant, property & equipment.................. 2,370 2,450 1,871
Intangible assets............................ 148 160 335
Accrued vacation............................. 158 161 168
Acquisition expenses......................... 311 78 43
Net operating loss carryforward.............. 1,068 1,116 1,894
Deferred lease............................... -- 180 (12)
Other........................................ 68 37 (191)
Valuation allowance.......................... (4,332) (3,408) (2,447)
------- ------- -------
Net deferred tax asset..................... $ -- $ 1,000 $ 2,000
======= ======= =======

At July 31, 1994, July 30, 1995 and August 4, 1996, the Company had a net
deferred tax asset before valuation allowance of $4,332,000, $4,408,000 and
$4,447,000, respectively. The Company recorded a valuation allowance against
the entire deferred tax asset in 1994, as the Company was in its first year of
operations.

The Company has assessed its past earnings history and trends, budgeted
revenues and expiration dates of net operating loss carryforwards and has
determined that it is more likely than not that $2,000,000 of deferred tax
assets will be realized. The remaining valuation allowance of $2,447,000 is
maintained on deferred assets which the Company has not determined to be more
likely than not realizable at August 4, 1996. The Company will continue to
review this valuation allowance on a quarterly basis and make adjustments, as
appropriate.

1994 1995 1996
---- ---- ----

Federal tax at statutory rate............................... 34% 34% 34%
State income taxes, net of federal tax benefits............. -- 1 --
Permanent differences....................................... -- 1 1
Foreign income not subject to taxes......................... -- (10) (33)
Tax net operating loss carryforward......................... (31) (25) --
Reduction of valuation allowance............................ -- (45) (70)
Other....................................................... (3) -- (2)
--- --- ---
--% (44)% (70)%
=== === ===

F-11

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

As of August 4, 1996, the Company has net operating loss carryforwards of
approximately $9,800,000 and $2,300,000 for Federal and California tax
purposes, respectively. The net operating loss carryforwards begin to expire
in 2009 and 1999 for Federal and California income tax purposes, respectively.

In 1995, the government of the Republic of Singapore granted 4MC Asia a
seven-year tax exemption as a "pioneer status" company. The tax exemption is
conditioned upon 4MC Asia meeting certain investment requirements. The Company
believes that it will meet these requirements, and will be able to realize the
full future benefit of the tax exemption. The resulting tax savings reflected
in net income amounted to $178,000 in fiscal 1995 and $378,000 in fiscal 1996.

6. LONG TERM DEBT

The following is a summary of long-term debt (in thousands):

JULY 30, AUGUST 4,
1995 1996
-------- ---------

BABC term loan............................................... $ 7,350 $ 6,615
BABC revolving credit facility............................... 3,200 3,200
HKSB term loan............................................... 12,070 11,817
Equipment notes.............................................. 7,122 8,645
Capital lease obligations.................................... 3,200 9,854
Subordinated promissory note................................. 9,000 9,000
------- -------
41,942 49,131
Less, current maturities..................................... 3,470 6,153
------- -------
$38,472 $42,978
======= =======

Aggregate loan and capital lease obligation maturities for the next five
fiscal years are as follows (in thousands):

PRINCIPAL FUTURE LEASE
PAYMENTS PAYMENTS TOTAL
--------- ------------ -------

Fiscal years ending in
1997............................................ $ 4,041 $2,112 $ 6,153
1998............................................ 14,082 2,288 16,370
1999............................................ 13,236 2,465 15,701
2000............................................ 3,480 1,778 5,258
2001............................................ 2,771 1,211 3,982
Thereafter...................................... 1,667 -- 1,667
------- ------ -------
Total......................................... $39,277 $9,854 $49,131
======= ====== =======

On August 4, 1994, the Company entered into a loan agreement with Bank of
America Business Credit ("BABC") in conjunction with the purchase of the
assets of Compact. The bank provided a senior term and revolving loan which
are collateralized by substantially all the assets of the Company and its
subsidiaries. The term loan is due July 31, 1998, with monthly installments of
$61,250 commencing August 1995, at an interest rate of 8.5%. The revolving
credit is due July 31, 1998 at an interest rate of 8.5% through July 31, 1995
and prime (8.25% as of August 4, 1996) plus 1.5% thereafter. The loan
agreement contains various covenants restricting the cash payments to
stockholder for management fees, dividends or repayment of the subordinated
note payable. The Company is also required to make mandatory capital
expenditures, maintain specified financial ratios and levels of net worth.

F-12

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On February 22, 1995, 4MC Asia entered into a loan agreement with The Hong
Kong and Shanghai Banking Corporation Limited ("HKSB"), providing a term loan
facility of SD$16,898,000 Singapore dollars (approximately $12,070,000 US
dollars at June 30, 1995). The loan is collateralized by substantially all of
4MC Asia's assets and is guaranteed by the Company. The loan is payable in 60
monthly installments commencing April 17, 1997 at a rate of 1.25% above the
HKSB prime rate (6.25% and 6.5% as of July 30, 1995 and August 4, 1996,
respectively). The loan agreement contains various restrictive covenants,
including the maintenance of $1,000,000 Singapore dollars (approximately
$717,000 U.S. dollars at July 30, 1995 and $709,000 as of August 4, 1996) in
cash deposits and certain debt-to-equity ratios.

The Company has entered into various capital lease and equipment notes
related to the purchase of equipment. These notes are due through 2001 and are
at interest rates of 8.0% to 11.9%.

6. LONG TERM DEBT, CONTINUED

On August 4, 1993, the Company entered into an agreement with TSP to provide
to the Company up to $10,000,000 in borrowings in the form of a subordinated
promissory note, at an interest rate of 10%, with no principal payment
required until August 1998. On September 6, 1993, TSP exchanged a $4,000,000
note payable by the Company for 800 shares of Common Stock. On November 17,
1994, the Company entered into an agreement for additional borrowings of up to
$9,000,000 under the same terms as the August 1993 subordinated promissory
note. Repayment of borrowings under the August 1993 and November 1994
subordinated notes is restricted under covenants contained in the BABC loan
agreement, various equipment notes and various capital lease obligations.
During the years ended July 31, 1994 and July 30, 1995, TSP advanced to the
Company $8,400,000 and $10,600,000, respectively, under the subordinated
promissory notes. On July 28, 1995, TSP contributed $10,000,000 in
subordinated promissory notes to the equity of the Company.

7. COMMITMENTS AND CONTINGENCIES

The Company and certain subsidiaries have employment agreements with certain
members of their creative staff to secure their services for up to two years
at amounts approximating their current levels of compensation. At August 4,
1996, the Company's remaining aggregate commitment under such contracts is
approximately $1,111,000.

The Company leases its production and office facilities under noncancelable
operating leases with initial terms up to five years through 2000. These
leases contain renewal options, require additional payments for property
taxes, utilities, insurance and maintenance costs and are subject to periodic
escalation charges. Facilities rent expense amounted to $3,242,000, $4,327,000
and $4,392,000 for the fiscal years ended July 31, 1994, July 30, 1995 and
August 4, 1996, respectively. At August 4, 1996 the annual commitment under
these facilities leases is summarized as follows (in thousands):

Fiscal years ending in:
1997.................................................................. $ 4,129
1998.................................................................. 3,951
1999.................................................................. 3,787
2000.................................................................. 356
-------
Total............................................................... $12,223
=======

F-13

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company leases certain office equipment under operating leases which
expire through 1999. Rent expense related to equipment amounted to $324,800,
$134,800 and $190,200 for the fiscal years ended July 31, 1994, July 30, 1995
and August 4, 1996, respectively. At August 4, 1996 the annual commitment
under various leases is summarized as follows (in thousands):

Fiscal years ending in:
1997................................................................... $ 434
1998................................................................... 434
1999................................................................... 418
------
Total................................................................ $1,286
======

The Company is involved in litigation matters arising in the normal course
of business. Management believes that the disposition of these lawsuits will
not materially affect the financial position or results of operations of the
Company.

8. EMPLOYEE BENEFIT PLANS

The Company's savings and investment plan covers substantially all of the
employees of the Company. The participants may contribute up to 15% of their
annual compensation (subject to the annual IRS limitation) to the plan and the
Company will match the participant's contribution up to a maximum of 2% of the
participant's compensation. The Company expensed $225,000, $208,000 and
$211,000 related to the plan for the years ended July 31, 1994, July 30, 1995
and August 4, 1996, respectively.

9. RELATED PARTIES

As of July 30, 1995 and August 4, 1996, TSP was the holder of subordinated
promissory notes from the Company totaling $9,000,000. In addition, the
Company owed $450,000 of accrued interest to TSP as of August 4, 1996 and no
amounts were due as of July 30, 1995. During the years ended July 30, 1995 and
August 4, 1996, the Company paid $1,762,000 and $450,000, respectively, to TSP
in interest.

The Company provided services to a company controlled by a then member of
the Board of Directors in the amount of $188,008, $2,000 and $1,000 for the
years ended July 31, 1994, July 30, 1995 and August 4, 1996, respectively.

The Company paid consulting fees and expenses to a member of the Board of
Directors of the Company of $147,000 and $205,423 for the years ended July 30,
1995 and August 4, 1996, respectively. As of August 4, 1996, the director is
no longer affiliated with the Company.

The Company has entered into an agreement with an emerging company wherein
the Company would advance it up to $600,000. As of August 4, 1996, the Company
has advanced cash for operating purposes of approximately $238,000. The
Company has the option to purchase a significant portion of the stock of the
emerging company as of January 1, 1997. Management has not determined at this
time whether this option will be exercised.

F-14

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. STOCK OPTIONS

The Company issued stock options to four key executives of the Company on
September 7, 1993. These options were for 95 shares of common stock at an
exercise price of $2,212 per share, the fair market value at the date of grant
as determined by the Company and approved by the Board of Directors. These
stock options vest over a six year period at 16.7% per year. As of August 4,
1996, no options have been exercised or canceled and no additional options
have been granted.

11. BUSINESS SEGMENTS

Information about the Company's operations in different geographic areas for
the years ended July 31, 1994, July 30, 1995 and August 4, 1996 are as follows
(in thousands):

UNITED CONSOLIDATED
STATES ASIA CORPORATE TOTAL
- ----------------------------------------------------------------------------

Net sales to unaffiliated customers:
1994 $42,261 $ -- $ -- $42,261
1995 56,999 4,005 -- 61,004
1996 58,970 11,058 -- 70,028
- ----------------------------------------------------------------------------
Income from operations:
1994 $ 7,601 $ -- $(5,113) $ 2,488
1995 9,249 1,107 (5,207) 5,149
1996 7,095 2,922 (4,681) 5,336
- ----------------------------------------------------------------------------
Identifiable assets:
1994 $31,120 $ -- $1,862 $32,982
1995 46,364 21,620 3,796 71,780
1996 54,741 22,307 4,779 81,827
- ----------------------------------------------------------------------------
Capital expenditures:
1994 $ 8,146 $ -- $ 694 $ 8,840
1995 9,131 17,362 1,934 28,427
1996 13,318 2,208 983 16,509
- ----------------------------------------------------------------------------
Depreciation expense and amortization
1994 $ 3,123 $ -- $ 161 $ 3,284
1995 4,721 954 566 6,241
1996 6,548 2,722 895 10,165
- ----------------------------------------------------------------------------

12. SUBSEQUENT EVENTS (UNAUDITED)

In August 1996, the Company entered into negotiations of a $34,000,000 loan
arrangement with CIT Group Business Credit, Inc. and CIT Group Equipment
Financing, Inc. ("CIT"). This agreement includes (i) a $16,000,000 term loan,
payable in 84 monthly principal payments of $190,476 commencing October, 1997
at an interest rate of LIBOR plus 2.75% or prime as it changes ("PAC") plus
.75%; (ii) an $11,000,000 revolving line of credit at an interest rate of
LIBOR plus 2.5% or PAC plus .50%; and (iii) a $7,000,000 capital expenditure
line of credit payable in 60 monthly installments commencing three months
after funding at an interest rate of LIBOR plus 2.75% or PAC plus .75%. As
part of this financing, the Company plans to repay the BABC loans and
$1,845,000 of equipment notes. The Company may, at its option, elect a fixed
rate for the term loan at the five-year treasury rate plus 3.35%. The loan
facility is collateralized by substantially all of the domestic assets of the
Company.

F-15

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Each of the credit facilities described above has an initial term of 42
months with automatic twelve month renewals thereafter unless terminated by
the Company or lender. The Company may extend the maturity for 24 months if
the balances of the term and capital expenditure facilities are less than 80%
of appraised value of the collateral.

On September 25, 1996, the Company changed its name from Four Media Company
to "4MC-Burbank, Inc." On the same date, a holding company under the name
"Four Media Company" was incorporated in the State of Delaware ("4MC
Delaware"). It is expected that in October 1996, 4MC Delaware will acquire all
of the outstanding capital stock of 4MC-Burbank, Inc., 4MC Asia and DMC (the
"Reorganization"). The purpose of the reorganization is to facilitate future
financing transactions and acquisitions.

F-16

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
Four Media Company
Burbank, California

We have audited the accompanying balance sheet of Four Media Company as of
October 1, 1996. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respect, the financial position of Four Media Company as of
October 1, 1996, in conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Los Angeles, California
October 1, 1996

F-17

FOUR MEDIA COMPANY

BALANCE SHEET

OCTOBER 1, 1996

ASSETS
Cash................................................................... $1,000
------
Total assets......................................................... $1,000
======
STOCKHOLDER'S EQUITY
Preferred stock, $.01 par value, 5,000,000 shares authorized, none
issued and outstanding................................................ $ --
Common stock, $.01 par value, 50,000,000 shares authorized, 100,000
shares issued and outstanding......................................... $1,000
------
Total stockholder's equity........................................... $1,000
======

The accompanying notes are an integral part of this financial statement.

F-18

FOUR MEDIA COMPANY

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

Four Media Company (the "Company") was incorporated in the State of Delaware
on September 25, 1996. The authorized capital stock of the Company consists of
50,000,000 shares of common stock, par value of $.01 per share and 5,000,000
shares of preferred stock, par value of $.01 per share. As of October 1, 1996,
the Company issued and had outstanding 100,000 shares of Common Stock and no
preferred shares were issued or outstanding. Each holder of common stock shall
be entitled to one vote for each share held.

2. FORMATION OF THE COMPANY

The Company was formed as a holding company to acquire all of the
outstanding capital stock of 4MC-Burbank, Inc., Four Media Company Asia PTE
Ltd. ("4MC Asia") and Digital Magic Company ("DMC") (the "Reorganization").
The Reorganization is expected to be completed in November 1996. The purpose
of the Reorganization is to facilitate future financing transactions and
acquisitions.

F-19

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THIS DATE.

---------------------

TABLE OF CONTENTS

PAGE
----

Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 12
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Financial Data.................................................. 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 24
Management............................................................... 40
Certain Transactions..................................................... 45
Principal and Selling Stockholders....................................... 47
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 52
Experts.................................................................. 52
Additional Information................................................... 52
Index to Consolidated Financial Statements............................... F-1

---------------------

UNTIL , 1996 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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[LOGO]

FOUR MEDIA COMPANY

COMMON STOCK

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PROSPECTUS
---------------------

FURMAN SELZ

, 1996

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth an itemized statement of all expenses to be
incurred in connection with the issuance and distribution of the securities
that are the subject of this Registration Statement. All amounts shown, other
than the Securities and Exchange Commission registration fee and the NASD
filing fee, are estimates only.

Securities and Exchange Commission registration fee............. $ 29,622
NASD filing fee................................................. 10,275
Nasdaq National Market listing fee.............................. 40,000
Printing expenses............................................... 125,000
Transfer agent fees............................................. 5,000
Legal fees and expenses......................................... 300,000
Accounting fees and expenses.................................... 150,000
"Blue sky" fees and expenses.................................... 10,000
Miscellaneous expenses.......................................... 130,103
--------
Total......................................................... $800,000
========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Certificate of Incorporation and the Bylaws of the Company provide for
the indemnification of directors and officers to the fullest extent permitted
by the General Corporation Law of the State of Delaware (the "GCL").

Section 145 of the GCL authorizes indemnification when a person is made a
party to any proceeding by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or was serving as a
director, officer, employee or agent of another enterprise, at the request of
the corporation, and if such person acted in good faith and in a manner
reasonably believed by him or her to be in, or not opposed to, the best
interests of the corporation. With respect to any criminal proceeding, such
person must have had no reasonable cause to believe that his or her conduct
was unlawful. If it is determined that the conduct of such person meets these
standards, he or she may be indemnified for expenses incurred and amounts paid
in such proceeding if actually and reasonably incurred by him or her in
connection therewith.

If such a proceeding is brought by or on behalf of the corporation (i.e., a
derivative suit), such person may be indemnified against expenses actually and
reasonably incurred if he or she acted in good faith and in a manner
reasonably believed by him or her to be in, or not opposed to, the best
interests of the corporation. There can be no indemnification with respect to
any matter as to which such person is adjudged to be liable to the
corporation; however, a court may, even in such case, allow such
indemnification to such person for such expenses as the court deems proper.
Where such person is successful in any such proceeding, he or she is entitled
to be indemnified against expenses actually and reasonably incurred by him or
her. In all other cases, indemnification is made by the corporation upon
determination by it that indemnification of such person is proper because such
person has met the applicable standard of conduct.

The Underwriting Agreement, the form of which is included as Exhibit 1.1 to
this Registration Statement, provides that the Company shall indemnify the
Underwriters under certain circumstances and the Underwriters shall indemnify
the officers and directors of the Company under certain circumstances.

II-1

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On October 1, 1996, the Company sold 100,000 shares of Common Stock to
Technical Services Partners, L.P., a Delaware limited partnership ("TSP"), in
consideration for $1,000. These shares were issued pursuant to exemptions
available under Section 4(2) of the Securities Act of 1933, as amended.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS

(a) The following exhibits, which are furnished with this Registration
Statement or incorporated herein by reference, are filed as part of this
Registration Statement:

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------

1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Troy & Gould Professional Corporation.*
10.1 Four Media Company 1997 Stock Plan and Stock Option Agreement.*
10.2 Four Media Company 1997 Director Option Plan and Director Stock Plan
Stock Option Agreement.*
10.3 Form of Indemnity Agreement between the Company and each of its
officers and directors.
10.4 Agreement dated as of February 13, 1995 between MTV Asia LDC and Four
Media Company Asia PTE. Ltd.+
10.5 Guaranty by Viacom International Inc. of MTV Asia's obligations to
Four Media Company Asia PTE Ltd. dated February 13, 1995.
10.6 Guaranty by Four Media Company of obligations of Four Media Company
Asia PTE Ltd. to MTV Asia dated February 13, 1995.
10.7 January 18, 1996 Amendment Letter re Agreement dated as of February
13, 1995 between MTV Asia LDC and Four Media Company Asia PTE. Ltd.+
10.8 Uplink-Playback Service Deal Memorandum between TVN Entertainment
Corporation and Compact Video Services, Inc. dated November 20, 1989,
as amended.+
10.9 Letter Agreement between Four Media Company and TVN Entertainment
Corporation dated March 18, 1996.+
10.10 Agreement for Term Loan Facilities between The Hong Kong and Shanghai
Banking Corporation Limited and Four Media Company Asia PTE. Ltd.
dated February 22, 1995.
10.11 Deed of Subordination between Four Media Company, Four Media Company
Asia PTE LTD and The Hong Kong and Shanghai Banking Corporation
Limited dated February 22, 1995.
10.12 Deed of Debenture between Four Media Company Asia PTE LTD. and The
Hong Kong and Shanghai Banking Corporation Limited dated February 22,
1995.
10.13 Deed of Assignment between Four Media Company Asia PTE LTD and The
Hong Kong and Shanghai Banking Corporation Limited dated February 22,
1995.
10.14 Guarantee by Four Media Company of Four Media Company Asia PTE Ltd.
liabilities to The Hong Kong and Shanghai Banking Corporation Limited
dated February 16, 1995.
10.15 Satellite Services Agreement re Transponder 7 between Global Access
Telecommunications Services, Inc. and Four Media Company dated April
12, 1996.
10.16 Satellite Services Agreement re Transponder 5 between Global Access
Telecommunications Services, Inc. and Four Media Company dated April
12, 1996.
10.17 Global Access Telecommunications Services, Inc. Standard Terms and
Conditions.
10.18 August 28, 1996 Letter Amendment to the Satellite Services Agreement
re Transponder 5 dated April 12, 1996 and to the Satellite Services
Agreement re Transponder 7 dated April 12, 1996.
10.19 Financing agreement between The CIT Group/Business Credit, Inc., The
CIT Group/Equipment Financing, Inc., 4MC-Burbank, Inc. and Digital
Magic Company dated 1996.*
10.20 Lease between Singapore Telecommunications Limited and Four Media
Company Asia PTE Ltd. commencing December 15, 1994.

II-2

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------

10.21 Office Building Lease between Ford Motor Credit Company and Four Media
Company dated August 1, 1994.
10.22 Employment Agreement between the Company and Robert T. Walston dated
October 1, 1996.*
10.23 Employment Agreement between the Company and John H. Donlon dated as
of October 1, 1996.*
10.24 Employment Agreement between the Company and John H. Sabin dated as of
October 1, 1996.*
10.25 Employment Agreement between the Company and Gavin W. Schutz dated as
of October 1, 1996.*
10.26 Employment Agreement between the Company and Robert Bailey dated as of
October 1, 1996.*
10.27 Purchase and Sale Agreement and Escrow Instructions between C.P.
Private Partners, L.P.I. and Four Media Company dated July 29, 1996.
21.0 List of Subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1).
24.1 Power of Attorney (contained in Part II).
27.0 Financial Data Schedule.

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* To be filed by amendment.
+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.

(b) Schedules are omitted since the required information is not present in
amounts sufficient to require submission of schedules or because the
information required is included in Registrant's Consolidated Financial
Statements and Notes thereto.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Burbank, State of
California, on October 8, 1996.

Four Media Company

/s/ Robert T. Walston
By: _________________________________
ROBERT T. WALSTON
CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert T. Walston and John H. Donlon, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE

/s/ Robert T. Walston Chairman of the October 8, 1996
- ------------------------------------- Board and Chief
ROBERT T. WALSTON Executive Officer
(Principal
Executive Officer)

/s/ John H. Donlon President and October 8, 1996
- ------------------------------------- Director
JOHN H. DONLON

/s/ John H. Sabin Vice President, October 8, 1996
- ------------------------------------- Chief Financial
JOHN H. SABIN Officer (Principal
Financial and
Accounting Officer)
and Director

/s/ Gavin W. Schutz Vice President, October 8, 1996
- ------------------------------------- Chief Technology
GAVIN W. SCHUTZ Officer and
Director

/s/ Robert Bailey Vice President, October 8, 1996
- ------------------------------------- Director of
ROBERT BAILEY Marketing and
Director

/s/ Shimon Topor Director October 8, 1996
- -------------------------------------
SHIMON TOPOR

/s/ Edward Kirtman Director October 8, 1996
- -------------------------------------
EDWARD KIRTMAN

II-4

EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------

10.22 Employment Agreement between the Company and Robert T. Walston dated
October 1, 1996.*
10.23 Employment Agreement between the Company and John H. Donlon dated as
of October 1, 1996.*
10.24 Employment Agreement between the Company and John H. Sabin dated as of
October 1, 1996.*
10.25 Employment Agreement between the Company and Gavin W. Schutz dated as
of October 1, 1996.*
10.26 Employment Agreement between the Company and Robert Bailey dated as of
October 1, 1996.*
10.27 Purchase and Sale Agreement and Escrow Instructions between C.P.
Private Partners, L.P.I. and Four Media Company dated July 29, 1996.
21.0 List of Subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1).
24.1 Power of Attorney (contained in Part II).
27.0 Financial Data Schedule.

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* To be filed by amendment.
+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.