AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1997
REGISTRATION NO. 333-13721
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------

Common Stock, $.01 par value........... $97,750,000 $29,622(2)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.

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

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

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 FEBRUARY 4, 1997

PROSPECTUS
5,700,000 SHARES

[LOGO OF FOUR MEDIA COMPANY]

COMMON STOCK
---------------

Of the 5,700,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), of Four Media Company (the "Company"), offered hereby, 3,491,784
shares are being offered by the Company and 2,208,216 shares are being offered
by the sole stockholder of the Company (the "Selling Stockholder"). See
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholder.

Prior to this offering there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $12.00 and $14.00 per share. See "Underwriting" for
factors which will be considered in determining the initial public offering
price. The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "FOUR."
---------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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

UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER(2)
- --------------------------------------------------------------------------------------------

Per Share........................ $ $ $ $
- --------------------------------------------------------------------------------------------
Total(3)......................... $ $ $ $

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

(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deduction of expenses estimated at $2,100,000, of which $1,257,631
is payable by the Company and $842,369 is payable by the Selling
Stockholder.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
855,000 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."

The shares are being offered by the Underwriters, subject to prior sale,
when, as, and if delivered to and accepted by the Underwriters, and subject to
various prior conditions, including the right to reject orders in whole or in
part. It is expected that delivery of share certificates will be made against
payment therefor at the offices of Furman Selz LLC in New York, New York, on or
about February , 1997.

FURMAN SELZ PAINEWEBBER INCORPORATED

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

The date of this Prospectus is February , 1997

[PICTURES]

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

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

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 (i) assumes no exercise of the Underwriters'
over-allotment option or any outstanding stock options, and (ii) reflects the
Company's reorganization effected in 1996. See "Certain Transactions--
Reorganization."

THE COMPANY

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

Since its formation in 1993 through the first quarter of fiscal 1997, the
Company has invested $72.6 million in infrastructure, primarily for new digital
systems and equipment. In addition, the Company has successfully identified,
acquired and integrated four complementary businesses. The Company acquired the
assets of three companies in connection with its formation in 1993, acquired
the assets of a fourth company in 1994, and capitalized and commenced its
Singapore broadcast operations in 1995. As a result of its investments and
acquisitions, the Company is one of the largest and most diversified
independent (not affiliated with or related to a content owner) providers of
technical and creative services to the entertainment industry, and therefore is
able to offer its customers a single source for such services.

The Company has organized its activities into four divisions through which it
provides services to a diverse base of customers, including all of the major
domestic studios (and their international divisions), as well as independent
producers and owners of television and film libraries, and broadcast networks.

Studio Services. The studio services division, located in Burbank,
California, provides owners of television and film libraries with the
facilities and technical services necessary to manage, format and distribute
content worldwide. These technical services include duplicating videotape for
professional applications, restoring and preserving film, transferring film to
videotape and transforming videotape to film.

Broadcast Services. The broadcast services division, located in Burbank and
the Republic of Singapore, provides domestic and international programmers with
the facilities and services necessary to assemble and distribute programming
via satellite to viewers in the United States, Canada and Asia. These services
include assembling programming into a 24-hour "network" format, creating
promotional graphics, providing production support and facilities for the
creation of programming, and providing automated systems to deliver the
programming via satellite.

Television Services. The television services division, located in Burbank and
Santa Monica, California, provides producers of original television programming
with technical and creative services necessary to convert original film or
video to a final product suitable for airing on network, syndicated, cable or
foreign television. These services include developing film, converting film to
videotape and/or digital formats, creating music, sound and visual effects, and
assembling a program master for broadcast.

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

These services include pre-production consulting, the design and creation of
visual effects, scanning film to a digital format, and recording the digital
information on film.

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

The Company intends to pursue the following growth strategies:

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

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

. Deploy Leading Technologies. The Company plans to continue its
investment in component digital equipment, information systems and other
leading technologies in order to enhance its reputation for
technological leadership in its industry.

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

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

The executive officers and directors of the Company and their affiliates, as
a group, will beneficially own approximately 45% of the outstanding shares of
Common Stock and are subject to three year lockup agreements. See "Risk
Factors--Concentration of Ownership" and "Underwriting."

THE OFFERING

Common Stock offered by the Company.............. 3,491,784 shares
Common Stock offered by the Selling Stockholder.. 2,208,216 shares
Common Stock outstanding after the offering...... 9,966,784 shares(1)
Use of proceeds to the Company................... For repayment of certain
indebtedness (including
approximately $9.0 million
plus accrued interest
outstanding to the Selling
Stockholder), capital
expenditures, working
capital and other general
corporate purposes,
including potential
acquisitions.
See "Use of Proceeds."
Nasdaq National Market symbol.................... FOUR

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

(1) Excludes 1,415,125 shares of Common Stock issuable upon exercise of stock
options to be outstanding upon completion of the offering.

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

FISCAL YEARS ENDED THREE MONTHS ENDED
------------------------------------------ ---------------------------------
JULY 31, 1994 JULY 30, 1995 AUGUST 4, 1996 OCTOBER 29, 1995 NOVEMBER 3, 1996
------------- ------------- -------------- ---------------- ----------------

STATEMENT OF OPERATIONS
DATA:
Revenues.............. $42,261 $61,004 $70,028 $17,632 $18,947
Income from
operations........... 2,488 5,149 5,336 1,030 1,338
Net income............ 1,235 3,220 2,424 313 124
Net income per share.. .19 .50 .37 .05 .02
Weighted average
number
of common shares
outstanding(1)....... 6,475 6,475 6,475 6,475 6,475
OTHER DATA:
EBITDA(2)............. $ 5,772 $11,390 $15,501 $ 3,527 $ 4,133
Net cash provided by
operations........... 3,047 4,588 9,387 1,585 796
Net cash used in
investing
activities........... 7,877 30,902 10,318 3,071 8,753
Net cash provided by
(used in) financing
activities........... 8,972 28,102 (410) 332 8,135

AS OF NOVEMBER 3, 1996
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------

BALANCE SHEET DATA:
Cash, including restricted cash........................ $ 6,199 $ 11,603
Working capital........................................ 3,549 11,680
Total assets........................................... 99,301 105,414
Total debt(4).......................................... 62,970 27,970
Total stockholder's equity............................. 22,264 63,376

- -------------------
(1) Weighted average number of common shares outstanding has been presented to
reflect retroactively the Company's reorganization and related stock
exchange with and stock dividend to its sole stockholder in October and
November 1996. See notes to the financial statements.
(2) "EBITDA" is defined herein as earnings before interest, taxes, depreciation
and amortization, excluding gains and losses on asset sales and
nonrecurring charges. EBITDA does not take into account normal capital
expenditures and does not represent cash generated from operating
activities in accordance with generally accepted accounting principles
("GAAP"), is not to be considered as an alternative to net income or any
other GAAP measurements as a measure of operating performance and is not
indicative of cash available to fund all cash needs. The Company's
definition of EBITDA may not be identical to similarly titled measures of
other companies. The Company believes that in addition to cash flows and
net income, EBITDA is a useful financial performance measurement for
assessing the operating performance of the Company because, together with
net income and cash flows, EBITDA widely is used to provide investors with
an additional basis to evaluate the ability of the Company to incur and
service debt and to fund acquisitions or invest in new technologies. To
evaluate EBITDA and the trends it depicts, the components of EBITDA, such
as net revenues, cost of services, and sales, general and administrative
expenses, should be considered. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." A reconciliation of net
income to EBITDA is as follows:

Net income.............. $1,235 $ 3,220 $ 2,424 $ 313 $ 124
Add (deduct):
Interest expense,
net................. 1,253 2,917 3,906 921 1,214
Income tax benefits.. -- (988) (994) (204) --
Depreciation and
amortization........ 3,284 6,241 10,165 2,497 2,795
------ ------- ------- ------ ------
EBITDA.................. $5,772 $11,390 $15,501 $3,527 $4,133
====== ======= ======= ====== ======

(3) Adjusted to give effect to the sale of 3,491,784 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $13.00 per share, after deducting underwriting discounts and commissions
and estimated offering expenses, and the application of the estimated net
proceeds therefrom as described in "Use of Proceeds."
(4) Includes a revolving line of credit, current and long term portions of term
loan facilities, short and long term notes payable, capital lease
obligations and a subordinated note due to the Company's sole stockholder.

RISK FACTORS

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

LOSS OF RELATIONSHIPS WITH KEY CUSTOMERS

Revenue Concentration. A significant portion of the Company's revenues is
derived from a small number of customers. Nine customers, MTV Asia LDC ("MTV
Asia"), Sony Pictures Corporation, TVN Entertainment Corporation ("TVN"),
Warner Bros., Paramount Pictures (a subsidiary of Viacom, Inc.), The Walt
Disney Company, Twentieth Century Fox, Universal Pictures and Hallmark
Entertainment, Inc., accounted for 55% of the Company's revenues in fiscal
1996. The Company expects that these customers will continue to account for a
significant portion of the Company's revenues in future periods. Except for
MTV Asia and TVN, none of these customers has a long-term contractual
relationship with the Company whereby the customer is obligated to purchase
any specified level of services from the Company. Accordingly, there can be no
assurance that revenues generated from these customers, individually or in the
aggregate, will reach or exceed historical levels in any future period. Any
substantial decrease in services provided to one or more of these customers
would have a material adverse effect on the Company's results of operations
and financial condition.

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

Relationship with TVN. TVN, a pay-per-view service that provides movies,
sporting events and concerts to satellite dish owners and certain cable
systems, accounted for 7% of the Company's revenues during fiscal 1996. The
Company provides broadcast services to TVN under a contract which expires in
January 1998. In early 1996, the Company and TVN agreed to renew and extend
their long-term contractual relationship (which had lapsed, but continued on a
month-to-month basis through mid-1995) to provide for, among other things, the
repayment by TVN of an aggregate of $3.3 million in outstanding accounts
receivable for broadcast services over three years in monthly installments of
principal and interest at 8%, a reduction in the monthly payments under the
contract, and the potential performance of additional services by the Company.
The Company agreed to these terms in view of: (i) the revenues historically
collected by the Company from the TVN relationship; (ii) the prospect of new
services based upon TVN's expansion; and (iii) the complementary nature of
TVN's requirements with the Company's anticipated conversion of its broadcast
infrastructure from analog to digital technology. TVN is current with respect
to its payment obligations under the contract. There can be no assurance,
however, that TVN will ultimately repay all outstanding amounts due to the
Company, fulfill its obligations under the contract or reach agreement with
the Company with respect to additional services.

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

Conversion to In-House Operations. Many of the major studios and other
customers of the Company have substantial capabilities to perform several or
all of the services offered by the Company, and evaluate from time-to-time
whether to perform those services in-house. For example, in 1995, The Disney
Channel, a subsidiary of The Walt Disney Company, changed its operating
strategy and moved its network origination and uplink operations in-house. The
Disney Channel accounted for 6%, 4%, and 1% of the Company's revenues in
fiscal 1994, 1995 and 1996, respectively. A decision by other major customers
to move in-house services they currently purchase from the Company could have
a material adverse effect on the Company's results of operations.

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

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

RISK OF IMPLEMENTING NEW TECHNOLOGY; TECHNOLOGICAL OBSOLESCENCE

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

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

DEPENDENCE ON KEY PERSONNEL

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

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, certain of the
Company's loan agreements provide that the cessation of Mr. Walston's
employment (or tenure as a director) and/or Mr. Schutz's employment would
constitute an event of default and, at the option of the lenders, result in
the acceleration of outstanding loans. One of the Company's loans further
provides that through April 15, 2000, a decrease in the aggregate beneficial
shareholdings of Messrs. Walston, Donlon, Sabin, Schutz and Bailey below 15%
of the Company's shares outstanding would constitute an event of default. Any
such default and resulting acceleration of the outstanding loans could have a
material adverse effect on the Company's financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

RISKS OF ACQUISITION GROWTH STRATEGY

Ability to Implement Strategy. An important element of the Company's growth
strategy is the acquisition of complementary businesses which may enhance the
Company's operations and profitability. Execution of its growth strategy
requires the Company's existing management to, among other things:
(i) identify acquisition candidates for sale at reasonable prices; (ii) obtain
financing for acquisitions; (iii) consummate identified acquisitions; (iv)
hire, train and assimilate new personnel; and (v) in some instances, invest
substantial funds to enhance the capabilities of the acquired business. There
can be no assurance that the Company will successfully identify, finance,
consummate or assimilate acquisitions. Further, the Company's focus on
acquisition opportunities could lessen the effectiveness of management with
respect to existing operations, which could have a material adverse effect on
the Company's results of operations. In addition, certain of the Company's
larger, better capitalized competitors may seek to acquire some of the same
types of companies that the Company seeks to acquire. Such competition for
acquisitions may increase acquisition prices and related costs and result in
fewer acquisition opportunities, which could have a material adverse effect on
the Company's growth. The Company has entered into an agreement that provides
for an exclusive negotiating period for a potential acquisition. The Company
has not reached agreement on price or completed its due diligence with respect
to such potential acquisition and there can be no assurance that the Company
will be successful in consummating the transaction if it continues to pursue
this opportunity.

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

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company has experienced significant quarterly fluctuations in operating
results and anticipates that these fluctuations will continue. These
fluctuations have been caused by a number of factors, including: (i) with
respect to the Company's studio services division, seasonal and sometimes
fluctuating demand for programming by international broadcasters and other
content buyers, increased labor costs and uneven capacity utilization due to
delays caused by factors outside the Company's control (for example, changes
in customers' production schedules), and unanticipated production downtime due
to equipment failure, work stoppages or the absence of

key personnel; (ii) with respect to the Company's broadcast services division,
the expiration of month-to-month service contracts, the unpredictable use of
the Company's facilities for the broadcast of news stories and special events,
and the inability of the Company to remarket its unused transponder capacity
consistently; (iii) with 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, the costs and burdens of complying with a variety of complex
foreign laws, tariffs and other trade barriers, and political and economic
instability. 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 (in excess of intercompany
debt) is repatriated from Singapore, less applicable taxes paid in Singapore,
if any.

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

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

CONCENTRATION OF OWNERSHIP

Upon completion of this offering, Robert T. Walston, Chairman and Chief
Executive Officer, will beneficially own approximately 23% of the outstanding
shares of Common Stock (approximately 20% if the Underwriters' over-allotment
option is exercised in full), and the present executive officers and directors
of the Company and their affiliates, as a group, will beneficially own
approximately 45% of the outstanding shares of Common Stock (approximately 41%
if the Underwriters' over-allotment option is exercised in full). Accordingly,
these stockholders will have the ability to control or significantly influence
all matters requiring approval by the stockholders of the Company, including
the election of directors and approval of significant corporate transactions.
Such a level of ownership may have the effect of delaying, deferring or
preventing a change in the control of the Company. See "Principal and Selling
Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act of 1933, as amended
(the "Securities Act"), and lock-up agreements executed by all of the officers
and directors and the sole stockholder of the Company under which such
security holders have agreed not to sell or otherwise dispose of any of their
shares for a period of 270 days after the date of this Prospectus, in the case
of the sole stockholder, and three years after the date of this Prospectus, in
the case of the officers and directors, without the prior written consent of
Furman Selz LLC. Furman Selz LLC may, however, in its sole discretion and at
any time without notice, release all or any portion of the shares subject to
lock-up agreements. In addition to the 5,700,000 shares of Common Stock
offered hereby (assuming no exercise of the Underwriters' over-allotment
option), there will be 4,266,784 shares of Common Stock outstanding as of the
date of this Prospectus, all of which are "restricted" shares under the
Securities Act. As a result of the lock-up agreements described above and the
provisions of Rules 144(k), 144 and 701, the restricted shares will be
available for sale in the public market as follows: (i) none of such shares
will be eligible for immediate sale on the date of this Prospectus; (ii)
1,798,925 shares will be eligible for sale 270 days after the date of this
Prospectus, upon expiration of lock-up agreements; and (iii) 2,467,859 shares
will be eligible for sale three years after the date of this Prospectus, upon
expiration of lock-up agreements. See "Shares Eligible for Future Sale."

RISK OF LOSS FROM EARTHQUAKES, FIRE OR OTHER CATASTROPHIC EVENTS

The Company is subject to the risk of loss arising from earthquakes, fires
and other catastrophic events due to the concentration of its business
activities and operations in specific structures. The structures housing the
Company's business activities consist of commercial office buildings subject
to vibration and movement that, in such a catastrophic event, could cause the
dislocation of various pieces of equipment, potentially creating downtime in
the Company's operations. The Company's operations, other than its Singapore
operations, are located in Southern California which may expose the Company to
greater risk from earthquakes and fires. For example, the Northridge,
California earthquake in January 1994 damaged certain of the Company's
facilities and equipment and temporarily interrupted the Company's operations.
Because of the large amount of specialized equipment combined with customized
listening and viewing environments, the Company's operations cannot
temporarily be relocated to mitigate the occurrence of a catastrophic event.
The Company also may be unable to broadcast signals for an extended period of
time. Consequently, the Company carries insurance for property loss and
business interruption resulting from such events, subject to deductibles.
Although the Company believes that it possesses adequate insurance coverage
for damage to its property and the disruption of its business from
earthquakes, fire and other casualties, there can be no assurance that such
insurance would be sufficient to cover all of the Company's potential losses
or that it will continue to be available at rates acceptable to the Company,
if at all.

RENEWAL OF FCC LICENSES; CHANGE IN CONTROL FILINGS

Pursuant to the Communications Act of 1934, as amended (the "Communications
Act"), transmissions from the Company's domestic broadcast division's earth
station to satellites must be made pursuant to license granted by the Federal
Communications Commission ("FCC"). See "Business--Government Regulation."
Catalina Transmission Corp. ("Catalina"), a wholly owned subsidiary of the
Company, holds three licenses for satellite earth stations. One such license
(for a transportable earth station) is granted for a period of one year and
has been routinely renewed. The two other licenses (for fixed earth stations)
were granted for a period of ten years with one expiring in 2001 and the other
expiring in 2004. While the FCC generally renews licenses for satellite earth
stations routinely, there can be no assurance that the Company's licenses will
be renewed at their expiration dates, and failure to obtain such renewal could
have a material adverse effect on the Company.

IMMEDIATE AND SUBSTANTIAL DILUTION

The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing Common Stock in this
offering will, therefore, incur immediate dilution of $6.96 in net tangible
book value per share of Common Stock (based upon an assumed initial public
offering price of $13.00 per share and after deducting estimated underwriting
discounts and commissions and offering expenses) from the initial public
offering price and will incur additional dilution upon the exercise of
outstanding stock options. There are currently outstanding and exercisable
options to purchase 308,179 shares of Common Stock. See "Dilution."

ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK

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

THE COMPANY

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

USE OF PROCEEDS

The net proceeds to the Company from the sale of Common Stock offered by the
Company hereby, after deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be $41.1 million ($51.4 million
if the Underwriters' over-allotment option is exercised in full). From these
net proceeds, the Company intends to use approximately $35.0 million to repay
outstanding debt, consisting of: (i) approximately $16.0 million outstanding
under a senior term loan which is payable in 84 monthly principal payments
commencing November 1997 and bears interest at a rate of LIBOR plus 2.75% or
the prime rate quoted by Chase Manhattan Bank ("Prime") plus .75%, at the
Company's option, and was incurred to repay amounts outstanding under the
Company's previous credit facility; (ii) approximately $10.0 million of notes
payable and capital leases which are due at various times through 2001 and
bear interest at fixed rates ranging between 9.0% and 12.0% per year; and
(iii) approximately $9.0 million plus accrued interest outstanding under a
note payable to Technical Services Partners, L.P. ("TSP"), the Company's sole
stockholder, which is due in August 1998 and bears interest at 10% per annum
(see "Certain Transactions"). The Company intends to apply the remaining net
proceeds of the offering to fund planned capital expenditures, for working
capital, to fund potential acquisitions and for general corporate purposes.
The Company expects to spend an estimated $15.0 million over the next two
years to upgrade its domestic broadcast and television sound facilities and
plans to fund this amount from the net proceeds of the offering, together with
cash flow from operations and amounts available under existing credit
facilities.

A significant element of the Company's strategy is to pursue acquisitions
that complement its existing business. The Company regularly engages in
discussions with potential acquisition candidates. Although the Company
currently has no definitive commitment or agreement to effect any acquisition,
it has entered into an agreement that provides for an exclusive negotiating
period for a potential acquisition of a studio and television services
business. The Company anticipates that it would fund the potential acquisition
currently under consideration from the assumption of indebtedness of the
acquired entity and, if necessary, from the remaining proceeds of the
offering. Discussions with the seller and its creditors are ongoing regarding
the potential acquisition and possible terms thereof. However, the Company has
not reached agreement on price or completed its due diligence with respect to
such potential acquisition, and there can be no assurance that the Company
will be successful in consumating the transaction if it continues to pursue
this opportunity.

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

DIVIDEND POLICY

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

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) on an
actual basis as of November 3, 1996 and (ii) as adjusted to reflect the sale
by the Company of 3,491,784 shares of Common Stock offered hereby at an
assumed initial public offering price of $13.00 per share, after the deduction
of the estimated expenses of the offering and the application of the net
proceeds therefrom as described under "Use of Proceeds." The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the related notes thereto included elsewhere in this
Prospectus.

NOVEMBER 3, 1996
-------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)

Long-term debt and capital lease obligations,
including current portion........................... $ 62,970 $ 27,970
Stockholder's equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding....... -- --
Common stock, $.01 par value; 50,000,000 shares
authorized, 6,475,000 shares issued and outstanding
as of November 3, 1996; 9,966,784 shares issued and
outstanding, as adjusted(1)........................ 65 100
Additional paid-in capital.......................... 14,946 56,023
Foreign currency translation adjustment............. 250 250
Retained earnings................................... 7,003 7,003
----------- -----------
Total stockholder's equity......................... 22,264 63,376
----------- -----------
Total capitalization.............................. $ 85,234 $ 91,376
=========== ===========

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

(1) Excludes 1,415,125 shares of Common Stock issuable upon exercise of stock
options which are currently outstanding or will be outstanding upon
completion of the offering.

DILUTION

The net tangible book value of the Company as of November 3, 1996 was
$19.0 million or $2.94 per share of Common Stock. Net tangible book value per
share represents the amount of the Company's tangible assets less total
liabilities, divided by 6,475,000 shares of Common Stock outstanding.

After giving effect to the sale of 3,491,784 shares of Common Stock offered
by the Company hereby and after deduction of underwriting discounts and
commissions and a pro rata allocation of estimated offering expenses payable
by the Company and the Selling Stockholder, the Company's pro forma net
tangible book value as of November 3, 1996 would have been $60.2 million, or
$6.04 per share of Common Stock. This represents an immediate increase in net
tangible book value of $3.10 per share to the Company's existing stockholder
and an immediate dilution of $6.96 per share to new investors. The following
table illustrates the per share dilution:

Assumed initial public offering price per share.................... $13.00
Net tangible book value per share as of November 3, 1996.......... $2.94
Increase per share attributable to new investors.................. 3.10
-----
Pro forma net tangible book value per share after the offering..... 6.04
------
Dilution per share to new investors................................ $ 6.96
======

The following table sets forth, on a pro forma basis as of November 3, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid (at an assumed initial public offering price of $13.00 per
share) and the average price per share paid by the existing stockholder and by
purchasers of Common Stock in this offering.

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

Existing stockholder(1)(2)................ 6,475,000 65.0% $15,011,000 24.9% $ 2.32
New investors(1).......................... 3,491,784 35.0% 45,393,192 75.1% 13.00
--------- ----- ----------- -----
Total.................................... 9,966,784 100.0% $60,404,192 100.0%
========= ===== =========== =====

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

(1) The sale of Common Stock by TSP, the Selling Stockholder, will reduce the
number of shares of Common Stock held by it to 4,266,784, or approximately
42.8% (or approximately 39.4% if the Underwriters' over-allotment option
is exercised in full), and will increase the number of shares held by new
investors to 5,700,000, or approximately 57.2% (6,555,000 shares, or
approximately 60.6% if the Underwriters' over-allotment option is
exercised in full), of the total number of shares of Common Stock
outstanding after this offering. Robert T. Walston, the Company's chief
executive officer, has a profit participation in TSP and as a result
beneficially owns 1,798,925 of the 4,266,784 shares held of record by TSP.
See "Principal and Selling Stockholders."

(2) Does not include (i) 615,125 shares of Common Stock issuable upon exercise
of stock options outstanding with an exercise price of $.34 per share,
(ii) 100,000 shares of Common Stock issuable upon exercise of stock
options outstanding with an exercise price of $11.70 per share or (iii)
700,000 shares of Common Stock issuable upon exercise of stock options to
be outstanding upon completion of the offering with an exercise price
equal to the initial public offering price. See "Management--Stock Plans."
To the extent outstanding stock options are exercised, there will be
further dilution to new investors.

SELECTED FINANCIAL DATA

The selected financial data presented below under the captions "Statement of
Operations Data," "Other Data" and "Balance Sheet Data" for, and as of the end
of, each of the fiscal years ended July 31, 1994, July 30, 1995 and August 4,
1996 and the accountants report thereon, are derived from the financial
statements of the Company, which financial statements have been audited by
Coopers & Lybrand, L.L.P., independent accountants. The financial statements
as of July 31, 1994, July 30, 1995 and August 4, 1996 are included elsewhere
in this Prospectus. The Company had no operations prior to August 4, 1993. The
consolidated financial data for the three months ended October 29, 1995 and
November 3, 1996, are derived from unaudited consolidated financial statements
of the Company included elsewhere in this prospectus. All of the unaudited
financial statement data referred to above, in the opinion of the Company's
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations. The operating results for the three months ended
November 3, 1996 are not necessarily indicative of the operating results for
the full year.

FISCAL YEARS ENDED THREE MONTHS ENDED
--------------------------- -----------------------
JULY 31, JULY 30, AUGUST 4, OCTOBER 29, NOVEMBER 3,
1994 1995 1996 1995 1996
-------- -------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS
DATA:
Revenues:
Studio................... $15,746 $20,677 $23,468 $ 5,746 $ 5,957
Broadcast................ 10,876 16,163 20,901 5,489 5,512
Television............... 15,639 22,712 23,343 5,631 7,084
Visual effects........... -- 1,452 2,316 766 394
------- ------- ------- ------- -------
Total revenues........ 42,261 61,004 70,028 17,632 18,947
------- ------- ------- ------- -------
Cost of services:
Personnel................ 17,096 22,795 25,344 6,527 6,779
Material................. 4,240 6,424 7,354 1,920 1,853
Facilities............... 3,774 3,917 4,692 1,124 1,328
Other.................... 3,752 5,560 6,021 1,504 1,745
------- ------- ------- ------- -------
Total cost of
services.............. 28,862 38,696 43,411 11,075 11,705
------- ------- ------- ------- -------
Gross profit.......... 13,399 22,308 26,617 6,557 7,242
------- ------- ------- ------- -------
Operating expenses:
Sales, general and
administrative.......... 7,627 10,918 11,116 3,030 3,109
Depreciation and
amortization............ 3,284 6,241 10,165 2,497 2,795
------- ------- ------- ------- -------
Total operating
expenses.............. 10,911 17,159 21,281 5,527 5,904
------- ------- ------- ------- -------
Income from
operations........... 2,488 5,149 5,336 1,030 1,338
Interest expense, net..... 1,253 2,917 3,906 921 1,214
------- ------- ------- ------- -------
Income before income
tax benefits......... 1,235 2,232 1,430 109 124
Income tax benefits....... -- 988 994 204 --
------- ------- ------- ------- -------
Net income............ $ 1,235 $ 3,220 $ 2,424 $ 313 $ 124
======= ======= ======= ======= =======
Net income per share...... $ .19 $ .50 $ .37 $ .05 $ .02
======= ======= ======= ======= =======
Weighted average number of
common shares
outstanding(1)........... 6,475 6,475 6,475 6,475 6,475
======= ======= ======= ======= =======
OTHER DATA:
EBITDA(2)................. $ 5,772 $11,390 $15,501 $ 3,527 $ 4,133
Net cash provided by
operations............... 3,047 4,588 9,387 1,585 796
Net cash used in investing
activities............... 7,877 30,902 10,318 3,071 8,753
Net cash provided by (used
in) financing
activities............... 8,972 28,102 (410) 332 8,135

AS OF
-------------------------------------------
JULY 31, JULY 30, AUGUST 4, NOVEMBER 3,
1994 1995 1996 1996
-------- -------- --------- -----------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash, including restricted cash.... $ 4,691 $ 7,368 $ 6,021 $ 6,199
Working capital.................... 4,674 5,665 1,642 3,549
Total assets....................... 32,982 71,780 81,827 99,301
Long-term debt..................... 20,924 38,472 42,978 56,610
Total debt(3)...................... 21,556 41,942 49,131 62,970
Total stockholder's equity......... 6,245 19,617 22,143 22,263

- --------------------
(1) Weighted average number of common shares outstanding has been presented to
reflect retroactively the Company's reorganization and related stock
exchange with and stock dividend to its sole stockholder in October and
November 1996. See notes to the financial statements.

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

FISCAL YEARS ENDED THREE MONTHS ENDED
---------------------------- -----------------------
JULY 31, JULY 30, AUGUST 4, OCTOBER 29, NOVEMBER 3,
1994 1995 1996 1995 1996
-------- -------- --------- ----------- -----------
(IN THOUSANDS)

Net income.............. $1,235 $ 3,220 $ 2,424 $ 313 $ 124
Add (deduct):
Interest expense, net... 1,253 2,917 3,906 921 1,214
Income tax benefits..... -- (988) (994) (204) --
Depreciation and
amortization........... 3,284 6,241 10,165 2,497 2,795
------ ------- ------- ------ ------
EBITDA.................. $5,772 $11,390 $15,501 $3,527 $4,133
====== ======= ======= ====== ======

(3) Includes current and long-term portions of (i) term loan facilities and a
revolving line of credit; (ii) equipment notes payable; (iii) capital
lease obligations; and (iv) a subordinated note due to the Company's sole
stockholder, TSP.

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

The following should be read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. When used
in the following discussion, the words "believes," "anticipates," "intends,"
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected,
including, but not limited to, those set forth in "Risk Factors." Readers are
cautioned not to place undue reliance on forward-looking statements, which
speak only as of the date hereof.

OVERVIEW

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

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

FISCAL YEARS ENDED THREE MONTHS ENDED
-------------------------------------------------------- -------------------------------------
JULY 31, 1994 JULY 30, 1995 AUGUST 4, 1996 OCTOBER 29, 1995 NOVEMBER 3, 1996
------------------ ------------------ ------------------ ------------------ ------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)

Revenues by division:
Studio................ $15,746 37.3% $20,677 33.9% $23,468 33.5% $ 5,746 32.6% $ 5,957 31.4%
Broadcast............. 10,876 25.7 16,163 26.5 20,901 29.9 5,489 31.1 5,512 29.1
Television............ 15,639 37.0 22,712 37.2 23,343 33.3 5,631 31.9 7,084 37.4
Visual effects........ -- -- 1,452 2.4 2,316 3.3 766 4.4 394 2.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total revenues...... $42,261 100.0% $61,004 100.0% $70,028 100.0% $17,632 100.0% $18,947 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====

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

EBITDA increased from $5.8 million in fiscal 1994 to $15.5 million in fiscal
1996. The Company attributes this growth to several factors including: (i)
growth in revenues from fiscal 1994 to fiscal 1996; (ii) improvement in the
Company's gross profit resulting from the efficiency of its new Singapore
operations and new domestic

infrastructure; and (iii) decrease in the ratio of overhead and fixed costs to
revenues, as the Company has generally increased capacity utilization and
decreased the cost of adding new capacity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the related notes thereto included elsewhere in this
Prospectus.

The Company believes that EBITDA is an important measure of its financial
performance. "EBITDA" is defined as earnings before interest, taxes,
depreciation and amortization, excluding gains and losses on asset sales and
nonrecurring charges. The Company's investments in new infrastructure, machine
capacity and technology have produced a relatively high depreciation expense
and will remain a significant non-cash charge to earnings. It is the Company's
policy to depreciate equipment and other capitalized items over a period of
three to seven years. EBITDA is calculated before depreciation and
amortization charges and, in businesses with significant non-cash expenses,
widely is used as a measure of cash flow available to pay interest, repay
debt, make acquisitions or invest in capital equipment and new technologies.
As a result, the Company intends to report EBITDA as a measure of financial
performance. EBITDA does not represent cash generated from operating
activities in accordance with generally accepted accounting principles
("GAAP") and should not be considered in isolation or as a substitute for
other measures of performance prepared in accordance with GAAP. EBITDA does
not reflect that portion of the Company's capital expenditures which may be
required to maintain the Company's market share, revenues and leadership
position in its industry. Moreover, not all EBITDA will be available to pay
interest or repay debt. The Company's presentation of EBITDA may not be
comparable to similarly titled measures reported by other companies. See
footnote 3 of "Selected Financial Data".

RESULTS OF OPERATIONS

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

Revenues................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services:
Personnel................ 40.5 37.4 36.2 37.0 35.8
Material................. 10.0 10.5 10.5 10.9 9.8
Facilities............... 8.9 6.4 6.7 6.4 7.0
Other.................... 8.9 9.1 8.6 8.5 9.2
----- ----- ----- ----- -----
Total cost of
services.............. 68.3 63.4 62.0 62.8 61.8
----- ----- ----- ----- -----
Gross profit......... 31.7 36.6 38.0 37.2 38.2
----- ----- ----- ----- -----
Operating expenses:
Sales, general and
administrative.......... 18.0 17.9 15.9 17.2 16.4
Depreciation and
amortization............ 7.8 10.2 14.5 14.2 14.8
----- ----- ----- ----- -----
Total operating
expenses.............. 25.8 28.1 30.4 31.4 31.2
----- ----- ----- ----- -----
Income from
operations.......... 5.9 8.5 7.6 5.8 7.0
Interest expense, net...... 3.0 4.8 5.5 5.2 6.4
----- ----- ----- ----- -----
Income before income
tax benefits........ 2.9 3.7 2.1 0.6 0.6
Income tax benefits........ -- 1.6 1.4 1.2 --
----- ----- ----- ----- -----
Net income........... 2.9% 5.3% 3.5% 1.8% 0.6%
===== ===== ===== ===== =====
EBITDA..................... 13.7% 18.7% 22.1% 20.0% 21.8%

THREE MONTHS ENDED NOVEMBER 3, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER 29,
1995

Revenues. Total revenues for the three months ended November 3, 1996
increased 7.5% to $18.9 million compared to $17.6 million for the three months
ended October 29, 1995. The revenue increase was attributable primarily to the
factors set forth below.

Studio services revenues for the three months ended November 3, 1996
increased 3.7% to $6.0 million compared to $5.7 million for the three months
ended October 29, 1995. Professional duplication led the growth in the studio
services division during the first quarter of fiscal 1997, increasing 26.9%.
The growth in professional duplication was partially offset by a 31.0%
reduction in film-to-tape transfer services revenues. This reduction was the
result of the utilization of film-to-tape transfer capacity to service, on an
interim basis, an increase in the Company's seasonal film-to-tape transfer
commitments in television services. The Company intends to add additional
film-to-tape transfer capacity in its television services division during the
third quarter of fiscal 1997, which is expected to accommodate such seasonal
fluctuations in television services film-to-tape transfer work in the future.

Broadcast services revenues for the three months ended November 3, 1996
increased 0.4% to $5.5 million compared to $5.5 million in the three months
ended October 29, 1995. Revenues from the Company's Singapore operations
increased 35.0% during the first quarter of fiscal 1997. This increase was
attributable to the addition of a six month contract with MGM Gold, increased
utilization of the facility by both MTV Asia and other clients, and the
scheduled annual increase in the fees paid by MTV Asia under its contract with
the Company. The increase in revenues from the Singapore operations was
substantially offset by a reduction in revenues from the Company's domestic
broadcast operations. This reduction in revenues was the result of the
expiration of a service agreement with the Disney Channel in the second
quarter of fiscal 1996, together with a negotiated reduction of the monthly
payments under a service agreement with TVN during the third quarter of fiscal
1996. The Company believes that the deployment of digital compression
technology for broadcast applications and the expansion of cable channel
capacity resulting from the anticipated introduction of digital set-top boxes
will increase demand for its broadcast services. To enhance the efficiency and
competitiveness of its domestic broadcast operations, the Company expects to
commence construction of a new digital broadcast facility during fiscal 1997.

Television services revenues for the three months ended November 3, 1996
increased 25.8% to $7.1 million compared to $5.6 million for the three months
ended October 29, 1995. The revenue increase was the result of the completion
of a portion of a new digital television facility in Burbank, that is designed
to replace existing analog infrastructure and equipment, thereby enhancing the
competitiveness of the Company's Burbank-based television operations. The
Company expects to complete construction of that facility by the end of the
third quarter of fiscal 1997.

Visual effects services revenues for the three months ended November 3, 1996
decreased 48.6% to $394,000 compared to $766,000 for the three months ended
October 29, 1995. This decrease was the result of a delay in a major customer
project that has been rescheduled to commence in the second quarter of fiscal
1997. The Company has begun work on this project and does not anticipate any
further delays.

Gross Profit. Gross profit for the three months ended November 3, 1996
increased 10.4% to $7.2 million (38.2% of revenues) compared to $6.6 million
(37.2% of revenues) in the three months ended October 29, 1995. The
improvement of 1.0% in the Company's gross profit was attributable primarily
to the increase in revenues, but was partially offset by increases in
personnel, facility and satellite transponder costs. To meet demand for
television services anticipated for the third quarter of fiscal 1997, the
Company significantly increased personnel levels during the three months ended
November 3, 1996. Because of the normal lag between an increase in capacity
and the generation of revenues from utilization of such capacity, the Company
anticipates that gross profit will be significantly reduced in the second
quarter of fiscal 1997.

Sales, General and Administrative Expenses. Sales, general and
administrative expenses for the three months ended November 3, 1996 increased
2.6% to $3.1 million (16.4% of revenues) compared to $3.0 million (17.2% of
revenues) for the three months ended October 29, 1995. The improvement of 0.8%
in sales, general

and administrative expenses as a percentage of revenues was the result of the
Company's ability to leverage existing overhead to manage the expanded revenue
base. Expenses incurred in the three months endedOctober 29, 1995 were offset
by $225,000 of insurance proceeds.

Depreciation and Amortization Expenses. Depreciation and amortization
expenses for the three months ended November 3, 1996 increased 11.9% to
$2.8 million compared to $2.5 million in the three months ended October 29,
1995, primarily due to the $18.9 of capital expenditures made during fiscal
1996.

Interest Expense. Interest expense for the three months ended November 3,
1996 increased 31.8% to $1.2 million compared to $921,000 in the three months
ended October 29, 1995. The increase was attributable to additional long term
borrowings incurred by the Company to fund capital expenditures in fiscal 1996
and the first quarter of fiscal 1997.

Income Tax Benefits. Income taxes for the three months ended November 3,
1996 reflect the recognition, for financial accounting purposes, of the use of
net operating loss carryforwards that fully offset the Company's tax provision
for the period. Recognition of this tax benefit accounted for 40.3% of the
Company's net income for the three months ended November 3, 1996. Income taxes
for the three months ended October 29, 1995 reflect the recognition, for
financial accounting purposes, of the use of net operating loss carryforwards
and an increase in net deferred tax assets. Recognition of these tax benefits
accounted for 65.2% of the Company's net income for the three months ended
October 29, 1995.

Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
the three months ended November 3, 1996 increased 17.1% to $4.1 million
compared to $3.5 million in the three months ended October 29, 1995. The
increase was a result of increased revenues, improvement in gross profit and a
reduction in sales, general and administrative expenses as a percentage of
revenues. See "Liquidity and Capital Resources" for a discussion of net cash
provided by operating activities for the period. See footnote 3 to "Selected
Financial Data" for a discussion of EBITDA generally.

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

Revenues. Total revenues for fiscal 1996 increased 14.8% to $70.0 million
compared to $61.0 million in fiscal 1995. The revenue increase was
attributable primarily to the factors set forth below.

Studio services revenues for fiscal 1996 increased 13.5% to $23.5 million
compared to $20.7 million in fiscal 1995. Professional duplication led the
growth in the studio services division during fiscal 1996, increasing 35.0%.
The Company responded to increased demand for its services by adding machine
capacity, upgrading technology, improving service reliability and completing a
new archive during the period. The archive provides capacity to store, manage
and distribute up to 400,000 master videotapes and film elements and the
Company estimates that approximately 50.0% of this capacity is already being
utilized. The Company intends to continue to develop infrastructure and add
machine capacity in response to market demand and opportunities to fill unused
archive capacity.

Broadcast services revenues for fiscal 1996 increased 29.3% to $20.9 million
compared to $16.2 million in fiscal 1995. The increase reflects the inclusion
of a full year of operating results of the Company's Singapore operations and
the expansion of such operations (fiscal 1996 revenues of $11.0 million
compared to fiscal 1995 revenues of $4.0 million). The results of the
Singapore operations consist almost entirely of revenues under a long-term
contract with MTV Asia. Under the contract, the Company's revenues from MTV
Asia are scheduled to increase 4.0% per year over the remaining term of the
contract. The increase in Singapore partially was offset by a decline in
domestic broadcast revenues due to the expiration of a service agreement with
the Disney Channel in the second quarter of fiscal 1996, resulting in a
decline in revenues from this source of $1.8 million over the prior fiscal
year.

Television services revenues for fiscal 1996 increased 2.8% to $23.3 million
compared to $22.7 million in fiscal 1995. The increase was a result of the
inclusion of a full year of operating results of the Company's Santa Monica
operations (1996 revenues of $10.6 million compared to 1995 revenues of $8.9
million). This increase partially was offset by a reduction in revenues due to
the loss of key creative talent in sound mixing and editing and reduced
capacity utilization resulting from the inefficiencies associated with the
continued operation of analog equipment.

Visual effects services revenues for fiscal 1996 increased 59.5% to $2.3
million compared to $1.5 million in fiscal 1995. The revenue increase was the
result of an increase in the Company's high resolution digital image
processing capacity and increased sales and marketing activity. During fiscal
1996, the visual effects services division completed projects for a number of
prominent customers including New Line Cinema (18%), Sony Pictures Corporation
(15%), Twentieth Century Fox (13%) and Paramount (5%).

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

Sales, General and Administrative Expenses. Sales, general and
administrative expenses for fiscal 1996 increased 1.8% to $11.1 million (15.9%
of revenues) compared to $10.9 million (17.9% of revenues) in fiscal 1995. The
improvement of 2.0% in sales, general and administrative expenses as a
percentage of revenues is a result of relatively low sales, general and
administrative expenses associated with the Singapore operations and the
Company's ability to leverage its existing corporate overhead to manage
expanded domestic and international operations. In addition, insurance
proceeds received, which offset expenses incurred of $900,000, further reduced
sales, general and administrative expenses.

Depreciation and Amortization Expenses. Depreciation and amortization
expenses for fiscal 1996 increased 62.9% to $10.2 million compared to $6.2
million in fiscal 1995. The increase was primarily the result of $18.9 million
in capital expenditures made during fiscal 1996.

Interest Expense. Interest expense for fiscal 1996 increased 33.9% to
$3.9 million compared to $2.9 million in fiscal 1995. The increase was
attributable to additional long term borrowings incurred by the Company to
fund capital expenditures in fiscal 1995 and fiscal 1996, including the
construction of its Singapore broadcast facility.

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

Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
fiscal 1996 increased 35.9% to $15.5 million compared to $11.4 million in
fiscal 1995. The increase in EBITDA was a result of an increase in revenues,
an improvement in gross profit and a reduction in sales, general and
administrative expenses as a percentage of revenues. See "Liquidity and
Capital Resources" for a discussion of net cash provided by operating
activities for the period. See footnote 3 to "Selected Financial Data" for a
discussion of EBITDA generally.

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

Revenues. Total revenues for fiscal 1995 increased 44.2% to $61.0 million
compared to $42.3 million in fiscal 1994. The revenue increase was
attributable primarily to the factors set forth below.

Studio services revenues for fiscal 1995 increased 31.8% to $20.7 million
compared to $15.7 million in fiscal 1994. This increase was primarily
attributable to the integration of its various studio service operations into
a single new facility during the second quarter of 1995, which increased
capacity, quality and service reliability. In response to customer demand and
inadequate internal storage capacity, the Company commenced construction of a
new archive facility during fiscal 1995 to support future revenue growth in
studio services.

Broadcast services revenues for fiscal 1995 increased 48.6% to $16.2 million
compared to $10.9 million in fiscal 1994. The revenue increase was primarily
the result of the initiation of operations in Singapore, which generated
$4.0 million of revenues in fiscal 1995. In addition, the domestic broadcast
operation added two long-term contract customers and one short-term customer.

Television services revenues for fiscal 1995 increased 45.2% to $22.7
million compared to $15.6 million in fiscal 1994. The revenue increase was
primarily the result of the acquisition of the assets of DM&T in October 1994,
which generated revenues of $7.5 million in fiscal 1995. The increase in
revenues provided by the Company's Santa Monica operations was partially
offset by a decline in revenues generated by the Burbank television operations
resulting from the loss of key creative talent in sound mixing and reduced
capacity utilization due to the inefficiencies associated with the continued
operation of analog equipment.

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

Gross Profit. Gross profit for fiscal 1995 increased 66.5% to $22.3 million
(36.6% of revenues) compared to $13.4 million (31.7% of revenues) in fiscal
1994. The improvement of 4.9% in the Company's gross profit was attributable
primarily to the efficiencies of the new Singapore broadcast facility
experienced during fiscal 1995 (approximately three and one-half months of
operations) and the contribution of higher margin services resulting from the
acquisition of the DM&T assets (approximately nine months of operations).

Sales, General and Administrative Expenses. Sales, general and
administrative expenses for fiscal 1995 increased 43.1% to $10.9 million
(17.9% of revenues) compared to $7.6 million (18.0% of revenues) in fiscal
1994. The improvement in sales, general and administrative expenses as a
percentage of total revenues was primarily the result of efficiencies gained
in the elimination of duplicative staff positions and expenses resulting from
the acquisition of the DM&T assets in October 1995.

Depreciation and Amortization Expenses. Depreciation and amortization
expenses for fiscal 1995 increased 90.0% to $6.2 million compared to $3.3
million in fiscal 1994. The increase was primarily the result of $30.3 million
in capital expenditures made during fiscal 1995.

Interest Expense. Interest expense for fiscal 1995 increased 132.8% to
$2.9 million compared to $1.3 million in fiscal 1994. The increase was
attributable to additional long term borrowings incurred by the Company to
fund capital expenditures in fiscal 1994 and fiscal 1995.

Income Tax Benefits. Income taxes for fiscal 1995 reflected the recognition,
for financial accounting purposes, of a $1.0 million tax benefit. Recognition
of this tax benefit in 1995 accounted for 30.7% of the Company's net income in
fiscal 1995. Recognition of these tax benefits resulted from the Company's
profitability in its second year of operations which made recognition of
future tax deductions (arising from, among other things, net operating loss
carryforwards) more certain.

Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
fiscal 1995 increased 97.3% to $11.4 million compared to $5.8 million in
fiscal 1994. The increase in EBITDA was a result of an increase in revenues,
improvement in gross profit, and a reduction in sales, general and
administrative expenses as a percentage of revenues. See "Liquidity and
Capital Resources" for a discussion of net cash provided by operating
activities for the period. See footnote 3 to "Selected Financial Data" for a
discussion of EBITDA generally.

LIQUIDITY AND CAPITAL RESOURCES

Net Cash Provided by Operating Activities. The Company's net cash provided
by operating activities was $9.4 million, $4.6 million, $3.0 million in fiscal
1996, 1995, 1994, respectively. The increases for fiscal 1996 compared to
fiscal 1995 and for fiscal 1995 compared to fiscal 1994 primarily reflect
year-to-year increases in

revenues and improvements in gross profit, offset in part by year-to-year
increases in depreciation and amortization included in net income and changes
in the components of operating assets and liabilities. The Company's net cash
provided by operating activities was $1.6 million and $796,000 in the three
months ended October 29, 1995 and November 3, 1996, respectively. The decrease
was attributable to changes in the components of operating assets and
liabilities, primarily an increase in accounts receivable.

Net Cash Provided by Financing Activities. The Company's net cash provided
by financing activities was $400,000, $28.1 million and $9.0 million in fiscal
1996, 1995 and 1994, respectively. The Company obtained third-party financing
in the form of term debt, equipment notes, and capital leases of $11.5
million, $21.6 million and $2.2 million in fiscal 1996, 1995 and 1994,
respectively. In fiscal 1994 and 1995, the Company also issued subordinated
notes of $10.0 million and $9.0 million to its sole stockholder. The Company's
net cash provided by financing activities was $322,000 and $8.1 million in the
three months ended October 29, 1995 and November 3, 1996, respectively. In the
three months ended November 3, 1996 the Company obtained $9.1 million of
third-party financing in the form of equipment notes and capital leases
compared to $1.1 million in the three months ended October 29, 1995. In
October, 1996 the Company entered into a $34 million loan agreement. At
November 3, 1996, $17.6 million was borrowed under this agreement of which
$11.7 million was used to repay then existing debt.

Capital Expenditures. Since its formation in 1993 through the first quarter
of fiscal 1997, the Company has invested $72.6 million to convert its
infrastructure from analog to component digital, develop management
information systems, consolidate various operations, expand into the Asian
market and create new businesses. The Company's capital expenditures
illustrate a systematic concentration of infrastructure and equipment
investment across each business division, with 69.8% of total capital
expenditures in studio services in fiscal 1994, 57.9% of total capital
expenditures in broadcast services in fiscal 1995 and 62.6% of total capital
expenditures in television services in fiscal 1996 and 72.2% of total capital
expenditures in television services for the three months ended November 3,
1996. For a description of these capital expenditures, see "Business--
Strategic Accomplishments." The following table sets forth capital
expenditures in each business division as well as capital expenditures
associated with new management information systems by amount and percentage of
total capital expenditures for the periods indicated.

THREE MONTHS
FISCAL YEARS ENDED ENDED
------------------------------------------------------- ------------------
JULY 31, 1994 JULY 30, 1995(1) AUGUST 4, 1996 NOVEMBER 3, 1996
----------------- ------------------ ------------------ ------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ ---------- ------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)

Capital expenditures(2):
Studio................ $6,167 69.8% $ 5,072 16.7% $ 3,175 16.8% $ 2,704 18.7%
Broadcast............. 518 5.9 17,521 57.9 2,411 12.7 785 5.4
Television............ 1,499 16.9 3,291 10.9 11,853 62.6 10,436 72.2
Visual effects........ -- -- 2,525 8.3 413 2.2 -- --
Management information
systems.............. 656 7.4 1,878 6.2 1,084 5.7 532 3.7
------ ----- ------- ----- ------- ----- ------- -----
Total capital
expenditures....... $8,840 100.0% $30,287 100.0% $18,936 100.0% $14,457 100.0%
====== ===== ======= ===== ======= ===== ======= =====

- --------------------
(1) Reflects $1.1 million of organization costs for 4MC Asia.
(2) Does not include the net assets written off pertaining to the January 1994
earthquake of $1.9 million and $567,000 for the fiscal years ended
July 30, 1995 and August 4, 1996, respectively.

The Company expects to complete its new television services facility by the
end of the third quarter of fiscal 1997. The Company believes that, upon
completion of that facility, it will have accomplished substantially all of
the major infrastructure upgrades required to convert its existing facilities
from analog to digital, except for an estimated $15.0 million in
infrastructure upgrades to be completed over the next two years for domestic
broadcast and television sound facilities. Nevertheless, the Company could
seek to exploit business opportunities in

existing or new markets, new technologies could be developed which would
render some or a substantial portion of the Company's infrastructure or
equipment obsolete, or the pressure of competition or customer demands could
require the Company to further rebuild or upgrade its infrastructure and
equipment. In addition, the Company could acquire businesses requiring
significant capital investment or purchase real property. In any such case,
the Company may incur significant additional capital expenditures. The Company
has no definitive commitment or agreement to make any such acquisition or
purchase except for the purchase of certain real property located in Burbank
as described below.

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

The obligations of 4MC Burbank and DMC under the CIT Facility are secured by
substantially all of the assets of 4MC Burbank and DMC. The obligations are
also guaranteed by the Company and secured by a pledge of the capital stock of
4MC Burbank and DMC. The CIT Facility contains restrictive covenants that,
among other things, and with certain exceptions, limit the ability of 4MC
Burbank and DMC to pay dividends or make other distributions to the Company or
to incur additional indebtedness. 4MC Burbank and DMC also are required to
satisfy certain financial covenants and tests, including the maintenance of
minimum net worth, working capital, fixed charge coverage ratios and leverage
ratios. As of November 3, 1996, the Company's total obligations outstanding
under the CIT Facility were $17.6 million. The Company intends to repay the
$16.0 million term loan portion of the CIT Facility with a portion of the
proceeds of this offering.

In February 1995, 4MC Asia borrowed $16.9 million Singapore dollars ($11.8
million U.S. dollars as of November 3, 1996) under a term loan facility with
the Hong Kong and Shanghai Banking Corporation Limited ("HKSB") to fund the
construction of its Singapore broadcast facility. The term loan bears interest
at an annual rate equal to the HKSB prime rate plus 1.25% and is payable in 60
monthly installments commencing April 1997. The term loan is secured by
substantially all of the assets of 4MC Asia and is guaranteed by the Company.
The term loan facility contains restrictive covenants that, among other
things, will prohibit 4MC Asia from incurring additional indebtedness or
paying any dividend or making any other distribution to the Company, other
than under certain conditions the repayment of intercompany debt in an amount
not to exceed $3.0 million Singapore dollars in each of the first two years of
the loan. The term loan also provides that, through April 15, 2000, any
decrease in the aggregate beneficial shareholdings of Messrs. Walston, Donlon,
Sabin, Schutz and Bailey below 15% of the Company's shares outstanding shall
constitute an event of default and may result in acceleration of any
outstanding amounts. The term loan will become due and payable, at the option
of HKSB, upon the termination of 4MC Asia's contract with MTV Asia or the
occurrence of certain other events of default.

The Company has entered into various capital lease and equipment notes
related to the purchase of equipment. As of August 4, 1996 and November 3,
1996, the Company's total obligations under capital leases and outstanding
equipment notes were $18.5 million and $24.6 million, respectively. These
notes are due at various times through 2001 and bear interest at rates of 8.0%
to 11.9%. The capital lease and equipment notes are secured by the assets
acquired under such leases and notes. The Company intends to repay
$10.0 million of these notes (with proceeds from the offering) over the next
12 to 18 months as prepayment penalties diminish or lapse.

In December 1996, the Company purchased a 90,000 square foot building in
Burbank. Prior to the purchase, the Company subleased 45,000 square feet for
use as its archive facility. The additional 45,000 square feet is subleased by
an outside tenant through 1999. The purchase price was $11.3 million, of which
$8.4 million was borrowed under a term loan agreement with the Tokai Bank of
California and the balance was paid from cash. The term loan provides for
monthly principal payments over a period of 84 months and a final payment at
maturity in December 2003. The term loan is secured by the building and any
improvements thereon and is guaranteed by 4MC Burbank and DMC. The term loan
bears interest at the lender's prime rate plus 1% or LIBOR plus 2.25%, at the
Company's option.

The Company believes that the remaining proceeds of this offering (after
repayment of certain outstanding debt, see "Use of Proceeds"), combined with
cash flow from operations and amounts available under the CIT Facility, will
be sufficient to meet its anticipated working capital and capital expenditure
requirements through the end of 1997. The Company may, however, be required to
seek additional debt and/or equity financing to support a more rapid than
planned expansion, respond to competitive pressures or customer demands, or
meet unanticipated requirements.

In addition, the Company regularly engages in discussions regarding the
acquisition of complementary businesses. Although the Company has no
definitive commitment or agreement to effect any acquisition, it has entered
into an agreement that provides for an exclusive negotiating period for a
potential acquisition of a studio and television services business. The
Company anticipates that it would fund the potential acquisition currently
under consideration from the assumption of indebtedness of the acquired entity
and, if necessary, from the remaining proceeds of this offering. Discussions
with the seller and its creditors are ongoing regarding the potential
acquisition and possible terms thereof. However, the Company has not reached
agreement on price or completed its due diligence with respect to such
potential acquisition, and there can be no assurance that the Company will be
successful in consummating the transaction if it continues to pursue this
opportunity. In addition, if the Company were to make other acquisitions, it
may be required to obtain additional debt and/or equity capital.

FOREIGN EXCHANGE

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

QUARTERLY REVENUE FLUCTUATIONS

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

Revenues derived from the Company's television division are seasonal in
nature, generally beginning in September and ending in May. As a result, the
Company has experienced its lowest operating results in the fourth quarter,
and the first and second quarter results generally are lower than third
quarter results. In addition, the Company's television division can experience
fluctuations in quarterly financial results for reasons beyond the Company's
control including a work stoppage or other event resulting in delays in
production schedules; changes

in or extensions of vacation time around holidays; network cancellations of
projects at mid-season; and changes in staffing, location or budgets of
production companies. These factors result in idle capacity until replacement
work can be found. The expansion of the Company's studio and broadcast
services businesses have mitigated, to a certain extent, the seasonality of
the Company's revenues, EBITDA and net income in prior periods. However, the
completion of a portion of the Company's new television facility in Burbank,
increased revenues generated by the Company's Santa Monica facility, and
future expansion of television operations would likely create more seasonal
variation in the Company's revenues, EBITDA and net income in current and
future fiscal years. See "Risk Factors--Potential Fluctuations in Operating
Results; Seasonality."

The Company generally experiences a lag between the time that it incurs
expenditures to increase capacity (for both labor and equipment) and the
generation of revenues from utilization of such capacity. The duration of this
lag and the severity of its impact are unpredictable and could result in
significant fluctuations in the Company's quarterly operating results. See
"Risk Factors--Incurrence of Substantial Incremental Costs and Capital
Expenditures Prior to Generation of Revenues."

The following table presents (in thousands, except per share data), by
fiscal quarter, unaudited information derived from the Company's Consolidated
Statements of Operations and Statements of Cash Flows for the two fiscal years
ended August 4, 1996 and for the three months ended November 3, 1996.

FISCAL QUARTERS ENDED
-----------------------------------------------------------------------------------
FISCAL
FISCAL 1995 FISCAL 1996 1997
------------------------------------- ------------------------------------ -------
OCT. 30, JAN. 29, APRIL 30, JULY 30, OCT. 29, JAN. 28, APRIL 28, AUG. 4, NOV. 3,
1994 1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- ------- -------

STATEMENT OF OPERATIONS
DATA:
Revenues:
Studio................. $ 4,269 $ 5,134 $ 5,727 $ 5,547 $ 5,746 $ 6,008 $ 5,840 $ 5,874 $5,957
Broadcast.............. 2,838 2,973 4,530 5,822 5,489 5,088 5,065 5,259 5,512
Television............. 3,532 6,705 7,315 5,160 5,631 5,684 7,058 4,970 7,084
Visual effects......... 0 510 313 629 766 305 515 730 394
------- ------- ------- ------- ------- ------- ------- ------- ------
Total revenues....... 10,639 15,322 17,885 17,158 17,632 17,085 18,478 16,833 18,947
------- ------- ------- ------- ------- ------- ------- ------- ------
Cost of services:
Personnel.............. 4,427 5,768 6,362 6,238 6,527 6,280 6,286 6,251 6,779
Material............... 1,204 1,637 1,903 1,680 1,920 1,809 1,816 1,809 1,853
Facilities............. 749 936 1,018 1,214 1,124 1,181 1,144 1,243 1,328
Other.................. 965 1,491 1,579 1,525 1,504 1,707 1,437 1,373 1,745
------- ------- ------- ------- ------- ------- ------- ------- ------
Total cost of
services............ 7,345 9,832 10,862 10,657 11,075 10,977 10,683 10,676 11,705
------- ------- ------- ------- ------- ------- ------- ------- ------
Gross profit........ 3,294 5,490 7,023 6,501 6,557 6,108 7,795 6,157 7,242
------- ------- ------- ------- ------- ------- ------- ------- ------
Operating expenses:
Sales, general and
administrative........ 1,997 2,654 2,898 3,369 3,030 2,871 2,646 2,569 3,109
Depreciation and
amortization.......... 883 1,176 1,931 2,251 2,497 2,508 2,561 2,599 2,795
------- ------- ------- ------- ------- ------- ------- ------- ------
Total operating
expenses............ 2,880 3,830 4,829 5,620 5,527 5,379 5,207 5,168 5,904
------- ------- ------- ------- ------- ------- ------- ------- ------
Income from
operations......... 414 1,660 2,194 881 1,030 729 2,588 989 1,338
Interest expense, net... 391 640 772 1,114 921 1,073 993 919 1,214
------- ------- ------- ------- ------- ------- ------- ------- ------
Income (loss) before
income tax
benefits........... 23 1,020 1,422 (233) 109 (344) 1,595 70 124
Income tax benefits..... 250 204 284 250 204 250 317 223 --
------- ------- ------- ------- ------- ------- ------- ------- ------
Net income (loss)... $ 273 $ 1,224 $ 1,706 $ 17 $ 313 $ (94) $ 1,912 $ 293 $ 124
======= ======= ======= ======= ======= ======= ======= ======= ======
Net income (loss) per
share.................. $ .04 $ .19 $ .26 $ -- $ .05 $ (.02) $ .30 $ .05 $ .02
======= ======= ======= ======= ======= ======= ======= ======= ======
Weighted average number
of common shares
outstanding............ 6,475 6,475 6,475 6,475 6,475 6,475 6,475 6,475 6,475
======= ======= ======= ======= ======= ======= ======= ======= ======
OTHER DATA:
EBITDA.................. $ 1,297 $ 2,836 $ 4,125 $ 3,132 $ 3,527 $ 3,237 $ 5,149 $ 3,588 $4,133
Net cash provided/(used)
by operations.......... (1,613) 862 100 5,239 1,585 2,603 896 4,303 796
Net cash used in
investing activities... 2,883 6,001 15,491 6,527 3,071 3,010 80 4,157 8,753
Net cash provided/(used
in) financing
activities............. 743 4,611 18,446 4,302 332 (527) (1,090) 875 8,135

BUSINESS

OVERVIEW

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

Since its formation in 1993 through the first quarter of fiscal 1997, the
Company has invested $72.6 million in infrastructure, primarily for new
digital systems and equipment. In addition, the Company has successfully
identified, acquired and integrated four complementary businesses. The Company
acquired the assets of three companies in connection with its formation in
1993, acquired the assets of a fourth company in 1994, and capitalized and
commenced its Singapore broadcast operations in 1995. As a result of its
investments and acquisitions, the Company is one of the largest and most
diversified independent (not affiliated with or related to a content owner)
providers of technical and creative services to the entertainment industry,
and therefore is able to offer its customers a single source for such
services.

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

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

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

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

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

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

MARKETS

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

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

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

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

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 $17.1 million in its studio
services facilities. The facilities occupy approximately 82,000 square feet of
new space (in two buildings) and feature a state-of-the-art digital
infrastructure. Studio services revenues have increased to $23.5 million in
fiscal 1996 compared to $15.7 million in fiscal 1994. The Company intends to
capitalize on the emergence of growth opportunities related to the domestic
and international distribution of content and the digitization and compression
of content for new distribution and multimedia applications by continuing to
add capacity to its studio services facilities.

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

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

Television Services. In 1994, the Company acquired the assets of DM&T, a
facility specializing in providing visual effects for television. The Company
invested a total of $16.3 million in the facility, including approximately
$7.7 million to acquire the DM&T assets and an additional $5.3 million for the
purchase of component digital equipment and other improvements. The Company
believes that its facility is among the most technologically advanced
television services facilities in the Los Angeles area. The Company expects to
complete construction by the end of the third quarter of fiscal 1997 of a new
television facility in Burbank providing new server-based technology targeted
at the episodic television market. The Company studied the migration to a file
server environment for all digital non-linear assembly of television
programming and implemented a new design incorporating server-based
technology. In addition, the Company incorporated four Rank Cintel URSA
Gold(R) telecines in the new infrastructure to provide high quality pictures
as well as seamless transition from telecine to off-line and on-line
applications. The Company invested approximately $17.4 million to design and
construct the Burbank facility.

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

Visual Effects Services. In fiscal 1995, the Company determined that it
could apply its core competencies in the digital manipulation of images for
television to high resolution visual effects for feature films. The Company
retained a highly respected creative staff and acquired certain high
resolution equipment including a Quantel(R) Domino(R) computer and a Silicon
Graphics(R) computer that runs Discreet Logic(R) Inferno(R) software. In
addition, the Company acquired six Silicon Graphics(R) workstations running a
variety of software for high resolution animation applications, and film
scanning and recording equipment required to digitize high resolution images.
As of November 3, 1996, the Company's total capital investment in the visual
effects operation was approximately $2.9 million. The Company has attracted
visual effects projects for medium budget feature films and portions of
projects for large budget major motion pictures. The Company anticipates
making additional investments in high resolution capacity in response to
demand. Visual effects services revenues increased to $2.3 million in fiscal
1996 compared to $1.5 million in fiscal 1995.

GROWTH STRATEGY

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

. Seek Consolidation Opportunities. The Company plans to pursue
acquisitions that complement existing operations, increase market share
and diversify product lines, including those in the visual effects area.
The Company participates in a highly fragmented industry in which many
small, entrepreneurial companies compete for market share. Many do not
have the size, diversity, liquidity or capital resources required to
modernize infrastructure or derive efficiencies from economies of scale.
The Company has successfully identified, acquired and integrated four
complementary business. The Company acquired the assets of three
companies in connection with its formation in 1993, acquired the assets
of DM&T in 1994, and capitalized and commenced its broadcast operations
in Singapore in 1995. The Company has entered into an agreement that
provides for an exclusive negotiating period for the potential
acquisition of a studio and television services business. The Company
has not reached agreement on price or completed its due diligence with
respect to such potential acquisition, and there can be no assurance
that the Company will be successful in consummating the transaction, if
it continues to pursue this opportunity.

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

. Deploy Leading Technologies. The Company plans to continue its
investment in component digital equipment and other leading technologies
in order to enhance its reputation for technological leadership in its
industry. Since its formation in 1993 through the first quarter of
fiscal 1997, the Company has invested $72.6 million to expand the scope
and scale of its operations, broaden its service offerings, expand
internationally and convert the majority of its infrastructure and
equipment to be compatible with new digital content formats. As part of
these capital expenditures, the Company has invested approximately $4.1
million to design, develop and implement a management information system
that provides timely and accurate information to customers about the
status of archived material, work orders, shipments and deliveries. The
Company believes that continued investment in infrastructure and the
deployment of digital technology will position the Company to benefit
from the domestic and international growth in entertainment content
production and distribution.

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

. Establish Strategic Alliances. The Company seeks to generate additional
revenue from its technological resources and facilities by establishing
strategic alliances with content creators and others. In fiscal 1996,
the Company entered into an agreement with Silverhammer, Inc., a design
and production firm specializing in the creation of network and
corporate visual promotions, identities, in-show graphics and internet
home pages. The agreement specifies that the Company will be
Silverhammer's exclusive service provider and permits the Company to
acquire an equity position in Silverhammer. Additionally, in January
1997, the Company agreed to enter into a joint venture ("Medialab Studio
L.A.") with Medialab (U.S.), a division of Canal+ (U.S.). Medialab
Studio L.A. will offer film and television producers performance
animation technology which provides the ability to generate 3-D computer
animated characters in real time, thereby reducing the time required for
certain types of animation. The Company has contributed an aggregate of
$400,000 of equipment, $100,000 in start up costs, and the use of the
facility in which the venture will be housed. Either party may decide to
discontinue the relationship by June 1, 1997, if the parties have not
agreed upon a business plan. If a business plan is approved, both
parties intend to contribute additional assets to the venture, which is
expected to include a license of Medialab's performance animation
technology and certain other assets anticipated to have a value of $2.5
million. However, the ultimate terms of the business plan and joint
venture have yet to be approved. There can be no assurance that the new
services offered will attract sufficient customers to justify the
continuation of the relationship or that the parties will approve the
business plan.

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

PRODUCTS AND SERVICES

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

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

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 Layback
Restoration Transfer Conversion
Archive 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 exceeding $3.0 million. This equipment produces the
highest quality transfers available in the industry. Technological
developments, such as the anticipated domestic introduction of television sets
with 16 x 9 aspect ratios and the implementation of advanced definition
television systems for terrestrial and satellite broadcasting, if they occur,
should contribute to the growth of the Company's film-to-tape transfer
business in the future.

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

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

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

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

BROADCAST SERVICES

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

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 is licensed by
the FCC and operates as a common carrier. Facilities are staffed 24 hours a
day and also are used for downlink and turnaround services. The Company
communicates with two transponders on the Galaxy IV(R) satellite in support of
the Company's syndication and Canadian distribution business segments.
Catalina accesses various "satellite neighborhoods" daily, including basic and
premium cable, broadcast syndication and direct-to-home markets. The Company
resells transponder capacity for ad hoc and other occasional use and bundles
its transponder capacity with other broadcast services to provide a complete
broadcast package at a fixed price.

TELEVISION SERVICES

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

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

The Original Programming Delivery Process

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

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

The Effect Creation Process

Correction
Pre-Production Design Scanning Developing
Consulting Creation Recording Printing

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

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

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

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

CUSTOMERS

The Company's customer base includes the major studios, independent owners
of television and film libraries, programmers, producers of original
television programming and creators of visual effects. As of November 3, 1996,
the Company's customer base included approximately 1,800 customer accounts.
The Company is committed to building and retaining a loyal customer base by
providing a broad range of service offerings, state-of-the-art equipment and
technology, and superior customer service at competitive prices.

The Company's ten largest customers accounted for 57.4% of total revenues in
fiscal 1996. In addition, 29.5% of the Company's revenues were generated by
the six major domestic studios (Disney, MCA/Universal, Sony Pictures
Corporation, Viacom/Paramount, Warner Bros. and Twentieth Century Fox) in
fiscal 1996. MTV Asia accounted for 15% of the Company's revenues in fiscal
1996. No other customer accounted for 10% or more of the Company's revenues.
The increase in revenue concentration among the Company's top ten revenue
producing customers is the result of the substantial increase in revenues from
MTV Asia and the expansion of the Company's relationship with Sony Pictures
Corporation. The Company believes that the increase in the percentage of its
revenues generated by the major studios reflects the expansion of services
provided by each of the Company's operating divisions together with greater
customer acceptance of the Company's ability to provide complete outsourcing
solutions. Except for MTV Asia, TVN and a limited number of other customers,
none of the Company's customers has a long-term contractual relationship with
the Company whereby the customer is obligated to purchase any specified level
of services from the Company.

In the Company's television and visual effects divisions, customer
relationships also can be measured by the number and types of projects
completed by the Company during the production season. During the 1995-1996
television season, the Company provided one or more services to 67 episodic
television programs. In the 1996-1997 season, the Company expects to provide
one or more services to over 80 episodic television programs. The Company
believes that the increase in its television customer base is the result of an
increased volume of television production, the construction of a new
television facility in Burbank (which the Company expects to complete in the
third quarter of fiscal 1997) and significantly improved coordination between
the Burbank and Santa Monica television facilities. In fiscal 1995 and 1996,
the Company provided one or more visual effects services to eight and 13
feature film projects, respectively.

The Company's standard credit term for customers is "Net 30 Days," although,
in the Company's experience, the prevailing practice among major studios and
certain other customers is to pay outstanding accounts within approximately 60
to 90 days. The Company reviews a customer's credit history and establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends, and other information. During fiscal
1996, the Company entered into a long term agreement for services with TVN
under which TVN agreed to repay $3.3 million in outstanding accounts
receivable for broadcast services over three years in monthly installments of
principal and interest at 8.0%.

TECHNOLOGY

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

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

COMPETITION

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

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

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

EMPLOYEES

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

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

PROPERTIES

The Company's principal executive offices, together with its facilities for
domestic broadcast, television and studio services, are located in four
buildings in the Burbank Media District. The Company leases these facilities,
which in the aggregate occupy approximately 86,000 square feet, under
agreements with terms expiring between January 1999 and October 1999, and
options to renew extending through October 2014. The Company's visual effects
division and a portion of its television division are located in Santa Monica
in a 29,000 square foot facility, which is leased under an agreement that
expires in October 1999 and may be renewed at the Company's option through
October 2004. The Company's film laboratory is located in an 18,000 square
foot facility in Burbank, and is owned by the Company. In December 1996, the
Company purchased a 90,000 square foot facility in Burbank in which the
Company occupies 45,000 square feet to house its archive. The film laboratory
services both the television and the studio services divisions. The Company
leases 20,000 square feet in Singapore to house its Singapore broadcast
facility. The lease expires in December 1996, and may be renewed at the
Company's option through December 2001. The Company believes that all of its
facilities substantially comply with applicable laws and regulations or is
taking action aimed at assuring compliance therewith. The Company does not
expect compliance with such laws and regulations to materially affect the
Company's capital expenditures or results of operations. The Company believes
that its facilities are adequate for its current needs and that additional
space will be available as needed for future expansion.

GOVERNMENT REGULATION

The Communications Act prohibits the operation of satellite earth station
facilities such as those operated by Catalina, except under licenses issued by
the FCC. Catalina holds three satellite earth station licenses and other
authorizations required for the operation of the Company's business. One of
the licenses is for a transportable earth station, which is granted for a
period of one year and has been routinely renewed. The FCC has adopted but not
yet implemented an order to extend the term for all such licenses to ten
years. Catalina also holds two licenses for fixed earth stations, granted for
a period of ten years, which expire in 2001 and 2004. While the FCC generally
renews licenses for satellite earth stations routinely, there can be no
assurance that the Company's licenses will be renewed at their expiration
dates, which could have a material adverse effect on the Company.

The Communications Act further prohibits the transfer of control of any
station license without prior approval of the FCC. The Company has filed an
application with the FCC for consent to the transfer of control of Catalina in
connection with this offering. The FCC granted that application by notice
released on December 18, 1996. That decision has become final.

Catalina also holds authorizations from the FCC to operate a microwave
station for the transmission of signals from a single point to the Company's
Burbank facilities, and to offer services to Canada and Mexico using both U.S.
and non-U.S. licensed satellites. Catalina also has filed applications
relating to those authorizations for transfer of control in connection with
this offering (the "Microwave Application" and the "Service Application,"
respectively). The Microwave Application is pending before the FCC. On January
31, 1997, the FCC granted special temporary authority for the Company to
transfer control of its microwave station. The FCC granted the Service
Application by decision released on January 9, 1997. The period for interested
parties to request reconsideration or for the FCC to review this decision on
its own motion has not yet expired. The Company expects that the grant of the
Service Application will become final and that approval of the Microwave
Application will be issued and become final in the normal course of FCC
administration, although there can be no assurance that these actions will
occur. The Company does not believe that failure to obtain FCC final approval
of the Service or Microwave Applications or delay in obtaining those approvals
would materially affect its business operations.

No FCC authorization is required for reception of transmission from domestic
satellites from points within the United States. The Company relies on third
party licenses or authorizations when it transmits domestic satellite traffic
through earth stations operated by such third parties. The FCC establishes
technical standards for satellite transmission equipment which change from
time to time, and also requires coordination of earth stations with land-based
microwave systems at certain frequencies to assure noninterference.
Transmission equipment must also be installed and operated in a manner that
avoids exposing humans to harmful levels of radio-frequency radiation. The
placement of earth stations or other antennae is typically subject to
regulation under local zoning ordinances.

LITIGATION

The Company is involved in two legal proceedings with the International
Alliance of Theatrical Stage Employees ("IATSE"), the union which formerly
represented approximately 100 employees of Compact. In the first case,
entitled ATS Acquisition Corp., Inc. v. National Labor Relations Board
("NLRB") Case No. 31-CA-20089, IATSE argued that the Company should have
bargained with it as a labor law "successor" following the sale of Compact's
assets to the Company in August 1993. The Company refused to bargain with
IATSE, contending that only a broad, company-wide bargaining unit was
appropriate. In a decision issued in July, 1996, the NLRB ordered the Company
to bargain with IATSE with regard to certain of the Compact bargaining unit
employees. The Company has continued to express its disagreement with this
bargaining unit. Since the NLRB's orders are not self-executing, the NLRB has
sought 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. 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, directors and director nominees of the Company and
their ages are as follows:

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

Robert T. Walston....... 38 Chairman of the Board and Chief Executive Officer
John H. Donlon.......... 52 President and Director
John H. Sabin........... 57 Vice President, Chief Financial Officer and Director
Gavin W. Schutz......... 43 Vice President, Chief Technology Officer and Director
Robert Bailey........... 39 Vice President, Director of Marketing and Director
James T. Conlon......... 48 Vice President and Director of International Operations
Shimon Topor(1)(2)...... 52 Director
Edward Kirtman(1)....... 44 Director
Paul Bricault(2)........ 33 Director nominee
Thomas Wertheimer....... 58 Director nominee

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

(2) Member of Audit Committee

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

John H. Donlon has served as President and a Director of the Company since
August 1993. Prior to joining the Company, Mr. Donlon was President and Chief
Executive Officer of Compact Video Group, Inc., a provider of post-production
services to the television industry, from 1984 to 1993. From 1981 to 1984, Mr.
Donlon was employed by Technicolor, Inc. as President of Technicolor's
videocassette subsidiary and from 1977 to 1981 as Vice President and Director
of Technicolor's Laboratory Operations. Mr. Donlon received a BA degree from
the University of Florida.

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

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

Robert Bailey has served as Vice President and Director of Marketing of the
Company since August 1996, and was elected a Director of the Company in
September 1996. From 1993 to 1996 he served as Vice President

and Director of Marketing for the Company's studio and television services
divisions. Prior to joining the Company he was a Vice President of Image
Transform, Inc., from 1985 to 1993. From 1977 to 1985, he was creator/producer
of "Hollywood Detective" for the A&E Channel, Producer/Director of "Eye on
L.A." for ABC and Producer of "Remmington Steele" for MTM Productions. Mr.
Bailey received a BA from the University of Southern California.

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

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

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

Paul Bricault will begin serving as a Director of the Company upon the
completion of the offering. Since 1994, he has served as an agent in corporate
consulting on emerging technologies for the William Morris Agency. From 1989
to 1994, he served as a Senior Media Analyst for Paul Kagan Associates, where
he was responsible for the firm's coverage of worldwide film, television and
new media markets. Mr. Bricault currently teaches a course in new technologies
and their impact on the motion picture industry for the graduate program of
the University of Southern California's School of Cinema-Television.
Mr. Bricault received a BA from the University of Western Ontario and an MA in
Communications Management from the Annenberg School of Communication at the
University of Southern California.

Thomas Wertheimer will begin serving as a Director of the Company upon the
completion of the offering. From 1964 to 1972, he worked for ABC where he
became Vice President of Business Affairs. From 1972 to 1976 he was Vice
President of Business Affairs of Universal Television. From 1976 to 1991, he
served as a Director of MCA, Inc. ("MCA") and was a Member of MCA's three
person Executive Committee from 1977 to 1991. From 1983 to 1996, he served as
Executive Vice President of MCA, and from 1991 to 1996 he took on the
additional positions of Chairman of both the Television and Home Entertainment
Groups. Since January 1996, Mr. Wertheimer has been consulting for MCA and
serving as Chairman of the Board of the KCRW Foundation, the UCLA Extension TV
and Film Advisory Board, and the Columbia Law School Board of Visitors. Mr.
Wertheimer received a BA from Princeton University and an LLB from Columbia
Law School.

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

DIRECTOR COMPENSATION

The Company's non-employee directors are not paid a fee for attending board
or committee meetings; however, all directors are reimbursed for reasonable
expenses incurred in attending such meetings. The Company's stock option plan
provides for automatic stock option grants to non-employee directors. See
"Management--Stock Plans" and "Certain Transactions."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company's Compensation Committee was formed 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.

AUDIT COMMITTEE

The Company's Audit Committee recommends the selection of auditors for the
Company and review the results of the audits and other reports and services
provided by the Company's independent auditors. Upon the closing of this
offering, the Audit Committee will be composed of Messrs. Bricault and Topor.

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................................................... 252,493 -- 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 year 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.......... -- -- 89,209 88,852 $1,129,386 $1,124,866
John H. Sabin........... -- -- 72,990 72,698 924,053 920,357
Gavin W. Schutz......... -- -- 72,990 72,698 924,053 920,357
Robert Bailey........... -- -- 72,990 72,698 924,053 920,357

- --------------------
(1) Based on the difference between the deemed fair market value of the
securities underlying the options at August 4, 1996 (which for purposes of
this table, is assumed to be $13.00 per share) and the exercise price.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements, with Messrs. Walston,
Donlon, Sabin, Schutz and Bailey. Each of the employment agreements with
Messrs. Donlon, Sabin and Bailey is for a term extending through September
1999. The employment agreements with Messrs. Walston and Schutz each have a
term extending through the earlier of repayment of the term loan facility with
HKSB or April 2002, the maturity date of the term loan facility. Messrs.
Walston, Donlon, Sabin, Schutz and Bailey are entitled to receive annual
salaries of $260,000, $252,000, $175,000, $175,000 and $175,000, respectively.
In the event of termination without cause, Messrs. Walston, Donlon, Sabin,
Schutz and Bailey are entitled to receive the full amount of compensation
payable under the original terms of their respective employment agreements for
the remaining term of such agreements, and in the event of disability, the
full amount of compensation payable for the lesser of six months or the
remaining term of such agreements.

STOCK PLANS

1993 Stock Options. The Company granted stock options to four executive
officers of the Company on September 7, 1993. These options are exercisable
for 615,125 shares of Common Stock at $.34 per share, the fair market value on
the date of grant. These stock options vest over a six-year period at the rate
of 16.7% per year. As of November 3, 1996, none of these options have been
exercised.

1997 Stock Plan. The Company's 1997 Stock Plan (the "1997 Plan") provides
for the granting to employees (including officers and employee directors) of
incentive stock options and for the granting to employees (including officers
and employee directors) of nonstatutory stock options and stock purchase
rights ("SPRs"). A total of 1,650,000 shares of Common Stock has been reserved
for issuance under the 1997 Plan, which number will be increased on August 1
of each year, beginning in 1997, by a number of shares equal to five percent
of the Company's outstanding Common Stock as of such dates.

The 1997 Plan will be administered by the Board of Directors or a committee
designated by the Board (the "Administrator"). Options and SPRs granted under
the 1997 Plan are not generally transferable by the optionee except by will or
by the laws of descent and distribution, and are exercisable during the
lifetime of the optionee only by such optionee. Generally, options granted
under the 1997 Plan must be exercised within thirty days of the end of an
optionee's status as an employee of the Company, or within twelve months after
such optionee's termination by death or disability, but in no event later than
the expiration of the option term. The exercise price of all incentive and
nonstatutory stock options granted under the 1997 Plan will be determined by
the Administrator. With respect to any owner of 10% or more of the Company's
outstanding capital stock (a "10% Stockholder"), the exercise price of any
incentive stock option granted must equal at least 110% of the fair

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. A total of 700,000 shares of Common Stock has
been reserved for issuance under the 1997 Director Option Plan (the "Director
Plan"). Non-employee directors will be entitled to participate in the Director
Plan.

The Director Plan provides for an automatic grant of an option to purchase
100,000 shares of Common Stock (the "Option") to each non-employee director
upon his becoming a non-employee director (other than an employee director who
ceases to be an employee but remains a director), except that the Director
Plan provides that existing non-employee directors and persons who become non-
employee directors prior to the day after the closing of this offering are
also granted an Option to purchase 100,000 shares of Common Stock. Options
will have a term of five years. One-quarter of the shares subject to an 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. The exercise prices of the Option will
be 100% of the fair market value per share of the Company's Common Stock on
the date of the grant of the Option.

CERTAIN TRANSACTIONS

ACQUISITION OF COMPACT ASSETS BY SOLE STOCKHOLDER

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

As a result of subsequent capital investments in TSP during fiscal 1994 and
1995, the equity interests of the private investment funds managed by
Mr. Steinhardt increased to 94.8%, 98.1% and 98.1% as of July 31, 1994, July
30, 1995 and August 4, 1996, respectively.

In connection with the acquisition of Compact in 1993, the Company's Chief
Executive Officer was granted a profit interest in TSP for identifying,
analyzing and consummating the acquisition. The profit interest is equal to
10% of the excess, if any, by which the distributions (in cash or in kind)
from TSP exceed the partners' total investment in TSP plus a return of 9% per
annum. No amounts have been earned or paid under this profit interest. Upon
completion of this offering, at an assumed initial public offering price of
$13.00, as a result of his profit interest in TSP, Mr. Walston will
beneficially own 23.5% of the Company's Common Stock (20.4% if the
Underwriters' over-allotment option is exercised in full).

LOANS FROM SOLE STOCKHOLDER

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

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

SERVICES PROVIDED TO STEINHARDT BAER PICTURES COMPANY

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

CONSULTING AGREEMENT WITH FORMER DIRECTOR

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

INDEMNITY AGREEMENTS

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

REORGANIZATION

On October 1, 1996, the Company sold 100,000 shares of Common Stock to TSP
in consideration for $1,000. On October 17, 1996, the Company completed a
reorganization pursuant to which it issued 5,900,000 shares of Common Stock to
TSP in exchange for 1,000 shares of 4MC Burbank common stock, representing
100% of the issued and outstanding shares of the corporation, and as a result
4MC Burbank became a wholly owned subsidiary of the Company. In connection
with the reorganization, 4MC Burbank's interests in its wholly owned
subsidiaries, DMC and 4MC Asia were transferred to the Company in the form of
a dividend distribution. The purpose of the reorganization was to facilitate
future financing transactions and acquisitions. On November 19, 1996, the
Company distributed a stock dividend of 475,000 shares of Common Stock to TSP.

IPO INSURANCE

The Company has agreed to purchase insurance to insure TSP against losses of
up to approximately $35 million relating to the offering. The Company will pay
$400,000 of the estimated $700,000 premium attributable to this insurance, and
TSP will pay the remaining $300,000.

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 February 4, 1997, and
as adjusted to reflect the sale of Common Stock offered hereby, by: (i) each
person who is known by the Company to own beneficially more than 5% of the
Common Stock; (ii) the Selling Stockholder; (iii) each of the Company's
directors and director nominees; (iv) each of the Named Officers; and (v) all
directors and executive officers as a group.

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

Technical Services
Partners, L.P.(2)........ 6,475,000 100.0 2,208,216 4,266,784 42.8
Robert T. Walston(3)...... -- -- -- 2,467,859 23.3
John H. Donlon(4)......... 89,209 1.4 -- 89,209 *
John H. Sabin(5).......... 72,990 1.1 -- 72,990 *
Gavin W. Schutz(6)........ 72,990 1.1 -- 72,990 *
Robert Bailey(7).......... 72,990 1.1 -- 72,990 *
Shimon Topor(2)(8)(10).... 6,475,000 100.0 -- 4,266,784 42.8
Edward Kirtman(2)(8)(10).. 6,475,000 100.0 -- 4,266,784 42.8
Paul Bricault(10)......... -- -- -- -- --
Thomas Wertheimer(10)..... -- -- -- -- --
All directors and
executive officers as a
group (8 persons)(9)(10). 6,783,179 100.0 -- 4,574,963 44.5

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

* Less than 1% of outstanding shares.

(1) Assumes no exercise of the Underwriters' over-allotment option.
Applicable percentage of ownership is based on 6,475,000 shares of Common
Stock outstanding as of February 4, 1997. 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 February 4, 1997 at a price
less than or equal to the market price are deemed outstanding. Such
shares, however, are not deemed outstanding for the purposes of computing
the percentage ownership of any other person. Except as indicated in the
footnotes to this table and pursuant to applicable community property
laws, each stockholder named in the table has sole voting and investment
power with respect to the shares set forth opposite such stockholder's
name.

(2) Technical Services Partners, L.P. is a limited partnership the general
partner of which is Technical Services Holdings Inc. ("Holdings"), a
corporation, all of the voting capital stock of which is owned by
Steinhardt Partners, L.P. The non-voting capital stock of Holdings is
owned by Institutional Partners, L.P., S.P. International S.A.,
Steinhardt Overseas Fund, Ltd. The managing general partner of Steinhardt
Partners, L.P. is Michael Steinhardt. The principal business address of
Steinhardt Partners, L.P. and Messrs. Steinhardt, Topor and Kirtman is
605 Third Avenue, New York, New York 10158. Totals include shares
beneficially owned by Robert T. Walston reflecting his profit interest in
TSP.

(3) Mr. Walston's address is c/o Four Media Company, 2813 West Alameda
Avenue, Burbank, California 91505. As a result of his profit interest in
TSP, Mr. Walston will beneficially own 2,467,859 shares of the Company's
Common Stock (2,322,509 shares if the Underwriter's overallotment option
is exercised in full). See "Certain Transactions."

(4) Represents 89,209 shares issuable upon exercise of vested options.

(5) Represents 72,990 shares issuable upon exercise of vested options.

(6) Represents 72,990 shares issuable upon exercise of vested options.

(7) Represents 72,990 shares issuable upon exercise of vested options.

(8) These shares are owned by TSP. Messrs. Topor and Kirtman are executive
officers of the general partner of TSP, and general partners of
Steinhardt Partners, L.P., the owner of all the voting capital stock of
Holdings. Neither Mr. Topor nor Mr. Kirtman own any shares of Common
Stock directly, but may be considered the beneficial owner of the
securities listed above. However, Messrs. Topor and Kirtman disclaim
beneficial ownership of such shares.

(9) Includes 308,179 shares issuable upon exercise of vested options.

(10) Excludes 100,000 shares of Common Stock issuable upon exercise of stock
options to be granted upon effectiveness of the Registration Statement
pursuant to the Director Plan to each of Messrs. Topor, Kirtman, Bricault
and Wertheimer.

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 February 4, 1997, there were 6,475,000 shares of Common Stock held of
record by the Company's sole stockholder. Holders of Common Stock are entitled
to one vote per share on all matters to be voted upon by the stockholders,
including the election of directors. As of February 4, 1997, options to
purchase an aggregate of 715,125 shares of Common Stock were also outstanding.
See "Management." Subject to preferences that may be applicable to any
outstanding Preferred Stock, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior liquidation
rights of any outstanding Preferred Stock. The Common Stock has no preemptive
or conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable, and the shares of Common
Stock to be outstanding upon completion of this offering will be fully paid
and non-assessable.

PREFERRED STOCK

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

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

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

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

REDEMPTION OF STOCK

Under the Company's Certificate, outstanding shares of stock of any class or
series may be redeemed, upon action by the Company's Board of Directors, to
the extent necessary to prevent the loss or secure the reinstatement of any
license from a governmental agency held by the Company or any of its
subsidiaries to conduct any portion of the

business of the Company or such subsidiary, which license is conditioned upon
some or all of the holders of the Company's stock of any class or series
possessing prescribed qualifications. The redemption price of any stock is
payable in cash, property or rights, as described in the Company's Certificate
equal to the lesser of the fair market value (to be determined by the Board)
of the stock at the time of the redemption or the holder's purchase price of
the stock to be redeemed.

TRANSFER AGENT AND REGISTRAR

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

SHARES ELIGIBLE FOR FUTURE SALE

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

Upon completion of this offering, the Company will have an aggregate of
9,966,184 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, the 5,700,000 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless held by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act. The remaining 4,266,784 shares of Common Stock
are held by the Company's sole stockholder, TSP, and are "restricted"
securities within the meaning of Rule 144 under the Securities Act. Beginning
90 days after the date of this Prospectus, and absent consideration of the
contractual restrictions described below, all of these shares would be
eligible for sale by TSP in reliance upon Rule 144 promulgated under the
Securities Act. In addition, absent the restrictions described below, if TSP
were to effect a distribution of the shares of Common Stock it holds to its
constituent partners, up to 1,798,925 of these shares may become available for
immediate sale in the public market without restriction pursuant to Rule
144(k).

The Company's officers and directors and TSP have agreed not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or enter into any similar agreement that
transfers, in whole or in part, the economic risk of ownership of the Common
Stock, for a period of 270 days from the date of this Prospectus, in the case
of TSP, and three years from the date of this Prospectus, in the case of the
Company's officers and directors, without the prior written consent of Furman
Selz LLC. Furman Selz LLC may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. In addition, TSP has agreed that it will not effect a distribution
of the shares of Common Stock it holds to its constituent partners without
obtaining an agreement of the distributee to be bound by the terms of TSP's
lock-up agreement. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144 and 144(k), (i) no shares will be eligible for immediate sale on the
effective date of this offering and, unless earlier released from the lock-up
agreements, (ii) 1,798,925 shares of Common Stock will be eligible for sale
270 days after the effective date of this offering, and (iii) 2,467,859 shares
of Common Stock will be eligible for sale three years after the effective date
of this offering, subject to the volume limitations of Rule 144 in the case of
shares held by TSP or any of its distributees who are "affiliates" of the
Company.

Additionally, pursuant to Rules 144 and 701, beginning three years after the
effective date of this offering, upon the expiration of contractual lock-up
restrictions, an aggregate of approximately 1,015,125 shares will be eligible
for sale upon the exercise of outstanding vested 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 99,896 shares immediately after the offering) or
(ii) the average weekly trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned his or her shares for at least three years is entitled to
sell such shares pursuant to Rule 144(k) without regard to the limitations
described above. In general, under Rule 701 under the Securities Act as
currently in effect, any employee, consultant or advisor of the Company who
purchases shares from the Company in connection with a compensatory stock or
option plan or other written agreement related to compensation is eligible to
resell such shares 90 days after the effective date of the offering in
reliance on Rule 144, but without compliance with certain restrictions
contained in Rule 144.

As of February 4, 1997, the Company had reserved an aggregate of 1,650,000
shares of Common Stock for issuance pursuant to the 1997 Plan, and options to
purchase approximately 100,000 shares were outstanding under the 1997 Plan. In
addition, 700,000 shares of Common Stock were reserved for issuance under the
Director Plan. 400,000 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, and any vested shares will thereupon be eligible for immediate public
sale.

UNDERWRITING

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

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

Furman Selz LLC...........................................
PaineWebber Incorporated..................................
---------
Total................................................. 5,700,000
=========

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

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

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

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 855,000
additional shares of Common Stock at the public offering price set forth on
the cover page of this Prospectus, less underwriting discounts and
commissions. To the extent that the Underwriters exercise this option, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase such number of additional shares of Common Stock as is proportionate
to such Underwriter's initial commitment to purchase shares from the Company.
The Underwriters may exercise such option solely to cover over-allotments, if
any, incurred in the sale of the shares of Common Stock offered hereby.

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

The Company, the Selling Stockholder and each officer and director of the
Company have agreed, subject to certain exceptions, not to offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or enter into any similar agreement that transfers, in whole or
in part, the

economic risk of ownership of the Common Stock, for 180 days (in the case of
the Company), 270 days (in the case of the Selling Stockholder) and three
years (in the case of each officer and director) from the date of the
Underwriting Agreement, without the prior written consent of Furman Selz LLC.

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

The Common Stock has been approved for listing 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, August 4, 1996 and November
3, 1996 (unaudited)..................................................... F-3

Consolidated Statements of Operations for the fiscal years ended July 31,
1994, July 30, 1995, August 4, 1996 and the three months ended October
29, 1995 (unaudited) and November 3, 1996 (unaudited) .................. F-4

Consolidated Statements of Stockholder's Equity for the fiscal years
ended July 31, 1994, July 30, 1995, August 4, 1996 and three months
ended November 3, 1996 (unaudited)...................................... F-5

Consolidated Statements of Cash Flows for the fiscal years ended July 31,
1994, July 30, 1995, August 4, 1996 and the three months ended October
29, 1995 (unaudited) and November 3, 1996 (unaudited)................... F-6

Notes to Consolidated Financial Statements............................... F-7
Four Media Company
Report of Independent Accountants........................................ F-18
Balance Sheet at October 1, 1996......................................... F-19
Notes to Financial Statements............................................ F-20

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
except for Note 12,
as to which the date is
November 18, 1996

F-2

4MC-BURBANK, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

JULY 30, AUGUST 4, NOVEMBER 3,
1995 1996 1996
-------- --------- -----------
(UNAUDITED)

ASSETS
Current assets:
Cash........................................... $ 6,651 $ 5,312 $ 5,490
Restricted cash................................ 717 709 709
Trade accounts receivable, net of allowance for
doubtful accounts of $563, $823 and $791 as of
July 30, 1995, August 4, 1996 and November 3,
1996, respectively............................ 9,745 8,622 13,744
Inventory...................................... 695 867 746
Prepaid expenses and other current assets...... 1,548 2,838 3,288
------- ------- -------
Total current assets......................... 19,356 18,348 23,977
Property, plant and equipment, net.............. 49,410 57,665 69,066
Deferred taxes.................................. 1,000 2,000 2,000
Long-term receivable............................ -- 2,008 1,756
Other assets.................................... 2,014 1,806 2,502
------- ------- -------
Total assets................................. $71,780 $81,827 $99,301
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations..................... $ 3,470 $ 6,153 $ 6,360
Accounts payable............................... 5,010 5,803 9,004
Accrued and other liabilities.................. 5,211 4,750 5,064
------- ------- -------
Total current liabilities.................... 13,691 16,706 20,428
Long-term debt and capital lease obligations.... 29,472 33,978 47,610
Subordinated debt, due to stockholder........... 9,000 9,000 9,000
------- ------- -------
Total liabilities............................ 52,163 59,684 77,038
Commitments and contingencies (Note 7)
Stockholder's equity:
Common stock, $.01 par value; 1,000 shares
authorized, issued and outstanding............ -- -- --
Additional paid-in capital..................... 15,010 15,010 15,010
Foreign currency translation adjustment........ 152 254 250
Retained earnings.............................. 4,455 6,879 7,003
------- ------- -------
Total stockholder's equity................... 19,617 22,143 22,263
------- ------- -------
Total liabilities and stockholder's equity... $71,780 $81,827 $99,301
======= ======= =======

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

F-3

4MC-BURBANK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues:
Studio................... $15,746 $20,677 $23,468 $5,746 $5,957
Broadcast................ 10,876 16,163 20,901 5,489 5,512
Television............... 15,639 22,712 23,343 5,631 7,084
Visual effects........... -- 1,452 2,316 766 394
------- ------- ------- ------ ------
Total revenues.......... 42,261 61,004 70,028 17,632 18,947
------- ------- ------- ------ ------
Cost of services:
Personnel................ 17,096 22,795 25,344 6,527 6,779
Material................. 4,240 6,424 7,354 1,920 1,853
Facilities............... 3,774 3,917 4,692 1,124 1,328
Other.................... 3,752 5,560 6,021 1,504 1,745
------- ------- ------- ------ ------
Total cost of services.. 28,862 38,696 43,411 11,075 11,705
------- ------- ------- ------ ------
Gross profit........... 13,399 22,308 26,617 6,557 7,242
------- ------- ------- ------ ------
Operating expenses:
Sales, general and
administrative.......... 7,627 10,918 11,116 3,030 3,109
Depreciation and
amortization............ 3,284 6,241 10,165 2,497 2,795
------- ------- ------- ------ ------
Total operating
expenses............... 10,911 17,159 21,281 5,527 5,904
------- ------- ------- ------ ------
Income from
operations............ 2,488 5,149 5,336 1,030 1,338
Interest expense, net..... 1,253 2,917 3,906 921 1,214
------- ------- ------- ------ ------
Income before income
tax benefits.......... 1,235 2,232 1,430 109 124
Income tax benefits....... -- 988 994 204 --
------- ------- ------- ------ ------
Net income............. $ 1,235 $ 3,220 $ 2,424 $ 313 $ 124
======= ======= ======= ====== ======
Net income per share...... $ .19 $ .50 $ .37 $ .05 $ .02
======= ======= ======= ====== ======
Weighted average number of
common shares
outstanding.............. 6,475 6,475 6,475 6,475 6,475
======= ======= ======= ====== ======

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
Foreign currency translation adjustments
(unaudited)................................. (4) (4)
Net income (unaudited)....................... 124 124
----- ----- ------- ----- ------ -------
Balance, November 3, 1996 (unaudited)........ 1,000 $ -- $15,010 $ 250 $7,003 $22,263
===== ===== ======= ===== ====== =======

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 THREE MONTHS ENDED
----------------------------- -----------------------
JULY 31, JULY 30, AUGUST 4, OCTOBER 29, NOVEMBER 3,
1994 1995 1996 1995 1996
-------- -------- --------- ----------- -----------
(UNAUDITED)

Cash flows from operating
activities:
Net income................ $ 1,235 $ 3,220 $ 2,424 $ 313 $ 124
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization............ 3,284 6,241 10,165 2,536 2,795
Provision for doubtful
accounts................ 183 215 580 100 97
Deferred taxes........... -- (1,000) (1,000) (204) --
Changes in operating
assets and liabilities:
(Increase) decrease in
restricted cash........ -- (717) 8 13 --
Increase in trade and
long term receivables.. (668) (4,644) (1,469) (1,936) (4,967)
(Increase) decrease in
inventory.............. (39) (277) (172) 43 121
Increase in prepaid
expenses and other
current assets......... (694) (606) (1,289) (18) (889)
Increase in accounts
payable................ 1,862 3,148 792 1,053 3,201
Increase (decrease) in
accrued and other
liabilities............ (2,116) (992) (652) (315) 314
------- ------- -------- ------ -------
Net cash provided by
operating activities.. 3,047 4,588 9,387 1,585 796
Cash flows from investing
activities:
Purchases of property,
plant and equipment...... (7,877) (25,077) (10,318) (3,071) (8,753)
Organization costs for 4MC
Asia..................... -- (1,066) -- -- --
Acquisition of business... -- (4,759) -- -- --
------- ------- -------- ------ -------
Net cash used in
investing activities.. (7,877) (30,902) (10,318) (3,071) (8,753)
Cash flows from financing
activities:
Proceeds from subordinated
promissory note.......... 8,400 10,600 -- -- --
Proceeds from term loans.. -- 12,070 -- -- 16,000
Proceeds from revolving
credit facility.......... -- -- -- -- 1,580
Proceeds from term loan
financing of
acquisition.............. -- 3,542 -- -- --
Proceeds from equipment
notes.................... 1,261 3,723 3,685 1,143 3,383
Proceeds from issuance of
common stock in exchange
for note payable......... 4,000 -- -- -- --
Repayment of note
payable.................. (4,000) -- -- -- --
Repayment of equipment
notes and capital lease
obligations.............. (689) (1,833) (4,095) (811) (12,828)
------- ------- -------- ------ -------
Net cash provided by
(used in) financing
activities............ 8,972 28,102 (410) 332 8,135
Effect of exchange rate
changes on cash........... -- 172 2 (45) --
------- ------- -------- ------ -------
Net increase (decrease) in
cash...................... 4,142 1,960 (1,339) (1,199) 178
Cash at beginning of year.. 549 4,691 6,651 6,651 5,312
------- ------- -------- ------ -------
Cash at end of year........ $ 4,691 $ 6,651 $ 5,312 $5,452 $ 5,490
======= ======= ======== ====== =======
Supplemental disclosure of
cash flow information:
Cash paid during the
fiscal year for:
Interest................. $ 926 $ 3,664 $ 3,406 $ 704 $ 997
Income taxes............. -- -- -- -- --
Non cash investing and
financing activities:
Capital lease obligations
incurred................ $ 963 $ 2,284 $ 7,851 $1,761 $ 5,704

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. The Company's services
integrate and apply a variety of systems and processes to enhance the creation
and distribution of entertainment content.

While the Company believes that it operates in one business segment, which
is providing services to the entertainment industry, the Company has organized
its activities into four divisions: studio, broadcast, television and visual
effects services. The studio services division located in Burbank, California,
manages, formats and distributes content worldwide. The broadcast services
division, located in Burbank, and the Republic of Singapore, assembles and
distributes television networks and programming via satellite to viewers in
the United States, Canada and Asia. The television services division, located
in Burbank and Santa Monica, California, assembles film or video principal
photography into a form suitable for network, syndicated, cable or foreign
television. The visual effects division, located in Santa Monica, digitally
creates and manipulates images in high-resolution formats for use in feature
films.

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

On August 4, 1993, TSP acquired and transferred to the Company,
substantially all of the assets of Compact. The acquisition was accounted for
under the purchase method of accounting. The purchase price of $5,010,000 was
allocated to the fair value of current assets of $5,127,000, property, plant,
and equipment of $16,939,000, the assumption of current liabilities (including
acquisition costs) of $6,506,000 and $10,550,000 in the form of a new term
loan with the Company's previous primary lender.

On October 26, 1994, 4MC Acquisition Corp., a wholly owned subsidiary of the
Company, acquired substantially all of the assets of Digital Magic and
Transfer Company ("DM&T") for a purchase price of $50,000 in cash. The
acquisition was accounted for under the purchase method of accounting. The
purchase price was allocated, at fair value, to current assets of $1,001,000,
property, plant, and equipment of $6,639,000, and included $4,048,000 in
assumed liabilities and acquisition costs, and $3,542,000 in equipment notes.
Subsequent to this acquisition, 4MC Acquisition Corp. changed its name to
Digital Magic Company ("DMC").

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

Results of operations include the 51 1/2 weeks ended July 31, 1994, the 52
weeks ended July 30, 1995, the 53 weeks ended August 4, 1996, the 13 weeks
ended October 29, 1995 and the 13 weeks ended November 3, 1996.

Interim Results (Unaudited). The accompanying consolidated balance sheet as
of November 3, 1996 and the consolidated statements of operations and cash
flows for the three months ended October 29, 1995 and November 3, 1996, and
the statement of stockholder's equity for the three months ended November 3,
1996 are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited consolidated financial statements
and include all adjustments, consisting of only normal recurring adjustments,
necessary for the fair presentation of the results of the interim periods. The
data disclosed in these notes to the consolidated financial statements for
those interim periods are also unaudited.

F-7

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Revenue Recognition. Revenues are recognized when a product is shipped or a
service is provided.

Foreign Currency Translation. All balance sheet accounts of 4MC Asia are
translated at the current exchange rate as of the end of the year. Statement
of operation items are translated at average currency exchange rates. The
resulting translation adjustment is recorded as a separate component of
stockholder's equity. The functional currency in which 4MC Asia transacts
business is the Singapore dollar. Transaction gains and losses included in
operations were not significant in fiscal 1995 or 1996.

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

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

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

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

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

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

F-8

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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

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

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

Advertising. Advertising costs are expensed as incurred and included in
sales, general and administrative expenses. Advertising expenses amounted to
$288,000, $476,000 and $287,000 in the years ended July 31, 1994, July 30,
1995 and August 4, 1996, respectively and $114,000 (unaudited) and $32,000
(unaudited) for the three months ended October 29, 1995 and November 3, 1996,
respectively.

3. BUSINESS AND CREDIT CONCENTRATIONS

The Company grants credit to its customers, substantially all of whom are
participants in the entertainment industry. The Company reviews a customer's
credit history before extending credit. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
specific customers, historical trends, and other information. For the fiscal
year ended August 4, 1996 one customer accounted for 10% of the Company's
domestic sales and 12% of net accounts receivable. For the fiscal year ended
July 30, 1995, no single customer accounted for a significant amount of the
Company's domestic sales. For the fiscal year ended July 31, 1994, the
Company's two largest customers accounted for 16% and 10% of sales and 7% and
15% of net accounts receivable. For the three months ended November 3, 1996,
one customer accounted 15% of the Company's domestic sales and 11% of net
accounts receivable. During the fiscal year ended August 4, 1996, the Company
entered into a long term agreement for services with a customer and as a part
of the agreement the Company deferred payment in the amount of $3,300,000.
This amount is payable over three years in monthly installments of principal
and interest at 8%. There can be no assurance that this customer ultimately
will repay all outstanding amounts due to the Company.

F-9

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. BUSINESS AND CREDIT CONCENTRATIONS, CONTINUED

Approximately 30% and 57% of the Company's net income for the years ended
July 30, 1995 and August 4, 1996, respectively, related to 4MC Asia. For the
year ended August 4, 1996, 97% of 4MC Asia revenues and 15.3% of the Company's
consolidated total revenues were generated by one customer. This customer
accounted for 5% of the Company's consolidated net accounts receivable. For
the three months ended November 3, 1996 this customer accounted for 81% of 4MC
Asia revenues, 14% and 9% of Company's consolidated revenues and net accounts
receivable, respectively.

4. PROPERTY, PLANT AND EQUIPMENT

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

JULY 30, AUGUST 4, NOVEMBER 3,
1995 1996 1996
-------- --------- -----------
(UNAUDITED)

Land........................................... $ 925 $ 925 $ 925
Buildings and building improvements............ 4,511 4,689 4,918
Machinery and equipment........................ 46,801 62,399 63,374
------- ------- -------
52,237 68,013 69,217
Less, accumulated depreciation and
amortization.................................. 9,092 18,717 21,299
------- ------- -------
43,145 49,296 47,918
Construction in progress....................... 6,265 8,369 21,148
------- ------- -------
Property, plant and equipment, net........... $49,410 $57,665 $69,066
======= ======= =======
Included above is property and equipment under
capital leases of:
Machinery and equipment...................... 3,350 11,856 17,560
Less, accumulated amortization............... 542 1,756 2,365
------- ------- -------
Property and equipment under capital leases,
net......................................... $ 2,808 $10,100 $15,195
======= ======= =======

During fiscal the years ended July 31, 1994, July 30, 1995 and August 4,
1996 and the three months ended October 29, 1996 and November 3, 1996, the
Company expensed maintenance, repairs and spare parts in amounts of
$1,389,000, $1,889,000, $1,795,000, $541,000 (unaudited) and $381,000
(unaudited), respectively.

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

5. INCOME TAXES

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

F-10

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)

5. INCOME TAXES, CONTINUED

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

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

Income taxes (unaudited) for the three months ended November 3, 1996 reflect
the recognition, for financial accounting purposes, of the use of net
operating loss carryforwards that fully offset the Company's tax provision for
the period. Income taxes (unaudited) for the three months ended October 29,
1995 reflect the recognition, for financial accounting purposes, of the use of
net operating loss carryforwards and an increase in net deferred tax assets.

6. LONG TERM DEBT

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

JULY 30, AUGUST 4, NOVEMBER 3,
1995 1996 1996
-------- --------- -----------
(UNAUDITED)

CIT term loan.................................... -- -- $16,000
CIT revolving credit facility.................... -- -- 1,580
BABC term loan................................... $ 7,350 $ 6,615 --
BABC revolving credit facility................... 3,200 3,200 --
HKSB term loan................................... 12,070 11,817 11,817
Equipment notes.................................. 7,122 8,645 9,551
Capital lease obligations........................ 3,200 9,854 15,022
Subordinated promissory note..................... 9,000 9,000 9,000
------- ------- -------
41,942 49,131 62,970
Less, current maturities......................... 3,470 6,153 6,360
------- ------- -------
$38,472 $42,978 $56,610
======= ======= =======

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

F-12

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. LONG TERM DEBT, CONTINUED

rate of 8.5%. The revolving credit is due July 31, 1998 at an interest rate of
8.5% through July 31, 1995 and prime (8.25% as of August 4, 1996) plus 1.5%
thereafter. The loan agreement contains various covenants restricting the cash
payments to stockholder for management fees, dividends or repayment of the
subordinated note payable. The Company is also required to make mandatory
capital expenditures, maintain specified financial ratios and levels of net
worth.

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

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

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

7. COMMITMENTS AND CONTINGENCIES

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

F-13

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. COMMITMENTS AND CONTINGENCIES, CONTINUED

The Company leases its production and office facilities under noncancelable
operating leases with initial terms up to five years through 2000. These
leases contain renewal options, require additional payments for property
taxes, utilities, insurance and maintenance costs and are subject to periodic
escalation charges. Facilities rent expense amounted to $3,242,000,
$4,327,000, $4,392,000, $1,013,000 (unaudited) and $1,114,000 (unaudited) for
the fiscal years ended July 31, 1994, July 30, 1995 and August 4, 1996 and for
the three months ended October 29, 1995 and November 3, 1996, respectively. At
August 4, 1996 and November 3, 1996 the annual commitment under these
facilities leases is summarized as follows (in thousands):

AUGUST 4, NOVEMBER 3,
1996 1996
--------- -----------
(UNAUDITED)

Fiscal years ending in:
1997.................................................... $ 4,129 $ 3,877
1998.................................................... 3,951 3,962
1999.................................................... 3,787 3,142
2000.................................................... 356 --
------- -------
Total................................................. $12,223 $10,984
======= =======

The Company leases certain office equipment under operating leases which
expire through 1999. Rent expense related to equipment amounted to $324,800,
$134,800, $190,200, $89,000 (unaudited) and $208,000 (unaudited) for the
fiscal years ended July 31, 1994, July 30, 1995 and August 4, 1996, and for
the three months ended October 29, 1995 and November 3, 1996, respectively. At
August 4, 1996 and November 3, 1996 the annual commitment under various leases
is summarized as follows (in thousands):

AUGUST 4, NOVEMBER 3,
1996 1996
--------- -----------
(UNAUDITED)

Fiscal years ending in:
1997.................................................... $ 434 $ 429
1998.................................................... 434 409
1999.................................................... 418 365
------ ------
Total................................................. $1,286 $1,203
====== ======

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

8. EMPLOYEE BENEFIT PLANS

The Company's savings and investment plan covers substantially all of the
employees of the Company. The participants may contribute up to 15% of their
annual compensation (subject to the annual IRS limitation) to the plan and the
Company will match the participant's contribution up to a maximum of 2% of the
participant's compensation. The Company expensed $225,000, $208,000, $211,000,
$51,000 (unaudited) and $48,000 (unaudited) related to the plan for the years
ended July 31, 1994, July 30, 1995 and August 4, 1996 and for the three months
ended October 29, 1995 and November 3, 1996, respectively.

F-14

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. RELATED PARTIES

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

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

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

The Company has entered into an agreement with an emerging company wherein
the Company would advance it up to $600,000. As of August 4, 1996 and November
3, 1996, the Company has advanced cash for operating purposes of approximately
$238,000 and $406,000 (unaudited), respectively. The Company has the option to
purchase a significant portion of the stock of the emerging company as of
January 1, 1997. Management has not determined at this time whether this
option will be exercised.

10. STOCK OPTIONS

The Company issued stock options to four key executives of the Company on
September 7, 1993. These options were for 95 shares of common stock at an
exercise price of $2,212 per share, the fair market value at the date of grant
as determined by the Company and approved by the Board of Directors. These
stock options vest over a six year period at 16.7% per year. As of August 4,
1996, options for 48 shares are exercisable, no options have been exercised or
canceled and no additional options have been granted.

F-15

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. BUSINESS SEGMENTS

Information about the Company's operations in different geographic areas for
the years ended July 31, 1994, July 30, 1995 and August 4, 1996 and the
quarter ended November 3, 1996 are as follows (in thousands):

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

Net sales to unaffiliated customers:
Year ended July 31, 1994 $42,261 $ -- $ -- $42,261
Year ended July 30, 1995 56,999 4,005 -- 61,004
Year ended August 4, 1996 58,970 11,058 -- 70,028
- ------------------------------------------------------------------------------
Income from operations:
Year ended July 31, 1994 $ 7,601 $ -- $(5,113) $ 2,488
Year ended July 30, 1995 9,249 1,107 (5,207) 5,149
Year ended August 4, 1996 7,095 2,922 (4,681) 5,336
- ------------------------------------------------------------------------------
Identifiable assets:
Year ended July 31, 1994 $31,120 $ -- $1,862 $32,982
Year ended July 30, 1995 46,364 21,620 3,796 71,780
Year ended August 4, 1996 54,741 22,307 4,779 81,827
- ------------------------------------------------------------------------------
Capital expenditures:
Year ended July 31, 1994 $ 8,146 $ -- $ 694 $ 8,840
Year ended July 30, 1995 9,131 17,362 1,934 28,427
Year ended August 4, 1996 14,978 2,208 983 18,169
- ------------------------------------------------------------------------------
Depreciation expense and amortization:
Year ended July 31, 1994 $ 3,123 $ -- $ 161 $ 3,284
Year ended July 30, 1995 4,721 954 566 6,241
Year ended August 4, 1996 6,548 2,722 895 10,165
- ------------------------------------------------------------------------------

12. SUBSEQUENT EVENTS (UNAUDITED)

On October 17, 1996, the Company entered into a new credit agreement with
CIT Group/Business Credit, Inc. and CIT Group/Equipment Financing, Inc.
("CIT"). The agreement consists of a $34,000,000 credit facility including (i)
a $16,000,000 term loan, payable in 84 monthly principal payments commencing
November 1997 at an interest rate of LIBOR plus 2.75% or Prime plus .75%, at
the Company's option, (ii) a $11,000,000 revolving line of credit at an
interest rate of LIBOR plus 2.5% or Prime plus .50%, at the Company's option;
and (iii) a $7,000,000 capital expenditures line of credit payable in 60
monthly installments commencing three months after funding at an interest rate
of LIBOR plus 2.75% or Prime plus .75%, at the Company's option. These loans,
which are collateralized by substantially all the assets of 4MC-Burbank and
DMC, contains various covenants restricting the cash payment to the
stockholder for management fees, dividends or repayment of the subordinated
note payable. The Company is also required to maintain specified financial
ratios and levels of net worth for both the Company and specified
subsidiaries. As part of this financing, the Company repaid the $9,693,000
BABC loans and $1,919,000 of CIT equipment notes. The Company may, at its
option, elect a fixed rate for the term loan at the treasury rate (applicable
for the remaining term of the loan) plus 3.35%.

F-16

4MC-BURBANK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. SUBSEQUENT EVENTS (UNAUDITED), CONTINUED

On September 25, 1996 the Company changed its name from Four Media Company
to "4MC-Burbank, Inc." On the same date, a holding company was incorporated in
the State of Delaware ("4MC Delaware"). On October 17, 1996, 4MC Delaware
completed a reorganization of the Company (the "Reorganization") which for
accounting purposes is accounted for as of September 29, 1996. Under the terms
of the Reorganization which is accounted for in a manner similar to a pooling
of interests, 4MC Delaware issued 5,900,000 shares on October 17, 1996 of its
common stock to TSP in exchange for 1,000 shares of 4MC-Burbank, Inc. common
stock, representing 100% of the issued and outstanding shares of the Company
and as a result, 4MC-Burbank became a wholly owned subsidiary of 4MC Delaware.
In conjunction with the Reorganization, the Company's interests in the wholly
owned subsidiaries, DMC and 4MC Asia were transferred to 4MC Delaware in the
form of a dividend distribution from the Company. The purpose of the
Reorganization was to facilitate future transactions and acquisitions.

Per share information based on the weighted average number of common shares
outstanding has been presented to reflect retroactively the Company's
reorganization and a related stock exchange with and stock dividend to its
sole stockholder in October and November 1996. Other stockholder's data
(stockholder's equity and stock options) presented in the financial statements
and notes have not been retroactively adjusted to present such reorganization.

For comparative financial presentation purposes the financial statements of
the consolidated group, as described above, for the three months ended
November 3, 1996 have been presented herein.

F-17

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
Four Media Company
Burbank, California

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

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

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

Coopers & Lybrand L.L.P.

Los Angeles, California
October 1, 1996,
except for Note 2
as to which the date is
November 18, 1996

F-18

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-19

FOUR MEDIA COMPANY

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

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

2. SUBSEQUENT EVENTS (UNAUDITED)

On October 17, 1996, the Company completed a reorganization (the
"Reorganization") which for accounting purposes is accounted for as of
September 29, 1996. Under the terms of the Reorganization which was accounted
for in a manner similar to a pooling of interests, the Company issued
5,900,000 shares of its common stock on October 17, 1996 to TSP in exchange
for 1,000 shares of 4MC-Burbank, Inc. common stock, representing 100% of the
issued and outstanding shares of the corporation and 4MC-Burbank became a
wholly owned subsidiary of the Company. In conjunction with the
Reorganization, 4MC-Burbank's interests in its wholly owned subsidiaries, DMC
and 4MC Asia were transferred to the Company in the form of a dividend
distribution. The purpose of the Reorganization was to facilitate future
financing transactions and acquisitions. On November 19, 1996, the Company
distributed a stock dividend to TSP of 475,000 shares of its common stock.

For comparative financial presentation purposes, the financial statements of
the consolidated group for the three months ended November 3, 1996 have been
presented with 4MC-Burbank included elsewhere herein.

The following stockholder's equity statement (unaudited) presents the
historical November 3, 1996 amounts as adjusted for the transactions described
above.

CONDENSED BALANCE SHEET (IN THOUSANDS)

HISTORICAL REORGANIZATION AS ADJUSTED
NOVEMBER 3, 1996 ADJUSTMENTS NOVEMBER 3, 1996
---------------- -------------- ----------------

Assets
Cash........................ $ 1 $ -- $ 1
Investment in wholly owned
subsidiary................. -- 22,263 22,263
--- ------- -------
Total assets.................. $ 1 $22,263 $22,264
=== ======= =======
Stockholder's equity
Preferred stock, $.01 per
value; 5,000,000 shares
authorized, no shares
issued and outstanding..... $-- $ -- $ --
Common stock, $.01 par
value; 50,000,000 shares
authorized, 6,475,000
shares issued and
outstanding................ 1 64 65
Additional paid-in capital.. -- 14,946 14,946
Foreign currency translation
adjustment................. -- 250 250
Retained earnings........... -- 7,003 7,003
--- ------- -------
Total stockholder's equity.... $ 1 $22,263 $22,264
=== ======= =======

F-20

The customers listed on the inside back cover of this Prospectus are a
random sampling of some of Four Media Company's customers. The placement of
the images on the inside back cover page and the identification of certain
illustrative clients are not intended to indicate the relative revenue
generated from the services provided to the clients named. Nine customers, MTV
Asia LDC, Sony Pictures Corporation, TVN Entertainment Corporation, Warner
Bros., Paramount Pictures, The Walt Disney Company, Twentieth Century Fox,
Universal Pictures and Hallmark Entertainment, Inc., accounted for 55% of the
Company's revenues in fiscal 1996. No other listed customer accounted for over
3% of the Company's fiscal 1996 revenues.

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

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 REPRESENTATIONS 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
SECURITIES 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.............................................................. 13
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 14
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 29
Management............................................................... 45
Certain Transactions..................................................... 49
Principal and Selling Stockholders....................................... 51
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 53
Underwriting............................................................. 55
Legal Matters............................................................ 56
Experts.................................................................. 56
Additional Information................................................... 56
Index to Consolidated Financial Statements............................... F-1

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

UNTIL MARCH , 1997 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

5,700,000 SHARES

[LOGO OF FOUR MEDIA COMPANY]

COMMON STOCK

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

FURMAN SELZ

PAINEWEBBER INCORPORATED

FEBRUARY , 1997

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

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....................................... 675,000
Accounting fees and expenses.................................. 300,000
"Blue sky" fees and expenses.................................. 30,000
Miscellaneous expenses........................................ 185,103
IPO insurance premium......................................... 700,000*
----------
Total....................................................... $2,100,000
==========

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

*TSP will pay $300,000 and the Company will pay $400,000 of the IPO insurance
premium.

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

The Company has agreed to purchase officers' and directors' insurance
covering liability for acts by such persons in their capacity as a director
and/or officer of the Company. Such insurance policy is expected to cost
approximately $600,000 and will cover a period of three years.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On October 1, 1996, the Company sold 100,000 shares of Common Stock to
Technical Services Partners, L.P., a Delaware limited partnership ("TSP"), in
consideration for $1,000, and on October 17, 1996, the Company issued
5,900,000 shares of Common Stock to TSP in exchange for 1,000 shares of common
stock of 4MC Burbank. On November 19, 1996 the Company distributed a stock
dividend to TSP of 475,000 shares of its Common Stock. The general partner of
TSP is Technical Services Holdings Inc. ("Holdings"), a corporation of which
all of the voting capital stock is owned by Steinhardt Partners, L.P. The non-
voting capital stock of Holdings is owned by Institutional Partners, L.P.,
S.P. International S.A., Steinhardt Overseas Fund, Ltd, Compact Video Group,
Inc., Image Transform Inc., Compact Video Services, Inc. and Meridian Studios,
Inc. The managing general partner of Steinhardt Partners, L.P. is Michael
Steinhardt. The shares issued on October 1, October 17, and November 19, 1996
were issued pursuant to exemptions available under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").

The following table represents stock options granted within the past three
years:

AMOUNT OF
DATE ISSUED SECURITYHOLDER TITLE OF SECURITIES SECURITIES CONSIDERATION
----------- ----------------- ------------------- ---------- ------------------------

November 19, 1996 Officer Options to purchase 100,000 Exercise price is $11.70
Common Stock per share

February 5, 1997 Directors Options to purchase 200,000 Exercise price is the
Common Stock initial public offering
price per share in this
offering

February 5, 1997 Director Nominees Options to purchase 200,000 Exercise price is the
Common Stock initial public offering
price per share in this
offering

II-2

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. (filed herewith)
3.1 Certificate of Incorporation of the Company.(1)
3.2 Bylaws of the Company.(1)
4.1 Specimen Common Stock Certificate. (filed herewith)
5.1 Opinion of Troy & Gould Professional Corporation. (filed herewith)
10.1 Four Media Company 1997 Stock Plan and Stock Option Agreement.(2)
10.2 Four Media Company 1997 Director Option Plan and Director Stock Plan
Stock Option Agreement, as amended. (filed herewith)
10.3 Form of Indemnity Agreement between the Company and each of its
officers and directors.(1)
10.4 Agreement dated as of February 13, 1995 between MTV Asia LDC and Four
Media Company Asia PTE. Ltd.+(2)
10.5 Guaranty by Viacom International Inc. of MTV Asia's obligations to
Four Media Company Asia PTE Ltd. dated February 13, 1995.(1)
10.6 Guaranty by Four Media Company of obligations of Four Media Company
Asia PTE Ltd. to MTV Asia dated February 13, 1995.(1)
10.7 January 18, 1996 Amendment Letter re Agreement dated as of February
13, 1995 between MTV Asia LDC and Four Media Company Asia PTE.
Ltd.+(1)
10.8 Uplink-Playback Service Deal Memorandum between TVN Entertainment
Corporation and Compact Video Services, Inc. dated November 20, 1989,
as amended.+(1)
10.9 Letter Agreement between Four Media Company and TVN Entertainment
Corporation dated March 18, 1996.+(1)
10.10 Agreement for Term Loan Facilities between The Hong Kong and Shanghai
Banking Corporation Limited and Four Media Company Asia PTE. Ltd.
dated February 22, 1995.(1)
10.10A Letter Agreement dated October 31, 1996 and Supplemental Loan
Agreement dated February 1997, amending the 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. (filed herewith)
10.11 Deed of Subordination between Four Media Company, Four Media Company
Asia PTE LTD and The Hong Kong and Shanghai Banking Corporation
Limited dated February 22, 1995.(1)
10.12 Deed of Debenture between Four Media Company Asia PTE LTD. and The
Hong Kong and Shanghai Banking Corporation Limited dated February 22,
1995.(1)
10.13 Deed of Assignment between Four Media Company Asia PTE LTD and The
Hong Kong and Shanghai Banking Corporation Limited dated February 22,
1995.(1)
10.14 Guarantee by Four Media Company of Four Media Company Asia PTE Ltd.
liabilities to The Hong Kong and Shanghai Banking Corporation Limited
dated February 16, 1995.(1)
10.15 Satellite Services Agreement re Transponder 7 between Global Access
Telecommunications Services, Inc. and Four Media Company dated April
12, 1996.(1)
10.16 Satellite Services Agreement re Transponder 5 between Global Access
Telecommunications Services, Inc. and Four Media Company dated April
12, 1996.(1)

II-3

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

10.17 Global Access Telecommunications Services, Inc. Standard Terms and
Conditions.(1)
10.18 August 28, 1996 Letter Amendment to the Satellite Services Agreement
re Transponder 5 dated April 12, 1996 and to the Satellite Services
Agreement re Transponder 7 dated April 12, 1996.(1)
10.19 Financing agreement between The CIT Group/Business Credit, Inc., The
CIT Group/Equipment Financing, Inc., 4MC-Burbank, Inc. and Digital
Magic Company dated October 17, 1996.(2)
10.20 Lease between Singapore Telecommunications Limited and Four Media
Company Asia PTE Ltd. commencing December 15, 1994.(1)
10.21 Office Building Lease between Ford Motor Credit Company and Four Media
Company dated August 1, 1994.(1)
10.22 Employment Agreement between the Company and Robert T. Walston dated
October 1, 1996, as amended. (filed herewith)
10.23 Employment Agreement between the Company and John H. Donlon dated as
of October 1, 1996.(2)
10.24 Employment Agreement between the Company and John H. Sabin dated as of
October 1, 1996.(2)
10.25 Employment Agreement between the Company and Gavin W. Schutz dated as
of October 1, 1996, as amended. (filed herewith)
10.26 Employment Agreement between the Company and Robert Bailey dated as of
October 1, 1996.(2)
10.27 Purchase and Sale Agreement and Escrow Instructions between C.P.
Private Partners, L.P.I. and Four Media Company dated July 29,
1996.(1)
10.28 August 1, 1996 Amendment Letter re Agreement dated as of February 13,
1995 between MTV Asia and Four Media Company Asia PTE Ltd.+(2)
10.29 Term Loan Agreement between Tokai Bank of California and Four Media
Company dated
December 5, 1996. (filed herewith)
21.0 List of Subsidiaries.(1)
23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith)
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1).
(filed herewith)
24.1 Power of Attorney (contained in Part II).(1)
27.1 Financial Data Schedule.(1)

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

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

(1) Previously filed with the Company's Registration Statement filed October
8, 1996 (File No. 333-13721).

(2) Previously filed with Amendment No. 1 to the Company's Registration
Statement filed December 27, 1996.

(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 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

II-4

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-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Burbank, State of California, on February 4, 1997.

Four Media Company

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

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

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Robert T. Walston Chairman of the February 4, 1997
- ------------------------------------- Board and Chief
ROBERT T. WALSTON Executive Officer
(Principal
Executive Officer)

* President and February 4, 1997
- ------------------------------------- Director
JOHN H. DONLON

/s/ John H. Sabin Vice President, February 4, 1997
- ------------------------------------- Chief Financial
JOHN H. SABIN Officer (Principal
Financial and
Accounting Officer)
and Director

* Vice President, February 4, 1997
- ------------------------------------- Chief Technology
GAVIN W. SCHUTZ Officer and
Director

* Vice President, February 4, 1997
- ------------------------------------- Director of
ROBERT BAILEY Marketing and
Director

* Director February 4, 1997
- -------------------------------------
SHIMON TOPOR

* Director February 4, 1997
- -------------------------------------
EDWARD KIRTMAN

/s/ Robert T. Walston
*By: ________________________________
ROBERT T. WALSTON,
AS ATTORNEY-IN-FACT

II-6

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

10.22 Employment Agreement between the Company and Robert T. Walston dated
October 1, 1996, as amended. (filed herewith)
10.23 Employment Agreement between the Company and John H. Donlon dated as
of October 1, 1996.(2)
10.24 Employment Agreement between the Company and John H. Sabin dated as of
October 1, 1996.(2)
10.25 Employment Agreement between the Company and Gavin W. Schutz dated as
of October 1, 1996, as amended. (filed herewith)
10.26 Employment Agreement between the Company and Robert Bailey dated as of
October 1, 1996.(2)
10.27 Purchase and Sale Agreement and Escrow Instructions between C.P.
Private Partners, L.P.I. and Four Media Company dated July 29,
1996.(1)
10.28 August 1, 1996 Amendment Letter re Agreement dated as of February 13,
1995 between MTV Asia and Four Media Company Asia PTE Ltd.+(2)
10.29 Term Loan Agreement between Tokai Bank of California and Four Media
Company dated
December 5, 1996. (filed herewith)
21.0 List of Subsidiaries.(1)
23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith)
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1).
(filed herewith)
24.1 Power of Attorney (contained in Part II).(1)
27.1 Financial Data Schedule.(1)

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

+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.
(1) Previously filed with the Company's Registration Statement filed October 8,
1996 (File No. 333-13721).

(2) Previously filed with Amendment No. 1 to the Company's Registration
Statement filed December 27, 1996.