POINT.360
7083 Hollywood Boulevard, Suite 200
Hollywood, California 90028
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 5, 2002
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To the Shareholders of Point.360:
The Annual Meeting of shareholders of Point.360 (the "Company") will be held at
1220 N. Highland Avenue, Hollywood, California 90038, on December 5, 2002 at
10:00 a.m., local time, to consider and vote upon the following matters:
1. The election of directors.
2. To ratify and approve the appointment of Singer Lewak Greenbaum &
Goldstein LLP as independent auditors for our fiscal year ending
December 31, 2002.
3. 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 November 1, 2002, will be entitled to notice of and to vote at the
meeting and any adjournment thereof.
All shareholders 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 shareholder giving a proxy has the right to revoke it
at any time before it is voted.
Haig S. Bagerdjian
Chairman of the Board of Directors,
President and Chief Executive Officer
November 4, 2002
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.
POINT.360
7083 Hollywood Boulevard, Suite 200
Hollywood, California 90028
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PROXY STATEMENT
---------------
GENERAL INFORMATION
PERSONS MAKING THE SOLICITATION
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of Point.360 (the "Company") of proxies for use at the Annual
Meeting of Shareholders to be held on December 5, 2002, and at any adjournment
thereof. This proxy statement is first being mailed to shareholders on or about
November 4, 2002. 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 the Company's 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, "FOR" ratification and appointment of
Singer Lewak Greenbaum & Goldstein LLP ("Singer Lewak") as independent auditors
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 shareholders. 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.
RECORD DATE AND STOCK ENTITLED TO VOTE
Only holders of record Common Stock at the close of business on November 1,
2002, 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 9,014,232 shares of Common Stock.
VOTING RIGHTS
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.
1
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. For each other item, the affirmative
vote of the holders of a majority of the shares represented in person or by
proxy and voting on the item will be required for approval, provided that the
shares voting affirmatively must also constitute a majority of the required
quorum for the meeting.
ELECTION OF DIRECTORS
(Item 1 on proxy card)
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 2003 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
---- --------------------------------- --- --------
Robert A. Baker(A)(B) President and Chief Executive 64 2000
Officer of RAB Associates
Haig S. Bagerdjian Chairman of the Board, President
and Chief Executive Officer
of Point.360 46 2000
Greggory J. Hutchins
(A)(B) Partner, Holthouse Carlin
& Van Trigt LLP 41 2000
Sam P. Bell President, Los Angeles Business
Advisors (c) 66 -
(A) Member of the Audit Committee
(B) Member of the Compensation Committee
(C) Serves on the boards of APEX Mortgage Capital, Inc., TCW Convertible
Securities Fund, Inc. and TCW Galileo Funds.
The Board of Directors is currently considering additional candidates to serve
as members of the Board.
2
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 two meetings during the fiscal year ended December 31, 2001 either
separately or 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, 2001, the Board of Directors held five
meetings. During 2001, 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 with the exception of Mr. Bagerdjian who attended three of
the five Board meetings and one of the two Audit Committee meetings.
PROPOSAL TO RATIFY THE APPOINMENT OF
INDEPENDENT AUDITORS
(ITEM 2 ON PROXY CARD)
We are asking you to ratify the Board's selection of Singer Lewak Greenbaum &
Goldstein LLP ("Singer Lewak") as our independent auditors for the fiscal year
ending December 31, 2002.
Effective July 26, 2002, Point.360, through action of its Audit Committee,
engaged Singer Lewak as its independent auditors for the fiscal year ending
December 31, 2002.
The Company dismissed its previous independent accountants,
PricewaterhouseCoopers LLP ("PwC"), effective June 12, 2002. The decision to
dismiss PwC was approved by the Board of Directors and the Audit Committee. In
connection with the audits of the two fiscal years ended December 31, 2001 and
during subsequent interim periods, there have been no disagreements with PwC on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of PwC, would have caused PwC to make reference to the matter in
their report.
The reports of PwC on the consolidated financial statements for the past two
fiscal years did not contain an adverse opinion or a disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles, except that the report of PwC dated February 25, 2002, relating to
the consolidated financial statements of Point.360 as of December 31, 2001,
contained a going concern modification.
Except as indicated below, no reportable events described under Item
304(a)(1)(v) of SEC Regulation S-K occurred within our two most recent fiscal
years ended December 31, 2001 and 2000 and the subsequent interim period. In a
letter dated March 7, 2002, PwC informed the Company that they noted a certain
matter involving the Company's internal controls that they considered to be a
reportable condition under standards established by the American Institute of
Certified Public Accountants. The reportable condition related to the fact that
the Company had not performed a physical inventory of its fixed assets. Also,
the Company does not identify whether fully depreciated assets are still being
utilized. In addition, the Company currently utilizes extensive spreadsheets to
track fixed assets and calculate depreciation, instead of an integrated fixed
asset system. As a result, according to PwC, the Company is unable to accurately
determine whether fixed assets recorded in its financial systems are still in
existence and if so, in use, and the existing tracking system for fixed assets
could result in an increased risk of errors in the calculation of depreciation
expense.
3
The Company is taking steps to address the problems identified by PwC. We have
authorized PwC to respond fully to the inquiries of Singer Lewak regarding the
matters described in the preceding paragraph.
A letter from PwC, dated June 17, 2002, addressed to the Securities and Exchange
Commission stating that it agrees with the above statements has been filed as an
Exhibit to the Company's Form 8-K dated June 12, 2002.
During our two most recent fiscal years, and the subsequent interim period,
neither the Company nor anyone acting on our behalf consulted with Singer Lewak
regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii)
of Regulation S-K.
A representative of Singer Lewak is expected to be available at the Annual
Meeting to make a statement, if he desires, and to answer your questions. A
representative of PwC is not expected to be available at the Annual Meeting.
We are submitting this proposal to you because we believe that such action
follows sound corporate practice. If ratification of the appointment of Singer
Lewak as our independent public auditors is not obtained at the Annual Meeting,
the Board of Directors will reconsider its appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF SINGER LEWAK AS INDEPENDENT PUBLIC ACCOUNTANTS AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A SHAREHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
AUDIT COMMITTEE REPORT
The Audit Committee is currently comprised of two of the Company's directors,
Messrs. Baker and Hutchins. The third member of the Audit Committee, Robert M.
Loeffler, passed away in June 2002. 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 twice
during the fiscal year ended December 31, 2001, operates pursuant to a charter
(the "Audit Committee Charter") which was approved and adopted by the Board of
Directors on August 15, 2000. 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,
2001. 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 2001 be included in the Company's
Annual Report on Form 10-K and Form 10K/A-1 for the fiscal year ended December
31, 2001. Further, the Audit Committee recommends that the Board of Directors
engage Singer Lewak as the Company's independent auditors for the fiscal year
ending December 31, 2002.
AUDIT COMMITTEE
ROBERT A. BAKER
GREGGORY J. HUTCHINS
4
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors, director nominees and executive officers of the Company are as
follows:
Name Age Position
- ---- --- --------
Haig S. Bagerdjian 46 Chairman of the Board of Directors,
President and Chief Executive Officer
Alan R. Steel 57 Executive Vice President,
Finance and Administration,
Chief Financial Officer and Secretary
Neil Nguyen 29 President, Multimedia Group
Robert A. Baker 64 Director
Greggory J. Hutchins 41 Director
Sam P. Bell 66 Director nominee
HAIG S. BAGERDJIAN became Chairman of the Board of the Company in September 2001
and was appointed President and Chief Executive Officer in October 2002. He was
Executive Vice President of Syncor International Corporation, a leading provider
of radiopharmaceuticals, comprehensive nuclear pharmacy services and medical
imaging services, from 1991 to 2002. From 1987 to 1991, he served in several
executive level positions at Calmark Holding Corporation. He also was General
Counsel for American Adventure, Inc., which was a subsidiary of Calmark Holding.
Mr. Bagerdjian received a J.D. from Harvard Law School and is admitted to the
State Bar of California. Mr Bagerjian is a director of Innodata Corporation.
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.
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.
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 Western
Water Company, a public company engaged in the ownership of water rights and the
transmission of water.
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 KPMG Peat Marwick, managing
corporate and high net worth individual clients from August 1984 until December
1992.
SAM P. BELL has been President of Los Angeles Business Advisors (LABA) since
1996. LABA is comprised of 30 chief executive officers of major companies in the
Los Angeles region and focuses on high impact projects where their collective
resources can be utilized to positively influence the economic vitality of the
area. Prior to joining LABA, Mr. Bell was Area Managing Partner of Ernst &
Young, certified public accountants, for the Pacific Southwest Region, retiring
in 1996 after 39 years with the firm. Mr. Bell currently serves, or has served
in the past, in high level positions for numerous charitable and educational
concerns, and is a current panel member for the NASDAQ in reviewing filing
issues for NASDAQ-listed companies.
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.
5
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company is paid a cash fee of $3,000
per quarter, $500 for each committee meeting not held in conjunction with a
Board meeting, and receives an annual fully-vested stock option grant to
purchase 5,000 shares at an exercise price equal to the fair market value on the
date of any annual meeting at which the director is reelected to the Board.
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.
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, 2001:
ANNUAL COMPENSATION
LONG-TERM
COMPENSATION
AWARDS -
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS - # COMPENSATION (2)
- --------------------------- ---- ------ ----- ----------- ------------
R. Luke Stefanko, (4) 2001 $280,000 - 64,100 $ 2,000
Former President and 2000 273,000 - 200,000 -
Chief Executive Officer 1999 273,000 - 179,000 2,000
Alan R. Steel 2001 $183,000 - 33,300 $ 2,000
Executive Vice President, 2000 24,000 (1) - 250,000 -
Finance and Administration,
Chief Financial Officer,
and Secretary
Neil Nguyen 2001 $170,000 - 115,600 $ 2,000
President, Multimedia Group 2000 66,000 - 15,000 2,000
1999 16,000 (1) - - -
Larry Hester (3) 2001 $180,000 - 151,500 -
Former President, 2000 28,000 (1) - - -
Post Production Group
(1) Salaries are from the dates the respective individuals joined the
Company.
(2) Annual contributions made to the Company's 401(k) plan for the benefit
of the named executive officer.
(3) Mr. Hester's employment terminated on January 24, 2002.
(4) Mr. Stefanko's employment terminated on October 3, 2002.
(5) Haig S. Bagerdjian was appointed to the positions of President and Chief
Executive Officer upon Mr. Stefanko's resignation. Mr. Bagerdjian
received no salary from the Company in 2001, but was granted an option
to purchase 300,000 shares of common stock upon his appointment as
Chairman of the Board in September 2001. Commencing June 1, 2002, Mr.
Bagerdjian's salary was set at $250,000 per year.
6
EMPLOYMENT AGREEMENTS
Effective June 7, 2001, the Company entered into employment agreements with
Messrs. Stefanko, Steel and Nguyen providing for annual salaries of $285,000,
$190,000 and $175,000 respectively. Mr. Stefanko, former President and Chief
Executive Officer of the Company, resigned as a director and officer of the
Company on October 3, 2002 pursuant to a Resignation and General Release
Agreement (see "Certain Transactions"). Mr. Steel is the Executive Vice
President, Finance and Administration of the Company, and Mr. Nguyen is the
President, Multimedia Group of the Company. Mr. Stefanko's employment agreement
terminated upon his resignation. The employment agreements for Messrs. Steel and
Nguyen provide that if the Executive is terminated by the Company at any time
other than for cause (including constructive termination), he is entitled to
severance equal to salary and fringe benefits for 18 months. Additionally, the
Company provides each executive with a car and pays certain health insurance
premiums for the Executives.
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 the Company 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 the Company 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 the Company 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 the Company or its shareholders, or that
show a reckless disregard for his duty to the Company 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 the Company or its
shareholders, or (iii) based on transactions between the Company 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. The
Company has been informed that in the opinion of the Securities and Exchange
Commission, indemnification provisions, such as those contained in the Company'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.
7
STOCK OPTIONS GRANTED IN THE LAST FISCAL YEAR
The following table sets forth information with respect to non-qualified stock
options granted to the executive officers named in the Summary Compensation
Table during the year ended December 31, 2001. The exercise price of each option
was at or above the market price of our Common Stock on the option grant date.
No stock appreciation rights have been granted by the Company.
INDIVIDUAL GRANTS
-----------------
[GRAPHIC OMITTED]
PERCENT OF POTENTIAL REALIZABLE VALUE
TOTAL AT ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM (4)
UNDERLYING EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------
NAME AND RELATIONSHIP OPTIONS GRANTED (3) FISCAL YEAR ($/SHARE) DATE 5% 10%
- --------------------- --------------- ----------- -------- ---- --- ---
R. Luke Stefanko, 64,100 (1) 6.1% $ 1.40 8/23/06 $ 25,000 $ 55,000
Former President and
Chief Executive Officer
Alan R. Steel 33,300 (1) 3.0% $ 1.40 8/23/06 $ 13,000 $ 28,000
Executive Vice President,
Finance and Administration,
Chief Financial Officer
And Secretary
Neil Nguyen 85,000 (2) 10.3% $ 2.38 3/12/11 $182,000 $391,000
President, 30,600 (1) $ 1.40 8/23/06
Multimedia Group
Larry Hester 120,000 (2) 13.4% $ 3.48 4/18/11 $319,000 $737,000
Former President, 31,500 (1) $ 1.40 8/23/06
Post Production Group
(1) Options will become exercisable on 8/23/04.
(2) 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, 50% shall be vested; on the date
the Price is $11.00, 100% shall be vested.
(3) 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.
(4) The potential realizable value shown in this table represents the
hypothetical gain that might be realized based on assumed 5% and 10%
annual compound rates of stock price appreciation over the full option
term. These prescribed rates are not intended to forecast possible
future appreciation of the common stock.
8
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 2001. 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, 2001.
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2001 DECEMBER 31, 2001(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
R. Luke Stefanko 234,000 / 200,000 $0 / $0
Alan R. Steel 0 / 283,300 $0 / $0
Neil Nguyen 0 / 130,600 $0 / $0
Larry Hester 0 / 151,500 $0 / $0
(1) Amounts are shown as the difference between exercise price and fair
market value (based on a December 31, 2001 closing price of $1.35 per
share).
1996 AND 2000 STOCK OPTION PLANS
The Company has adopted two stock option plans, the 1996 Stock Incentive Plan
(the "1996 Plan"), and the 2000 Nonqualified Stock Option Plan (the "2000 Plan")
(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 of
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, 2001, options to purchase 893,000 shares of Common Stock were
available for future grant under the Plans.
9
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 2001, 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. On March 7, 2002,
Mr. Bagerdjian resigned as a member of the Committee and was replaced by Robert
M. Loeffler (now deceased). 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.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
In determining the compensation of the President and Chief Executive Officer,
the Committee focused upon the programs described above.
Mr. Stefanko, the Company's former President and Chief Executive Officer,
co-founded the Company in 1990. Mr. Stefanko received a base salary and has been
granted stock options. Mr. Bagerdjian, the Company's current Chairman, President
and Chief Executive Officer, receives a $250,000 base annual salary and has been
granted stock options. The Committee believe that stock-based compensation
granted to Mr. Bagerdjian closely aligns his interest with those of the
Company's shareholders.
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 influence Company 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
Greggory J. Hutchins
10
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, 2001.
The graph assumes that $100 was invested on February 19, 1997, the Company'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 12/31/01
-------- -------- -------- -------- --------
Point.360 30.50 -1.30 44.74 -72.50 -64.29
NASDAQ Index 20.89 41.04 76.38 -37.15 -20.28
Peer Group -32.16 33.77 156.62 -73.66 -20.28
INDEXED RETURNS
YEARS ENDING
BASE
PERIOD
COMPANY NAME / INDEX 02/19/97 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
-------- -------- -------- -------- -------- --------
Point.360 $100.00 $130.51 $128.81 $186.44 $ 51.27 $ 18.31
NASDAQ Index 100.00 120.89 170.50 300.72 189.01 150.67
Peer Group 100.00 67.84 90.75 232.88 61.35 48.91
Peer Group Companies
Digital Generation Systems, Inc.
Liberty LiveWire Corp. - CLA
CERTAIN TRANSACTIONS
During 2000, the Company loaned Mr. Stefanko a total of $850,000. The related
note bears interest at 3%, is due on December 31, 2002 and is secured by a Deed
of Trust covering certain real property in Malibu, CA. The balance of principal
and interest due as of October 2, 2002 was $777,000.
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, the Company rented certain equipment from a company partially
owned by Kim Stefanko, wife of Mr. Stefanko. During 2001, the Company paid
rentals of $59,000 for equipment rental, 50% in cash and the remainder in the
form of a reduction in Mr. Stefanko's note to the Company. The Board of
Directors also authorized the Company to purchase the equipment from the rental
company at fair market value with the purchase price ($68,000) being paid in the
form of a reduction in Mr. Stefanko's note.
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During 2001, the Company paid Mrs. Stefanko consulting fees of $10,000 per month
for nine months pursuant to an arrangement made when the Company purchased
Woodholly Productions, an entity partially owned by Mrs. Stefanko, in 1997. On
October 1, 2001, the Company entered into a severance agreement with Mrs.
Stefanko which provided for a payment of $30,000 in exchange for a 12-month
agreement not to compete, 50% of which was paid in cash and 50% offset against
Mr. Stefanko's note.
On October 2, 2002, Mr. Stefanko entered into a Resignation and General Release
Agreement pursuant to which he resigned as a director and officer of the
Company. Mr. Stefanko also entered into a Consulting Agreement with the Company
for 24 months whereby he will be paid $10,000 per month through December 2002,
and an hourly rate for consulting services thereafter. Mr. Stefanko's stock
options will continue to vest and become exercisable in accordance with the
terms of his related stock option agreements, but will automatically terminate
on October 2, 2004.
In connection with his resignation, Mr. Stefanko entered into a one-year
Noncompetition Agreement with the Company which prevents him from competing with
the Company except in certain instances, and prohibits him from soliciting
Company employees for three years.
Concurrent with his resignation, Mr. Stefanko entered into a Stock Purchase
Agreement with Mr. Bagerdjian whereby Mr Bagerdjian acquired 1,436,179 shares of
Company stock owned by Mr. Stefanko. For the shares, Mr. Bagerdjian paid Mr.
Stefanko $100,000, assumed payment obligations of approximately $1,671,000 of
Mr. Stefanko's liabilities (including Mr. Stefanko's note to the Company) and
will make future installment payments of approximately $886,000.
During the year ended December 31, 2001, the Company paid $98,000 to Holthouse
Carlin & Van Trigt LLP ("HCV") for preparation of tax returns 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 October 15, 2002, by (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding Common
Stock; (ii) each of Point.360's directors and director nominees; (iii) each
executive officer identified in the Summary Compensation Table; and (iv) all
executive officers and directors of the Company as a group:
SHARES ACQUIRABLE APPROXIMATE
SHARES PURSUANT TO PERCENT OF
NAME AND ADDRESS (1) OWNED STOCK OPTIONS (2) TOTAL OWNERSHIP
- ---------------- ----- ------------- ----- ---------
Haig S. Bagerdjian 2,023,665 315,000 2,338,655 25%
R. Luke Stefanko - 234,000 234,000 3%
Julia Stefanko 2,267,168 - 2,267,168 25%
Robert A. Baker - 15,000 15,000 *
Greggory J. Hutchins 10,000 15,000 25,000 *
Alan R. Steel 19,000 - 19,000 *
Neil Nguyen 5,100 1,500 6,600 *
All directors and
executive officers
as a group 2,057,755 580,500 2,638,255 28%
*Less than 1%
(1) The address of each beneficial owner listed is 7083 Hollywood Blvd.,
Suite 200, Hollywood, CA 90028.
(2) Represents shares acquirable as of October 15, 2002 and 60 days
thereafter.
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. Mr. Baker delinquently filed one
Section 16(a) report within the most recently completed fiscal year.
12
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP ("PwC") has examined, as independent auditors, the
financial statements of the Company for the year ended December 31, 2001.
Audit Fees. Fees for services rendered by PwC for the calendar year 2001
financial statements were:
Audit fees
($41,050 billed as of
December 31, 2001) $ 146,050
All other fees $ 1,750
Audit fees relate to the audit of the Company's financial statements for the
year ended December 31, 2001 and reviews of the company's quarterly financial
statements for that year. Other fees relate to services rendered in connection
with the filing of a Form S-8 registration statement. 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 2001.
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," and "Comparative Stock
Performance" shall not be deemed to be incorporated, unless specifically
otherwise provided in such filing.
SHAREHOLDER PROPOSALS AT THE NEXT
ANNUAL MEETING OF SHAREHOLDERS
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 July 8, 2003 in order to be included in the proxy
materials. Shareholder proposals should be submitted to the Corporate Secretary,
Point.360, 7083 Hollywood Blvd., Suite 200, Hollywood, CA 90028.
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 2003 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 September
30, 2003 and advises shareholders in the 2003 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 September 30, 2003. Notices of intention to
present proposals directly at the 2003 annual meeting should be submitted to the
Corporate Secretary, Point.360, 7083 Hollywood Boulevard, Suite 200, Hollywood,
California 90028.
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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, 2001, 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:
Point.360
Attn: Corporate Secretary
7083 Hollywood Blvd., Suite 200
Hollywood, CA 90028
By Order of the Board of Directors,
Alan R. Steel
Executive Vice President,
November 4, 2002 Finance and Administration
14
POINT .360
ANNUAL MEETING OF SHAREHOLDERS - DECEMBER 5, 2002
This Proxy is Solicited On Behalf of Point .360
The undersigned hereby appoints Haig S.Bagerdjian 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 Point .360 (the
"Company") that the undersigned is entitled to vote at the Annual Meeting of
Shareholders of the Company to be held at 10:00 a.m., local time, on Thursday,
December 5, 2002, and at any adjournments or postponements thereof, at the
facilities of the Company, located at 1220 N. Highland Ave., Hollywood,
California 90038, 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)
15
A X Please mark your
--- votes as in this
example.
(1) Election of
four directors
for a one year
term.
VOTE FOR ALL LISTED NOMINEES
EXCEPT AS INDICATED BELOW
NAME ON THE LINE BELOW.
WITHHOLD AUTHORITY
TO VOTE FOR ALL NOMINEES
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEES: Haig S. Bagerdjian
INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S Robert A. Baker
NAME ON THE LINE BELOW Greggory J. Hutchins
Sam P. Bell
- -------------------------------------
(2) To ratify and approve Singer Lewak
Greenbaum & Goldstein LLP as independent
auditors for the fiscal year ending
December 31, 2002.
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 PROPOSALS 1 AND 2. AS TO ANY OTHER MATTER COMING BEFORE THE MEETING,
EACH OF THE PERSONS AUTHORIZED AS PROXIES HEREWITH IS AUTHORIZED TO VOTE IN HIS
DISCRETION ON SUCH MATTER.
POINT .360 RECOMMENDS A VOTE "FOR" THE RATIFICATION AND APPROVAL OF SINGER LEWAK
GREENBAUM & GOLDSTEIN LLP.
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.
16