SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, For Use of the
/ / Definitive Proxy Statement Commission Only (as permitted
/ / Definitive Additional Materials by Rule 14a-6(e)(2))
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
VDI MEDIA
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which
transaction applies:
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2) Aggregate number of securities to which
transaction applies:
--------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
----------------------
5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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VDI MEDIA
6920 SUNSET BOULEVARD
HOLLYWOOD, CALIFORNIA 90028
-----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE [30], 1999
-----------------
To the Shareholders of VDI Media:
The Annual Meeting of Shareholders of VDI Media (the "Company") will be
held at the Roosevelt Hotel, 7000 Hollywood Boulevard, Hollywood, California on
June [30],1999 at 12:00 p.m., local time, to consider and vote upon the
following matters:
1. The election of directors;
2. An amendment to the Company's Restated Articles of Incorporation to
change the name of the Company to VDI MultiMedia;
3. An amendment to the Company's 1996 Stock Incentive Plan;
4. The approval of the appointment of Price Waterhouse LLP as the
Company's independent accountants for the fiscal year ending December
31, 1999; and
5. Such other business as may properly come before the meeting or any
adjournment(s) 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 attached
Proxy Statement, accompanying this Notice.
The Board has fixed May 21, 1999 as the record date for determination of
shareholders entitled to notice of and to vote at the Annual Meeting.
Accordingly, only those shareholders of record at the close of business on that
date are entitled to notice of and to vote at the Annual Meeting or any
adjournment(s) thereof.
The Board urges that all shareholders of record exercise their right to
vote at the meeting personally or by proxy.
By Order of the Board of Directors
R. Luke Stefanko
Chairman of the Board and Chief Executive Officer
June [17], 1999
Whether or not you expect to be present at the meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed postage
paid envelope. Your proxy can be withdrawn at any time before it is voted.
VDI MEDIA
6920 SUNSET BOULEVARD
HOLLYWOOD, CALIFORNIA 90028
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PROXY STATEMENT
-----------------
This Proxy Statement is furnished to shareholders in connection with the
solicitation by the Board of Directors (the "Board") of VDI Media, a California
corporation (the "Company"), of proxies for use at the Annual Meeting of
Shareholders of the Company to be held at the Roosevelt Hotel, 7000 Hollywood
Boulevard, Hollywood, California, on June [30], 1999, at 12:00 p.m., local time,
and any postponement(s) and adjournment(s) thereof (the "Annual Meeting"). The
Company's principal executive offices are located at 6920 Sunset Boulevard,
Hollywood, California, and its telephone number is (213) 957-5500. This Proxy
Statement, Notice of Annual Meeting and the accompanying proxy card(s) and
Annual Report to Shareholders are being first mailed to shareholders on or about
June [17], 1999.
VOTING OF PROXIES. The proxy will be voted in accordance with the
instructions therein. In the absence of such instructions, the persons
designated as proxies in the accompanying proxy card(s) will vote: for the
election of the director nominees listed in the Proxy Statement (the
"Nominees"), for the amendment to the Company's Restated Articles of
Incorporation, for the amendment to the Company's 1996 Stock Incentive Plan
described in the Proxy Statement, for the approval of the appointment of Price
Waterhouse LLP as the Company's independent accountants for the fiscal year
ending December 31, 1999 and in their discretion as to any other business that
may properly come before the Annual Meeting. The Board does not know of any
other business to be brought before the Annual Meeting.
Each shareholder giving a proxy has the power to revoke it at any time
before the shares it represents are voted. Such revocation may be effected by a
writing delivered to the Company to the attention of the Corporate Secretary (i)
stating that the proxy is revoked, (ii) by a subsequent proxy executed by the
person executing the prior proxy and presented at the Annual Meeting, or (iii)
by attendance at the Annual Meeting and voting in person. The dates contained on
the forms of proxy presumptively determine the order of execution, regardless of
the postmark dates on the envelopes in which they are mailed.
Shareholders who own shares registered in different names or at different
addresses will receive more than one proxy card. A shareholder must sign and
return each of the proxy cards received to ensure that all of the shares owned
by such shareholder are represented at the Annual Meeting.
PROXY COSTS. The Company will bear the costs of soliciting proxies. The
Company may use the services of its directors, officers and other regular
employees to solicit proxies personally or telephonically. Such directors,
officers and employees will not receive additional compensation for such
solicitation but may be reimbursed for reasonable out-of-pocket expenses
incurred in connection with their services.
RECORD DATE AND OUTSTANDING SHARES. The Board has fixed May 21, 1999 as
the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at the Annual Meeting. At the end of business
on the Record Date, 9,203,394 shares of the Company's common stock, no par value
(the "Common Stock"), were outstanding and entitled to vote at the Annual
Meeting. The Common Stock is the only class of stock of the Company entitled to
vote at the Annual Meeting.
QUORUM AND REQUIRED VOTE. The referenced quorum for the transaction of
business at the Annual Meeting will be a majority of the shares of Common Stock
entitled to vote at the Annual Meeting. Each
share of Common Stock entitles the holder thereof to one vote on each matter to
be voted on at the Annual Meeting. With respect to the election of directors,
the five Nominees receiving the highest number of affirmative votes will be
elected. Shareholders will not be allowed to cumulate their votes in the
election of directors. Abstentions and broker non-votes (which occur if a
broker or other nominee does not have discretionary authority and has not
received voting instructions from the beneficial owner with respect to the
particular item) are counted for purposes of determining the presence or absence
of a quorum for the transaction of business. The affirmative vote of a majority
of the shares of Common Stock outstanding on the Record Date will be necessary
for the approval of the remaining matters to be voted upon. Abstentions are
counted in tabulations of the votes cast on proposals presented to the
shareholders and have the same legal effect as a vote against a particular
proposal. Broker non-votes are not taken into account for purposes of
determining whether a proposal has been approved by the requisite shareholder
vote.
Shareholders do not have dissenters' rights of appraisal under California
law with respect to any of the matters to be acted upon at the Annual Meeting.
The holders in excess of a majority of the outstanding shares of Common
Stock on the Record Date have notified the Company that they intend to vote
their shares at the Annual Meeting in favor of all of the matters set forth
above.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
In accordance with the Bylaws of the Company, the Board consists of five
directors. The Board proposes the election of the following nominees (the
"Nominees") as members of the Board. All Nominees have consented to being named
herein and have indicated their intention to serve as directors of the Company,
if elected. If elected, the Nominees are expected to serve until the Annual
Meeting for the year ending December 31, 1999 or until their successors are duly
elected and qualified.
R. Luke Stefanko
Donald R. Stine
Thomas J. Ennis
Robert S. Feuerman
Fred S. Teng
Unless otherwise marked, proxies received will be voted "FOR" the election
of each of the Nominees named above. If such person is unable or unwilling to
serve as a Nominee for the office of director at the date of the Annual Meeting,
the proxies may be voted for a substitute nominee, designated by the proxy
holders or by the present Board to fill such vacancy. The Board has no reason to
believe that any such Nominee will be unwilling or unable to serve if elected a
director.
NOMINEES
The names of the Nominees for the position of director, together with
certain information concerning such nominees, are set forth below:
2
DIRECTOR
NAME AGE SINCE POSITION
---- --- -------- --------
R. Luke Stefanko . . . . . . 38 1990 Chairman of the Board,
Chief Executive Officer,
and Director
Donald R. Stine* . . . . . . 37 1996 President, Secretary and
Director
Thomas J. Ennis . . . . . . . 40 1996 Vice President of Sales
and Marketing and Director
Robert S. Feuerman*+ . . . . 34 Nominee Director Nominee
Fred S. Teng*+ . . . . . . . 45 Nominee Director Nominee
* Member or member-elect of the Audit Committee
+ Member or member-elect of the Compensation Committee
R. LUKE STEFANKO has been Chief Executive Officer and a director since he
co-founded the Company in 1990. Mr. Stefanko was elected to the newly created
position of Chairman of the Board in May 1996 and was President of the Company
from April 1996 to April 1999. Mr. Stefanko has more than 18 years of experience
in the videotape duplication and distribution industry, including serving as a
director and Vice President/Operations of A.M.E., Inc. ("AME"), a video
duplication company, from 1979 to January 4, 1990. Mr. Stefanko is Mr. Stine's
brother-in-law.
DONALD R. STINE is the President and Secretary of the Company. From 1994
to 1999, he was the Company's Chief Financial Officer; Mr. Stine became a
director in May 1996. Mr. Stine was a Director of Finance for The Walt Disney
Company from 1988 to 1994. Mr. Stine is a director of Sight Effects, Inc., a
special effects and computer animation company based in Santa Monica,
California. Mr Stine is a general partner and managing director of Cahill
Venture Capital, LLC, a venture capital fund company and is chairman of the
board of directors of Industry Aspect, LLC, a technology consulting firm
based in San Francisco, California. Mr. Stine is Mr. Stefanko's
brother-in-law.
THOMAS J. ENNIS joined the Company as a consultant in August 1995 and has
been Vice President of Sales and Marketing since March 1996 and a director since
May 1996. Prior to joining the Company, Mr. Ennis served as Vice President of
Sales and Infornercial Services at Starcom Television Services from 1990 to
1995.
FRED S. TENG directs marketing communications at AT&T Corp., one of the
world's leading communications companies. He has been at AT&T since March
1993 and is responsible for the development and implementation of
international marketing communications programs and services. Prior to his
current position, Mr. Teng was AT&T's national public relations director for
its Asian Markets. Prior to joining AT&T, Mr. Teng was a financial advisor at
Merrill Lynch Corporation and Oppenheimer & Company. Currently, he is a
member of the board of the National Asian Pacific Center on Aging and a
member of the National Committee on U.S.-China Relations.
[Rider A to come]
ROBERT S. FEUERMAN is the President of Industry Aspects, LLC, a
technology consulting firm in San Francisco, California, which he joined in
January 1999. Mr. Feuerman was Vice President of Cambridge Tech Partners, a
management and technology consulting company from 1995 to January 1999. He
was also Vice President of Reverse Logic Corp., also a management and
technology consulting company from 1994 to 1995. Prior to 1994, Mr. Feuerman
worked at The Walt Disney Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE ELECTION OF ALL OF THE NOMINEES.
3
DIRECTORS' REMUNERATION
Each director who is not an employee of the Company is paid a fee of $1,000
for each meeting of the Board attended. Members of the Board who are not
employees of the Company receive options to purchase 15,000 shares of Common
Stock upon election or re-election. These options vest in 33% increments over
the three year period following the date of grant, with certain exceptions.
Directors are reimbursed for travel and other reasonable expenses relating to
meetings of the Board.
COMMITTEES OF THE BOARD OF DIRECTORS
During the year ended December 31, 1998, the Board held three meetings.
The Board has three standing committees, the Audit Committee, the
Compensation Committee and the Nominating Committee.
The Audit Committee, which did not meet during the year ended December 31,
1998, consisted of Edward Philip, Steven Schoch and Donald Stine. The Audit
Committee's responsibilities include reviewing (i) the scope and findings of the
annual audit, (ii) accounting policies and procedures of the Company's financial
reporting and (iii) the internal controls employed by the Company.
The Compensation Committee, which held one meeting during the year ended
December 31, 1998, consisted of Edward Philip and Steven Schoch (directors of
the Company who are not standing for re-election at the Annual Meeting) and
Donald Stine. The Compensation Committee's responsibilities include (i) making
recommendations to the Board on salaries, bonuses and other forms of
compensation for the Company's officers and other key management and executive
employees, (ii) administering the Company's 1996 Incentive Stock Option Plan and
(iii) reviewing management recommendations for grants of stock options and any
proposed plans or practices of the Company relating to compensation of its
employees and directors.
The Nominating Committee was formed in 1999 and consists of R. Luke
Stefanko and Donald R. Stine. The Nominating Committee's responsibilities
include matters relating to shareholder meetings such as (i) selecting nominees
to the Board, and (ii) setting the date, place and time of such meetings.
MEETINGS
Each director attended at least 75 percent of all meetings of the Board and
any committees of the Board to which he was assigned that were held during the
year ended December 31, 1998, except that Steven Schoch (a Director who has
decided not to stand for re-election) was unable to attend one Board meeting.
4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of the Record Date concerning
the beneficial ownership of the Common Stock by (i) each person who is known by
the Company to be a beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each of the Company's current directors and
nominees, (iii) each of the Chief Executive Officer and the four other most
highly compensated officers of the Company who served in such capacities during
1998 (the "Named Executives") and (iv) and all current directors and executive
officers as a group. The address of each beneficial owner listed below except
for Massachusetts Financial Service Company, is 6920 Sunset Boulevard,
Hollywood, California, 90028
Common Percent of
Stock Common
Beneficially Stock
Owned (1) Beneficially
Owned
------------------- ---------------
R. Luke Stefanko . . . . . . . . . . . . 5,311,400 57.4%
Massachusetts Financial Services Company 630,452(2) 6.5%
Donald R. Stine. . . . . . . . . . . . . 49,044 *
Thomas J. Ennis. . . . . . . . . . . . . 2,500 *
Edward M. Philip . . . . . . . . . . . . 5,000 *
Steven J. Schoch . . . . . . . . . . . . 5,000 *
Clarke W. Brewer . . . . . . . . . . . . 8,000 *
Robert C. Semmer . . . . . . . . . . . . 1,750 *
Robert S. Feuerman . . . . . . . . . . . 4,000 *
Fred S. Teng . . . . . . . . . . . . . . 0 0
All directors and executive officers as a
group. . . . . . . . . . . . . . . . . . 5,382,694 55%
(7 persons). . . . . . . . . . . . . . .
(1) Includes shares of Common Stock that can be acquired by exercise of vested
and exercisable stock options within 60 days of the Record Date, as
follows: Mr. Stefanko - 55,000 shares; Mr. Stine 0 shares; Mr. Ennis - 0
shares; Mr. Schoch - 5,000; Mr. Philip - 5,000 shares; Mr. Brewer - 5,000
shares; Mr. Semmer - 0 shares. Excludes 179,000, 429,000, 17,500, 5,000,
5,000, 35,000, and 50,424 shares of Common Stock issuable upon exercise of
outstanding stock options which have not vested or are not exercisable and
which will not vest or which will not be exercisable within 60 days of the
Record Date in favor of Messrs. Stefanko, Stine, Ennis, Philip, Schoch,
Brewer, and Semmer respectively. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, options held by that person that are currently exercisable or
exercisable within 60 days of the Record Date are deemed outstanding.
Such shares, however, are not deemed outstanding for the purposes of
computing the percentage ownership of each other person.
(2) As reported on Schedule 13G/A filed with the Securities and Exchange
Commission on February 11, 1999 (the "MFS 13G/A") by Massachusetts
Financial Services Company ("MFS"). According to the MFS 13G/A, MFS has
sole voting power with respect to 621,552 shares of Common Stock
5
and sole dispositive power with respect to all 630,452 shares which are
also beneficially owned by certain other non-reporting entities. MFS is
located at 500 Boylston Street, Boston, Massachusetts 02116.
* Less than 1%.
EXECUTIVE OFFICERS
The names and ages of all executive officers of the Company as of the
Record Date are set forth below:
NAME AGE POSITION
---- --- -------------------------------------
R. Luke Stefanko 38 Chief Executive Officer
Donald R. Stine 37 President and Secretary
Clarke W. Brewer 31 Chief Financial Officer
Thomas J. Ennis 40 Vice President of Sales and Marketing
Robert C. Semmer 38 Senior Vice President of Operations
The following sets forth the business experience, principal occupations and
employment of each of the Named Executives who do not serve on the Board. See
"Election of Directors-Nominees" above for such information with respect to
Messrs. Stefanko, Stine and Ennis.
CLARKE W. BREWER joined the Company in August 1997 as the Corporate
Controller and was promoted to Chief Financial Officer in February 1999.
Prior to joining the Company, Mr. Brewer worked at The Walt Disney Company
from 1993 to 1997 in various finance and accounting positions. From 1990 to
1993, Mr. Brewer worked at KPMG Peat Marwick as a Certified Public Accountant.
ROBERT C. SEMMER has worked in various positions at the Company since
1994 and is currently Senior Vice President of Operations. Prior to joining
the Company, Mr. Semmer was Senior Vice President of Sales and Customer
Service at Mediatech.
6
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation, including bonuses
and deferred compensation, paid for the years ended December 31, 1998, 1997
and 1996 by the Company to (i) its Chief Executive Officer and (ii) each of the
Company's four other most highly compensated individuals who were serving as
officers on December 31, 1998 and whose salary plus bonus exceeded $100,000 for
such year (the persons described in (i) and (ii) above, the "Named Executives").
No bonuses or long term compensation awards were granted to any of the Named
Executives for the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($)
- --------------------------- ---- --------- ---------------
R. Luke Stefanko, Chief Executive Officer. . . 1998 $222,000
1997 273,000 $1,170,000(1)
1996 273,000 848,790(1)
Donald R. Stine, then Chief Financial Officer. 1998 $79,000
1997 120,000 151,615(2)
1996 120,000 34,200(2)
Thomas J. Ennis, Vice President of Sales and 1998 $98,000 $25,000(3)
Marketing. . . . . . . . . . . . . . . . . . . 1997 100,000 25,000(3)
1996 100,000 25,000(3)
Clarke W. Brewer, then Corporate Controller. . 1998 $66,000 $2,000(4)
1997 13,800 0
Robert C. Semmer, Senior Vice President of 1998 $162,000 $0
Operations . . . . . . . . . . . . . . . . . . 1997 200,000 0
1996 200,000 0
- ----------------------
(1) Includes $1,168,596 and $847,386 paid by the Company to federal and state
taxing authorities in 1997 and 1996 , respectively, on behalf of Mr.
Stefanko to satisfy federal and state taxes owed by Mr. Stefanko by virtue
of the Company's status as a Subchapter S Corporation (prior to February
1997) for federal and state tax purposes. Also includes $1,404 in premiums
paid by the Company in each of 1998, 1997 and 1996 on a life insurance
policy for the benefit of Mr. Stefanko.
7
(2) Represents payments by the Company to federal and state taxing authorities
on behalf of Mr. Stine to satisfy federal and state taxes owed by Mr. Stine
by virtue of the Company's status as a Subchapter S Corporation (prior to
February 1997) for federal and state tax purposes.
(3) Represents an annual bonus of $25,000 paid by the Company to Mr. Ennis as
provided for in his employment agreement.
(4) Represents an annual bonus of $2,000 paid by the Company.
OPTION GRANTS IN LAST FISCAL YEAR
During 1998 no stock option or stock appreciation rights ("SARs") were
awarded by the Company. The following table sets forth information on the Named
Executives' option exercises and unexercised options at December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
VALUE OF
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
AT FISCAL YEAR END(#) YEAR END($)(1)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
ON EXERCISE UNEXERCISABLE UNEXERCISABLE
NAME
---- ------------------ ------------------------- ----------------------
R. Luke Stefanko . . . . . . . 50,000 55,000/0 $137,500/0
Donald R. Stine. . . . . . . . 72,000 0/0 0/0
Thomas J. Ennis. . . . . . . . 2,500 0/2,500 0/6,250
Clarke Brewer. . . . . . . . . 0 5,000/5,000 0/0
Robert C. Semmer . . . . . . . 10,424 0/10,424 0/26,060
(1) Assumes a market price equal to $9.50 per share, the average of the closing
bid and asked price on the Nasdaq National Market on December 31, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, Donald R. Stine, Edward M. Philip and Steven J. Schoch
served on the Compensation Committee. Mr. Stine is the President of the
Company. For information concerning certain
8
transactions between the Company and certain directors, see "Certain
Relationships and Related Transactions."
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report on executive
compensation:
The base salary to which each of the Company's executive officers is
entitled is specified in such person's employment agreement (see "Employment
Agreements" below) and was established pursuant to arm's-length negotiations
with each executive officer, in part based on the subjective assessment of the
Company, which included a number of factors, including experience, tenure and
responsibility, and external factors, including similarly situated executives,
geographic and economic conditions, based on information drawn from a variety of
sources, including published survey data, information obtained from the media,
and the Company's own experience in recruiting and retaining executives,
although complete information is not easily obtainable.
Arrangements for bonus compensation for the Company's executive officers
are also negotiated individually with each executive officer and are generally
fixed by contract. See "Employment Agreements" below.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code (the "Code"), enacted in 1993,
generally limits tax deductions to public companies for compensation over
$1,000,000 paid to the corporation's chief executive officer and four other most
highly compensated executive officers. Qualifying performance based compensation
will not be subject to the deduction limit if certain requirements are met. The
Company intends to consider the provisions of Section 162(m) in connection with
the performance based portion of the compensation of its executives (which
currently consists of stock option grants described above). However, the Board
of Directors does not necessarily intend to structure compensation to its
executives to avoid disallowance of any tax deductions in the future in light of
available tax deductions to the Company and the requirements imposed by Section
162(m) and the proposed regulations thereunder for compensation to be fully
deductible for income tax purposes.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with each of R. Luke
Stefanko and Thomas J. Ennis, commencing June 27, 1996 and March 19, 1996,
respectively. Mr. Stefanko's agreement has a term of five years ending in June
2001. The term of Mr. Ennis' agreement expired in March 1998. The Company
exercised its option to extend Mr. Ennis' agreement for one year in March 1998.
Under these agreements, the current annual salaries of Messrs. Stefanko and
Ennis are $273,000 and $100,000, respectively. Mr. Stefanko's base salary
increases each year in accordance with increases in the Consumer Price Index.
Mr. Ennis' base salary does not change during the term of the agreement. These
base salaries are subject to further annual increase if approved by the
Compensation Committee. Mr. Stefanko is provided with an automobile expense
reimbursement allowance and an annual allowance to cover premiums for life,
health and disability insurance. Mr. Stefanko's employment agreement entitles
him to receive quarterly bonus payments to the extent the Company achieves
quarterly earnings per share results ratified by the Board of the Directors at
the beginning of each year ("Targeted Earnings"). If the Company attains
9
the Targeted Earnings with respect to a particular quarter, Mr. Stefanko shall
receive a bonus payment of $6,250. If the Company's actual earnings per share
are less than 75% of the Targeted Earnings, Mr. Stefanko is not entitled to a
bonus. If the Company's actual earnings per share equal 125% or more of the
Targeted Earnings, Mr. Stefanko shall receive an increased bonus payment
(subject to a maximum payment in any quarter of $12,500). To the extent the
Company's earnings per share equal between 75% and 125% of the Targeted
Earnings, Mr. Stefanko shall be entitled to receive a pro-rated bonus payment in
accordance with the range set forth above. Mr. Ennis is guaranteed an annual
bonus payment in the amount of $25,000 under his employment agreement.
The Company entered into an employment agreement with Donald R. Stine,
effective as of January 1, 1999. Mr. Stine's agreement has a term of three
years ending in May 2002. Under the agreement, Mr. Stine's current annual
salary is $150,000 which may be increased by the resolution of the Compensation
Committee of the Board of Directors. Mr. Stine is provided with an automobile
allowance and payment of premiums for health insurance plan. Mr. Stine's
employment agreement entitles him to receive quarterly bonus payments to the
extent the Company exceeds the quarterly revenue and earnings per share targets
announced by the two investment banking firm analysts which follow the Company
most closely ("Targeted Results"). If the Company attains the Targeted Results
with respect to a particular quarter, Mr. Stine shall receive a bonus payment of
$15,000 within 45 days after the last day of such quarter.
In the event of a change in control, substantially all of Mr. Stine's
options will vest. In addition, Mr. Stine has the right to leave the Company
upon a 90 days notice after a change in control, provided that any options
that have not vested on such date will remain unvested. In the event of a
change in control of the Company while Mr. Stine is employed by the Company,
upon subsequent termination of his employment within two years of such change
in control without cause, in addition to accrued and unpaid salary and
benefits as of the date of termination, Mr. Stine shall receive his full base
salary at the rate in effect at the time the notice of termination is given
for the balance of the term of his employment agreement and continue to be
provided with medical, life, disability and such other similar insurance
benefits until the earlier of the date Mr. Stine obtains other employment on
a full-time basis or the balance of the term of his employment agreement.
Pursuant to the agreement, Mr. Stine has been granted an option to purchase
100,000 shares of Common Stock of the Company at an exercise price of $10.00
per share and an additional option to purchase 150,000 shares of Common Stock
at an exercise price of $15.00 per share. The options granted to Mr. Stine
vest in equal increments over the three year period beginning as of May 1,
1999 and shall be subject to the terms and conditions of the 1996 Plan.
KEY EXECUTIVE SEVERANCE AGREEMENT
Mr. Stefanko is party to a key executive severance agreement with the
Company as part of his employment agreement. The key executive severance
agreement provides that if Mr. Stefanko's employment is terminated without cause
(as defined in the agreement), except in the event of disability or retirement,
he shall be entitled to receive the following: (i) if he is terminated within
two years following a change in control of the Company, then he shall be
entitled to receive payment of his full base salary for a period of two years,
plus payment of the amount of any bonus for a past fiscal year which has not yet
been awarded or paid, and continuation of benefits for a period of two years, or
(ii) if his employment is terminated other than within two years following a
change in control of the Company, then Mr. Stefanko shall be entitled to receive
payment of his full base salary for the remainder of the term of his agreement,
payment of the amount of bonuses, and continuation of benefits. A change in
control of the Company is defined to mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"). Such a change in control is deemed conclusively to
have occurred in the event of certain tender offers, mergers or consolidations,
the sale, lease, exchange or transfer of substantially all of the assets of the
Company, the acquisition by a person or group (other than Mr.
10
Stefanko) of 25% or more of the outstanding voting securities of the Company,
the approval by the shareholders of a plan of liquidation or dissolution of the
Company, or certain changes in the members of the Board. In the event of a
decrease in Mr. Stefanko's then current base salary, a removal from eligibility
to participate in the Company's bonus plan and other events as described in the
agreement, then Mr. Stefanko shall have the right to treat such event as a
termination of his employment by the Company without cause and to receive the
payments and benefits described above.
CORPORATE PERFORMANCE
Set forth is a line graph comparing the stock price of the Company with
that of the Standard and Poor's Nasdaq National Market Index and a Peer Group
Index for the period commencing February 19, 1997 and ending December 31, 1998.
The graph assumes that $100 was invested on February 19, 1997 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.
[INSERT GRAPH]
Notes:
A. The Peer Group Index consists of Digital Generation Systems Inc., Four
Media Company and Todd A/O Corporation
Notwithstanding anything to the contrary set forth in the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act, that might incorporate future filings, including this Proxy Statement, in
whole or in part, the Report on Executive Compensation beginning on page __ and
the graph on page __ shall not be incorporated by reference into any such
filings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon its formation in 1990 the Company elected to be treated as an S
Corporation for federal income tax purposes which resulted in the taxable income
of the Company being taxed directly to its shareholders rather than to the
Company. Prior to the closing of the Company's initial public offering in
February 1997, the Company's shareholders terminated the Company's S Corporation
status. Shortly after the change in tax status, all the persons that were
shareholders of the Company between January 1, 1997, through and including the
date of such termination consented to allocate all of the Company's items of
income, gain, loss, deduction, or credit for the 1997 taxable year between the
short year for which the Company was treated as an S Corporation and the short
year for which the Company is treated as a C corporation, on the basis of the
Company's normal accounting method rather than on a pro rata basis. The Company
maintains an accumulated adjustments account (the "AAA account") which currently
holds its taxed but undistributed earnings. In connection with the consummation
of the Company's initial public offering, the Company distributed the balance of
the amount in the AAA account (approximately $5.6 million) to the Company's
pre-initial public offering shareholders in respect of previously taxed and
undistributed earnings of the Company.
11
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO THE COMPANY'S
RESTATED ARTICLES OF INCORPORATION
GENERAL
The Board of Directors asks that the shareholders approve an amendment to
the Company's Restated Articles of Incorporation to change the name of the
Company to VDI MultiMedia. The Board of Directors and management believe that
the new name closely reflects the current business of the Company and presents
a more broad and dynamic corporate image that would be beneficial to the
business of the Company.
THE AMENDMENT
Article I of the Restated Articles of Incorporation is hereby amended to
read in its entirety as follows:
I.
The name of this Corporation is VDI MultiMedia.
To be adopted, the amendment has to be approved by the affirmative vote of the
holders of at least a majority of the Common Stock voting in person or by proxy
at the meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION.
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO THE COMPANY'S
1996 STOCK INCENTIVE AWARD PLAN
GENERAL
The 1996 Stock Incentive Plan (the "1996 Plan") was adopted by the Board of
Directors and approved by the Company's shareholders in 1996. The purpose of the
1996 Plan is to attract and retain key employees, members of the board of
directors and consultants of the Company, to provide an incentive for them to
achieve long-range performance goals, and to enable them to participate in the
long-term growth of the Company. Under the 1996 Plan, awards can be stock
options, stock appreciation rights, performance share awards and restricted
stock awards. An option granted under the 1996 Plan may be an incentive stock
option or a non-qualified option. Incentive stock options will only be granted
to employees of the Company.
PROPOSED AMENDMENT TO THE 1996 PLAN
The Board of Directors has adopted an amendment to the 1996 Plan, subject
to approval by the shareholders, to increase the aggregate number of shares that
may be subject to grants thereunder from
12
900,000 shares of Common Stock to 2,000,000 shares of Common Stock, or 20% of
the fully diluted Common Stock of the Company in order to ensure that a
sufficient number of shares are available for issuance in the future. In
addition, the amendment to the 1996 Plan provides that, effective August 1, 1999
and each August 1 thereafter during the term of the 1996 Plan, the number of
shares of Common Stock available for grants of stock options shall be increased
automatically by 300,000 shares of Common Stock (including shares held in
treasury) as of the close of business on the last day of the preceding month,
provided that the maximum cumulative number of shares of Common Stock available
for grants of incentive stock options under the 1996 Plan may not exceed
4,000,000 shares.
In the three years since the Company first adopted the 1996 Plan, all of
the 900,000 shares initially available thereunder have been awarded. In order
to be able to continue to offer the benefits and incentives such plans provide,
the Board of Directors has adopted this amendment to the 1996 Plan. These plans
promote the growth and financial success of the Company by aligning the personal
interests of employees (through the ownership of Common Stock) with those of the
shareholders of the Company. The Board of Directors believes that the increase
in the number of shares that may be subject to awards under the 1996 Plan will
enhance the ability of the Company to attract, retain, compensate and motivate
key employees, and that the adoption of the amendment will be important to the
future success of the Company.
The following is a summary of the principal provisions of the 1996 Plan, a
copy of which may be obtained from the Secretary of the Company upon request.
The affirmative vote of the holders of at least a majority of the Common Stock
voting in person or by proxy at the meeting will be required for the approval of
the amendment to the 1996 Plan.
ADMINISTRATION
The 1996 Plan is administered by the Compensation Committee of the Board of
Directors. The members of the Compensation Committee are appointed by the Board
of Directors and the Board may from time to time appoint a member or members of
the Compensation Committee in substitution for or in addition to the member or
members then in office and may fill vacancies on the Compensation Committee
however caused.
ELIGIBILITY
Subject to the provisions of the 1996 Plan, the Compensation Committee has
the authority to select optionees and to determine the terms of the options
granted, including the number of shares subject to each option, (ii) when the
option becomes exercisable, (iii) the exercise price of the option, (iv) the
duration of the option (which in the case of an incentive stock option granted
to employees or officers holding 10% or more of the voting stock of the Company
cannot be in excess of five years), and (v) other terms and provisions of
awards.
In determining the eligibility of an individual to be granted an option, as
well as in determining the number of shares to be optioned to any individual,
the Compensation Committee takes into account the position and responsibilities
of the individual being considered, the nature and value to the Company or its
subsidiaries of the individual's service and accomplishments, his or her present
and potential contribution to the success of the Company or its subsidiaries,
and such other factors as the Compensation Committee deems relevant.
TERMS OF OPTIONS
13
Options granted under the 1996 Plan are exercisable at such times and
during such period as is set forth in the option agreement, but can not have a
term in excess of ten years from the date of grant. The option agreement may
contain such provisions and conditions as may be determined by the Compensation
Committee. The option exercise price for options designated as non-qualified
stock options granted under the 1996 Plan is determined by the Compensation
Committee. The option exercise price for incentive stock options granted under
the 1996 Plan shall be no less than fair market value of the Common Stock of the
Company at the time the option is granted and no less than 110% of fair market
value in the case of employees or officers holding 10% or more of the voting
stock of the Company. Options granted under the 1996 Plan may provide for the
payment of the exercise price by delivery of cash or a check payable to the
Company or shares of Common Stock of the Company owned by the optionee having a
fair market value equal in amount to the exercise price of the options being
exercised, or any combination thereof. The aggregate fair market value
(determined on the date of grant) of the shares of Common Stock for which
incentive stock options may be granted to any participant which are exercisable
for the first time by such participant during any calendar year may not exceed
$100,000.
An option is not transferable by the optionee except by will or by the laws
of descent and distribution. options are exercisable only while the optionee
remains in the employ of the Company or for a period of time thereafter. Options
which have become exercisable by the date of termination of employment or of
service must be exercised within certain specified periods of time from the date
of termination, the period of time to depend on the reason for termination. Such
options generally lapse three months after termination of employment other than
by reason of retirement, total disability or death, in which case they generally
terminate one year thereafter. If a participant is discharged for cause, all
options will terminate immediately. Options which have not yet become
exercisable on the date the participant terminates employment or service for a
reason other than retirement, death or total disability shall terminate on that
date.
OTHER AWARDS
A Stock Appreciation Right ("SAR") is the right to receive payment based on
the appreciation in the fair market value of Common Stock from the date of grant
to the date of exercise. At its discretion, the Compensation Committee may grant
an SAR concurrently with the grant of an Option. Such SAR is only exercisable at
such time, and to the extent, that the related Option is exercisable. Upon
exercise of an SAR, the holder receives for each share with respect to which the
SAR is exercised an amount equal to the difference between the exercise price
under the related Option and the fair market value of a share of Common Stock on
the date of exercise of the SAR. The Compensation Committee in its discretion
may pay the amount in cash, shares of Common Stock or a combination thereof.
Each SAR granted concurrently with an option will have the same termination
provisions and exercisability periods as the related Option. In its discretion,
the Compensation Committee may also grant SARs independently of any option,
subject to such conditions consistent with the terms of the plan as the
Compensation Committee may provide in the award agreement. Upon the exercise of
an SAR granted independently of any option, the holder receives for each share
with respect to which the SAR is exercised an amount in cash based on the
percentage specified in the award agreement of the excess, if any, of fair
market value of a share of Common Stock on the date of exercise over such fair
market value on the date the SAR was granted. The termination provisions and
exercisability periods of an SAR granted independently of any Option will be
determined by the Compensation Committee. A Restricted Stock Award ("RSA") is an
award of a fixed number of shares of Common Stock subject to transfer
restrictions. The Compensation Committee specifies the purchase price, if any,
the recipient must pay for such shares. Shares included in an RSA may not be
sold, assigned, transferred, pledged or otherwise disposed of or encumbered
until they have vested. The
14
recipient is entitled to dividend and voting rights pertaining to such RSA
shares even though they have not vested, so long as such shares have not been
forfeited. A Performance Share Award ("PSA") is an award of a fixed number of
shares of Common Stock, the issuance of which is contingent upon the attainment
of such performance objectives, and the payment of such consideration, if any,
as is specified by the Compensation Committee. The 1996 Plan permits a
participant to satisfy his tax withholding with shares of Common Stock instead
of cash if the Compensation Committee agrees. Upon the date a participant is no
longer employed by the Company for any reason, shares subject to the
participant's RSAs which have not become vested by that date or shares subject
to a participant's PSAs which have not been issued shall be forfeited in
accordance with the terms of the related award agreements.
The exercisability of all of the outstanding awards may be accelerated,
subject to the discretion of the Compensation Committee, upon the occurrence of
an "Event" (defined in the Plan) to include approval by the shareholders of the
dissolution liquidation of the Company, certain mergers, consolidations, sale of
substantially all of the Company's business and/or assets and a "change in
control". The 1996 Plan defines a change in control to have occurred (i) if a
"person", as defined in Section 13(d) and 14(d) under the Exchange Act, acquires
20% or more of the voting power of the then outstanding securities of the
Company and (ii) if during any two consecutive year periods there is a change of
a majority of the members of the Board of Directors, unless the election or
nomination of the new directors is approved by at least three-fourths of the
members still in office from the beginning of the two year period
RECAPITALIZATION; REORGANIZATION; CHANGE OF CONTROL
The 1996 Plan provides for anti-dilution adjustments in the event of a
reorganization, merger, combination recapitalization, reclassification, stock
dividend, stock split or reverse stock split. Upon dissolution or liquidation of
the Company, or upon reorganization, merger or consolidation of the Company as a
result of which the Company is not the surviving entity, the 1996 Plan will
terminate, and any outstanding awards will terminate and be forfeited, subject
to the Compensation Committee's ability to provide for (i) certain payments to
participants in cash or Common Stock in lieu of such outstanding awards, (ii)
the assumption by the successor corporation of either the 1996 Plan or the
awards outstanding under the 1996 Plan and (iii) continuation of the Plan.
The Board of Directors may, at any time, terminate or suspend the 1996
Plan. The 1996 Plan currently provides that the Board of Directors or the
Compensation Committee may amend the 1996 Plan at any time without the approval
of the holders of a majority of the shares of Common Stock except in certain
situations enumerated in the 1996 Plan.
TAX EFFECTS OF PARTICIPATION IN THE 1996 PLAN
Incentive Stock Options. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon the
grant or exercise of an incentive stock option. In addition, if the optionee
holds the shares received pursuant to the exercise of the option for more than
one year after the date of transfer of stock to the optionee upon exercise of
the option and for more than two years after the option is granted, the optionee
will recognize long-term capital gain or loss upon the disposition of the stock
measured by the difference between the option exercise price and the amount
received for such shares upon disposition.
In the event that the optionee disposes of the stock prior to the
expiration of the required holding periods (a "disqualifying disposition"), the
optionee generally will recognize ordinary income to the extent
15
of the lesser of (i) the fair market value of the stock at the time of exercise
over the exercise price, or (ii) the amount received for the stock upon
disposition over the exercise price. The basis in the stock acquired upon
exercise of the option will equal the amount of income recognized by the
optionee plus the option exercise price. Upon eventual disposition of the stock,
the optionee will recognize long-term or short-term capital gain or loss,
depending on the holding period of the stock and the difference between the
amount realized by the optionee upon disposition of the stock and his basis in
the stock.
For alternative minimum tax purposes, the excess of the fair market value
of stock on the date of the exercise of the incentive stock option over the
exercise price of the option is included in alternative minimum taxable income
for alternative minimum tax purposes. If the alternative minimum tax does apply
to the optionee, an alternative minimum tax credit may reduce the regular tax
upon eventual disposition of the stock.
The Company will not be allowed an income tax deduction upon the grant or
exercise of an incentive stock option. Upon a disqualifying disposition of
shares by the optionee acquired upon exercise of the incentive stock option, the
Company will be allowed a deduction in an amount equal to the ordinary income
recognized by the optionee.
Under proposed regulations issued by the Internal Revenue Service, the
exercise of an option with previously acquired stock of the Company will be
treated as, in effect, two separate transactions. Pursuant to Section 1036 of
the Internal Revenue Code of 1986 (the "Code"), the first transaction will be a
tax-free exchange of the previously acquired shares for the same number of new
shares. The new shares will retain the basis and, except, as provided below, the
holding periods of the previously acquired shares. The second transaction will
be the issuance of additional new shares having a value equal to the difference
between the aggregate fair market value of all of the new shares being acquired
and the aggregate option exercise price for those shares. Because the exercise
of an incentive stock option does not result in the recognition by the optionee
of income, this issuance will also be tax-free (unless the alternative minimum
tax applies, as described above). The optionee's basis in these additional
shares will be zero and the optionee's holding period for these shares will
commence on the date on which the shares are transferred. For purposes of the
one and two-year holding period requirements which must be met for favorable
incentive stock option tax treatment to apply, the holding periods of previously
acquired shares are disregarded.
Non-Qualified Stock Options. As in the case of incentive stock options, no
income is recognized by the optionee on the grant of a non-qualified stock
option. On the exercise by an optionee of a non-qualified option, generally the
excess of the fair market value of the stock when the option is exercised over
its cost to the optionee will be (a) taxable to the optionee as ordinary income
and (b) generally deductible for income tax purposes by the Company. The
optionee's tax basis in his stock will equal his cost for the stock plus the
amount of ordinary income he had to recognize with respect to the nonqualified
stock option.
The Internal Revenue Service will treat the exercise of a non-qualified
stock option with already owned stock of the Company as two transactions. First,
there will be a tax-free exchange of the old shares for a like number of new
shares under Section 1036 of the Code, with the exchanged shares retaining the
basis and holding periods of the old shares. Second, there will be an issuance
of additional new shares representing the spread between the fair market value
of all the new shares (including the exchanged shares and the additional new
shares) and the aggregate option price therefor. The fair market value of the
additional new shares will be taxable as ordinary income to the employee under
Section 83 of the Code. The additional new shares will have a basis equal to the
fair market value of the additional new shares.
16
Accordingly, upon a subsequent disposition of stock acquired upon the
exercise of a non-qualified option, the optionee will recognize short-term or
long-term capital gain or loss, depending upon the holding period of the stock
equal to the difference between the amount realized upon disposition of the
stock by the optionee and his basis in the stock.
NEW PLAN BENEFITS
It is not possible to state the persons who will receive stock options
under the 1996 Plan in the future, nor the amount of options which will be
granted thereunder.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE APPROVAL OF AMENDMENTS TO THE 1996 STOCK INCENTIVE PLAN.
PROPOSAL NO. 4
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Upon unanimous recommendation of the Board, the Company appointed Price
Waterhouse LLP as the Company's independent accountants for the fiscal year
ending December 31, 1999. Services provided to the Company by Price Waterhouse
LLP during the 1998 fiscal year included the examination of the Company's
consolidated financial statements and consultations on various tax matters.
Price Waterhouse LLP has been the Company's independent auditors since
1990. If the Shareholders do not ratify this appointment, other independent
auditors will be considered by the Board upon recommendation of the Audit
Committee. Representatives of Price Waterhouse LLP are expected to be present at
the Annual Meeting, and will have the opportunity to make a statement if they so
desire and are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
PROPOSALS OF SHAREHOLDERS
A proper proposal submitted by a shareholder for presentation at the
Company's next Annual Meeting of Shareholders and received at the Company's
executive offices by January 10, 2000 will be included in the Company's proxy
statement and form of proxy relating to such Annual Meeting.
OTHER MATTERS
The Board is not aware of any matter to be acted upon at the Annual Meeting
other than described in this Proxy Statement. Unless otherwise directed, all
shares represented by the persons named in the accompanying proxy will be voted
in favor of the proposals described in this Proxy Statement. If any other
17
matter properly comes before the Annual Meeting, however, the proxy holders will
vote thereon in accordance with their best judgment.
MISCELLANEOUS
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires executive officers and directors
and persons who beneficially own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission (the "SEC").
Executive officers, directors and greater than 10% beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms filed by them.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, directors and greater than 10% beneficial owners were
complied with.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Form 10-K, as amended by Amendment Number 2 thereto ("Form
10-K/A"), for the year ended December 31, 1998 is hereby incorporated herein by
this reference. A copy of the Company's Annual Report to Shareholders, which
includes the Form 10-K/A, accompanies this Proxy Statement but shall not
constitute proxy soliciting material. Copies of the Form 10-K/A will be
provided, without charge, to any shareholder of the Company. Written requests
for a copy of the Form 10-K/A should be directed to Donald R. Stine, VDI Media,
6920 Sunset Boulevard, Hollywood, California 90028.
By Order of the Board
R. Luke Stefanko
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
18
PROXY Attachment A
VDI MEDIA
ANNUAL MEETING OF SHAREHOLDERS -- JUNE [30], 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF VDI MEDIA
The undersigned hereby appoints R. Luke Stefanko and Donald R. Stine and
each of them, with full power of substitution, as proxies and with all powers
the undersigned would possess if personally present, to vote all of the shares
of Common Stock, no par value per share (the "Common Stock"), of VDI Media (the
"Company"), that the undersigned is entitled to vote at the Annual Meeting of
Shareholders of the Company to be held at 12:00 p.m., local time, on __________,
June [30], 1999, and any adjournments or postponements thereof, at the Roosevelt
Hotel, 7000 Hollywood Boulevard, Hollywood, California 90028, as directed herein
upon the matters set forth below and 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.
THE BOARD OF DIRECTORS OF VDI MEDIA RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3
AND 4, EACH OF WHICH WAS PROPOSED BY THE BOARD OF DIRECTORS OF VDI MEDIA.
(1) Election of five directors for a one year term.
VOTE FOR WITHHOLD (TO WITHHOLD AUTHORITY TO
all listed AUTHORITY to VOTE FOR ANY INDIVIDUAL
Nominees except vote for all NOMINEE, WRITE THAT NOMINEE'S
as indicated below Nominees NAME ON THIS LINE BELOW.)
/ / / / _____________________________
NOMINEES: R. Luke Stefanko, Donald R. Stine, Thomas J.
Ennis, Robert S. Feuerman and Fred S. Teng
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(2) Proposal to approve an amendment to the Company's Restated
Articles of Incorporation to change the Company's name to
VDI MultiMedia
FOR / / AGAINST / / ABSTAIN / /
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(3) Proposal to ratify, confirm and approve an amendment to the
Company's 1996 Stock Incentive Plan to increase the number of
shares reserved for grant thereunder from 900,000 to 2,000,000 or
20% of the fully diluted Common Stock of the Company and to
provide for automatic increases thereafter.
FOR / / AGAINST / / ABSTAIN / /
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(4) Proposal to ratify appointment of Price Waterhouse LLP as
independent auditors for the fiscal year ending December 31,
1999
FOR / / AGAINST / / ABSTAIN / /
(PLEASE MARK, DATE AND SIGN ON THE REVERSE SIDE)
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, 2, 3 AND 4. 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.
--------------------------------------------------
Signature
--------------------------------------------------
Date
--------------------------------------------------
Signature
--------------------------------------------------
Date
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.
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY.