VDI MULTIMEDIA
7083 Hollywood Boulevard, Suite 200
Hollywood, California 90028
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 2001
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To the Shareholders of VDI MultiMedia:
The Annual Meeting of shareholders of VDI MultiMedia (the "Company") will be
held at 7083 Hollywood Blvd., Suite 200, Hollywood, California 90028, on May 22,
2001 at 10:00 a.m., local time, to consider and vote upon the following matters:
1. The election of directors
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Information concerning these matters, including the names of the nominees for
the Company's Board of Directors (the "Board"), is set forth in the Proxy
Statement accompanying this Notice. Only shareholders of record at the close of
business on April 2, 2001, will be entitled to notice of and to vote at the
meeting and any adjournment thereof.
All stockholders are requested to sign, date and complete the enclosed proxy and
return it promptly in the accompanying postage-prepaid, pre-addressed envelope
whether or not they expect to attend the meeting to ensure that their shares
will be represented. Any stockholder giving a proxy has the right to revoke it
at any time before it is voted.
R. Luke Stefanko
Chairman of the Board and
Chief Executive Officer
April 12, 2001
PLEASE SIGN AND DATE THE ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE IN ORDER TO ENSURE THAT YOUR VOTES ARE COUNTED.
VDI MULTIMEDIA
7083 Hollywood Boulevard, Suite 200
Hollywood, California 90028
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PROXY STATEMENT
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GENERAL INFORMATION
PERSONS MAKING THE SOLICITATION
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of VDI MultiMedia (the "Company" or "VDI") of proxies for use
at the Annual Meeting of Shareholders to be held on May 22, 2001, and at any
adjournment thereof. This proxy statement is first being mailed to shareholders
on or about April 12, 2001. You are requested to sign, date and return the
enclosed proxy card in order to ensure that your shares are represented at the
meeting.
All shares of VDI Common Stock (as defined below under "Record Date and Stock
Entitled to Vote") represented by a properly completed proxy received in time
for the Annual Meeting will be voted by the proxy holders as provided therein.
Where a shareholder specifies a choice on the proxy with respect to any matter
to be voted upon, the shares will be voted accordingly by the proxy holders. If
no direction is given in the proxy, it will be voted "FOR" the election of the
directors nominated and in accordance with the best judgment of the proxy
holders with respect to any other business that properly comes before the annual
meeting.
In addition to solicitation by mail, regular employees of the Company and its
Transfer Agent may solicit proxies in person or by telephone without additional
compensation. The Company will pay persons holding shares in their names or in
the names of their nominees, but not owning such shares beneficially, for the
expenses of forwarding soliciting materials to the beneficial owners. The
Company will bear all expenses incurred in soliciting its stockholders. Such
expenses are estimated not to exceed $10,000.
REVOCABILITY OF PROXY
Any proxy given by a shareholder of the Company may be revoked at any time
before it is voted at the Annual Meeting by a written notice of revocation to
the Secretary of the Company, or by filing a duly executed proxy bearing a later
date, or upon request if the shareholder is present at the meeting. Each valid
proxy returned which is not revoked, unless indicated otherwise on the proxy
card, will be voted in the election of directors for the nominees as described
herein.
RECORD DATE AND STOCK ENTITLED TO VOTE
Only holders of record Common Stock at the close of business on April 2, 2001,
are entitled to notice of and to vote at the meeting or any adjournment thereof.
The outstanding voting securities of the Company on that date consisted of
9,046,004 shares of Common Stock.
VOTING RIGHTS; ELECTION OF DIRECTORS
Holders of the Company's Common Stock are entitled to one vote for each share
held as of the above record date, except that in the election of directors each
shareholder has cumulative voting rights and is entitled to a number of votes
equal to the number of shares held by such shareholder multiplied by the number
of directors to be elected, which number is currently five. The shareholder may
cast these votes all for a single candidate or may distribute the votes among
any or all of the candidates. No shareholder will be entitled to cumulate votes
for a candidate however, unless that candidate's name has been placed in
nomination prior to the voting and the shareholder, or any other shareholder,
has given notice at the Annual Meeting prior to the voting of an intention to
cumulate votes. In such an event, the proxy holder may allocate among the
management nominees the votes represented by proxies in the proxy holder's sole
discretion.
2
QUORUM; SHAREHOLDER VOTE
A majority of the outstanding shares of the Company must be present in person or
by proxy at the Annual Meeting to constitute a quorum for the transaction of
business. Shares represented by proxies that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee which are represented at
the Annual Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal or proposals) will be counted as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. For purposes of determining the outcome of a proposal,
shares represented by such proxies will not be treated as affirmative votes.
The affirmative vote of a plurality of the votes cast at the meeting is required
for the election of directors. A properly executed proxy marked "WITHHELD" with
respect to the election of one or more directors will not be voted with respect
to the director or directors indicated, although it will be counted for purposes
of determining whether there is a quorum.
ELECTION OF DIRECTORS
The following table sets forth information concerning the nominees of management
for directors for the ensuing year. Each nominee has agreed to serve as a
director if elected. The term of office for all nominees listed below will
expire at the next annual meeting to be held in 2001 or when their successors
are elected and qualified. If any of the nominees listed below is unable to
serve as a director, the proxy holders will vote for a substitute nominee or
nominees recommended by the Board of Directors.
PRINCIPAL OCCUPATION YEAR FIRST
AND BUSINESS EXPERIENCE ELECTED
NAME INCLUDING SERVICE ON OTHER BOARDS AGE DIRECTOR
---- --------------------------------- --- --------
R. Luke Stefanko Chairman and Chief Executive Officer 40 1990
of the Company
Robert A. Baker(A) (B) President and Chief Executive Officer 61 2000
of RAB Associates
Haig S. Bagerdjian(A) (B) Executive Vice President 44 2000
of Syncor International Corporation
and President and Chief Executive Officer
of Syncor Overseas Ltd.
Greggory J. Hutchins(A) (B) Partner, Hotlhouse Carlin & Van Trigt LLP 39 2000
Robert M. Loeffler Of Counsel, Wyman Bautzer Kuchel & Silbert 77 2000
(A) Member of the Audit Committee
(B) Member of the Compensation Committee
MEETINGS AND COMMITTEES
The Company has standing Audit and Compensation Committees. The Audit Committee
reviews and acts on reports to the Board with respect to various auditing and
accounting matters, including the selection of the Company's independent
auditors, the accounting and financial practices and services performed for the
Company by, and fees paid to, the independent auditors. The Compensation
Committee reviews and provides recommendations to the Board of Directors
regarding executive compensation matters. The Audit and Compensation Committees
each held one meeting during the fiscal year ended December 31, 2000 in
conjunction with regular meetings of the Board of Directors. The Company does
not have a Nominating or similar committee, but the Board of Directors will
consider director nominations submitted by shareholders to the Company's
Secretary.
During the fiscal year ended December 31, 2000, the Board of Directors held six
meetings. During 2000, each of the above directors attended at least 75% of the
aggregate of the total number of meetings of the Board and the total number of
meetings of committees of the Board on which he served during his respective
term as a director.
3
AUDIT COMMITTEE REPORT
The Audit Committee is currently comprised of three of the Company's directors,
Messrs. Bagerdjian, Baker and Hutchins. The members of the Company's Audit
Committee are "independent" as defined under the listing standards of the
National Association of Securities Dealers that are applicable to companies
whose securities are listed on the Nasdaq market. The Audit Committee, which met
once during the fiscal year ended December 31, 2000, operates pursuant to a
charter (the "Audit Committee Charter") which was approved and adopted by the
Board of Directors on August 15, 2000 and is attached to this Proxy Statement as
Appendix A. Under the provisions of the Audit Committee Charter, the Audit
Committee is responsible for, among other things: recommending the engagement
and overseeing the performance of the Company's independent auditors; reviewing
the Company's financial disclosure documents; monitoring the Company's financial
reporting process and internal control systems; monitoring potential conflicts
of interest among the Company and its executive officers and directors; and
providing a liaison between the independent auditors and the Board of Directors.
The Audit Committee has reviewed and discussed with management the Company's
audited consolidated financial statements for the fiscal year ended December 31,
2000. The Audit Committee has also discussed with PricewaterhouseCoopers LLP,
the Company's independent auditors, the matters required to be discussed by the
Auditing Standards Board Statement on Auditing Standards No.61, as amended. As
required by Independence Standards Board Standard No. 1, as amended,
"Independence Discussions with Audit Committees," the Audit Committee has
received and reviewed the required written disclosures and a confirming letter
from PricewaterhouseCoopers regarding their independence, and has discussed the
matter with the auditors.
Based upon the foregoing review and discussions, the Audit Committee has
recommended to the Board of Directors that the Company's audited consolidated
financial statements for the fiscal year 2000 be included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000. Further,
the Audit Committee recommends that the Board of Directors engage
Pricewaterhouse Coopers as the Company's independent auditors for the fiscal
year ended December 31, 2001.
AUDIT COMMITTEE
Haig S. Bagerdjian
Robert A. Baker
Greggory J. Hutchins
4
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of VDI are as follows:
NAME AGE POSITION
- ---- --- --------
R. Luke Stefanko 40 Chairman and Chief Executive Officer
Alan R. Steel 56 Executive Vice President,
Finance and Administration,
and Secretary
Clarke W. Brewer 33 Chief Financial Officer
and Assistant Secretary
Neil Nguyen 27 President, Multimedia Group
Larry Hester 47 President, VDI Group
Robert A. Baker 61 Director
Haig S. Bagerdjian 44 Director
Greggory J. Hutchins 39 Director
Robert M. Loeffler 77 Director
R. LUKE STEFANKO has been Chief Executive Officer and a director since he
co-founded the Company in 1990. Mr. Stefanko was elected to Chairman of the
Board in May 1996 and was President of the Company form April 1996 to April
1999. Mr. Stefanko has more than 18 years of experience in the videotape
duplication and distribution industry, including serving as a director and Vice
President/ Operations of A.M.E., Inc. ("AME"), a video duplication company, from
1979 to January 4, 1990.
ALAN R. STEEL became Executive Vice President, Finance and Administration in
November 2000. From 1994 to 2000, Mr. Steel was Vice President, Finance and
Chief Financial Officer of Advanced Machine Vision Corporation, a Nasdaq listed
Company involved in research, development, manufacturing and sales of
sophisticated vision sorting and defect removal equipment for food, paper,
tobacco and other markets. From 1983 to 1994, Mr. Steel was Vice President and
Chief Financial Officer of DDL Electronics, Inc., a New York Stock Exchange
listed company in the electronics industry. Mr. Steel served as controller of
DDL from 1980-1983. Mr. Steel was previously a financial manager for Atlantic
Richfield Company and a certified public accountant with Arthur Andersen & Co.
CLARKE W. BREWER joined the Company in August 1997 as the Corporate Controller
and was promoted to Chief Financial Officer in April 1999. Prior to joining the
Company, Mr. Brewer worked at The Walt Disney Company from 1993 to 1997 in
various finance and accounting positions, most recently as a senior business
planning executive. From 1990 to 1993, Mr. Brewer worked at KPMG Peat Marwick as
a Certified Public Accountant.
NEIL NGUYEN has been President, Multimedia Group, since January 2000. He was
previously Vice President, Business Development and Manager, Business
Development of the Company. He was previously Operations and Project Manager and
New Media Operations Manager of Energy Films, a unit of Getty Images.
LARRY HESTER became President, VDI Group in December 2000. Mr. Hester was
previously President of Creative Digital, Inc., a company founded by Mr. Hester
in 1998 and acquired by VDI in November 2000. Mr. Hester was previously with
Modern VideoFilm for 15 years, most recently as Executive Vice President.
5
ROBERT A. BAKER is the President and Chief Executive Officer of RAB Associates,
a Los Angeles, California-based firm specializing in financial reorganizations,
crisis management and equity receiverships, which he joined in 1974. Prior to
joining RAB Associates, Mr. Baker was the President and CEO of American
Management Company, a management consulting firm specializing in computer system
design and programming. Mr. Baker currently serves as a director of both Mosaic
Capital, LLC Investment Bankers and Western Water Company, a public company
engaged in the ownership of water rights and the transmission of water.
ROBERT M. LOEFFLER was Of Counsel at the law firm of Wyman Bautzer, Kuchel &
Silbert, which he joined in August 1987. Prior to that, Mr. Loeffler served as
Chairman of the Board, President and Chief Executive Officer of Northview
Corporation, a company that is engaged in hotel and real estate matters, from
January to December 1987. Mr. Loeffler was a partner at the Los Angeles offices
of Jones, Day, Reavis & Pogue, from February 1977 until 1987, and the appointed
Trustee for Equity Funding Corporation of America, from April 1973 until October
1976. He served as a director of Advanced Machine Vision Corporation from
January 1997 until July 2000.
GREGGORY J. HUTCHINS is a tax partner at Holthouse Carlin & Van Trigt, LLP, a
public accounting firm. Prior to joining Holthouse Carlin & Van Trigt in January
1993, Mr. Hutchins served as Senior Tax Manager for KMPG Peat Marwick, managing
corporate and high net worth individual clients from August 1984 until December
1992.
HAIG S. BAGERDJIAN is the Executive Vice President of Syncor International
Corporation, a leading provider of radiopharmaceuticals, comprehensive nuclear
pharmacy services and medical imaging services. Joining Syncor in 1991, Mr.
Bajerdjian also serves as the President and Chief Executive Officer for Syncor
Overseas Ltd., a position that he has held since June 1998. He served as a
director of Advanced Machine Vision Corporation from January 1997 until July
2000.
Each executive officer serves in office at the discretion of the Board of
Directors, subject to the terms of any employment agreement that may be entered
into with such officer.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company is paid a fee of $1,000 for
each meeting of the Board attended. Members of the Board who are not employees
of the Company receive options to purchase 15,000 shares of Common Stock upon
their initial election to the Board. These options vest in 33% increments over
the three-year period following the date of grant, with certain exceptions.
Directors are also reimbursed for travel and other reasonable expenses relating
to meetings of the Board.
6
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for the Chief Executive Officer
("CEO") and each executive officer who received over $100,000 in cash
compensation for the fiscal year ended December 31, 2000:
ANNUAL COMPENSATION
-------------------
LONG-TERM
COMPENSATION
AWARDS -
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS - #
- --------------------------- ---- ------ ----- ----- -----------
R. Luke Stefanko, 2000 $273,000 - $ 5,000 (1) 200,000
Chief Executive Officer
1999 273,000 - 15,000 (2) 179,000
1998 222,000 - 1,000 (3) -
Donald R. Stine, 2000 $149,000 - $279,000 (4) -
Former President 1999 147,000 $ 45,000 15,000 (5) 679,000
1998 79,000 - 15,000 (5) -
Clarke W. Brewer, 2000 $128,000 $ 40,000 $ 2,000 (6) 200,000
Chief Financial Officer 1999 96,000 - 1,000 (7) 55,000
1998 66,000 2,000 - 10,000
Robert C. Semmer, 2000 $114,000 $ 38,000 $ 7,000 (8) -
Former Vice President 1999 200,000 - - 65,000
of Operations 1998 162,000 - - -
(1) Includes $4,000 of health insurance premiums paid by the Company and
$1,000 equivalent lease value of a Company-provided automobile.
(2) Includes $13,000 in health insurance premiums paid by the Company and
$2,000 in annual contributions made to the Company's 401(K) plan for
Mr. Stefanko's benefit.
(3) Premiums paid by the Company on a life insurance policy for the
benefit of Mr. Stefanko.
(4) Includes a severance payment of $273,000 and $6,000 of health
insurance premiums paid by the Company.
(5) Includes $14,000 in health insurance premiums paid by the Company and
$1,000 in annual contributions made to the Company's 401(K) plan.
(6) Health insurance premiums paid by the Company.
(7) Contribution to 401(K) plan.
(8) Health insurance premiums paid by the Company.
7
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with R. Luke Stefanko
commencing June 27, 1996. Mr. Stefanko's agreement has a term of five years
ending in June 2001. Under this agreement, the current annual salary of Mr.
Stefanko is $273,000. Mr. Stefanko's base salary increases each year in
accordance with increases in the Consumer Price Index. This base salary is
subject to further annual increase if approved by the Compensation Committee.
Mr. Stefanko is provided with an automobile expense reimbursement allowance and
an annual allowance to cover premiums for life, health and disability insurance.
Mr. Stefanko's employment agreement entitles him to receive quarterly bonus
payments to the extent the Company achieves quarterly earnings per share results
ratified by the Board of Directors at the beginning of each year ("Targeted
Earnings"). If the Company attains the Targeted Earnings with respect to a
particular quarter, Mr. Stefanko shall receive a bonus payment of $6,250. If the
Company's actual earnings per share are less than 75% of the Targeted Earnings,
Mr. Stefanko is not entitled to a bonus. If the Company's actual earnings per
share equal 125% or more of the Targeted Earnings, Mr. Stefanko shall receive an
increased bonus payment (subject to a maximum payment in any quarter of
$12,500). To the extent the Company's earnings per share equal between 75% and
125% of the Targeted Earnings, Mr. Stefanko shall be entitled to receive a
pro-rated bonus payment in accordance with the range set forth above.
Mr. Stefanko's agreement also provides that if Mr. Stefanko's employment is
terminated without cause (as defined in the agreement), except in the event of
disability or retirement, he shall be entitled to receive the following: (i) if
he is terminated within two years following a change in control of the Company
then he shall be entitled to receive payment of his full base salary for a
period of two years, plus payment of the amount of any bonus for a past fiscal
year which has not yet been awarded or paid, and continuation of benefits for a
period of two years, or (ii) if his employment is terminated other than within
two years following a change in control of the Company, then Mr. Stefanko shall
be entitled to receive payment of his full base salary of the remainder of the
term of his agreement, payment of the amount of bonuses, and continuing of
benefits. A change in control of the Company is defined to mean a change in
control of nature that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"). Such a change in control is deemed
conclusively to have occurred in the event of certain tender offers, mergers or
consolidations, the sale, lease, exchange or transfer of substantially all of
the assets of the Company, the acquisition by a person or group (other than Mr.
Stefanko) of 24% or more of the outstanding voting securities of the Company,
the approval by the shareholders of a plan of liquidation or dissolution of the
Company, or certain changes in the members of the Board. In the event of a
decrease in Mr. Stefanko's then current base salary, a removal from eligibility
to participate in the Company's bonus plan and other events as described in the
agreement, then Mr. Stefanko shall have the right to treat such event as a
termination of his employment by the Company without cause and to receive the
payments and benefits described above.
Effective November 3, 2000 and January 20, 2001, the Company entered into
two-year employment agreements with Mr. Steel and Mr. Nguyen, respectively,
providing for annual salaries of $175,000 each. Mr. Steel is the Executive Vice
President, Finance and Administration of the Company, and Mr. Nguyen is the
President, Multimedia Group of the Company. The agreements shall be
automatically renewed for one additional year for each year subsequent to 2002
unless the Executive or the Company gives notice to the other, in writing, at
least 30 days prior to the expiration of 2001 or, thereafter, 13 months prior to
the expiration of the agreements, of its or his desire to terminate the
agreements or modify their terms. The employment agreements provide that if the
Executive is terminated by the Company at any time other than for cause, he is
entitled to severance equal to the unpaid portion of his contract. Additionally,
the Company provides each executive with a car allowance and pays certain health
insurance premiums for the Executives.
8
Effective November 3, 2000, the Company entered into a one-year employment
contract with Mr. Hester, Vice President, VDI Group, providing for an annual
salary of $180,000 and a monthly car allowance. The employment agreement may be
extended at the sole option of the Company, for up to four additional one-year
periods upon notice from the Company at least 60 days prior to the end of each
one-year period. The agreement provides that if Mr. Hester is terminated for any
reason other than for cause, he is entitled to severance equal to the unpaid
portion of his contract.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Articles of Incorporation limit the liability of its
directors. As permitted by amendments to the California General Corporation Law
enacted in 1987, directors will not be liable to VDI for monetary damages
arising from a breach of their fiduciary duty as directors in certain
circumstances. Such limitation does not affect liability for any breach of a
director's duty to VDI or its shareholders (i) with respect to approval by the
director of any transaction from which he derives an improper personal benefit
(ii) with respect to acts or omissions involving an absence of good faith, that
he believes to be contrary to the best interest of VDI or its shareholders, that
involve intentional misconduct or a knowing and culpable violation of law, that
constitute an unexcused pattern or inattention that amounts to an abdication of
his duty to VDI or its shareholders, or that show a reckless disregard for his
duty to VDI or its shareholders in circumstances in which he was, or should have
been aware, in the ordinary course of performing his duties, of a risk of
serious injury to VDI or its shareholders, or (iii) based on transactions
between VDI and its directors or another corporation with interrelated directors
or on improper distributions, loans or guarantees under applicable sections of
the California General Corporation Law. Such limitation of liability also does
not affect the availability of equitable remedies such as injunctive relief or
rescission. VDI has been informed that in the opinion of the Securities and
Exchange Commission, indemnification provisions, such as those contained in
VDI's Restated Articles of Incorporation, are unenforceable with respect to
claims arising under federal securities laws and, therefore, do not eliminate
monetary liability of directors.
9
STOCK OPTIONS GRANTED IN THE LAST FISCAL YEAR
The following table sets forth information with respect to non-qualified stock
options granted at fair market value to the executive officers and directors
during the year ended December 31, 2000. No stock appreciation rights have been
granted by the Company.
Individual Grants
PERCENT
OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE PRICE EXPIRATION FOR OPTION TERMS
NAME AND RELATIONSHIP OPTIONS GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- --------------------- --------------- ----------- --------- ---- -- ---
R. Luke Stefanko, 200,000 (1) 12.7% $ 3.75 8/15/10 $472,000 $1,195,000
Chief Executive Officer
Clark W. Brewer, 200,000 (1) 12.7% $ 3.75 8/15/10 $472,000 $1,195,000
Chief Financial Officer
(1) Options will become exercisable on the earlier of (1) the fifth
anniversary date of the grant (100% vesting), or (2) the date the
Company's common stock trades for 10 consecutive trading days over any
20 day period (the "Price") for $8.50, 20% shall be vested; on the
date the Price is $11.00, 40% shall be vested; on the date the Price
is $14.00, 60% shall be vested; on the date the Price is $18.00, 80%
shall be vested; on the date the Price is $23.00, 100% shall be
vested.
Vesting may be accelerated at the discretion of the plan administrator
(currently the Board of Directors) upon liquidation or dissolution of
the Company, a merger or consolidation of the Company with or into
another entity, the sale of substantially all the assets of the
Company, or a purchase or other acquisition of more than 50% of the
outstanding capital stock of the Company.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
There were no options exercised by the executive officers named in the Summary
Compensation Table during 2000. The following table sets forth information
concerning options held by each of the Company's executive officers who are
named in the Summary Compensation Table, and the value of options held at
December 31, 2000.
10
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2000 DECEMBER 31, 2000(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
R. Luke Stefanko 234,000 / 200,000 $0 /$6,000
Clarke W. Brewer 65,000 / 200,000 $0 /$6,000
Amounts are shown as the difference between exercise price and fair market value
(based on a December 31, 2000 closing price of $3.78 per share).
1996 AND 2000 STOCK OPTION PLANS
The Company has adopted two stock options plans, the 1996 Stock Incentive Plan
(the "1996 Plan"), and the 2000 Nonqualified Stock Option Plan (the "2000 Plan")
adopted by the Company's Board of Directors on December 12, 2000 (collectively
the "Plans"), covering 900,000 and 2,000,000 shares, respectively, of Common
Stock, pursuant to which officers, non-employee directors and employees of the
Company, as well as other persons who render services to or are otherwise
associated with the Company, are eligible to receive incentive and/or
nonqualified stock options. In July 1999, the Company's shareholders approved an
amendment to the 1996 Plan increasing the number of shares reserved for grant to
2,000,000 and providing for automatic increases of 300,000 shares on each August
1 thereafter to a maximum of 4,000,000 shares.
The terms of the Plans are substantially the same, except that grants incentive
stock options, stock appreciation rights and restricted stock are not permitted
under the 2000 Plan. The 1996 Plan expires in May 2006. The 2000 Plan expires in
December 2010. The Plans are administered by the Board of Directors. The
selection of participants, allotments of shares, determination of price and
other conditions or purchase of options will be determined by the Board or a
Stock Option Committee appointed by the Board at its sole discretion in order to
attract and retain persons instrumental to the success of the Company. Incentive
stock options granted under the 1996 Plan are exercisable for a period of up to
ten years from the date of grant at an exercise price which is not less than the
fair market value of the Common Stock on the date of the grant, except that the
term of an incentive stock option granted under the 1996 Plan to a shareholder
owning more than 10% of the voting power of the Company on the date of grant may
not exceed five years and its exercise price may not be less than 110% of the
fair market value of the Common Stock on the date of the grant. Non-qualified
options granted under the Plans may be granted at less than the fair market
value of the Common Stock on the date of grant.
As of December 31, 2000, options to purchase 1,633,000 shares of Common Stock
were available for future grant under the Plans.
11
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 2000, the Company had a compensation
Committee of the Board of Directors (the "Committee") consisting of directors
Robert A. Baker, Haig S. Bagerdjian and Greggory J. Hutchins. The Committee
determines the compensation of the executive officers of the Company, including
those of the executive officers named in the Summary Compensation Table above.
The Company's executive compensation programs are designed to:
o provide competitive levels of base compensation in order to attract,
retain and motivate high quality employees;
o tie individual total compensation to individual performance and the
success of the Company; and
o align the interests of the Company's executive officers with those of
its stockholders.
In the last four years, the Company has been transformed from a private entity
founded in 1990 to a larger public company. Past and current compensation
programs reflect the change in business organization. In view of the relatively
brief evolution of the executive management team, the Company's executive
compensation program has a limited history, with focus being upon base salary
and stock-based compensation, such as grants of stock options.
Base Compensation
In determining base compensation for the Company's executive officers, the
Committee assesses the relative contribution of each executive officer to the
Company, the background and skills of each individual and the particular
opportunities and problems which the individual confronts in his position with
the Company. These factors are then assessed in the context of competitive
market factors, including competitive opportunities with other companies. The
Committee may also supplement base compensation through discretionary bonuses
and/or grants of stock-based compensation in the course of its ongoing
assessments of the performance of the Company's executive officers.
Stock Options
The Committee believes that the Company, its shareholders and its executive
officers and other employees are well served by stock-based compensation.
Accordingly the Committee views options granted under the 1996 and the 2000
Plans and for bonus purposes, as important to an effective executive
compensation policy. The same rationale is also applicable to the Company's
outside directors, pursuant to which awards are granted to new directors meeting
specified criteria.
Chairman of the Board and Chief Executive Officer
In determining the compensation of the Chairman of the Board and Chief Executive
Officer, the Committee focused upon the programs described above.
Mr. Stefanko, the Company's Chairman and Chief Executive Officer, co-founded the
Company in 1999. Mr. Stefanko receives a base salary and has been granted stock
options. The Committee believe that stock-based compensation granted to Mr.
Stefanko closely aligns his interest with those of the Company's shareholders.
12
The Committee believes that the factors described in this report are significant
for determining the Company's performance, and consequently, compensation of
officers; but shareholders should be aware that these are not the only factors
which influenceCompany stock value or overall performance, and that the same
factor may not be the most significant in any succeeding period. Also, the
achievement of targeted objectives by the Company in any period may not be
solely indicative of the Company's future performance.
Robert A. Baker
Haig S.Bagerdjian
Greggory J. Hutchins
COMPARATIVE STOCK PERFORMANCE
The chart below sets forth a line graph comparing the stock price of the Company
with that of the Standard and Poor's Nasdaq National Market Index and Peer Group
Index for the period commencing February 19, 1997 and ending December 31, 2000.
The graph assumes that $100 was invested on February 19, 1997, VDI's initial
public offering date, in the Common Stock and each index, and that all dividends
were reinvested. No dividends have been declared or paid on the Common Stock
during such period. The historical price performance data shown on the graph is
not necessarily indicative of future price performance.
ANNUAL RETURN PERCENTAGE
YEARS ENDING
COMPANY NAME / INDEX 12/31/97 12/31/98 12/31/99 12/31/00
- -------------------- -------- -------- -------- --------
VDI MultiMedia 37.50 -1.30 44.74 -72.50
NASDAQ Index 15.86 41.02 85.85 -39.82
Peer Group -30.53 29.97 115.06 -81.12
INDEXED RETURNS
BASE YEARS ENDING
PERIOD
COMPANY NAME / INDEX 02/19/97 12/31/97 12/31/98 12/31/99 12/31/00
- -------------------- -------- -------- -------- -------- --------
VDI MultiMedia $100.00 $137.50 $135.71 $196.43 $ 54.01
NASDAQ Index 100.00 115.86 163.39 303.66 182.74
Peer Group 100.00 69.47 90.29 194.19 36.67
PEER GROUP COMPANIES
Digital Generation Systems, Inc.
Liberty LiveWire Corp. - CLA
13
CERTAIN TRANSACTIONS
Concurrent with the November 2000 acquisition of Creative Digital, Inc., Mr.
Hester borrowed $150,000 from the Company. The note bears interest at 7% and is
secured by 75,675 shares of Common Stock issued to Mr. Hester in connection with
acquisition. The note is due November 15, 2002.
During 2000, the Company loaned Mr. Stefanko a total of $850,000. The related
note bears interest at 6.19%, is due on August 20, 2001 and is secured by a Deed
of Trust covering certain real property in Malibu, CA.
In December 2000 the Company purchased from Mr. Stefanko 96,000 shares of Common
Stock for $300,000 ($3.13 per share) pursuant to the Company's stock repurchase
program. In March 2001, the Company purchased 116,666 shares from Mr. Stefanko
for $300,000 ($2.57 per share) under the same program.
During the year ended December 31, 2000, the Company paid $51,000 to Holthouse
Carlin & Van Trigt LLP ("HCV") for preparation of tax return and other tax
related services. Mr. Hutchins is a partner in HCV.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 10, 2001, by (i) each person who is known
by VDI to own beneficially more than 5% of outstanding Common Stock; (ii) each
of VDI's directors and director nominees; (iii) each executive officer
identified in the Summary Compensation Table; and (iv) all executive officers
and directors of VDI as a group:
SHARES ACQUIRABLE APPROXIMATE
SHARES PURSUANT TO PERCENT OF
NAME AND ADDRESS (2) OWNED STOCK OPTIONS (1) TOTAL OWNERSHIP
- -------------------- ----- ----------------- ----- ---------
R. Luke Stefanko 2,560,066 114,666 2,674,732 29%
Julia Stefanko 2,267,168 - 2,267,168 25%
Clarke W. Brewer 3,000 38,333 41,333 *
Robert A. Baker - - -
Haig S. Bagerdjian 39,300 - 39,300 *
Greggory J. Hutchins 10,000 - 10,000 *
Robert M. Loeffler - - -
All directors and executive officers
as a group 2,688,041 153,499 2,842,540 31%
*Less than 1%
(1)Represents shares acquirable as of December 31, 2000 and 60 days
thereafter.
(2)The address of each beneficial owner listed is 7083 Hollywood Blvd.,
Suite 200, Hollywood, CA 90028.
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Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934 and rules promulgated
thereunder, the Company's directors, executive officers, and any person holding
beneficially more than 10% of the Company's common stock are required to report
their ownership of the Company's securities and any changes in that ownership to
the Securities and Exchange Commission and to file copies of the reports with
the Company. Specific due dates for these reports have been established, and the
Company is required to report in this Proxy Statement any failures to file by
these dates during the last fiscal year. Messrs. Stefanko, Baker, Hutchins and
Loeffler each delinquently filed one Section 16(a) report within the most
recently completed fiscal year.
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP ("PwC") has examined, as independent auditors, the
financial statements of the Company for the year ended December 31, 2000. The
Board of Directors has selected PwC as the independent auditors for the current
year. A representative of PwC is expected to be present at the annual meeting
and will be given the opportunity to make a statement if he or she desires to do
so. Such representative will also be available to respond to appropriate
questions.
Audit Fees. Fees for services rendered by PwC for the calendar year 2000 were:
- ----------
Audit fees
($36,000 billed as of
December 31, 2000) $ 86,000
All other fees $132,000
Audit fees relate to the audit of the Company's financial statements for the
year ended December 31, 2000 and reviews of the company's quarterly financial
statements for that year. Other fees relate to services rendered in connection
with a completed acquisition, a terminated merger, due diligence related to a
possible acquisition candidate and tax consulting. The Audit Committee of the
Board of Directors has determined that the services rendered by PwC for other
fees were compatible with maintaining PwC's independence. PwC did not provide
any services related to financial information systems design and implementation
during 2000.
INCORPORATION BY REFERENCE
To the extent that this proxy statement has been or will be specifically
incorporated by reference into any filing by the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, the
sections of the Proxy Statement entitled "Audit Committee Report," "Report of
the Compensation Committee on Executive Compensation," "Comparative Stock
Performance" and "Charter of the Audit Committee of the Board of Directors"
shall not be deemed to be incorporated, unless specifically otherwise provided
in such filing.
SHAREHOLDER PROPOSALS AT THE NEXT
ANNUAL MEETING OF STOCKHOLDERS
Shareholders of the Company who intend to submit proposals to the Company's
shareholders for inclusion in the company's proxy statement and form of proxy
relating to the next annual meeting of shareholders must submit such proposals
to the Company no later than December 15, 2001 in order to be included in the
proxy materials. Shareholder proposals should be submitted to the Corporate
Secretary, VDI Multimedia, 7083 Hollywood Blvd., Suite 200, Hollywood, CA 90028.
15
For any proposal that is not submitted for inclusion in next year's proxy
statement but is instead sought to be presented directly at the 2002 annual
meeting, Securities and Exchange Commission rules permit the persons named in
the Company's form of proxy for the next annual meeting to vote proxies in their
discretion if the Company (1) receives notice of the proposal before February
26, 2002 and advises shareholders in the 2002 proxy statement about the nature
of the matter and how the proxy holders intend to vote or (2) does not receive
notice of the proposal before February 9, 2002. Notices of intention to present
proposals directly at the 2002 annual meeting should be submitted to the
Corporate Secretary, VDI Multimedia, 7083 Hollywood Boulevard, Suite 200,
Hollywood, California 90028.
OTHER MATTERS
If any matters not referred to in this proxy statement should properly come
before the meeting, the persons named in the proxies will vote the shares
represented thereby in accordance with their judgment. The Board of Directors is
not aware of any such matters that may be presented for action at the meeting.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
The Company will furnish without charge a copy of its Annual Report on Form 10-K
for the fiscal year ended December 31, 2000, as filed with the Securities an
Exchange Commission, including the financial statements and financial statement
schedules thereto, to any shareholder desiring a copy. Shareholders may write to
the Company at:
VDI Multimedia
Attn: Corporate Secretary
7083 Hollywood Blvd., Suite 200
Hollywood, CA 90028
By Order of the Board of Directors,
Alan R. Steel
Executive Vice President,
April 12, 2001 Finance and Administration
16
Appendix A - Audit Committee Charter
VDI MULTI MEDIA
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Adopted on August 15, 2000
I. Purpose
The primary purpose of the Audit Committee (the"Committee") of the
Board of Directors of VDI MultiMedia (the "Company") is to provide independent
and objective oversight of the financial reporting process, the accounting
functions and internal controls of the Company and its subsidiaries. The
Committee and the Board of Directors have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
independent auditors (or to nominate an outside independent auditor to be
approved by the Company's shareholders in any proxy statement).
II. FUNCTIONS
The Committee shall perform the following functions:
1. INDEPENDENT AUDITORS. Recommend to the Board of Directors the
accounting firm to be engaged by the Company as its independent auditors, which
firm shall be ultimately accountable to the Board of Directors and the Committee
as representatives of the Company's shareholders.
2. PLAN OF AUDIT. Review with the independent auditors the plan and
scope of their audit, its status during the year, the results when completed,
the required communication under Statements of Auditing Standards Nos 61 and 89,
their report or opinion and any recommendations they may have for improving or
changing the audit and the control environment, as well as management's letter
in response thereto, and the fees for audit services.
3. ACCOUNTING PRINCIPLES AND DISCLOSURE. Review significant
developments in accounting rules. The Committee shall review with management
recommended changes in the Company's methods of accounting or financial
statements. The Committee also shall review with the independent auditors any
significant proposed changes in accounting principles and financial statements.
4. INTERNAL ACCOUNTING CONTROLS. Consult with the independent auditors
regarding the adequacy of internal accounting controls. Where appropriate,
consultation with the independent auditors regarding internal controls shall be
conducted out of management's presence.
5. INTERNAL CONTROL SYSTEMS. Review with management the Company's
internal control systems intended to ensure the reliability of financial
reporting and compliance with applicable codes of conduct, laws, and
regulations. The review shall include any significant problems and regulatory
concerns.
6. FINANCIAL DISCLOSURE DOCUMENTS. Prior to publication, the Committee
shall review and discuss with management and the independent auditors the
Company's audited financial statements, such review and discuss to include the
matters to be discussed by Statement of Auditing Standards No. 61, the written
disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1, and the independent auditor's
independence. Following the satisfactory completion of the year-end review and
discussions, the Committee shall recommend to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the last fiscal year for filing with the Securities and Exchange
Commission. The Committee shall also require that the Company's interim
financial statements are reviewed by the Company's independent auditors prior to
filing with the Securities and Exchange Commission, such review to follow
professional standards and procedures for conducting such reviews, as
established by generally accepted auditing standards, as may be modified or
supplemented by the Securities and Exchange Commission.
17
7. OVERSIGHT OF EXECUTIVE OFFICERS AND DIRECTORS AND CONFLICTS OF
INTEREST. Review significant conflicts of interest involving directors or
executive officers. The Committee shall review compliance with Company policies
and procedures with respect to officers' expense accounts and perquisites,
including their use of corporate assets, and consider the results of any review
of these areas by the independent auditor. The Committee also shall review
significant questionable or illegal payments.
8. OVERSIGHT OF INDEPENDENT AUDITORS. Prior to publication of its
recommendation relating to the Company's audited financial statements in
accordance with Section 6 hereof, evaluate the independent auditors and, where
appropriate, recommend a replacement for the independent auditors. In such
evaluation, the Committee shall require that the independent auditors deliver to
the Committee a formal written statement delineating all relationships and
services between the auditors and the Company, as required by Independence
Standards Board Standard No. 1. Pursuant to this evaluation, the Committee shall
actively engage in a dialogue with the auditors with respect to any disclosed
relationships or services that may impact the objectivity and independence of
the independent auditors and in response to the independent auditors formal
written statement recommend that the Board take appropriate action to oversee
the independent auditor's independence.
9. ADEQUACY OF PERSONNEL. Review periodically the adequacy of the
Company's accounting, financial, and auditing personnel resources.
10. RISK MANAGEMENT. Review and evaluate risk management policies in
light of the Company's business strategy, capital strength, and overall risk
tolerance. The Committee also shall evaluate on a periodic basis the Company's
investment and derivatives risk management policies, including the internal
system to review operational risks, procedures for derivatives investment and
trading, and safeguards to ensure compliance with procedures.
11. CHARTER AMENDMENTS. Review this Charter annually, assess its
adequacy and propose appropriate amendments to the Board of Directors.
12 . MISCELLANEOUS. Such other matters in relation to the financial
affairs of the Company, and in relation to the audit of the Company, as the
Committee may, in its discretion, deem advisable.
The Committee's function is one of oversight and review, and it is not expected
to audit the company, to define the scope of audit, to control, the Company's
accounting practices, or to define the standards to be used in preparation of
the Company's financial statements
III. COMPOSITION & INDEPENDENCE
From the date of adoption of this Charter, the Committee shall consist
of not less than three independent members, each of whom shall be appointed by
the Board of Directors. The number of members appointed to serve on the
Committee shall be at least equal to the number of members required by the rules
and regulations of the SEC and the exchange or stock market on which the
Company's securities are traded or quoted.
The Board of Directors shall select one member of the Committee to
serve as the Chairman. Each member of the Committee shall be a person who
qualifies for membership under the then-current listing requirements of the
self-regulatory agency on which the Company's common stock is traded. Currently,
these requirements include the requirement that members of the Committee shall
be financially literate or become financially literate within a reasonable
period of time after appointment to the Committee and at least one member of the
Committee shall have accounting, related financial management expertise, or any
other comparable experience or background that results in the individual's
financial sophistication, including being or having been a chief executive
officer, chief financial officer or other senior with financial oversight
responsibilities.
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No member of the Committee, or their immediate family, shall be
employed or otherwise affiliated with the Company's independent auditors, or
with the Company and/or affiliates within the prior three years in an executive
capacity. No member of the Committee shall receive compensation from the Company
and/or affiliates in excess of $60,000 per year, excluding Board service fees,
stock options, retirement benefits, or non-discretionary compensation. No
Committee member shall serve on the Committee who has been previously employed
as an executive of another entity where any of the Company's executives serves
on the Company's Compensation Committee.
In the event that a Committee member faces a potential or actual
conflict of interest with respect to a matter before the Committee, that
Committee member shall be responsible for alerting the Committee Chairman, and
in the case where the Committee Chairman faces a potential or actual conflict of
interest, the Committee Chairman shall advise the Chairman of the Board of
Directors. In the even that the Committee Chairman, or the Chairman of the Board
of Directors, concurs that a potential or actual conflict of interest exists, an
independent substitute Director shall be appointed as a Committee member until
the matter, posing the potential or actual conflict of interest is resolved.
IV. QUORUM AND MEETINGS AND VOTING
A quorum of the Committee shall be declared when a majority of the
appointed members of the Committee are in attendance. The affirmative vote of a
majority of the appointed members shall be necessary to take any action at any
meeting in which a quorum is present.
The Committee shall meet a sufficient number of times to perform their
duties, but no less than twice per year. In addition, the Committee shall call
special meetings as circumstances require. Meetings shall be scheduled at the
discretion of the Chairman. On an annual basis, the Committee shall meet
privately with (i) the Company's independent auditor and (ii) the Company's
Chief Financial Officer and (iii) the Company's Controller.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, as long as all members of the Committee
participating in the meeting can hear one another, and all such members of the
Committee shall be deemed to be present in person at the meeting.
Notice of the meetings shall be provided as required in the Company's
Bylaws, as amended from time to time. The Committee may ask members of
management or others to attend the meeting and provide pertinent information as
necessary.
V. REPORTS
The Committee will report to the Board from time to time with respect
to its activities and its recommendations When presenting any recommendation or
advice to the Board, the Committee will provide such background and supporting
information as may be necessary for the Board to make an informed decision. The
Committee will keep minutes of its meetings and will make such minutes available
to the full Board for its review.
The Committee shall annually report to the shareholders in the
Company's proxy statement for its annual meeting whether the Committee has
satisfied its responsibilities under this Charter, which report shall be in
compliance with Rule 306 of Regulation S-K, as such rule is amended from time to
time.
VI. OTHER AUTHORITY
The Committee is authorized to confer with Company management and other
employees to the extent it may deem necessary or appropriate to fulfill its
duties. The Committee is authorized to conduct or authorize investigations into
any matters within the Committee's scope of responsibilities. The Committee also
is authorized to seek outside legal or other advice to the extent it deems
necessary or appropriate, provided it shall keep the Board advised as to the
nature and extent of such outside advice.
The Committee will perform such other functions as are authorized for
this Committee by the Board of Directors, by law or the Company's Certificate of
Incorporation, as amended or Bylaws as amended.
19
PROXY
VDI MULTIMEDIA
ANNUAL MEETING OF SHAREHOLDERS - MAY 22, 2001
THIS PROXY IS SOLICITED ON BEHALF OF VDI MULTIMEDIA
The undersigned hereby appoints R. Luke Stefanko and Alan R. Steel and
each of them, with full power of substitution, as proxies and with all powers
the undersigned would possess if personally present, to vote all of the shares
of Common Stock, no par value per share (the "Common Stock"), of VDI MultiMedia
(the "Company") that the undersigned is entitled to vote at the Annual Meeting
of Shareholders of the Company to be held at 10:00 am., local time, on Tuesday,
May 22, 2001, and at any adjournments or postponements thereof, at the
facilities of the Company, located at 7083 Hollywood Boulevard, Suite 200,
Hollywood, California 90028, as directed herein upon the matters set forth on
the reverse side hereof and described in the accompanying Notice of Annual
Meeting of Shareholders and Proxy Statement and upon such other matters as may
properly be brought before such meeting according to their sole discretion.
Receipt of the Notice of Annual Meeting and the Proxy Statement is
hereby acknowledged.
(PLEASE MARK, DATE AND SIGN ON THE REVERSE SIDE)
20
Please mark your
votes as in this
________example.
1) ELECTION OF VOTE FOR WITHHOLD
FIVE DIRECTORS ALL LISTED NOMINEES AUTHORITY
FOR A ONE YEAR EXCEPT AS INDICATED TO VOTE FOR ALL
TERM. BELOW NOMINEES
--------------- ---------------
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S
NAME ON THE LINE BELOW.
- -------------------------------------
VDI MULTIMEDIA RECOMMENDS A VOTE FOR DIRECTORS
NOMINEES: R. Luke Stefanko
Haig S. Bagerdjian
Robert A. Baker
Greggory J. Hutchins
Robert M. Loeffler
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREBY BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. AS TO ANY
OTHER MATTER COMING BEFORE THE MEETING, EACH OF THE PERSONS
AUTHORIZED AS PROXIES HEREWITH IS DISCRETION ON SUCH MATTER.
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
Signature _____________________________ Date _____________________________
Signature ______________________________ Date ____________________________
NOTE: Please date this card and sign your name exactly as it appears on this
Proxy. If the common Stock represented by this Proxy is registered in the names
of two or more persons, each should sign this proxy. Persons signing in a
representative or fiduciary capacity and corporate officers should add their
full titles as such.
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