POINT.360
7083 Hollywood Boulevard, Suite 200
Hollywood, California 90028
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 2003
-----------------------
To the Shareholders of Point.360:
The Annual Meeting of shareholders of Point.360 (the "Company") will be held at
1133 N. Hollywood Way, Burbank, California 91505, on May 21, 2003 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, 2003.
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 April 8, 2003, 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
April 10, 2003
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.
1
POINT.360
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 Point.360 (the "Company") of proxies for use at the Annual
Meeting of Shareholders to be held on May 22, 2003, and at any adjournment
thereof. This proxy statement is first being mailed to shareholders on or about
April 10, 2003. 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 April 10, 2003,
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
9,035,482 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.
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. 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 2004 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 46 2000
and Chief Executive Officer
of Point.360
Greggory J. Hutchins Partner, Holthouse Carlin &
(A)(B) Van Trigt LLP 41 2000
Sam P. Bell(A) (B) President, Los Angeles Business
Advisors 66 2002
(A) Member of the Audit Committee
(B) Member of the Compensation Committee
3
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 four meetings during the fiscal year ended December 31, 2002 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, 2002, the Board of Directors held
eight meetings. During 2002, 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.
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, 2003.
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.
4
The Company has taken steps to address the problems identified by PwC and has
completed a physical inventory of its fixed assets. 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 of the Company is comprised of the three independent
directors, who have signed this report, and the Audit Committee operates under a
written charter. The purpose of the Audit Committee is to monitor the integrity
of the financial statements of the Company, review the Company's internal
accounting procedures and controls, oversee the independence, qualification and
performance of the Company's independent accountants, and appoint the
independent accountants. Messrs. Baker and Bell are independent (as defined in
Rule 4200(a)(14) of the Marketplace Rules of the Nasdaq Stock Market and Section
10A(m)(3) of the Securities Exchange Act of 1934).
Mr. Hutchins is not an independent director because the Company paid his
accounting firm, Holthouse Carlin & Van Trigt, fees of $119,000 during fiscal
year 2002. However, the Board determined that Mr. Hutchins' membership on the
Audit Committee is in the best interests of the Company and its shareholders
because of Mr. Hutchins' extensive familiarity with the Company's business and
financial condition and his experience in reviewing and analyzing financial
statements, in interacting with independent accountants, and in handling other
matters that are the responsibility of audit committees. During fiscal year
2003, in order to satisfy the requirement of the Sarbanes-Oxley Act of 2002 that
all audit committee members must be independent, the Board will attempt to
identify a director nominee who is independent of the Company to replace Mr.
Hutchins on the Audit Committee. The independence requirement of the
Sarbanes-Oxley Act that is described in the preceding sentence is not yet
applicable to the Company.
Messrs. Baker, Bell and Hutchins are each able to understand financial
statements. In addition, the Board has determined that all three members of the
Audit Committee qualify as audit committee financial experts under the
provisions of the Sarbanes-Oxley Act and the related rules adopted by the SEC.
During fiscal year 2002, the Audit Committee met with the senior members
of the Company's management team and the Company's independent accountants. The
Audit Committee also met separately with the Company's independent accountants
and separately with the Company's Chief Financial Officer. The parties discussed
financial management, accounting and internal controls.
The Audit Committee appointed (subject to ratification by the
shareholders) Singer Lewak Greenbaum & Goldstein LLP as the Company's
independent accountants and reviewed with the Company's financial management and
the independent accountants the overall audit scope and plans, the results of
internal and external audit examinations, evaluations by the accountants of the
Company's internal controls and the quality of the Company's financial
reporting.
5
The Audit Committee reviewed and discussed the audited financial
statements included in the Company's Annual Report with the Company's management
including, without limitation, a discussion of the quality and not just the
acceptability of the accounting principles, the reasonableness of significant
judgments, and the clarity of disclosures in the financial statements as well as
in Management's Discussion and Analysis of Results of Operations and Financial
Condition. In addressing the reasonableness of management's accounting
judgments, members of the Audit Committee asked for and received management's
representations that the audited consolidated financial statements of the
Company have been prepared in conformity with generally accepted accounting
principles, and have expressed to both management and accountants their general
preference for conservative policies when a range of accounting options is
available. In its meeting with representatives of the independent accountants,
the Audit Committee asked for and received responses to several questions that
the Audit Committee believes are particularly relevant to its oversight. These
questions included (i) whether there were any significant accounting judgments
made by management in preparing the financial statements that would have been
made differently had the accountants themselves prepared and been responsible
for the financial statements; (ii) whether, based on the auditors' experience
and their knowledge of the Company, the Company's financial statements fairly
present to investors, with clarity and completeness, the Company's financial
position and performance for the reporting period in accordance with generally
accepted accounting principles and SEC disclosure requirements; and (iii)
whether, based on their experience and their knowledge of the Company, they
believe the Company has implemented internal controls that are appropriate for
the Company.
The Audit Committee discussed with the independent accountants the
matters required to be discussed by Statement of Auditing Standards No. 61,
"Communications with Audit Committees," as amended by Statement of Auditing
Standards No. 90, "Audit Committee Communications." The
Audit Committee also reviewed the written disclosures and the letter
from the independent accountants required by the Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," discussed with
the accountants their independence, and concluded that the nonaudit services
performed by the accountants are compatible with maintaining their independence.
In performing all of these functions, the Audit Committee acts in an
oversight capacity. The Audit Committee relies on the work and assurances of the
Company's management, which has the primary responsibility for financial
statements and reports, and of the independent auditors who, in their report,
express an opinion on the conformity of the Company's financial statements to
generally accepted accounting principles.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Company's Board that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2002 filed with the SEC.
Audit Committee
Robert A. Baker
Sam P. Bell
Greggory J. Hutchins
6
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 58 Executive Vice President,
Finance and Administration,
Chief Financial Officer and Secretary
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.
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 founded in 1974. Prior to
establishing 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. Mr. Bell is currently a board member of APEX
Mortgage Capital, Inc., TCW Convertible Securities Fund, Inc. and TCW Galileo
Funds.
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.
7
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, 2002:
ANNUAL COMPENSATION
LONG-TERM
COMPENSATION
AWARDS -
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS - # COMPENSATION (2)
- --------------------------- ---- ------ ----- ----------- ------------
Haig S. Bagerdjian(1) 2002 $139,000 $145,000 100,000 -
Chairman, President and 2001 - 305,000 -
Chief Executive Officer
R. Luke Stefanko (3) 2002 $218,000 200,000 $78,000(3)
Former President and 2001 280,000 64,100 2,000(2)
Chief Executive Officer 2000 273,000 200,000 -
Alan R. Steel 2002 $190,000 $ 35,000 6,300 $2,000(2)
Executive Vice President, 2001 183,000 33,300 2,000(2)
Finance and Administration, 2000 24,000(5) 250,000 -
Chief Financial Officer,
and Secretary
Neil Nguyen(4) 2002 $156,000 4,400 $29,000(4)
Former President, 2001 170,000 115,600 2,000(2)
Multimedia Group 2000 66,000 15,000 2,000(2)
(1) 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. Prior to becoming Chairman, Mr.
Bagerdjian received an option to purchase 5,000 shares upon his
reelection to the Board in accordance with the Company's outside
director compensation program. Commencing June 1, 2002, Mr. Bagerdjian's
salary was set at $250,000 per year.
(2) Annual contributions made to the Company's 401(k) plan for the benefit
of the named executive officer.
(3) Mr. Stefanko's employment terminated on October 3, 2002. All Other
Compensation includes $46,000 payment for accrued vacation on Mr.
Stefanko's termination date, $30,000 of consulting fees (see Certain
Transactions) and $2,000 of contribution to the Company's 401(k) plan.
(4) Mr. Nguyen's employment terminated on November 18, 2002. All Other
Compensation includes $28,000 payment for accrued vacation on Mr.
Nguyen's termination date and $1,000 of contribution to the Company's
401(k) plan.
(5) Salary is from the date the respective individual joined the Company.
8
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
former President, Multimedia Group of the Company. Mr. Stefanko's employment
agreement terminated upon his resignation. Mr. Nguyen's employment was
terminated by the Company on November 18, 2002 and the Company believes it has
no obligation under the employment agreement, which Mr. Nguyen disputes. 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, or provided,
each executive with a car (or a car allowance) 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.
9
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, 2002. 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
-----------------
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%
- --------------------- --------------- ----------- -------- ---- --- ---
Haig S. Bagerdjian, 100,000(1) 18.9% $ 1.75 6/21/07 $ 48,000 $ 107,000
Chairman, President and
Chief Executive Officer
R. Luke Stefanko, 200,000(1) 37.8% $ 1.75 6/21/07 $ 97,000 $ 214,000
Former President and
Chief Executive Officer
Alan R. Steel 6,300(2) 1.2% $ 1.75 6/21/07 $ 3,000 $ 7,000
Executive Vice President,
Finance and Administration,
Chief Financial Officer
And Secretary
Neil Nguyen 4,400(2) 0.8% $ 1.75 (2) $ 2,000 $ 5,000
Former President,
Multimedia Group
(1) Options will become exercisable on the earlier of (i) May 22, 2007 or
(ii) the date the Company's common stock trades ("the Price") for $4.50,
25% will be vested; on the date the Price is $5.50, 50% will be vested;
on the date the Price is $8.00, 75% will be vested; and on the date the
Price is $10.00, 100% will be vested. Mr. Stefanko's options will expire
on October 2, 2004 in accordance with his severance agreement with the
Company.
(2) Options will become exercisable as follows: 25% on June 21, 2003; 50% on
June 21, 2004; 75% on June 21, 2005 and 100% on June 21, 2006. Mr.
Nguyen's options expired on February 18, 2003 as a result of the
termination of his employment.
(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.
10
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 2002. 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, 2002.
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2002 DECEMBER 31, 2002(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
Haig S. Bagerdjian 315,000 / 105,000 $96,000 / $7,000
R. Luke Stefanko 234,000 / 464,100 $0 / $27,000
Alan R. Steel 1,575 / 288,025 $0 / $0
Neil Nguyen 9,000 / 127,500 $0 / $13,000
(1) Amounts are shown as the difference between exercise price and fair market
value (based on a December 31, 2002 closing price of $1.82 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.
11
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information regarding the securities
authorized for issuance under our equity compensation plans, the Plans, as of
December 31, 2002:
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES WEIGHTED AVERAGE FOR FUTURE ISSUANCE
TO BE ISSUED EXERCISE PRICE OF UNDER EQUITY
UPON EXERCISE OF OUTSTANDING OPTIONS, COMPENSATION PLANS
OUTSTANDING OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS (A) RIGHTS (B) REFLECTED IN COLUMN (A)
------------- ----------------------- ---------- -------------------
Equity compensation plans
approved by shareholders
1,798,000(1) $ 3.06 1,171,000
Equity compensation plans
not approved by
shareholders 1,000,000(2) $ 3.05 500,000
- -------------------------
(1) Represents 1,798,000 options which have previously been granted and
which remain outstanding under the 1996 Plan.
(2) Represents 1,000,000 options which have previously been granted and
which remain outstanding under the 2000 Plan.
12
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 2002, 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). On December 5, 2002, Sam P. Bell was appointed to
the Committee. 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. 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
Sam P. Bell
Greggory J. Hutchins
13
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 January 1, 1998 and ending December 31, 2002.
The graph assumes that $100 was invested on January 1, 1998 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.
[GRAPHIC OMITTED]
ANNUAL RETURN PERCENTAGE
YEARS ENDING
COMPANY NAME / INDEX 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------- -------- -------- -------- --------
Point.360 -1.3% 44.7% -72.5% -64.3% 35.4%
NASDAQ Index 34.8% 154.2% -73.6% -20.6% -68.7%
Peer Group 41.0% 76.4% -37.2% -20.3% -30.3%
INDEXED RETURNS
YEARS ENDING
BASE
PERIOD
COMPANY NAME / INDEX 01/01/98 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------- -------- -------- -------- -------- --------
Point.360 $100.00 $ 98.70 $142.86 $ 39.28 $ 14.03 $ 19.00
NASDAQ Index 100.00 134.80 342.65 90.38 71.79 22.44
Peer Group 100.00 141.04 248.76 156.35 124.64 86.94
Peer Group Companies
Digital Generation Systems, Inc.
Ascent Media Group, Inc. - CLA (formerly Liberty Livewire Corp.)
CERTAIN TRANSACTIONS
During 2000, the Company loaned Mr. Stefanko a total of $850,000. The related
note bore interest at 3%, was due on December 31, 2002 and was secured by a Deed
of Trust covering certain real property in Malibu, CA. The note and accrued
interest were paid in full on December 30, 2002.
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 2001, the Company rented certain equipment from a company partially owned
by Kim Stefanko, wife of Mr. Stefanko. In 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.
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.
14
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 was paid $10,000 per month through December 2002, and
will be paid 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 1,435,243 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, 2002, the Company paid $119,000 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 March 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 2,022,719 315,000 2,337,719 25%
R. Luke Stefanko (3) - 234,000 234,000 3%
Julia Stefanko 2,267,168 - 2,267,168 25%
Robert A. Baker 6,500 20,000 26,500 *
Greggory J. Hutchins 10,000 20,000 30,000 *
Alan R. Steel 19,000 1,575 20,575 *
Sam P. Bell - - - *
All directors and
executive officers
as a group 2,058,219 590,575 2,648,794 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 March 31, 2003 and 60 days
thereafter.
(3) Mr. Stefanko's employment as our Chief Executive Officer terminated on
October 2, 2003.
15
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.
Based upon a review of filings with the SEC and written representations
that no other reports were required, the Company believes that all of its
directors, executive officers and persons owning more than 10% of the Company's
common stock complied during the year ended December 31, 2002 with the reporting
requirements of Section 16(a) of the Exchange Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Singer Lewak Greenbaum & Goldstein LLP ("Singer Lewak") has examined, as
independent auditors, the financial statements of the Company for the year ended
December 31, 2002. PricewaterhouseCoopersLLP ("PwC") reviewed, as independent
auditors, the Company Form 10-Q for the quarter ended March 31, 2002, and
assisted the Company in other accounting matters, including the transition to a
new independent auditor.
AUDIT FEES. Fees for services rendered by PwC for the calendar year 2002
financial statements were:
Audit fees $ 13,500
All other fees $ 85,700
Fees for services rendered by Singer Lewak:
Audit fees
($28,900 billed as of
December 31, 2002) $ 77,400
All other fees $ 16,200
Audit fees relate to the audit of the Company's financial statements for the
year ended December 31, 2002 and reviews of the Company's quarterly financial
statements for that year. Other fees relate to services rendered in connection
with a proposed acquisition, technical accounting issues and transition to a new
accounting firm together with responses to questions by the Securities and
Exchange Commission with respect to the change of auditors and restatements of
reports on Forms 10-K and 10-Q. The Audit Committee of the Board of Directors
has determined that the services rendered by PwC and Singer Lewak for other fees
were compatible with maintaining PwC's and Singer Lewak's independence. PwC and
Singer Lewak did not provide any services related to financial information
systems design and implementation during 2002.
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.
16
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 December 11, 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 2004 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
25, 2004 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 February 25, 2004. Notices of intention to present
proposals directly at the 2004 annual meeting should be submitted to the
Corporate Secretary, Point.360, 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, 2002, 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,
(Signed)
Alan R. Steel
Executive Vice President,
April 10, 2003 Finance and Administration
17
POINT .360
ANNUAL MEETING OF SHAREHOLDERS - MAY 21, 2003
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 Wednesday,
May 21, 2003, and at any adjournments or postponements thereof, at the
facilities of the Company, located at 1133 N. Hollywood Way, Burbank, CA 91505,
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)
18
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
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, 2003.
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.
19
"From Camera to Customer, Turn to Us."
4 April 2003
Dear Shareholders:
Calendar 2002 represented a year of significant change for your company. We
returned to profitability, restructured our financing and set the stage for
growth.
In 2002, Point.360 generated a profit of $2.8 million, or $0.30 per share,
representing a $4.3 million turnaround over 2001 results. To achieve this, we
concentrated on the "little things" that help us win and retain customers, from
how we answer the telephones to the efficiency of our delivery personnel. Each
level of management and front-line employees were encouraged to move toward
achieving customer satisfaction through unparalleled service, technical
expertise, reliability, flexibility and integrity, all of which are embodied in
our Mission Statement. We are please with the accomplishment.
These efforts resulted in increasing our gross margins to 38% of sales in 2002,
up from 33% in 2001. At the same time, selling, general and administrative
expenses declined to 28% of sales from 30% last year. Bottom line, net income
rose to $2.8 million in 2002 from a $1.5 million loss in 2001.
In 2002, earnings before interest, taxes, depreciation and amortization (EBITDA)
increased 49% to $12.7 million (19% of sales) compared to $8.5 million (12% of
sales) in 2001. While EBITDA is not a measurement of the cash generated from
operating activities in accordance with generally accepted accounting principles
(GAAP), we believe it is a useful measure of cash flow available to the Company
to pay interest, repay debt, make acquisitions or invest in new technologies.
During 2002, we repaid $6 million of debt principle, invested $2 million in new
equipment and still increased our year-end cash balance to $5.4 million compared
to $3.8 million at the end of 2001. (Please refer to the enclosed Form 10-K for
a specific computation of EBITDA.)
In 2002, we restructured our line of credit with three banks to a term loan due
by the end of 2004. While we have been operating within the parameters of the
new agreement, we recognize the need to have greater financial flexibility to
grow internally and through acquisition. At this time, we are evaluating
financing alternatives in connection with our proposed acquisition of three
Canadian subsidiaries of Alliance Atlantis Communications Inc., which
acquisition will add post-production capabilities in Canada, as well as
establish a customer relationship with Alliance, one of Canada's largest
producers of entertainment content.
Our growth strategies and opportunities include expanding our "one-stop shop"
capabilities to further integrate Point.360 into our customers' infrastructure
and to continue developing our digital asset management solution. We will
address global content needs as international markets continue to outpace
domestic demand and multiple formats will drive demand for post production
services. We store approximately 1.5 million elements in eight vaults which
contribute to a recurring revenue stream through re-mastering of such elements.
We expect electronic distribution of commercial "spots" and studio content to
continue to rise and we are expanding our capabilities though strategic vendor
relationships. Other digital trends such as HDTV and DVD will drive additional
demand. And finally, we will continue to address strategic acquisitions to
consolidate market share, broaden product offerings and increase technological
capabilities.
he 2002 successes are due in large part to the dedication and hard work of our
employees. We have added management during the year to help streamline
communication and lines of authority. In October 2002, I purchased the Company
stock previously owned by Luke Stefanko, the founder of Point.360, increasing my
beneficial ownership of the Company to 25%. Obviously, I have great confidence
in our ability to build on our technology base and excellent customer
relationships. We are looking forward to another successful year in 2003.
Sincerely,
Haig S. Bagerdjian
Chairman of the Board,
President and Chief Executive Officer