POINT.360
7083 Hollywood Boulevard, Suite 200
Hollywood, California 90028
---------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 10, 2004
-----------------------
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, CA 91505, on May 10, 2004 at 3:00 p.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, 2004.
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 1, 2004 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 2, 2004
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
------------------------
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 May 10, 2004, and at any adjournment
thereof. This proxy statement is first being mailed to shareholders on or about
April 2, 2004. 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 of Common Stock at the close of business on April 1,
2004, 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 9,195,483 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.
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 2005 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)(C) President and Chief Executive 65 2000
Officer of RAB Associates
Haig S. Bagerdjian Chairman of the Board, President 47 2000
and Chief Executive Officer
of Point.360
Greggory J. Hutchins Partner, Holthouse Carlin &
(A)(B) Van Trigt LLP 42 2000
Sam P. Bell (A)(B) President, Los Angeles Business
Advisors 67 2002
G. Samuel Oki (A)(C) President, Meta Information
Services, Inc. 53 2004
(A) Member of the Audit Committee
(B) Member of the Compensation Committee
(C) Member of the Nominating and Governance Committee
MEETINGS AND COMMITTEES
The standing committees of the Board of Directors are the Audit Committee, the
Nominating and Governance Committee, and the Compensation Committee.
The Audit Committee assists the Board in fulfilling its oversight
responsibilities by reviewing the financial information that will be provided to
the shareholders and others, the systems of internal controls and disclosure
controls and procedures and the Company's financial reporting process that
management and the Board have established, and by endeavoring to maintain free
and open lines of communication among the Audit Committee, the Company's
independent auditors and management. It is not the duty of the Audit Committee
to plan or conduct audits or to prepare the Company's financial statements.
Management is responsible for preparing the Company's financial statements, and
has the primary responsibility for assuring their accuracy and completeness, and
the independent auditors are responsible for auditing those financial statements
and expressing their opinion as to their condition, results of operations and
cash flows. However, the Audit Committee does consult with management and the
Company's independent auditors prior to the presentation of financial statements
to shareholders and, as appropriate, initiates inquiries into various aspects of
the Company's financial statements to shareholders and, as appropriate,
initiates inquiries into various aspects of the Company's financial affairs. In
addition, the Audit Committee is currently responsible for considering and
approving the appointment of and approving all engagements of, and fee
arrangements with, the Company's independent auditors.
In 2000, the Board adopted a written Audit Committee Charter. It was amended in
2003, and a copy of the Audit Committee Charter is attached as Appendix A to
this proxy statement and is also on the Company's website at www.point360.com.
The Nominating and Governance Committee assists the Board in identifying
qualified individuals to become directors of the Company, selects the director
nominees for each annual meeting of shareholders (or recommends director
nominees for the Board's selection), oversees a periodic evaluation of the Board
and management, and will develop and recommend to the Board a set of corporate
governance principles.
The Compensation Committee reviews and provides recommendations to the Board of
Directors regarding executive compensation matters.
The Board of Directors has determined that each director other than the
Company's Chief Executive Officer, Haig S. Bagerdjian, is "independent" within
the meaning of Rule 4200(a)(15) of the Nasdaq Stock Market, Inc., and that each
member of the Audit Committee, the Nominating and Governance Committee and the
Compensation Committee is "independent" within the meaning of Rule 4200(a)(15).
During the fiscal year ended December 31, 2003, the Board of Directors held nine
meetings. The Audit and Compensation Committees each held four meetings during
the fiscal year ended December 31, 2003, either separately or in conjunction
with regular meetings of the Board of Directors. The Nominating and Governance
Committee was formed in March 2004. During 2003, each director attended at least
75% of the total number of meetings of the Board and of committees of the Board
on which he served during his respective term as a director.
DIRECTOR NOMINEE CRITERIA AND PROCESS
The Nominating and Governance Committee will consider shareholder nominations
for candidates for membership on the Board. In evaluating such nominations, the
Nominating and Governance Committee seeks to achieve a balance of knowledge,
experience and capability on the Board. Any shareholder nominations proposed for
consideration by the Nominating and Governance Committee should include the
nominee's name and qualifications for Board membership and should be addressed
to:
Corporate Secretary
Point.360
7083 Hollywood Blvd., Suite 200
Hollywood, CA 90028
The Nominating and Governance Committee believes that members of the Board
should have the highest professional and personal ethics and values. They should
have broad experience at the policy-making level in business, government,
education, technology or public interest. They should be committed to enhancing
shareholder value and should have sufficient time to carry out their duties and
to provide insight and practical wisdom based on experience. Each director must
represent the interests of all shareholders.
The Nominating and Governance Committee utilizes a variety of methods for
identifying and evaluating nominees for director. The Nominating and Governance
Committee will periodically assess the appropriate size of the Board and whether
any vacancies on the Board are expected due to retirement or otherwise. In the
event that vacancies are anticipated, or otherwise arise, the Nominating and
Governance Committee will consider various potential candidates for director.
Candidates may come to the attention of the Nominating and Governance Committee
through current Board members, professional search firms, shareholders or other
persons. These candidates will be evaluated at regular or special meetings of
the Nominating and Governance Committee, and may be considered at any point
during the year. As described above, the Nominating and Governance Committee
considers shareholder nominations for candidates for the Board. If any materials
are provided by a shareholder in connection with the nomination of a director
candidate, such materials will be forwarded to the Nominating and Governance
Committee. The Nominating and Governance Committee will also review materials
provided by professional search firms or other parties in connection with a
nominee who is not proposed by a shareholder.
All five of the director nominees identified in this proxy statement currently
serve as directors of the Company. Four of the five nominees were elected as
directors at our 2003 annual meeting of shareholders. The fifth nominee, G.
Samuel Oki, was appointed by the Board of Directors on February 24, 2004 upon
the recommendation of the Company's Chief Executive Officer.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Any shareholder who desires to communicate with the entire Board of Directors or
with specified directors should send a letter to the Company's Corporate
Secretary at the address listed above. All such letters will be sent to all
Board members or, if applicable, to the directors specified by the shareholder.
DIRECTORS' ATTENDANCE AT ANNUAL SHAREHOLDER MEETINGS
Directors are encouraged by the Board to attend annual meetings of the Company
shareholders. Mr. Bagerdjian attended the 2003 annual meeting of shareholders,
and all other current directors were available for consultation by phone at the
2003 annual meeting, except Mr. Oki, who was not a director on the date of the
2003 meeting.
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, 2004.
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 audit of the fiscal year ended December 31, 2001 and during
subsequent interim periods, there were 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 report of PwC dated February 25, 2002 on the consolidated financial
statements for the fiscal year ended December 31, 2001 did not contain an
adverse opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles, except that the report
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, 2002 and 2003 and the subsequent interim periods. 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 had not identify whether fully depreciated assets were still being
utilized. In addition, the Company utilized extensive spreadsheets to track
fixed assets and calculate depreciation, instead of an integrated fixed asset
system. As a result, according to PwC, the Company was unable to accurately
determine whether fixed assets recorded in its financial systems were 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.
The Company has taken steps to address the problems identified by PwC and has
completed a physical inventory of its fixed assets. We also 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 was 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 Audit Committee 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.
The Board of Directors has determined that Messrs. Baker, Oki and Bell
are independent (within the meaning of Rule 4200(a)(15) of the Nasdaq Stock
Market, Inc. and Section 10A(m)(3) of the Securities Exchange Act of 1934 and
applicable rules of the Securities and Exchange Commission). The Board has also
determined that Messrs. Baker, Bell and Oki are each an "audit committee
financial expert" under applicable Securities and Exchange Commission rules.
Mr. Hutchins, who was a member of the Audit Committee until December 31,
2003, is not an independent director under Section 10A(m)(3) of the Securities
Exchange Act of 1934 and applicable rules of the Securities and Exchange
Commission because the Company paid his accounting firm, Holthouse Carlin & Van
Trigt, fees of $46,360 during fiscal year 2003. However, the Board determined
that Mr. Hutchins' membership on the Audit Committee in 2003 was 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. As of February 24, 2004, in order to satisfy
the requirement of the Sarbanes-Oxley Act of 2002 that all audit committee
members must be independent, the Board elected Mr. Oki who is independent of the
Company, to replace Mr. Hutchins on the Audit Committee.
During fiscal year 2003, 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.
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 non-audit 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, 2003 filed with the SEC.
AUDIT COMMITTEE
Robert A. Baker
Sam P. Bell
G. Samuel Oki
CODE OF ETHICS
On July 3, 2003, the Company adopted a Code of Ethics (the "Code")
applicable to the Company's Chief Executive Officer, Chief Financial Officer and
all other employees. Among other provisions, the Code sets forth standards for
honest and ethical conduct, full and fair disclosure in public filings and
shareholder communications, compliance with laws, rules and regulations,
reporting of code violations and accountability for adherence to the Code. The
text of the Code has been posted on the Company's website (www.point360.com). A
copy of the Code can be obtained free-of-charge upon written request to:
Corporate Secretary
Point.360
7083 Hollywood Blvd., Suite 200
Hollywood, CA 90028
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors, director nominees and executive officers of the Company are as
follows:
NAME AGE POSITION
- ---- --- --------
Haig S. Bagerdjian 47 Chairman of the Board of Directors,
President and Chief Executive Officer
Alan R. Steel 59 Executive Vice President,
Finance and Administration,
Chief Financial Officer and Secretary
Robert A. Baker 65 Director
Greggory J. Hutchins 42 Director
Sam P. Bell 67 Director
G. Samuel Oki 53 Director
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 and
Chief Financial Officer of the Company 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 TCW
Convertible Securities Fund, Inc. and TCW Galileo Funds.
G. SAMUEL OKI has served as President of Meta Information Services, Inc., a
database and information management services enterprise, since 1982. Mr. Oki is
also active as an officer and board member of a number of closely held companies
in the electronic information management sector. Mr. Oki has a B.S. degree in
Horticulture from Colorado State University and an M.B.A. from the University of
Southern California. Each executive officer serves in office at the discretion
of the Board of Directors, subject to the terms of any employment agreement that
may be entered into with such officer.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company is paid a 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. 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 whose salary and bonus for the fiscal year
ended December 31, 2003 exceeded $100,000:
ANNUAL COMPENSATION (3)
LONG-TERM
COMPENSATION
AWARDS -
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS - # COMPENSATION
- --------------------------- ---- ------ ----- ----------- ------------
Haig S. Bagerdjian (1)(3) 2003 $278,000 $ 95,000 120,000 -
Chairman, President and 2002 139,000 145,000 100,000 -
Chief Executive Officer 2001 - 305,000 $ 6,000 (1)
-
Alan R. Steel(3) 2003 $190,000 $ 45,000 20,000 2,000 (2)
Executive Vice President, 2002 190,000 35,000 6,300 2,000 (2)
Finance and Administration, 2001 183,000 33,300 2,000 (2)
Chief Financial Officer,
and Secretary
(1) Haig S. 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, in 2001 Mr. Bagerdjian received an option to purchase
5,000 shares upon his reelection to the Board and $6,000 of director's
fees 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. In October 2002, Mr. Bagerdjian was appointed to the
positions of President and Chief Executive Officer. His salary was
increased to $300,000 per year on June 1, 2003.
(2) Amounts consist of annual contributions made to the Company's 401(k)
plan for the benefit of the named executive officer.
(3) In accordance with SEC regulations, this table does not include
perquisites and other personal benefits valued at the lesser of $50,000
or 10% of the total salary and bonus for the named executive officer.
SEVERANCE AGREEMENTS
Effective September 30, 2003, the Company entered into severance agreements with
Messrs. Bagerdjian and Steel. The agreements provide that if Mr. Bagerdjian or
Mr. Steel is terminated following a change in control during the term of the
agreements other than for cause, disability or without good reason (as defined),
then Mr. Bagerdjian and Mr. Steel shall receive a severance payment equal to
275% and 200%, respectively, of the sum of (i) base salary and (ii) the higher
of (x) the average bonus earned during the preceding three years or (y) the
target annual bonus for the year in which the termination occurs. If terminated
under the severance agreement, Mr. Bagerdjian and Mr. Steel would also receive
employee benefits for specified periods of time. Furthermore, previously granted
stock options shall vest fully. Under certain circumstances, amounts paid
pursuant to the severance agreements will be subject to a tax gross-up payment
if such amounts are subject to an excise tax as contemplated by Section 280G of
the Internal Revenue Code. For purposes of the severance agreements, a change of
control shall be deemed to have occurred if (i) a tender offer shall be made and
consummated for the ownership of 35% or more of the outstanding voting
securities of the Company, (ii) the Company shall be merged or consolidated with
another corporation and as result of such merger or consolidation less than 50%
of the outstanding voting securities of the surviving or resulting corporation
shall be owned in the aggregate by the former shareholders of the Company, other
than affiliates (within the meaning of the Exchange Act) of any party to such
merger or consolidation, as the same shall have existed immediately prior to
such merger or consolidation, (iii) the Company shall sell, lease, exchange or
transfer substantially all of its assets to another corporation, entity or
person which is not a wholly-owned subsidiary, (iv) a person (other than
Executive), as defined in Sections 13(d) and 14 (d) of the Exchange Act, shall
acquire 35% or more of the outstanding voting securities of the Company (whether
directly, indirectly, beneficially or of record, in a single transaction or a
series of related transactions by one person or more than one person acting in
concert), or (v) the shareholders of the Company approve a plan or proposal for
the liquidation or dissolution of the Company. The severance agreement for Mr.
Steel also provides that if the he 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 multiplied by a
fraction, the numerator of which is equal to the number of months remaining
until September 30, 2005, and the denominator is 24.
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.
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, 2003. 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 (2)
UNDERLYING EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------
NAME AND RELATIONSHIP OPTIONS GRANTED (1) FISCAL YEAR ($/SHARE) DATE 5% 10%
- --------------------- --------------- ----------- -------- ---- --- ---
Haig S. Bagerdjian, 120,000 28.4% $ 3.94 9/24/08 $ 130,000 $ 289,000
Chairman, President and
Chief Executive Officer
Alan R. Steel 20,000 4.7% $ 2.62 7/30/08 $ 14,000 $ 32,000
Finance and Administration,
Chief Financial Officer
and Secretary
(1) Options will become exercisable as follows: 25%, 50%, 75% and 100% each
of the first four anniversary dates of the grants, respectively. 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.
(2) 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.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-
END OPTION VALUES
No options were exercised during the year ended December 31, 2003 by the
Company's executive officers who are named in the Summary Compensation Table.
The following table shows the 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, 2003.
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2003 DECEMBER 31, 2003 (1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
Haig S. Bagerdjian 370,000 / 170,000 $1,055,000 / $201,000
Alan R. Steel 3,150 / 288,025 $7,000 / $335,000
(1) Amounts are shown as the difference between exercise price and fair
market value (based on a December 31, 2003 closing price of $4.48 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. In May 2001, the Board of
Directors reduced the number of shares available under the 2000 Plan to
1,500,000.
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.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information regarding the securities authorized
for issuance under our equity compensation plans as of December 31, 2003:
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) 1,236,478 $ 2.60 1,924,120
Equity compensation plans
not approved by
shareholders (2) 814,200 $ 3.38 674,550
- -------------------------
(1) The only plan in this category is the 1996 Stock Incentive Plan.
(2) The only plan in this category is the 2000 Nonqualified Stock Option
Plan.
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 2003, the Company had a Compensation
Committee of the Board of Directors (the "Committee") consisting of directors
Robert A. Baker, Sam P. Bell and Greggory J. Hutchins. The Committee determines
the compensation of the executive officers of the Company, including the
compensation 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 shareholders.
In the last six 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 $300,000 base annual salary and has been granted stock
options. The Committee believes 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
COMPARATIVE STOCK PERFORMANCE
The chart below sets forth a line graph comparing the year-end 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, 1999 and ending
December 31, 2003. The graph assumes that $100 was invested on January 1, 1999
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.
[OBJECT OMITTED]
ANNUAL RETURN PERCENTAGE
YEARS ENDING
COMPANY NAME / INDEX 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
-------- -------- -------- -------- --------
Point.360 45% (73%) (64%) 35% 148%
NASDAQ Index 76% (37%) (20%) (30%) 50%
Peer Group 145% (52%) 3% (36%) 33%
INDEXED RETURNS
YEARS ENDING
BASE
PERIOD
COMPANY NAME / INDEX 01/01/99 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
-------- -------- -------- -------- -------- --------
Point.360 $100.00 $144.74 $ 39.80 $ 14.21 $ 19.25 $ 47.16
NASDAQ Index 100.00 176.37 110.86 88.37 61.64 92.68
Peer Group 100.00 245.39 116.92 120.48 77.01 102.58
PEER GROUP COMPANIES
Digital Generation Systems, Inc.
Liberty Media, Inc. ("Liberty") (for years prior to 2003, the peer company was
Ascent Media Group, Inc. - CLA), which was acquired by Liberty in 2003
CERTAIN TRANSACTIONS
During the year ended December 31, 2003, the Company paid $46,360 to Holthouse
Carlin & Van Trigt LLP ("HCV") for preparation of tax returns and other tax
related services. Mr. Hutchins is a partner in HCVT.
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, 2004, 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 2,027,719 370,000 2,397,719 25%
Julia Stefanko 1,734,668 - 1,734,668 19%
Robert A. Baker 6,500 30,000 26,500 *
Greggory J. Hutchins 10,000 30,000 30,000 *
Sam P. Bell - 10,000 - *
G. Samuel Oki 1,800 - 1,800 *
Alan R. Steel 19,000 3,150 22,150 *
All directors and
executive officers
as a group 2,065,019 433,150 2,508,169 26%
*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 15, 2004 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.
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, 2003 with the reporting
requirements of Section 16(a) of the Exchange Act.
PRINCIPAL ACCOUNTING FIRM'S FEES AND SERVICES
Singer Lewak Greenbaum & Goldstein LLP ("Singer Lewak") examined, as independent
auditors, the financial statements of the Company for the years ended December
31, 2002 and 2003. PricewaterhouseCoopersLLP ("PwC") reviewed, as independent
auditors, the Company's Form 10-K for the year ended December 31, 2003 solely
for purposes of including its opinion and consent with respect to its audit of
the financial statements for the year ended December 31, 2001.
The following table shows the fees billed to us by Singer Lewak for the audit
and other services rendered by Singer Lewak during fiscal 2003 and 2002. The
Audit Committee has determined that the non-audit services rendered by Singer
Lewak were compatible with maintaining Singer Lewak's independence.
2003 2002
==== ====
Audit Fees (1) .................. $84,595 $77,400
All Other Fees (2)............... 9,293 16,200
------- -------
Total............................ $93,888 $93,600
======= =======
----------------------------
(1) Audit fees represent fees for professional services provided in
connection with the audit of our financial statements and review of our
quarterly financial statements and audit services provided in connection
with other statutory or regulatory filings.
(2) Audit-related fees consisted primarily of accounting consultations, and
services rendered in connection with a proposed acquisition.
All audit related and other services rendered by Singer Lewak were pre-approved
by the Audit Committee. The Audit Committee has adopted a pre-approval policy
that provides for the pre-approval of all services performed for us by Singer
Lewak. The policy authorizes the Audit Committee to delegate to one or more of
its members pre-approval authority with respect to permitted services. Pursuant
to this policy, the Board delegated such authority to the Chairman of the Audit
Committee. All pre-approval decisions must be reported to the Audit Committee at
its next meeting if not approved in conjunction with an Audit Committee Meeting.
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 December 5, 2004 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 2005 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 9,
2005 and advises shareholders in the 2005 proxy statement about the nature of
the matter and how the proxy holders intend to vote or (2) does not receive
notice of the proposal before February 9, 2005. Notices of intention to present
proposals directly at the 2005 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, 2003, 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,
April 2, 2004 Finance and Administration
APPENDIX A
POINT.360
AUDIT COMMITTEE CHARTER
This Charter was adopted at a meeting of the Board of Directors held on
July 30, 2003. All of the provisions of this Charter became effective upon
adoption. This Charter shall be reviewed as necessary for adequacy by the Audit
Committee and the Board of Directors but no less frequently than annually.
I. PURPOSE
The principal purpose of the Audit Committee is to oversee the integrity
of the Company's accounting and financial reporting processes and the audits of
the Company's financial statements. In particular, the Audit Committee shall
monitor (a) the integrity of the Company's financial statements, (b) the
Company's compliance with legal and regulatory requirements, (c) the
qualifications, independence and performance of the Company's independent
auditors, and (d) the performance of the Company's internal audit function. The
Audit Committee shall also prepare the report required by the Securities and
Exchange Commission (the "Commission") to be included in the Company's annual
proxy statement.
The Company's independent auditors are ultimately accountable to the
Audit Committee in its capacity as a committee of the Company's Board of
Directors (the "Board"), and the independent auditors shall report directly to
the Audit Committee. The Audit Committee shall have sole and direct authority
and responsibility to select, hire, oversee, evaluate, approve the compensation
of, and, where appropriate, replace the Company's independent auditors (subject,
if applicable, to stockholder ratification of the selection of the independent
auditors).
In discharging its oversight role, the Audit Committee is granted the
power to investigate any matter brought to its attention with full access to all
books, records, facilities and personnel of the Company and the power to retain
and determine funding for, at the Company's expense, independent legal counsel,
additional independent auditors or other experts and advisors for this purpose.
The Company shall provide the Audit Committee with appropriate funding to
perform its duties, including payment of the Company's independent auditors and
any experts or advisors retained by the Audit Committee.
II. MEETINGS
The Audit Committee shall meet as often as it deems necessary or
advisable, but not less frequently than quarterly. The Audit Committee shall
meet periodically with the Company's management and its independent auditors in
separate or joint sessions as deemed appropriate by the Audit Committee. The
Audit Committee may request any officer or employee of the Company or the
Company's outside counsel or independent auditors to attend any meeting of the
Audit Committee or to meet with any members of, or consultants to, the Audit
Committee.
III. MEMBERSHIP
The Audit Committee shall be appointed by the Board and shall be
comprised of not fewer than three members of the Company's Board, each of whom
shall meet the independence and other requirements of the Nasdaq National
Market, the Securities Exchange Act of 1934 (the "Exchange Act"), the rules and
regulations of the Commission regarding audit committees, and the rules and
regulations of any other relevant body, including those regarding independence
and experience. All members of the Audit Committee shall be able to read and
understand fundamental financial statements. At least one member of the Audit
Committee shall be an audit committee financial expert as defined by the
Commission, and at least one member of the Audit Committee shall satisfy any
applicable financial sophistication or financial expert requirements of the
Nasdaq National Market.
IV. KEY FUNCTIONS AND RESPONSIBILITIES
The following functions shall be the common recurring activities of the
Audit Committee in carrying out its duties. The functions and responsibilities
are set forth as a guide and may be varied from time to time by the Audit
Committee as appropriate under the circumstances.
The Audit Committee, to the extent it deems necessary or appropriate, shall:
FINANCIAL STATEMENT AND DISCLOSURE MATTERS
1. Review and discuss with management and the Company's independent
auditors the Company's annual audited financial statements, including
disclosures made in management's discussion and analysis, and recommend to the
Board whether the audited financial statements should be included in the
Company's Form 10-K.
2. Review and discuss with management and the Company's independent
auditors the Company's quarterly financial statements prior to the filing of its
Form 10-Q, including the results of the independent auditors' review of the
quarterly financial statements.
3. Discuss with management and the Company's independent auditors
significant financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements, including any significant
changes in the Company's selection or application of accounting principles, the
quality and adequacy of the Company's internal controls and any special steps
adopted in light of material deficiencies in such controls.
4. Review and discuss quarterly reports from the independent auditors
on: (a) all critical accounting policies and practices to be used; (b) all
alternative treatments of financial information within generally accepted
accounting principles that have been discussed with management, ramifications of
the use of such alternative disclosures and treatments and the treatment
preferred by the independent auditors; (c) other material written communications
between the independent auditors and management, such as any management letter
or schedule of unadjusted differences; and (d) conformance with auditing
standards.
5. Discuss with management the Company's earnings press releases,
including the use of "pro forma" or "adjusted" non-GAAP information, as well as
financial information and earnings guidance provided to analysts and rating
agencies.
6. Discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management policies, and
discuss with management any off-balance sheet transactions, arrangements or
obligations in which the Company has an interest.
7. Review disclosures made to the Audit Committee by the Company's CEO
and CFO during their certification and disclosure process for reports on Form
10-K and Form 10-Q about any significant deficiencies in the design or operation
of internal controls or material weaknesses therein and any fraud involving
management or other employees who have a significant role in the Company's
internal controls.
OVERSIGHT OF THE COMPANY'S RELATIONSHIP WITH THE INDEPENDENT AUDITORS
8. Pre-approve all auditing services, including the annual audit plan,
and permitted non-audit services (including the fees and terms thereof) to be
performed for the Company or for the Audit Committee or Board by the Company's
independent auditors; provided that, to the extent permitted by Commission
regulations, (a) the Audit Committee may delegate such pre-approval authority to
a subcommittee of the Audit Committee that promptly reports all such approvals
to the full Audit Committee, and (b) the Audit Committee may adopt pre-approval
policies and procedures regarding the services to be rendered by the independent
auditors.
9. Meet with the independent auditors prior to the audit to discuss the
planning and staffing of the audit. Discuss with the Company's independent
auditors significant matters relating to the conduct of audits and attestation
reports on management's assessment of internal control over financial reporting,
including any difficulties encountered in the course of audit work, any
restrictions on the scope of activities or access to requested information, any
significant disagreements with management and the adequacy of the Company's
internal control over financial reporting and disclosure controls and
procedures. Discuss with the independent auditors matters relating to the report
of the Audit Committee that is required by Commission rules to be included in
the Company's annual proxy statement. The Audit Committee shall be responsible
for resolving any disagreements between management and the independent auditors.
10. Obtain from the Company's independent auditors annually a formal
written statement delineating all relationships between the independent auditors
and the Company; discuss with the independent auditors any such disclosed
relationships and their impact on the independent auditors' independence; and
take or recommend that the Board take appropriate action regarding the
independence of the independent auditors. Ensure the rotation of the audit
partners as required by law, and monitor the Company's hiring of employees or
former employees of the independent auditors to ensure compliance with
applicable law.
11. Obtain and review an annual report by the Company's independent
auditors describing the firm's internal quality-control procedures and any
material issues raised by the most recent internal quality-control review, or
peer review of the firm, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years, respecting one or
more independent audits carried out by the firm, and any steps taken to deal
with any issues.
12. Evaluate the qualifications, performance and independence of the
Company's independent auditors, including considering whether the independent
auditors' quality controls are adequate and the provision of permitted non-audit
services is compatible with maintaining the independent auditors' independence.
The Audit Committee shall present its conclusions with respect to the
independent auditors to the Board at least once each year.
COMPLIANCE OVERSIGHT RESPONSIBILITIES
13. At the conclusion of each audit, obtain from the Company's
independent auditors assurance that the firm is not required to report to the
Company under Section 10A(b) of the Exchange Act any illegal act.
14. Approve or reject proposed related party transactions. Obtain
reports from management that the Company and its employees are in compliance
with applicable legal requirements and the Company's Code of Conduct.
15. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing matters.
16. Discuss with management and the Company's independent auditors any
correspondence with regulators or governmental agencies and any published
reports that raise material issues regarding the Company's financial statements
or accounting policies.
17. Discuss with the Company's General Counsel and outside counsel any
legal matters that may have a material impact on the financial statements or the
Company's compliance policies.
OTHER
18. Report regularly to the Board.
19. Perform any other activities consistent with this Charter, the
Company's Bylaws, Nasdaq rules and governing law and regulations as the Audit
Committee deems necessary or appropriate.
20. Maintain minutes of meetings and periodically report to the Board on
significant results of the foregoing activities.
21. Discuss with management and the Board policies with respect to risk
assessment and risk management, and review and discuss with management, the
Board and the Company's independent auditors any annual reports by management on
the Company's internal control over financial reporting that are required by
Commission rules and any related attestation reports that are required from the
independent auditors pursuant to Commission rules.
V. LIMITATION OF AUDIT COMMITTEE'S ROLE
The Audit Committee's role is one of oversight. While the Audit
Committee has the responsibilities and powers set forth in this Charter, it is
not the duty of the Audit Committee to plan or conduct audits or to determine
that the Company's financial statements and disclosures are complete and
accurate and are in accordance with generally accepted accounting principles and
applicable rules and regulations. These are the responsibilities of management
and the Company's independent auditors.
APPENDIX B
POINT.360
NOMINATING AND GOVERNANCE COMMITTEE CHARTER
A. PURPOSE OF THE COMMITTEE
The Nominating and Governance Committee (the "Committee") is a committee
of the Board of Directors (the "Board") of Point.360 (the "Company"). The
purpose of the Committee is to (1) identify individuals who are qualified to
become members of the Board, consistent with criteria approved by the Board, (2)
select, or recommend for the Board's selection, the director nominees for each
annual meeting of shareholders, (3) develop and recommend to the Board a set of
corporate governance principles applicable to the Company, (4) oversee the
annual evaluation of the Board and Company management, and (5) perform such
other actions within the scope of this Charter as the Committee deems necessary
or advisable.
B. COMMITTEE MEMBERSHIP
The Board shall determine the size of the Committee, provided that the
Committee shall consist of at least three members. The Board shall select the
members of the Committee, and the Board shall have the right and power to remove
and replace Committee members at any time and from time to time. Unless the
Board selects a Chairperson, the members of the Committee may designate a
Chairperson by majority vote.
Each member of the Committee shall be a director of the Company who
satisfies any and all applicable independence requirements of the rules and
regulations of the Nasdaq Stock Market, Inc. ("Nasdaq") and of the Securities
and Exchange Commission. However, as permitted by Nasdaq's "exceptional and
limited circumstances" rule, the Board has discretion to appoint one Committee
member who is not independent under Nasdaq's rules and regulations so long as
such director (1) is not an officer or employee of the Company, (2) does not
serve as the Chairperson of the Committee, and (3) does not serve on the
Committee for more than two years.
C. MEETINGS OF THE COMMITTEE
The Committee shall meet as often as it determines is necessary or
appropriate. The provisions of the Company's Bylaws that govern the conduct of
Board committees shall govern the Committee. The Committee may adopt other
procedural rules that are not inconsistent with the Bylaws.
D. AUTHORITY AND RESPONSIBILITIES OF THE COMMITTEE
The Committee shall:
1. Evaluate the size and composition of the Board, develop criteria for
Board membership, and evaluate the independence of existing and prospective
directors.
2. Seek and evaluate qualified individuals to become new directors as
needed. Establish procedures to review and recommend to the Board potential
director nominees proposed by shareholders, and evaluate whether current Board
members should be nominated for re-election.
3. Select, or recommend for the Board's selection, the director nominees
for each annual meeting of shareholders and director nominees to fill vacancies
on the Board.
4. Evaluate the nature, structure and operations of other Board
committees. Make recommendations to the Board as to the qualifications of
members of the Board's committees, committee member appointment and removal, and
committee reporting to the Board.
5. Develop and recommend to the Board a set of corporate governance
principles applicable to the Company. Monitor and reassess from time to time
these corporate governance principles.
6. Take such actions as the Committee deems necessary or appropriate
with respect to oversight of the annual evaluation of the Board and management.
7. Annually review the Committee's own performance. Annually review the
adequacy of this Charter, and recommend any proposed changes to the Board for
approval.
8. Have the authority, to the extent the Committee deems necessary or
appropriate, (a) to retain at the Company's expense independent advisers to the
Committee, and (b) to conduct investigations into any matters that are within
the scope of the Committee's responsibilities.
9. Have the authority, in the Committee's discretion, to decide whether
to retain at the Company's expense a search firm to assist the Committee in
identifying, screening and attracting director candidates.
10. Discuss with the Company's counsel legal matters that may have a
material impact on the Committee's responsibilities described in this Charter.
Have unrestricted access to the Company's independent accountants, counsel,
officers and employees for purposes related to the Committee's activities under
this Charter.
11. Provide regular reports to the Board regarding the Committee's
activities, recommendations and decisions.
12. Perform such other activities that are consistent with this Charter,
the Company's Bylaws, applicable law and Board directives as the Committee
determines are required or appropriate in order to carry out its
responsibilities.