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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K

   FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

<TABLE>
<C>        <S>
   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                     FOR THE YEAR ENDED DECEMBER 31, 1999,
                                       OR

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

         FOR THE TRANSITION PERIOD FROM______________ TO ______________

                         COMMISSION FILE NUMBER 0-21917

                            ------------------------

                                 VDI MULTIMEDIA

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                    <C>
                  CALIFORNIA                                        95-4272619
      (State of or other jurisdiction of               (I.R.S. EMPLOYER IDENTIFICATION NO.)
        incorporation or organization)

7083 HOLLYWOOD BOULEVARD, HOLLYWOOD, CALIFORNIA                       90028
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                         (Zip Code)
</TABLE>

       Registrant's telephone number, including area code (323) 957-7990

           Securities registered pursuant to Section 12(b) of the Act

                                      None

           Securities registered pursuant to Section 12(g) of the Act
                          Common Stock, no par value.

                            ------------------------

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

    The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately $54,065,214 based upon the closing price of such
stock on March 29, 2000. As of March 29, 2000, there were 9,235,995 shares of
Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the registrant's definitive proxy statements are incorporated by
reference in Items 10 through 13 of this report. The definitive proxy statement
will be filed no later than 120 days after the close of the Company's fiscal
year.

    Total number of pages                           Exhibit Index begins on page

--------------------------------------------------------------------------------
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<PAGE>
PART I

ITEM 1. BUSINESS

GENERAL

    VDI MultiMedia ("VDI" or the "Company") is a leading provider of video and
film asset management services to owners, producers and distributors of
entertainment and advertising content. VDI provides the services necessary to
edit, master, reformat, archive and ultimately distribute its clients' video
content, including television programming, feature films, spot advertising and
movie trailers.

    The company provides worldwide electronic distribution, using fiber optics,
satellites and the Internet through its Broadcast One-Registered Trademark-
network. The company delivers commercials, movie trailers, electronic press
kits, infomercials and syndicated programming, by both physical and electronic
means, to thousands of broadcast outlets worldwide.

    The Company seeks to capitalize on growth in demand for the services related
to the distribution of entertainment content, without assuming the production or
ownership risk of any specific television program, feature film or other form of
content. The primary users of the Company's services are entertainment studios
and advertising agencies that generally choose to outsource such services, due
to the sporadic demand of any single customer for such services and the fixed
costs of maintaining a high-volume physical plant.

    Since its first acquisition in 1997, the company has successfully completed
seven acquisitions of companies providing similar services. The latest of these
acquisitions occurred in November 1998 when the Company acquired the assets of
Dubs, Inc. ("Dubs"), one of the Company's largest direct competitors in
Hollywood. The Company will continue to evaluate acquisition opportunities to
enhance its operations and profitability. As a result of these acquisitions, VDI
is one of the largest and most diversified providers of technical and
distribution services to the entertainment industry, and therefore is able to
offer its customers a single source for such services at prices that reflect the
Company's scale economies.

    The Company was incorporated in California in 1990. The Company's executive
offices are located at 7083 Hollywood Boulevard, Hollywood, California 90028,
and its telephone number is (323) 957-7990. Broadcast One-Registered Trademark-
is a registered service mark of the Company.

PROPOSED MERGER

    On December 24, 1999, the Company entered into an Agreement and Plan of
Merger, dated as of December 24, 1999, among the Company, VDI MultiMedia, Inc.,
a Delaware corporation and a wholly owned subsidiary of the Company, and VMM
Merger Corp., a Delaware corporation and an affiliate of Bain Capital, Inc. A
copy of the Agreement and Plan of Merger, dated as of December 24, 1999, among
the Company, VDI MultiMedia, Inc. and VMM Merger Corp. is attached hereto as
Exhibit 2.1 and is incorporated herein by this reference. To induce VMM Merger
Corp. to enter into the Agreement and Plan of Merger, R. Luke Stefanko and Julia
Stefanko entered into a Shareholders Agreement with VMM Merger Corp. The
Shareholders Agreement, dated as of December 24, 1999, among VMM Merger Corp.,
R. Luke Stefanko and Julia Stefanko, is incorporated herein by reference to the
Schedule 13D of VMM Merger Corp., Bain Capital Fund VI, L.P., Bain Capital
Partners VI, L.P. and Bain Capital Investors VI, Inc., filed with the Securities
and Exchange Commission on January 3, 2000.

    On April 3, 2000, the Company announced that the proposed merger would be
terminated because it had been notified by the potential acquiror that the
senior lender it selected believed it was not obligated to, and did not intend
to, provide the required financing in light of the amount of debt in the

                                       1
<PAGE>
transaction and the Company's financial performance related to certain
projections, absent other unspecified circumstances or events.

MARKETS

    The Company derives revenues primarily from (i) the entertainment industry;
consisting of major and independent motion picture and television studios, cable
television program suppliers and television program syndicators, and (ii) the
advertising industry; consisting of advertising agencies and corporate
advertisers. On a more limited basis, the company also services national
television networks, local television stations, corporate or instructional video
providers, infomercial advertisers and educational institutions.

ENTERTAINMENT INDUSTRY. The entertainment industry creates motion pictures,
television programming, and interactive multimedia content for distribution
through theatrical exhibition, home video, pay and basic cable television,
direct-to-home, private cable, broadcast television, on-line services and video
games. Content is released into a "first-run" distribution channel, and later
into one or more additional channels or media. In addition to newly produced
content, film and television libraries may be released repeatedly into
distribution. Entertainment content produced in the United States is exported
and is in increasingly high demand internationally. The Company believes that
several trends in the entertainment industry have and will continue to have a
positive impact on the Company's business. These trends include growth in
worldwide demand for original entertainment content, the development of new
markets for existing content libraries, increased demand for innovation and
creative quality in domestic and foreign markets, and wider application of
digital technologies for content manipulation and distribution, including the
emergence of new distribution channels.

ADVERTISING INDUSTRY. The advertising industry distributes video and audio
commercials, or spots, to radio and television broadcast outlets worldwide.
Advertising content is developed either by the originating company or in
conjunction with an advertising agency. The Company receives orders with
specific routing and timing instructions provided by the customer. These orders
are then entered into the Company's computer system and scheduled for electronic
or physical delivery. When a video spot is received, the Company's quality
control personnel inspect the video to ensure that it meets customer
specifications and then initiate the sequence to distribute the video to the
designated television stations either electronically, over fiber optic lines
and/or satellite, or via the most suitable package carrier. The company believes
that the growth in the number of video advertising outlets, driven by expansion
in the number of broadcast, cable, Internet and satellite channels worldwide,
will have a positive impact on the Company's businesses.

DISTRIBUTION NETWORK

    VDI operates a full service distribution network providing its customers
with reliable, timely and high quality distribution services. The Company's
historical customer base consists of motion picture and television studios and
post-production facilities located primarily in the Los Angeles area. In 1994,
the Company created the Broadcast One network to enhance its national
distribution capabilities. In 1997, the Company acquired Woodholly Productions
("Woodholly"), MultiMedia Services, Inc. ("MultiMedia"), Video It, Inc. ("Video
It") and Fast Forward, Inc. ("Fast Forward"), providing it with a more
diversified customer base and facilities in New York, Chicago, San Francisco and
additional facilities in Los Angeles. In 1998, the Company acquired The Dub
House, Inc. (the "Dub House"), All Post, Inc. ("All Post"), and Dubs, Inc.
("Dubs"), which substantially expanded its market share in Los Angeles.

    Commercials, trailers, electronic press kits and related distribution
instructions are typically collected at one of the Company's regional facilities
and are processed locally or transmitted over the Broadcast One network directly
to another regional facility for processing. Orders are routinely

                                       2
<PAGE>
received into the evening hours for delivery the next morning. The Company has
the ability to process customer orders from receipt to transmission in less than
one hour. Customer orders that require immediate, multiple deliveries in remote
markets are often delivered electronically to and serviced by third parties with
duplication and delivery services in such markets. The Company's network
operates 24 hours a day. The Chicago facility, which is the main hub of the
Company's physical distribution capabilities, is strategically located to
provide an extended deadline for air courier shipments.

    For electronic distribution, a video master is digitized and delivered by
fiber optic, Internet, ISDN or satellite transmission to television stations
equipped to receive such transmissions. The Company currently derives a small
percentage of its revenues from electronic deliveries and anticipates that this
percentage will increase as such technologies become more widely adopted.

    The Company intends to add new methods of distribution as technologies
become both standardized and cost-effective. The Company currently operates
facilities in Los Angeles (five locations), New York, Chicago, Dallas and San
Francisco which the Company believes together distribute an average of
approximately 5,500 video segments a day. By capitalizing on Broadcast One's
ability through electronic technologies to link instantaneously all of the
Company's facilities and by leveraging the Company's presence in the media
centers of Chicago and New York, the Company is able to optimize delivery, thus
extending the deadline for same- or next-day delivery of time-sensitive
material.

    As the Company continues to develop and acquire facilities in new markets,
the Broadcast One network enables it to maximize the usage of its network-wide
capacity by instantaneously transmitting video content to facilities with
available capacity. The Company's Broadcast One network and facilities are
designed to serve, cost-effectively, the time-sensitive distribution needs of
its clients. Management believes that the Company's success is based on its
strong customer relationships that are maintained through the reliability,
quality and cost-effectiveness of its services, and its extended deadline for
processing customer orders.

VALUE-ADDED SERVICES

    VDI maintains video and audio post-production and editing facilities as
components of its full service, value-added approach to its customers. The
following summarizes the value-added post-production services that the Company
provides to its customers:

FILM-TO-TAPE TRANSFER. Substantially all film content ultimately is distributed
to the home video, broadcast, cable or pay-per-view television markets,
requiring that film images be transferred electronically to a video format. Each
frame must be color corrected and adapted to the size and aspect ratio of a
television screen in order to ensure the highest level of conformity to the
original film version. The Company transfers film to videotape using URSA and
Cintel MK-3 telecine equipment and DaVinci-Registered Trademark- digital color
correction systems. In 2000, the Company will add high definition television
("HDTV") services to this product line. The remastering of studio film and
television libraries to this new broadcast standard should contribute to the
growth of the Company's film transfer business, as well as affiliated services
such as foreign language mastering, duplication and distribution.

VIDEO EDITING. VDI provides digital editing services in Hollywood, Burbank, West
Los Angeles and San Francisco. The editing suites are equipped with
(i) state-of-the-art digital editing equipment, including the
Avid-Registered Trademark- 9000, that provides precise and repeatable electronic
transfer of video and/or audio information from one or more sources to a new
master video and (ii) large production switchers to effect complex transitions
from source to source while simultaneously inserting titles and/or digital
effects over background video. Video is edited into completed programs such as
television shows, infomercials, commercials, movie trailers, electronic press
kits, specials, and corporate and educational presentations.

                                       3
<PAGE>
STANDARDS CONVERSION. Throughout the world there are several different
broadcasting "standards" in use. To permit a program recorded in one standard to
be broadcast in another, it is necessary for the recorded program to be
converted to the applicable standard. This process involves changing the number
of video lines per frame, the number of frames per second, and the color system.
VDI is able to convert video between all international formats, including NTSC,
PAL and SECAM. The Company's competitive advantages in this service line include
its state-of-the-art systems and its detailed knowledge of the international
markets with respect to quality-control requirements and technical
specifications.

BROADCAST ENCODING. VDI provides encoding services for tracking broadcast
airplay of spots or television programming. Using a process called VEIL
encoding, a code is placed within the video portion of an advertisement or an
electronic press kit. Such codes can be monitored from standard television
broadcasts to determine which advertisements or portions of electronic press
kits are shown on or during specific television programs, providing customers
direct feedback on allotted air time. The Company provides VEIL encoding
services for a number of its motion picture studio clients to enable them to
customize their promotional material. The Company also provides ICE encoding
services which enable it to place codes within the audio portion of a video,
thereby enhancing the overall quality of the encoded video.

AUDIO POST-PRODUCTION. Through its facilities in Burbank and West Los Angeles,
the Company digitally edits and creates sound effects, assists in replacing
dialog and re-records audio elements for integration with film and video
elements. The Company designs sound effects to give life to the visual images
with a library of sound effects. Dialog replacement is sometimes required to
improve quality, replace lost dialog or eliminate extraneous noise from the
original recording. Re-recording combines sound effects, dialog, music and
laughter or applause to complete the final product. In addition, the
re-recording process allows the enhancement of the listening experience by
adding specialized sound treatments, such as stereo, Dolby
Digital-Registered Trademark-, SDDS-Registered Trademark-,
THX-Registered Trademark- and Surround Sound-Registered Trademark-.

AUDIO LAYBACK. Audio layback is the process of creating duplicate videotape
masters with sound tracks that are different from the original recorded master
sound track. Content owners selling their assets in foreign markets require the
replacement of dialog with voices speaking local languages. In some cases, all
of the audio elements, including dialog, sound effects, music and laughs, must
be recreated, remixed and synchronized with the original videotape. Audio
sources are premixed foreign language tracks or tracks that contain music and
effects only. The latter is used to make a final videotape product that will be
sent to a foreign country to permit addition of a foreign dialogue track to the
existing music and effects track.

FOREIGN LANGUAGE MASTERING. Programming designed for distribution in markets
other than those for which it was originally produced is prepared for export
through language translation and either subtitling or voice dubbing. The Company
provides dubbed language versioning with an audio layback and conform service
that supports various audio and videotape formats to create an international
language-specific master videotape. The Company's Burbank facility also creates
music and effects tracks from programming shot before an audience to prepare
television sitcoms for dialog recording and international distribution.

SYNDICATION. The Company offers a broad range of technical services to domestic
and international programmers. The Company services the basic and premium cable,
broadcast syndication and direct-to-home market segments by providing the
facilities and services necessary to assemble and distribute programming via
satellite to viewers in the United States, Canada and Europe. The Company
provides facilities and services for the delivery of syndicated television
programming in the United States and Canada. The Company's customer base
consists of the major studios and independent distributors offering network
programming, world-wide independent content owners offering niche market
programming, and pay-per-view services marketing movies and special events to
the cable

                                       4
<PAGE>
industry and direct-to-home viewers. Broadcast and syndication operations are
conducted in Hollywood and West Los Angeles.

ARCHIVAL SERVICES. The storage and handling of videotape and film elements
require specialized security and environmental control procedures. Throughout
the entertainment industry, content representing millions of dollars of future
revenue is stored in physically small units that are subject to the risk of loss
resulting from physical deterioration, natural disaster, unauthorized
duplication or theft. The Company currently stores more than two million masters
in a protected environment. The Company operates a state-of-the-art secure
management system in its West Los Angeles and Hollywood facilities, trade named
Reel-Safe(SM), which has been inspected and approved by the Motion Picture
Association of America. The Company intends to install this system in its other
facilities over the next few years. The Company believes this system is the most
advanced in the media industry with respect to security, environmental control
and access features. The Company offers on-line access to archival information
for certain clients, and intends to offer this service to all clients in the
future.

NEW MARKETS

    The Company believes that the development of the Broadcast One network and
its array of value-added services will provide the Company with the opportunity
to enter or significantly increase its presence in several new or expanding
markets.

INTERNATIONAL. The Company currently provides video duplication services for
suppliers to international markets. Through the Woodholly Acquisition, the
Company acquired and subsequently has leveraged this capability by offering
access to international markets to its entire customer base. Further, the
Company believes that electronic distribution methods will facilitate its
expansion into the international distribution arena as such technologies become
standardized and cost-effective. In addition, the Company believes that the
growth in the distribution of domestic content into international markets will
create increased demand for value-added services currently provided by the
Company such as standards conversion and audio and digital mastering.

HIGH DEFINITION TELEVISION (HDTV). The Company is focused on capitalizing on
opportunities created by emerging industry trends such as the emergence of
digital television and its more advanced variant, high-definition television.
HDTV has quickly become the mastering standard for domestic content providers.
The Company believes that the aggressive timetable associated with such
conversion, which has resulted both from recent mandates by the Federal
Communications Commission (the "FCC") for digital television and high-definition
television as well as competitive forces in the marketplace, is likely to
accelerate the rate of increase in the demand for these services. The Company
plans to open a state-of-the-art HDTV center at its Burbank, California,
facility in mid-2000.

DVD AUTHORING. Digital formats, such as DVD, have the potential to overtake VHS
videocassettes in the home video market. Industry research shows that DVD sales
will surpass VHS videocassettes by 2003. The Company believes that there are
significant opportunities in this market. With the increasing rate of conversion
of existing analog libraries, as well as new content being mastered to digital
formats, we believe that the Company has positioned itself well to provide
value-added services to new and existing clients. The Company has made capital
investments to expand and upgrade its current DVD and digital compression
operations in anticipation of the increasing demand for DVD and video encoding
services.

SALES AND MARKETING

    The Company markets its services through a combination of industry
referrals, formal advertising, trade show participation, special client events,
and its Internet website. While VDI relies primarily on its reputation and
business contacts within the industry for the marketing of its services, the
Company also maintains a direct sales force to communicate the capabilities and
competitive advantages of the

                                       5
<PAGE>
Company's services to potential new customers. In addition, the Company's sales
force solicits corporate advertisers who may be in a position to influence
agencies in directing deliveries through the Company. The Company currently has
sales representatives located in Los Angeles, San Francisco, Chicago and New
York. The Company's marketing programs are directed toward communicating its
unique capabilities and establishing itself as the predominant value-added
distribution network for the motion picture and advertising industries.

    In addition to its traditional sales efforts directed at those individuals
responsible for placing orders with VDI's facilities, the Company also strives
to negotiate "preferred vendor" relationships with its major customers. Through
this process, the Company negotiates discounted rates with large volume clients
in return for being promoted within the client's organization as an established
and accepted vendor. This selection process tends to favor larger service
providers such as VDI that (i) offer lower prices through scale economies;
(ii) have the capacity to handle large orders without outsourcing to other
vendors; and (iii) can offer a strategic partnership on technological and other
industry-specific issues. To date, the Company has successfully negotiated four
such agreements with major entertainment studios and national broadcast
networks.

CUSTOMERS

    Since its inception in 1990, VDI has added customers and increased its sales
through acquisitions and by delivering a favorable mix of reliability,
timeliness, quality and price. The integration of the Company's regional
facilities through Broadcast One has given its customers a time advantage in the
ability to deliver broadcast quality material. The Company markets its services
to major and independent motion picture and television production companies,
advertising agencies, television program suppliers and, on a more limited basis,
national television networks, infomercial providers, local television stations,
television program syndicators, corporations and educational institutions. The
Company's motion picture clients include Disney, Sony Pictures Entertainment,
Twentieth Century Fox, Universal Studios, Warner Bros., Metro-Goldwyn-Mayer and
Paramount Pictures. The Company's advertising agency customers include
TBWA/Chiat Day, Young & Rubicam and Saatchi & Saatchi.

    The Company solicits the motion picture and television industries,
advertisers and their agencies to generate revenues. In the year ended
December 31, 1999, the seven major motion picture studios accounted for
approximately 41.9% of the Company's revenues. The Walt Disney Company and its
subsidiaries accounted for approximately 9.8% of the Company's revenues for the
year ended December 31, 1999.

    The Company generally does not have exclusive service agreements with its
clients. Because clients generally do not make arrangements with the Company
until shortly before its facilities and services are required, the Company
usually does not have any significant backlog of service orders. The Company's
services are generally offered on an hourly or per unit basis based on volume.

CUSTOMER SERVICE

    VDI believes it has built its strong reputation in the market with a
commitment to customer service. VDI receives customer orders via courier
services, telephone, telecopier and the Internet. The customer service staff
develops strong relationships with clients within the studios and advertising
agencies and is trained to emphasize the Company's ability to confirm delivery,
meet difficult delivery time frames and provide reliable and cost-effective
service. Several studios are customers because of the Company's ability to meet
often changing or rush delivery schedules.

    The Company has a customer service staff of 84 people, at least one member
of which is available 24 hours a day. This staff serves as a single point of
problem resolution and supports not only the Company's customers, but also the
television stations and cable systems to which the Company delivers.

                                       6
<PAGE>
COMPETITION

    The video duplication and distribution industry is a highly competitive
service-oriented business. Certain competitors (both independent companies and
divisions of large companies) provide all or most of the services provided by
the Company, while others specialize in one or several of these services.
Substantially all of the Company's competitors have a presence in the Los
Angeles area, which is currently the largest market for the Company's services.
Due to the current and anticipated future demand for video duplication and
distribution services in the Los Angeles area, the Company believes that both
existing and new competitors may expand or establish video service facilities in
this area.

    The Company believes that it maintains a competitive position in its market
by virtue of the quality and scope of the services it provides, and its ability
to provide timely and accurate delivery of these services. The Company believes
that prices for its services are competitive within its industry, although some
competitors may offer certain of their services at lower rates than the Company.

    The principal competitive factors affecting this market are reliability,
timeliness, quality and price. The Company competes with a variety of
duplication and distribution firms, certain post-production companies and, to a
lesser extent, the in-house operations of major motion picture studios and ad
agencies. Some of these competitors have long-standing ties to clients that will
be difficult for the Company to change. Several companies have systems for
delivering video content electronically. Moreover, some of these firms, such as
Vyvx (a subsidiary of the Williams Companies), Digital Generation
Systems, Inc., Todd--AO Corporation, Four Media Company, and other and
post-production companies may have greater financial, operational and marketing
resources, and may have achieved a higher level of brand recognition than the
Company. As a result, there is no assurance that the Company will be able to
compete effectively against these competitors merely on the basis of
reliability, timeliness, quality, price or otherwise.

EMPLOYEES

    The Company had 504 full-time employees as of December 31, 1999. The
Company's employees are not represented by any collective bargaining
organization, and the Company has never experienced a work stoppage. The Company
believes that its relations with its employees are good.

                                       7
<PAGE>
ITEM 2. PROPERTIES

    The Company currently leases all 16 of its facilities. Ten of these
facilities have production capabilities and/or sales activities, five are
storage vaults and one is used as the Company's corporate offices. The lease
terms expire at various dates from March 2000 to October 2008. The following
table sets forth the location and approximate square footage of the Company's
properties as of December 31, 1999:

<TABLE>
<CAPTION>
                                                               SQUARE
LOCATION                                                      FOOTAGE
--------                                                      --------
<S>                                                           <C>
Hollywood, CA...............................................    9,475
Hollywood, CA...............................................   45,000
Hollywood, CA...............................................    4,000
Hollywood, CA...............................................    7,200
Hollywood, CA...............................................   13,000
Hollywood, CA...............................................    3,000
Hollywood, CA...............................................   27,000
Hollywood, CA...............................................   13,400
Burbank, CA.................................................   32,000
Burbank, CA.................................................    6,000
North Hollywood, CA.........................................   27,000
Santa Monica, CA............................................   13,400
San Francisco, CA...........................................   10,200
Chicago, IL.................................................   12,200
New York, NY................................................    9,000
Dallas, TX..................................................    4,500
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

    VDI is party to two class action lawsuits that allege claims against VDI and
its directors for breach of fiduciary duty alleged to have arisen from the
transactions contemplated by the Agreement and Plan of Merger between VDI, VDI
MultiMedia, Inc. and VMM Merger Corp. dated as of December 24, 1999 including,
but not limited to, alleged failure to announce any active auction, open bidding
or similar procedure, taking actions designed to halt any other offers and deter
higher offers so as to protect the interests of the defendants at the expense of
VDI's shareholders, and failure to take action that would maximize shareholder
value. These lawsuits also name Bain Capital as an aider and abetter of these
alleged breaches of fiduciary duty. These lawsuits were filed in the Superior
Court of the State of California for the County of Los Angeles (Hanken v. VDI
MultiMedia, et al., Case No. BC222355 and McAllister v. VDI MultiMedia, et al.,
Case No. BC 222394). The principal relief sought is certification of the
putative class, an injunction against the mergers and damages and attorneys'
fees in an unspecified amount. The lawsuits were filed on December 28, 1999 and
December 29, 1999 prior to the time when much of the information about the
matters alleged was publicly available. VDI believes that the allegations
contained in the complaints are without merit and intends to contest the actions
vigorously, on behalf of itself and its directors. Furthermore, VDI believes
that any potential damages arising from these claims would not have a material
financial impact on the Company.

    From time to time the Company may become party to various legal actions and
complaints arising in the ordinary course of business, although it is not
currently involved in any material legal proceedings other than mentioned above.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matters were submitted to the Company's stockholders for a vote during
the fourth quarter of the fiscal year covered by this report.

                                       8
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                                    PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

    The Company's Common Stock is traded on the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ") National Market
("NNM") under the symbol VDIM. The following table sets forth, for the periods
indicated, the high and low closing sales price per share for the Common Stock.

<TABLE>
<CAPTION>
                                                                LOW        HIGH
                                                              --------   --------
<S>                                                           <C>        <C>
YEAR ENDED DECEMBER 31, 1998
  First Quarter.............................................   $ 9.38     $16.50
  Second Quarter............................................   $ 9.75     $19.63
  Third Quarter.............................................   $ 7.25     $11.88
  Fourth Quarter............................................   $ 7.50     $ 9.81
YEAR ENDED DECEMBER 31, 1999
  First Quarter.............................................   $ 4.31     $10.00
  Second Quarter............................................   $ 5.25     $ 7.88
  Third Quarter.............................................   $ 6.50     $10.75
  Fourth Quarter............................................   $ 8.94     $14.06
YEAR ENDING DECEMBER 31, 2000
  First Quarter (through March 28, 2000)....................   $12.64     $14.50
</TABLE>

    On March 28, 2000, the closing sale price of the Common Stock as reported on
the NNM was $14.00 per share. As of March 28, 2000, there were 11 holders of
record of the Common Stock.

DIVIDENDS

    The Company did not pay dividends on its Common Stock during the years ended
December 31, 1998 or 1999. The Company's ability to pay dividends depends upon
limitations under applicable law and covenants under its bank agreements. The
Company currently does not intend to pay any dividends on its Common Stock in
the foreseeable future. See "Management's Discussion and Analysis--Liquidity and
Capital Resources."

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<PAGE>
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

    The following data, insofar as it relates to each of the years 1995 to 1999,
has been derived from annual financial statements. This information should be
read in conjunction with the Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                          ----------------------------------------------------
                                                            1995       1996       1997       1998       1999
                                                          --------   --------   --------   --------   --------
                                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                       <C>        <C>        <C>        <C>        <C>
Statement of Income Data
  Revenues..............................................  $18,538    $24,780    $40,772    $59,697    $78,248
  Cost of goods sold....................................   11,256     14,933     24,898     36,454     46,526
                                                          -------    -------    -------    -------    -------
  Gross profit..........................................    7,282      9,847     15,874     23,243     31,722
  Selling, general and administrative expense...........    5,181      5,720      9,253     13,201     17,860
                                                          -------    -------    -------    -------    -------
  Operating income......................................    2,101      4,127      6,621     10,042     13,862
  Interest expense, net.................................      333        223         68        976      2,147
  Provision for income tax (1)..........................       26         68      2,572      3,756      4,868
                                                          -------    -------    -------    -------    -------
  Net income............................................  $ 1,742    $ 3,836    $ 3,981    $ 5,310    $ 6,847
                                                          =======    =======    =======    =======    =======
  Earnings per Share (2):
    Basic...............................................  $  0.26    $  0.58    $  0.44    $  0.55    $  0.73
    Diluted.............................................  $  0.26    $  0.58    $  0.43    $  0.54    $  0.71
  Weighted Average Common Shares Outstanding (2):
    Basic...............................................    6,660      6,660      9,123      9,737      9,322
    Diluted.............................................    6,660      6,660      9,208      9,816      9,599
Other Data
  EBITDA(3).............................................  $ 3,680    $ 5,781    $10,343    $14,917    $18,886
  Cash flows provided by operating activities...........    2,553      6,306      6,317      6,420     13,043
  Cash flows (used in) provided by financing
    activities..........................................   (1,061)    (4,966)     9,945     26,712     (1,131)
  Capital expenditures..................................    1,137      1,191      1,686      6,798      7,672
Selected Balance Sheet Data
  Cash and cash equivalents.............................  $   415    $   564    $ 2,921    $ 2,048    $ 3,030
  Working capital.......................................    1,079      1,925      5,354      8,863      1,986
  Property and equipment, net...........................    3,992      3,520      7,808     17,655     21,860
  Total assets..........................................    9,340     11,178     32,907     64,849     75,064
  Borrowings under revolving credit agreements..........      100         --      1,086        233      5,888
  Long-term debt, net of current portion................    2,150      1,177      1,279     22,448     16,501
  Shareholders' equity..................................    3,019      5,241     21,532     28,910     32,744
</TABLE>

--------------------------

(1) Prior to its initial public offering, the Company was exempt from payment of
    federal income taxes and had paid certain state income taxes at a reduced
    rate as a result of its S Corporation status. Prior to the closing of the
    initial public offering in February 1997, the Company's shareholders elected
    to terminate the Company's S Corporation status. As a result of terminating
    the Company's S Corporation status, the Company was required to record a
    one-time, non-cash charge against historical earnings for additional
    deferred taxes based upon the increase in the effective tax rate from the
    Company's S Corporation status (1.5%) to C Corporation status (40%). This
    charge of $184,000 occurred in the quarter ending March 31, 1997.

(2) Earnings per share is calculated after giving effect to the 333-for-1 common
    stock split in May 1996 and restatement for the adoption of Statement of
    Financial Accounting Standards No. 128, "Earnings per Share."

(3) EBITDA is defined herein as earnings before interest, taxes, depreciation
    and amortization. EBITDA does not represent cash generated from operating
    activities in accordance with GAAP, is not to be considered as an
    alternative to net income or any other GAAP measurements as a measure of
    operating performance and is not necessarily indicative of cash available to
    fund all cash needs. While not all companies calculate EBITDA in the same
    fashion and therefore EBITDA as presented may not be comparable to other
    similarly titled measures of other companies, management believes that
    EBITDA is a useful measure of cash flow available to the Company to pay
    interest, repay debt, make acquisitions or invest in new technologies. The
    Company is currently committed to use a portion of its cash flows to service
    existing debt, if outstanding, and, furthermore, anticipates making certain
    capital expenditures as part of its business plan.

                                       10
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

    EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, CERTAIN OF THE
MARKETS DISCUSSED IN THIS ANNUAL REPORT ARE "FORWARD-LOOKING STATEMENTS" AS
DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH INVOLVE
CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN, INCLUDING BUT NOT LIMITED TO
COMPETITION, CUSTOMER AND INDUSTRY CONCENTRATION, DEPENDING ON TECHNOLOGICAL
DEVELOPMENTS, RISKS RELATED TO EXPANSION, DEPENDENCE ON KEY PERSONNEL,
FLUCTUATING RESULTS AND SEASONALITY AND CONTROL BY MANAGEMENT. SEE THE RELEVANT
DISCUSSIONS IN THE COMPANY'S DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1 AS
DECLARED EFFECTIVE ON FEBRUARY 14, 1997, FOR A FURTHER DISCUSSION OF THESE AND
OTHER RISKS AND UNCERTAINTIES APPLICABLE TO THE COMPANY'S BUSINESS.

OVERVIEW

    The Company generates revenues principally from duplication, distribution
and ancillary services. Duplication services are comprised of the physical
duplication of video materials from a source video or audiotape "master" to a
target tape "clone." Distribution services include the physical or electronic
distribution of video and audio materials to a customer-designated location
utilizing one or more of the Company's delivery methods. Distribution services
typically consist of deliveries of national television spot commercials and
electronic press kits and associated trafficking instructions to designated
stations and supplemental deliveries to non-broadcast destinations. Ancillary
services include video and audio editing, element storage, closed captioning,
transcription services, standards conversion, video encoding for air play
verification, audio post-production and layback and foreign language mastering.

RESULTS OF OPERATIONS

    The following table sets forth the amount, and percentage relationship to
revenues, of certain items included within the Company's Statement of Income for
the years ended December 31, 1997, 1998 and 1999.

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                               ---------------------------------------------------------------
                                                      1997                  1998                  1999
                                               -------------------   -------------------   -------------------
                                                          PERCENT               PERCENT               PERCENT
                                                             OF                    OF                    OF
                                                AMOUNT    REVENUES    AMOUNT    REVENUES    AMOUNT    REVENUES
                                               --------   --------   --------   --------   --------   --------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                            <C>        <C>        <C>        <C>        <C>        <C>
Revenues.....................................  $40,772     100.0%    $59,697     100.0%    $78,248      100.0%
Costs of goods sold..........................   24,898      61.1      36,454      61.1      46,526       59.5
                                               -------     -----     -------     -----     -------     ------
Gross profit.................................   15,874      38.9      23,243      38.9      31,722       40.5
Selling, general and administrative
  expense....................................    9,253      22.7      13,201      22.1      17,860       22.8
                                               -------     -----     -------     -----     -------     ------
Operating income.............................    6,621      16.2      10,042      16.8      13,862       17.7
Interest expense, net........................       68       0.2         976       1.7       2,147        2.7
Provision for income taxes...................    2,572       6.3       3,756       6.3       4,868        6.2
                                               -------     -----     -------     -----     -------     ------
Net income...................................  $ 3,981       9.8%    $ 5,310       8.9%    $ 6,847        8.8%
                                               =======     =====     =======     =====     =======     ======
</TABLE>

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

    REVENUES.  Revenues increased by $18.5 million or 31.1% to $78.2 million for
the year ended December 31, 1999 compared to $59.7 million for the year ended
December 31, 1998. This increase in revenue was due to increased volume
resulting from (i) the acquisitions of All Post and the Dub House in June 1998
and Dubs in November 1998, and (ii) increased marketing of the Company's media
services.

    GROSS PROFIT.  Gross profit increased $8.5 million or 36.5% to
$31.7 million for the year ended December 31, 1999 compared to $23.2 million for
the year ended December 31, 1998. As a percentage

                                       11
<PAGE>
of revenues, gross profit increased from 38.9% to 40.5%. The increase in gross
profit as a percentage of revenues was due primarily to the lower cost of direct
materials resulting from volume purchasing discounts, partially offset by
increased wages which resulted primarily from additional overtime related to the
integration of two of the Company's largest facilities.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSE.  Selling, general and
administrative expense increased $4.7 million or 35.3% to $17.9 million for the
year ended December 31, 1999 compared to $13.2 million for the year ended
December 31, 1998. As a percentage of revenues, selling, general and
administrative expense increased to 22.8% for the year ended December 31, 1999
compared to 22.1% for the year ended December 31, 1998. This increase was due to
increased amortization of intangible assets associated with acquisitions and an
increase in the Company's provision for doubtful accounts.

    OPERATING INCOME.  Operating income increased $3.9 million or 38.0% to
$13.9 million for the year ended December 31, 1999 compared to $10.0 million for
the year ended December 31, 1998. As a percentage of revenue, operating income
increased from 16.8% to 17.7%.

    INTEREST EXPENSE.  Interest expense increased 115.7% from $1.0 million in
1998 to $2.2 million in 1999. This increase was due to increased borrowings
under the Company's debt agreements related to the acquisitions of the Dub
House, All Post and Dubs.

    INCOME TAXES.  The Company's effective income tax rate was 41.5% for 1999
and 41.4% for 1998.

    NET INCOME.  Net income for the year ended December 31, 1999 increased
$1.5 million or 28.9% to $6.8 million compared to $5.3 million for the year
ended December 31, 1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

    REVENUES.  Revenues increased by $18.9 million or 46.4% to $59.7 million for
the year ended December 31, 1998 compared to $40.8 million for the year ended
December 31, 1997. This increase in revenue was due to increased volume
resulting from (i) the acquisitions of All Post, Dubs, and the Dub House and
(ii) substantially increased marketing of the Company's media services. Revenues
at the All Post division were negatively affected by a substantial decrease in
the use of its services by one of its large clients.

    GROSS PROFIT.  Gross profit increased $7.3 million or 46.4% to
$23.2 million for the year ended December 31, 1998 compared to $15.9 million for
the year ended December 31, 1997. As a percentage of revenues, gross profit
remained at 38.9%. The gross margin increased for VDI's core businesses,
however, this increase was offset by lower margins at the newly acquired All
Post facility. All Post was affected by increased fixed costs, as a percent of
sales, due to a substantial decrease in the use of its services by one of its
large clients. The decrease in revenue was not offset by a corresponding
elimination of redundant costs or reduction in production wages.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSE.  Selling, general and
administrative expense increased $3.9 million or 42.7% to $13.2 million for the
year ended December 31, 1998 compared to $9.3 million for the year ended
December 31, 1997. As a percentage of revenues, selling, general and
administrative expense decreased to 22.1% for the year ended December 31, 1998
compared to 22.7% for the year ended December 31, 1997. This decrease was
primarily due to a decrease in administrative wages as a percentage of revenue
in the year ended December 31, 1998. This decrease was partially offset by
higher than expected administrative wages at the Company's All Post division.

    OPERATING INCOME.  Operating income increased $3.4 million or 51.7% to
$10.0 million for the year ended December 31, 1998 compared to $6.6 million for
the year ended December 31, 1997. As a percentage of revenue, operating income
increased from 16.2% to 16.8%.

    INTEREST EXPENSE.  Interest expense increased 239% from $0.3 million in 1997
to $1.0 million in 1998. This increase was due to increased borrowings under the
Company's debt agreements related to the acquisitions of the Dub House, All Post
and Dubs.

                                       12
<PAGE>
    INCOME TAXES.  The Company's effective income tax rate was 41.4% for 1998
and 39.2% for 1997. The difference in effective rates was primarily due to the
conversion of the Company's income tax status from an S Corporation to a C
Corporation.

    NET INCOME.  Net income for the year ended December 31, 1998 increased
$1.3 million or 33.4% to $5.3 million, compared to $4.0 million for the year
ended December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

    Since its inception, the Company has financed its operations through
internally generated cash flow, borrowings under lending agreements with
financial institutions, the initial public offering and, to a lesser degree,
borrowings from related parties. In the first quarter of 1997, the Company
completed its initial public offering of common stock. The net proceeds of the
initial public offering to the Company were approximately $17.9 million after
deducting the underwriters' discounts and commissions and offering expenses.

    At December 31, 1999, the Company's cash and cash equivalents aggregated
$3.0 million and net working capital was $2.0 million. The Company's operating
activities provided cash of $6.3 million in 1997, $6.4 million in 1998 and
$13.0 million for the year ended December 31, 1999.

    The Company's investing activities used cash $13.9 million in 1997,
$34.0 million in 1998 and $10.9 million for the year ended December 31, 1999.
Investing activities during 1999 included the expenditure of $7.7 million for
the addition and replacement of capital equipment, investments in facility
consolidations and upgrades to management information systems. The Company's
business is equipment intensive, requiring periodic expenditures of cash or the
incurrence of additional debt to acquire additional video equipment in order to
increase capacity or replace existing equipment. The Company expects to spend
approximately $9.5 million during 2000 on capital expenditures for the addition
and replacement of equipment, including approximately $5.0 million for
investments in HDTV technologies, and for management information system
upgrades.

    The Company's financing activities provided cash of $9.9 million in 1997,
$26.7 million in 1998 and used cash of $1.1 million in the year ended
December 31, 1999. Cash flows from financing activities during the year ended
December 31, 1999 include the use of $3.1 million to repurchase 572,700 shares
of the Company's common stock.

    The Company has a $6.0 million revolving credit agreement with Union Bank of
California (the "Bank") which expires on November 1, 2000. There was
$5.9 million outstanding under the Union Bank Credit Agreement at December 31,
1999. The Company also has a $29.0 million term loan with the Bank, of which
$22.2 million was outstanding at December 31, 1999, and a $2.5 million term loan
outstanding which becomes due and payable on April 30, 2000. Management is
currently in the process of negotiating increases to its existing term loan and
line of credit, which it expects to complete by April 30, 2000.

    Management believes that cash generated from its credit facility (as
proposed to be amended), ongoing operations and existing working capital will
fund necessary capital expenditures and provide adequate working capital for the
next twelve months.

    The Company reviews the acquisition of businesses complementary to its
current operations on an ongoing basis and, depending on the number, size and
timing of such transactions, may be required to secure additional financing.

YEAR 2000 COMPLIANCE ISSUE

    The risks posed by Year 2000 issues, which arise because computer systems
and software products may be unable to distinguish 21(st) century dates from
20(th) century dates, could harm the Company's business. Prior to the end of
1999 the Company completed a review of the Year 2000 compliance of its IT
infrastructure, business and operational systems and third-party suppliers. The
Company's review included testing to determine how their systems would function
at and beyond the Year 2000. To date,

                                       13
<PAGE>
the Company has not experienced any material Year 2000 related problems with its
IT infrastructure, business systems or operational systems. Additionally, the
Company is not aware of any failure by its third-party suppliers to be Year 2000
compliant that could impact its business or operations. However, there is an
ongoing risk that such problems or failures could arise or become apparent in
the future. Any such problems or failures experienced by the Company or its
customers could have negative consequences for the Company, including decreasing
the demand for its products and interrupting its operations. As a result, the
Company's supply chain and revenue could be harmed.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The financial statements and supplementary data required by Item 8 are set
forth in the pages indicated in Item 14(a)(1).

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

    None.

                                       14
<PAGE>
                                    PART III
                      DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the definitive Proxy Statement of the Company to be filed with
the Commission not later than April 29, 2000, pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended, are incorporated by reference in
Part III of this Form 10-K.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The information called for in Item 10 of Part III shall be filed in the
Company's definitive Proxy Statement, pursuant to Regulation 14A of the
Securities Exchange Act of 1934 (as amended) or in an amendment to this Annual
Report of Form 10-K under Form 10K/A.

ITEM 11. EXECUTIVE COMPENSATION

    The information called for in Item 11 of Part III shall be filed in the
Company's definitive Proxy Statement, pursuant to Regulation 14A of the
Securities Exchange Act of 1934 (as amended) or in an amendment to this Annual
Report of Form 10-K under Form 10K/A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information called for in Item 12 of Part III shall be filed in the
Company's definitive Proxy Statement, pursuant to Regulation 14A of the
Securities Exchange Act of 1934 (as amended) or in an amendment to this Annual
Report of Form 10-K under Form 10K/A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information called for in Item 13 of Part III shall be filed in the
Company's definitive Proxy Statement, pursuant to Regulation 14A of the
Securities Exchange Act of 1934 (as amended) or in an amendment to this Annual
Report of Form 10-K under Form 10K/A.

                                       15
<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

    (a) Documents Filed as Part of this Report:

(1) Financial Statements

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Report of Independent Accountants...........................    F-1
Consolidated Balance Sheet at December 31, 1998 and 1999....    F-2
Consolidated Statement of Income for each of the three years
  in the period ended December 31, 1999.....................    F-3
Consolidated Statement of Shareholders' Equity for each of
  the three years in the period ended December 31, 1999.....    F-4
Consolidated Statement of Cash Flows for each of the three
  years in the period ended December 31, 1999...............    F-5
Notes to Consolidated Financial Statements..................    F-6
</TABLE>

    The following financial statement schedule of the Company and its
subsidiaries is included in Item 14(a)(1):

    Schedule II Valuation and Qualifying Accounts Page 18

    All other financial statement schedules not listed above have been omitted
since the required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or required.

    (2) Exhibits

<TABLE>
<CAPTION>

<C>                     <S>
      2.1               Agreement and Plan of Merger, dated as of December 24, 1999,
                        among VDI MultiMedia, VDI MultiMedia, Inc. and VMM Merger
                        Corp. (incorporated by reference to the same numbered
                        Exhibit to the Company's Current Report on Form 8-K filed
                        with the Securities and Exchange Commission (the "SEC") on
                        January 11, 2000.)

      2.2               Shareholders Agreement, dated as of December 24, 1999, among
                        VMM Merger Corp., R. Luke Stefanko and Julia Stefanko
                        (incorporated by reference to the Schedule 13D of VMM Merger
                        Corp., Bain Capital Fund VI, L.P., Bain Capital Partners VI,
                        L.P. and Bain Capital Investors VI, Inc., filed with the
                        Securities and Exchange Commission on January 3, 2000).

      3.1               Restated Articles of Incorporation of the Company
                        (incorporated by reference to the same numbered Exhibit to
                        the Company's Amendment No. 1 to the Registration Statement
                        on Form S-1 filed with the SEC on May 17, 1996 (the "S-1")
                        filed with the SEC on December 31, 1996 ("Amendment No.
                        1")).

      3.2               By-laws of the Company (incorporated by reference to the
                        same numbered Exhibit to the Company's Amendment No. 1).

      4.1               Specimen Certificate for Common Stock (incorporated by
                        reference to the same numbered Exhibit to the Company's
                        Amendment No. 1).

      4.2               1996 Stock Incentive Plan of the Company (incorporated by
                        reference to the same numbered Exhibit to the Company's
                        Amendment No. 1).
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>

<S>                     <C>
10.1                    Employment Agreement between the Company and Luke Stefanko
                        (incorporated by reference to the same numbered Exhibit to
                        the Company's Amendment No. 1).
10.2                    Employment Agreement between the Company and Tom Ennis
                        (incorporated by reference to the same numbered Exhibit to
                        the Company's Amendment No. 1).
10.3                    Employment Agreement between the Company and Eric Bershon
                        (incorporated by reference to the same numbered Exhibit to
                        the Company's Amendment No. 1).
10.5                    Business Loan Agreement (Revolving Credit) between the
                        Company and Union Bank dated July 1, 1995, as amended on
                        April 1, 1996, and June 1996 (incorporated by reference to
                        the same numbered Exhibit to the Company's Amendment No. 1).
10.6                    Joint Operating Agreement effective as of March 1, 1994,
                        between the Company and Vyvx, Inc. (incorporated by
                        reference to the same numbered Exhibit to the Company's
                        Amendment No. 1).
10.7                    Lease Agreement between the Company and 6920 Sunset
                        Boulevard Associates dated May 17, 1994 (Hollywood facility)
                        (incorporated by reference to the same numbered Exhibit to
                        the Company's S-1).
10.8                    Lease Agreement between the Company and 3767 Overland
                        Associates, Ltd. dated April 25, 1996 (West Los Angeles
                        facility) (incorporated by reference to the same numbered
                        Exhibit to the Company's S-1).
10.9                    Lease Agreement between the Company and The Bovaird Supply
                        Company dated June 3, 1994 (Tulsa Control Center)
                        (incorporated by reference to the same numbered Exhibit to
                        the Company's S-1).
10.10                   Loan Agreement between the Company and R. Luke Stefanko
                        dated as of April 1, 1996 (incorporated by reference to the
                        same numbered Exhibit to the Company's S-1).
10.12                   Term Loan Agreement between the Company and Union Bank
                        (incorporated by reference to the same numbered Exhibit to
                        the Company's Amendment No. 1).
10.13                   Asset Purchase Agreement, dated as of December 28, 1996 by
                        and among VDI Media, Woodholly Productions, Yvonne Parker,
                        Rodger Parker, Jim Watt and Kim Watt (incorporated by
                        reference to the same numbered Exhibit to the Company's
                        Amendment No. 1).
10.14                   Asset Purchase Agreement, dated as of June 12, 1998 by and
                        between VDI Media and All Post, Inc. (incorporated by
                        reference to the Company's Form 8-K filed on June 29, 1998).
10.15                   Asset Purchase Agreement, dated as of November 9, 1998 by
                        and among VDI Media, Dubs Incorporated, Vincent Lyons and
                        Barbara Lyons (incorporated by reference to the Company's
                        form 8-K filed on December 2, 1998).
21.                     Subsidiaries of the registrant.
23.                     Consent of Independent Accountants.
27.                     Financial Data Schedule.
</TABLE>

------------------------

    (b) Reports on 8-K:

    No reports on Form 8-K were filed during the quarter ended December 31,
1999.

                                       17
<PAGE>
                                   VDI MEDIA

                   Schedule II--Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                          BALANCE AT    CHARGED TO    PURCHASE                   BALANCE AT
                                         BEGINNING OF   COSTS AND    ACCOUNTING    DEDUCTIONS/     END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS             PERIOD       EXPENSES    ADJUSTMENTS   WRITE-OFFS      PERIOD
-------------------------------          ------------   ----------   -----------   -----------   ----------
<S>                                      <C>            <C>          <C>           <C>           <C>
Year ended December 31, 1999...........    $878,000      $790,000       --          ($697,000)    $971,000
Year ended December 31, 1998...........    $607,000      $ 51,000     $220,000         --         $878,000
Year ended December 31, 1997...........    $460,000        --         $177,000      ($ 30,000)    $607,000
</TABLE>

                                       18
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of VDI MultiMedia

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of VDI
MultiMedia and its subsidiaries at December 31, 1998 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

Century City, California
February 11, 2000

                                      F-1
<PAGE>
                                 VDI MULTIMEDIA

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              -------------------------
                                                                 1998          1999
                                                              -----------   -----------
<S>                                                           <C>           <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 2,048,000   $ 3,030,000
  Accounts receivable, net of allowances for doubtful
    accounts of $878,000 and $971,000, respectively.........   17,329,000    19,736,000
  Inventories...............................................      734,000     1,122,000
  Prepaid expenses and other current assets.................      976,000     1,413,000
  Deferred income taxes.....................................      917,000     1,096,000
                                                              -----------   -----------
    Total current assets....................................   22,004,000    26,397,000
Property and equipment, net (Note 4)........................   17,655,000    21,860,000
Other assets, net...........................................      406,000       297,000
Goodwill and other intangibles, net.........................   24,784,000    26,510,000
                                                              -----------   -----------
                                                              $64,849,000   $75,064,000
                                                              ===========   ===========
            LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 4,480,000   $ 6,998,000
  Accrued expenses..........................................    1,528,000     2,581,000
  Income taxes payable......................................      548,000       418,000
  Borrowings under revolving credit agreement (Note 5)......      233,000     5,888,000
  Current portion of notes payable (Note 6).................    5,827,000     8,309,000
  Current portion of capital lease obligations (Note 6).....      525,000       217,000
                                                              -----------   -----------
    Total current liabilities...............................   13,141,000    24,411,000
                                                              -----------   -----------
  Deferred tax liability....................................      350,000     1,408,000
                                                              -----------   -----------
  Notes payable, less current portion (Note 6)..............   22,234,000    16,433,000
                                                              -----------   -----------
  Capital lease obligations, less current portion (Note
    6)......................................................      214,000        68,000
                                                              -----------   -----------
Commitments and contingencies (Note 8)
Shareholders' equity:
  Preferred stock--no par value; 5,000,000 shares
    aurthorized; none outstanding...........................           --            --
  Common stock--no par value; 50,000,000 shares authorized;
    9,776,094 and 9,210,697 shares issued and outstanding,
    respectively............................................   20,948,000    17,935,000
  Retained earnings.........................................    7,962,000    14,809,000
                                                              -----------   -----------
    Total shareholders' equity..............................   28,910,000    32,744,000
                                                              -----------   -----------
                                                              $64,849,000   $75,064,000
                                                              ===========   ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-2
<PAGE>
                                 VDI MULTIMEDIA

                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------
                                                           1997          1998          1999
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Revenues..............................................  $40,772,000   $59,697,000   $78,248,000
Cost of goods sold....................................   24,898,000    36,454,000    46,526,000
                                                        -----------   -----------   -----------
    Gross profits.....................................   15,874,000    23,243,000    31,722,000

Selling, general, and administrative expense..........    9,253,000    13,201,000    17,860,000
                                                        -----------   -----------   -----------
Operating income......................................    6,621,000    10,042,000    13,862,000
Interest expense......................................      294,000       997,000     2,151,000
Interest income.......................................      226,000        21,000         4,000
                                                        -----------   -----------   -----------
Income before income taxes............................    6,553,000     9,066,000    11,715,000
Provision for income taxes............................    2,572,000     3,756,000     4,868,000
                                                        -----------   -----------   -----------
    Net income........................................  $ 3,981,000   $ 5,310,000   $ 6,847,000
                                                        ===========   ===========   ===========
Earnings per share:
  Basic:
    Net income per share..............................  $      0.44   $      0.55   $      0.73
    Weighted average number of shares.................    9,122,575     9,737,392     9,322,249
  Diluted:
    Net income per share..............................  $      0.43   $      0.54   $      0.71
    Weighted average number of shares including the
      dilutive effect of stock options (78,513 and
      276,305 for 1998 and 1999, respectively)........    9,207,940     9,815,905     9,598,554
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-3
<PAGE>
                                 VDI MULTIMEDIA

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                   COMMON STOCK                           TOTAL
                                              -----------------------    RETAINED     SHAREHOLDER'S
                                               SHARES       AMOUNT       EARNINGS        EQUITY
                                              ---------   -----------   -----------   -------------
<S>                                           <C>         <C>           <C>           <C>
Balance at December 31, 1996................  6,660,000   $ 1,015,000   $ 4,226,000    $ 5,241,000
Net income..................................         --            --     3,981,000      3,981,000
Distributions to shareholders...............         --            --    (5,555,000)    (5,555,000)
Common shares issued........................  2,920,000    17,865,000            --     17,865,000
                                              ---------   -----------   -----------    -----------
Balance at December 31, 1997................  9,580,000    18,880,000     2,652,000     21,532,000
Net income..................................         --            --     5,310,000      5,310,000
Shares issued in connection with company
  acquisitions..............................     30,770       342,000            --        342,000
Shares issued in connection with exercise of
  stock options.............................    165,324     1,157,000            --      1,157,000
Tax effect of exercise of stock option......         --       569,000            --        569,000
                                              ---------   -----------   -----------    -----------
Balance at December 31, 1998................  9,776,094    20,948,000     7,962,000     28,910,000
Net income..................................         --            --     6,847,000      6,847,000
Shares repurchased in connection with stock
  repurchase plan...........................   (572,700)   (3,064,000)           --     (3,064,000)
Shares issued in connection with exercise of
  stock options.............................      7,303        51,000            --         51,000
                                              ---------   -----------   -----------    -----------
Balance at December 31, 1999................  9,210,697   $17,935,000   $14,809,000    $32,744,000
                                              =========   ===========   ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-4
<PAGE>
                                 VDI MULTIMEDIA

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                              ------------------------------------------
                                                                  1997           1998           1999
                                                              ------------   ------------   ------------
<S>                                                           <C>            <C>            <C>
Cash flows from operating activities:
  Net income................................................  $  3,981,000   $  5,310,000   $  6,847,000
  Adjustments to reconcile net income to net cash provided
    by operating activities:
  Depreciation and amortization.............................     3,722,000      4,876,000      5,024,000
  Provision for doubtful accounts...........................       (30,000)        51,000        790,000
  Gain on sale of equipment.................................       (11,000)            --        (25,000)
  (Increase) decrease in deferred income taxes..............      (460,000)      (118,000)       879,000
Changes in assets and liabilities:
  (Increase) decrease in accounts receivable................    (2,943,000)        49,000     (3,197,000)
  Decrease in amounts receivable from employees.............       220,000             --             --
  Decrease (increase) in inventories........................         9,000        185,000       (388,000)
  Increase in prepaid expenses and other current assets.....      (141,000)      (196,000)      (437,000)
  (Increase) decrease in other assets.......................       (18,000)      (162,000)       109,000
  Increase (decrease) in accounts payable...................        46,000     (1,995,000)     2,518,000
  Increase (decrease) in accrued expenses...................     1,151,000     (1,906,000)     1,053,000
  Increase (decrease) in income taxes payable...............       791,000        326,000       (130,000)
                                                              ------------   ------------   ------------
    Net cash provided by operating activities...............     6,317,000      6,420,000     13,043,000

Cash used in investing activities:
  Capital expenditures......................................    (1,686,000)    (6,798,000)    (7,672,000)
  Proceeds from sale of assets..............................        18,000             --         49,000
  Acquisitions, net of cash acquired........................   (12,237,000)   (27,207,000)    (3,307,000)
                                                              ------------   ------------   ------------
    Net cash used in investing activities...................   (13,905,000)   (34,005,000)   (10,930,000)

Cash flows from financing activities:
  Distributions to shareholders.............................    (5,555,000)            --             --
  Repurchase of common stock................................            --             --     (3,064,000)
  Proceeds from sale of common stock........................    17,865,000             --             --
  Proceeds form exercise of stock options...................            --      1,157,000         51,000
  Change in revolving credit agreement......................       686,000       (853,000)     5,655,000
  Proceeds from bank note...................................            --     29,000,000      2,500,000
  Repayment of notes payable................................    (4,079,000)    (1,846,000)    (5,819,000)
  Repayment of capital lease obligations....................    (1,062,000)      (746,000)      (511,000)
  Proceeds from capital leases..............................            --             --         57,000
  Decrease in amount receivable from officer................     1,214,000             --             --
  Decrease in deferred offering costs.......................       876,000             --             --
                                                              ------------   ------------   ------------
    Net cash provided by (used in) financing activities.....     9,945,000     26,712,000     (1,131,000)

Net increase (decrease) in cash.............................     2,357,000       (873,000)       982,000

Cash and cash equivalents at beginning of period............       564,000      2,921,000      2,048,000
                                                              ------------   ------------   ------------

Cash and cash equivalents at end of period..................  $  2,921,000   $  2,048,000   $  3,030,000
                                                              ============   ============   ============
Supplemental disclosure cash flows information:
  Cash paid for:
    Interest................................................  $    276,000   $    997,000   $  2,151,000
                                                              ============   ============   ============
    Income tax..............................................  $  2,241,000   $  3,779,000   $  4,154,000
                                                              ============   ============   ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-5
<PAGE>
                                 VDI MULTIMEDIA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY:

    VDI MultiMedia ("VDI" or the "Company") provides video and film asset
management services to owners, producers and distributors of entertainment and
advertising content. The Company provides the services necessary to edit,
master, reformat, archive and distribute its clients' video content, including
television programming, spot advertising and movie trailers. The Company
provides worldwide electronic distribution, using fiber optics and satellites.
The Company delivers commercials, movie trailers, electronic press kits,
infomercials and syndicated programming, by both physical and electronic means,
to thousands of broadcast outlets worldwide.

    In February 1997, the Company completed the sale of a portion of its common
shares in an initial public offering ("IPO"). Prior to the offering, the Company
had elected S-Corporation status for federal and state income tax purposes. As a
result of the offering, the S-Corporation status terminated. Thereafter, the
Company has paid federal and state income taxes as a C-Corporation (see
Note 7).

    On December 24, 1999, VDI entered into an Agreement and Plan of Merger,
among the Company and VMM Merger Corp., a Delaware corporation and an affiliate
of Bain Capital, Inc. Under the terms of the agreement, substantially all of the
shares of the Company's outstanding common stock (other than certain rollover
shares) will be converted in a series of merger transactions into the right to
receive $15 per share in cash. Certain shares held by continuing management and
shares held by certain other non-affiliated shareholders will remain outstanding
and rollover into common stock of the Company following the transaction. The
transaction is valued at approximately $200 million inclusive of debt repayment,
fees and expenses. Bain, through its affiliated funds, has agreed to provide
equity financing for the transaction. The Company entered into the merger
agreement following its approval by a unanimous vote of the Board of Directors
following the recommendation of the entire board with management directors
abstaining (see Note 12).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    BASIS OF CONSOLIDATION

    The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

    USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

    CASH AND CASH EQUIVALENTS

    Cash equivalents represent highly liquid short-term investments with
original maturities of less than 90 days.

                                      F-6
<PAGE>
                                 VDI MULTIMEDIA

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    REVENUES AND RECEIVABLES

    The Company records revenues and receivables at the time products are
delivered to customers or services are performed. Although sales and receivables
are concentrated in the entertainment industry, credit risk is limited due to
the financial stability of the customer base. The Company performs on-going
credit evaluations and maintains reserves for potential credit losses. Such
losses have historically been within management's expectations.

    INVENTORIES

    Inventories comprise raw materials, principally tape stock, and are stated
at the lower of cost or market. Cost is determined using the average cost
method.

    PROPERTY AND EQUIPMENT

    Property and equipment are stated at cost. Expenditures for additions and
major improvements are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets. Amortization of leasehold
improvements is computed using the straight-line method over the lesser of the
estimated useful lives of the improvements or the remaining lease term. The
estimated useful life of property and equipment is seven years and leasehold
improvements is ten years.

    Effective January 1, 1999, the Company changed its estimate of useful lives
of property and equipment. During 1998 and prior, the Company depreciated
property and equipment over five years. In 1999, the Company depreciated
property and equipment over seven years. The Company believes that this change
best reflects the future benefit of property and equipment. Had the Company not
changed its estimate of useful lives, it would have resulted in approximately
$1,400,000 of additional depreciation expense in 1999.

    GOODWILL AND OTHER INTANGIBLES

    Goodwill is amortized on a straight-line basis over 20 years. The Company
evaluates the recoverability of goodwill and reviews the amortization periods on
a regular basis. Recoverability is measured on the basis of anticipated
undiscounted cash flows from operations. At December 31, 1998 and 1999, no
impairment was indicated. Other intangibles consist primarily of covenants not
to compete and are amortized on a straight-line basis over 3-5 years.
Amortization expense totaled $288,000, $954,000 and $1,581,000 for the three
years in the period ended December 31, 1999, respectively.

    INCOME TAXES

    The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). FAS 109 requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
carrying amounts for financial reporting purposes and the tax basis of assets
and liabilities. A valuation allowance is recorded for that portion of deferred
tax assets for which it is more likely than not that the assets will not be
realized.

                                      F-7
<PAGE>
                                 VDI MULTIMEDIA

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    FAIR VALUE OF FINANCIAL INSTRUMENTS

    To meet the reporting requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments," the
Company calculates the fair value of financial instruments and includes this
additional information in the notes to financial statements when the fair value
is different than the book value of those financial instruments. When the fair
value is equal to the book value, no additional disclosure is made. The Company
uses quoted market prices whenever available to calculate these fair values.

    ACCOUNTING FOR STOCK-BASED COMPENSATION

    As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), the Company measures
compensation cost in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," but provides pro forma
disclosures of net income and earnings per share measured using fair value
method defined by FAS 123.

    EARNINGS PER SHARE

    Effective in the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128") and
related interpretations. FAS 128 requires dual presentation of Basic Earnings
per Share ("Basic EPS") and Diluted Earnings per Share ("Diluted EPS"). Basic
EPS excludes dilution and is computed by dividing net income by the weighted
average number of common shares outstanding during the reported period. Diluted
EPS reflects the potential dilution that could occur if stock options were
exercised using the treasury stock method. Earnings per share for all prior
periods have been restated to reflect the adoption of FAS 128.

    COMPREHENSIVE INCOME

    In 1998, the Company adopted Statement of SFAS No. 130, "Reporting
Comprehensive Income." This Statement establishes standards for the reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. The implementation of SFAS No. 130 did not have an
impact on the Company's results of operations.

    SEGMENT DISCLOSURE

    In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 requires publicly-held
companies to report financial and descriptive information about its operating
segments in financial statements issued to shareholders for interim and annual
periods. The Statement also requires additional disclosure with respect to
products and services, geographic areas of operation, and major customers. This
Statement does not have an impact, as the Company believes it operates within
one business segment.

    RECENT ISSUED ACCOUNTING PRONOUNCEMENTS

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all quarters of
fiscal years beginning after June 15, 2000. This Statement establishes
accounting and reporting standards for derivative instruments, including certain

                                      F-8
<PAGE>
                                 VDI MULTIMEDIA

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
derivative instruments embedded in other contracts, and for hedging activities.
The Company does not believe that this Statement will have an impact on the
Company's results of operations.

3. ACQUISITIONS:

    On November 9, 1998, the Company acquired substantially all of the assets of
Dubs, Inc. ("Dubs"). Dubs provides full service duplication, distribution, video
content storage and ancillary services to major motion picture studios and
independent production companies for both domestic and international use. As
consideration, the Company will pay Dubs $11,312,000, of which $10,437,000 was
paid in 1998. The remaining $875,000, payable at December 31, 1999, relates to
payments which were held back to secure any required post-closing purchase price
adjustments.

    On June 12, 1998, the Company acquired substantially all of the assets of
All Post, Inc. ("All Post"). All Post provides full service duplication,
distribution, video content storage and ancillary services to major motion
picture studios and independent production companies for both domestic and
international use. As consideration, the Company paid All Post $13,000,000 in
1998.

    On June 9, 1998, the Company acquired all of the assets of the Dub House,
Inc. ("Dub House"). The Dub House distributes broadcast media for advertising
agencies, independent producers and other broadcast media providers. As
consideration, the Company paid the owners of the Dub House $1,561,000 in 1998.

    On November 21, 1997, the Company acquired all of the outstanding shares of
Fast Forward, Inc. ("Fast Forward"), a provider of video duplication and
distribution services primarily to advertising agencies and post production
companies. The excess of purchase price over the fair value of net assets
acquired was allocated to goodwill. The purchase price consisted of $1,400,000
of cash, of which $1,150,000 paid during 1998 and 30,770 shares of common stock
which were issued December 31, 1997 and earn-out payments of up to $600,000. The
earn-out provisions are based upon Fast Forward attaining certain performance
goals through December 2000. The contingent purchase price, to the extent
earned, will be recorded as an increase to goodwill and amortized over the
remaining useful life of the goodwill. As of December 31, 1999, the Company has
paid $161,000 in earn-out payments.

    The Company acquired substantially all of the assets and assumed certain
liabilities of Video It, Inc. ("Video It") on October 7, 1997. Video It provides
low-end audio and video editing, as well as duplication and distribution
services, primarily for infomercials. The purchase price consisted of $150,000
in cash and earn-out payments.

    In August 1997, the Company acquired all of the outstanding capital stock of
Multi-Media Services, Inc. ("Multi-Media"). Multi-Media principally provides
video duplication, distribution, and content storage to major advertising
agencies. Through the acquisition of Multi-Media, the Company acquired
facilities in Los Angeles, Chicago, New York and San Francisco. The purchase
price paid by the Company for Multi-Media was $6,867,000 (including the
immediate repayment of $1,545,000 of indebtedness). In addition, the Company may
be required to pay, as an earn-out, up to an aggregate of $2,000,000, plus
interest from the closing date, in the event that Multi-Media, as a separate
subsidiary of the Company, achieves certain financial goals through
December 2002. If MultiMedia fails to achieve the targeted results in any
particular quarter, the related earn-out payment will be deferred up to two
years until the results are achieved. No earn-out payments will be made after
December 31, 2004. As of December 31, 1999, the Company has paid $170,000 in
earn-out payments.

                                      F-9
<PAGE>
                                 VDI MULTIMEDIA

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS: (CONTINUED)

    On January 1, 1997, the Company acquired all of the assets and certain
liabilities of Woodholly Productions ("Woodholly"). Woodholly provides full
service video duplication, distribution, content storage and ancillary services
to major motion picture studios, advertising agencies and independent production
companies for both domestic and international use. As consideration, the Company
will pay the partners of Woodholly a maximum of $8,000,000, of which $4,000,000
was paid in January 1997. The remaining balance is subject to earn-out
provisions which are predicated upon Woodholly attaining certain operating
income goals, as set forth in the purchase agreement in each quarter through
December 31, 2001. As of December 31, 1999, the Company has paid $1,961,000 in
earn-out payments.

    The above acquisitions were accounted for as purchases, with the excess of
the purchase price over the fair value of the net assets acquired allocated to
goodwill. The contingent purchase price, to the extent earned, will be recorded
as an increase to goodwill and will be amortized over the remaining useful life
of the goodwill. The consolidated financial statements reflect the operations of
the acquired companies since the dates of their respective acquisition.

    The following table reflects unaudited pro forma combined results of
operations of the Company, Multi-Media, All Post and Dubs as if the acquisitions
had occurred on January 1, 1997.

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                                 1997          1998
                                                              -----------   -----------
<S>                                                           <C>           <C>
Net sales...................................................  $80,382,000   $80,503,000
Net income..................................................  $ 1,218,000   $ 4,526,000
Basic and diluted earnings per share........................  $      0.13   $      0.46
</TABLE>

    These unaudited pro forma results have been prepared for comparative
purposes only and include certain pro forma adjustments, including a pro forma
provision for income taxes for Multi-Media and Dubs at 40 percent. Such pro
forma amounts are not necessarily indicative of what actual consolidated results
of operations might have been if the acquisitions had been effective on
January 1, 1997. Pro forma results of operations have not been presented for the
Dub House, Fast Forward and Video It because the effect of these acquisitions
was not significant.

4. PROPERTY AND EQUIPMENT:

    Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                                  1998           1999
                                                              ------------   ------------
<S>                                                           <C>            <C>
Machinery and equipment.....................................  $ 22,616,000   $ 27,092,000
Leasehold improvements......................................     5,190,000      7,716,000
Equipment under capital lease...............................     2,609,000      2,220,000
Vehicles....................................................       396,000         21,000
Computer equipment..........................................       732,000      1,920,000
                                                              ------------   ------------
                                                                31,543,000     38,969,000

Less accumulated depreciation and amortization..............   (13,888,000)   (17,109,000)
                                                              ------------   ------------
                                                              $ 17,655,000   $ 21,860,000
                                                              ============   ============
</TABLE>

                                      F-10
<PAGE>
                                 VDI MULTIMEDIA

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. PROPERTY AND EQUIPMENT: (CONTINUED)
    Depreciation expense aggregated $3,434,000, $3,922,000, and $3,444,000 for
the three years in the period ended December 31, 1999, respectively.

5. REVOLVING CREDIT AGREEMENT:

    The Company has a $6,000,000 revolving credit agreement with a bank. The
outstanding borrowing on this line of credit was $233,000 and $5,888,000 at
December 31, 1998 and 1999, respectively. Interest accrues at either the London
Interbank Offering Rate ("LIBOR") plus 1.25% or the bank's reference rate (7.75%
and 8.5% at December 31, 1998 and 1999, respectively). The Company may, at its
election, use a LIBOR based interest rate option with a margin of 1.25%. The
terms of the revolving credit agreement include covenants regarding the
maintenance of various financial ratios. At December 31, 1999, the Company was
in compliance with these covenants. The revolving credit agreement expires on
November 1, 2000.

6. LONG-TERM DEBT AND NOTES PAYABLE:

    TERM LOANS

    In November 1998, the Company borrowed $29,000,000 on a term loan with a
bank, payable in 60 monthly installments of $483,000 plus interest. The Company
had $28,033,000 and $22,233,000 outstanding on this loan at December 31, 1998
and 1999, respectively, and is secured by substantially all of the Company's
assets. The Company may, at its election, use LIBOR interest rate options, which
vary depending on the due dates of the principal payments. If the LIBOR interest
option is not elected, interest accrues at the bank's reference rate (7.75% and
8.5% at December 31, 1998 and 1999, respectively). The terms of the loan include
covenants regarding the maintenance of financial ratios. At December 31, 1999,
the Company was in compliance with these covenants. The loan matures on
October 31, 2003.

    During 1999, the Company established a $2,500,000 note with the same bank.
At December 31, 1999, the Company had $2,500,000 outstanding on this note.
Interest accrues at the bank's reference rate (8.5% at December 31, 1999). The
terms of the note include covenants regarding the maintenance of various
financial ratios. At December 31, 1999, the Company was in compliance with these
covenants. The note matures on April 30, 2000 (see Note 12).

    EQUIPMENT FINANCING AND CAPITAL LEASES

    The Company has financed the purchase of certain equipment through the
issuance of notes payable and under capital leasing arrangements. The notes bear
interest at rates ranging from 6.10% to 18.35%. Such obligations are payable in
monthly installments through November 2002.

                                      F-11
<PAGE>
                                 VDI MULTIMEDIA

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. LONG-TERM DEBT AND NOTES PAYABLE: (CONTINUED)
    Annual maturities for debt, under both the revolving credit and term loan
agreements, notes payable and capital lease obligations as of December 31, 1999,
are as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $14,410,000
2001........................................................    5,855,000
2002........................................................    5,817,000
2003........................................................    4,833,000
2004........................................................           --
                                                              -----------
                                                              $30,915,000
                                                              ===========
</TABLE>

7. INCOME TAXES:

    Prior to the IPO, the Company was recognized as an S-Corporation for federal
and state income tax purposes and was subject to tax at the shareholder level
rather than the corporate level. Therefore, no provision was made for federal
income tax on earnings or losses of the Company in the historical financial
statements. Earnings of S-Corporations are taxed at 1.5 percent in California
and the Company provided state taxes accordingly.

    Upon the IPO, the Company's S-Corporation status terminated. This resulted
in the establishment of a net deferred tax liability in February 1997 calculated
at the federal and state tax rates in effect. The result was a one-time non-cash
charge against earnings of $184,000 for additional income tax expense. The
deferred tax liability comprises certain asset valuation allowances which are
not currently deductible and differing methods of calculating depreciation for
income tax and financial reporting purposes.

    The Company's provision for income taxes for the three years ended December
31, 1999 consists of the following:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                           ------------------------------------
                                                              1997         1998         1999
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Current tax expense:
  Federal................................................  $2,415,000   $3,025,000   $3,047,000
  State..................................................     617,000      849,000      942,000
                                                           ----------   ----------   ----------
    Total current........................................   3,032,000    3,874,000    3,989,000
                                                           ----------   ----------   ----------
Deferred tax (benefit) expense:
  Federal................................................    (549,000)    (126,000)     710,000
  State..................................................     (95,000)       8,000      169,000
  Deferred tax provision resulting from termination of
    S-Corporation status.................................     184,000           --           --
                                                           ----------   ----------   ----------
    Total deferred.......................................    (460,000)    (118,000)     879,000
                                                           ----------   ----------   ----------
    Total provision for income taxes.....................  $2,572,000   $3,756,000   $4,868,000
                                                           ==========   ==========   ==========
</TABLE>

                                      F-12
<PAGE>
                                 VDI MULTIMEDIA

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES: (CONTINUED)

    The composition of the deferred tax assets (liabilities) at December 31,
1998 and December 31, 1999 are listed below.

<TABLE>
<CAPTION>
                                                                1998         1999
                                                              ---------   -----------
<S>                                                           <C>         <C>
Accrued liabilities.........................................  $ 646,000   $   648,000
Allowance for doubtful accounts.............................    305,000       416,000
Other.......................................................         --        32,000
                                                              ---------   -----------
    Total deferred tax assets...............................    951,000     1,096,000

Property and equipment......................................   (264,000)   (1,246,000)
Goodwill and other intangibles..............................   (113,000)     (162,000)
Other.......................................................     (7,000)           --
                                                              ---------   -----------
    Total deferred tax liabilities..........................   (384,000)   (1,408,000)
                                                              ---------   -----------
    Net deferred tax asset (liability)......................  $ 567,000   $  (312,000)
                                                              ---------   -----------
</TABLE>

    The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. Statutory income tax rates to income
before taxes as a result of the following differences:

<TABLE>
<CAPTION>
                                                                1998       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Federal tax computed at statutory rate......................      34%        34%
State taxes, net of federal benefit.........................       6%         6%
Other.......................................................       1%         2%
                                                                ----       ----
                                                                  41%        42%
                                                                ====       ====
</TABLE>

8. COMMITMENTS AND CONTINGENCIES:

    OPERATING LEASES

    The Company leases office and production facilities in California, Illinois,
Texas and New York under various operating leases. Approximate minimum rental
payments under these noncancellable operating leases as of December 31, 1999 are
as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $ 2,894,000
2001........................................................    2,872,000
2002........................................................    2,803,000
2003........................................................    2,292,000
2004........................................................    1,886,000
Thereafter..................................................    4,698,000
                                                              -----------
                                                              $17,445,000
                                                              ===========
</TABLE>

    Total rental expense was approximately $924,000, $2,460,000, and $3,251,000
for the three years in the period ended December 31, 1999, respectively.

                                      F-13
<PAGE>
                                 VDI MULTIMEDIA

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
    LEGAL PROCEEDINGS

    VDI is party to two class action lawsuits that allege claims against VDI and
its directors for breach of fiduciary duty alleged to have arisen from the
transactions contemplated by the merger agreement including, but not limited to,
alleged failure to announce any active auction, open bidding or similar
procedure, taking actions designed to halt any other offers and deter higher
offers so as to protect the interests of the defendants at the expense of VDI's
shareholders, and failure to take action that would maximize shareholder value.
The principal relief sought is certification of the putative class, an
injunction against the mergers and damages and attorney's fees in an unspecified
amount. The lawsuits were filed in December 1999 prior to the time when much of
the information about the matters alleged was publicly available.

    VDI believes that the allegations contained in the complaints are without
merit and intends to contest the actions vigorously, on behalf of itself and its
directors. Furthermore, VDI believes that any potential damages arising from
these claims would not have a material financial impact on the Company.

9. STOCK REPURCHASE PLAN:

    In February 1999, the Company announced that it would commence a stock
repurchase program. The Company did not set a target number of shares to be
repurchased. Instead, the board authorized the Company to allocate up to
$4,000,000 to purchase its common stock at suitable market prices. Under the
stock repurchase program, the Company may purchase outstanding shares in such
amounts and at such times and prices determined at the sole discretion of
management.

    The funds for the stock repurchases were provided by an amendment to the
Company's existing credit agreement with a bank. There is no assurance that the
Company will repurchase the entire $4,000,000 of common stock. During 1999, the
Company repurchased $3,064,000 of common stock.

10. STOCK INCENTIVE PLAN:

    In May 1996, the Board of Directors, approved the 1996 Stock Incentive Plan
(the "Plan"). The Plan provides for the award of options to purchase up to
900,000 shares of common stock, as well as stock appreciation rights,
performance share awards and restricted stock awards. The options of certain
executive officers became exercisable on February 28, 1997. The remaining
options vest and become exercisable over a period of one to three years, and
expire ten years from the grant date.

    In accounting for its plan, the Company, in accordance with the provisions
of FAS 123, applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." As a result of this election, the Company does not
recognize compensation expense for its stock option plans since the exercise
price of the options granted equals the fair value of the stock on the date of
grant. Had the Company determined compensation cost based on the fair value for
its stock options at grant date,

                                      F-14
<PAGE>
                                 VDI MULTIMEDIA

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCK INCENTIVE PLAN: (CONTINUED)
as set forth under FAS 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                              1997         1998         1999
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Net income:
  As reported............................................  $3,981,000   $5,310,000   $6,847,000
  Pro forma..............................................  $3,424,000   $5,157,000   $6,782,000
Earnings per share:
  As reported:
    Basic................................................  $     0.44   $     0.55   $     0.73
    Diluted..............................................  $     0.43   $     0.54   $     0.71
  Pro forma:
    Basic................................................  $     0.38   $     0.53   $     0.73
    Diluted..............................................  $     0.37   $     0.53   $     0.72
</TABLE>

    The fair value for these options was estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1999, respectively: expected volatility
of 62.4% and 63%; risk-free interest rates of 6.5% and 5.28%. A dividend yield
of 0% and expected life of five years was assumed for both 1997 and 1999 grants.
The weighted average fair value of options granted in 1997 and 1999 was $4.21
and $4.37, respectively. No options were granted during 1998.

    Transactions involving stock options are summarized as follows:

<TABLE>
<CAPTION>
                                                                NUMBER      WEIGHTED AVERAGE
                                                              OUTSTANDING    EXERCISE PRICE
                                                              -----------   ----------------
<S>                                                           <C>           <C>
Balance at January 1, 1997..................................          --        $     --
Granted during 1997.........................................     343,386            7.11
Exercised during 1997.......................................          --              --
Forfeited during 1997.......................................       5,726            7.00
                                                               ---------        --------
Balance at December 31, 1997................................     337,660        $   7.12
                                                               ---------        --------
Exercised during 1998.......................................     165,324            7.00
Forfeited during 1998.......................................      12,674            7.00
Expired during 1998.........................................         431            7.00
                                                               ---------        --------
Balance at December 31, 1998................................     159,231        $   7.24
                                                               ---------        --------
Granted during 1999.........................................   1,295,437            7.51
Exercised during 1999.......................................       7,303            7.00
Forfeited during 1999.......................................      17,730            7.00
Expired during 1999.........................................      21,314            7.00
                                                               ---------        --------
Balance at December 31, 1999................................   1,408,321        $   7.50
                                                               =========        ========
</TABLE>

    The range of exercise prices was $7.00 to $10.88 at December 31, 1997 and
1998 and $7.00 to $15.00 at December 31, 1999. The remaining contractual life of
outstanding options was 9.2, 8.2 and 9.2 years at each of the three years ended
December 31, 1999, respectively. There were 177,000, 79,484 and

                                      F-15
<PAGE>
                                 VDI MULTIMEDIA

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCK INCENTIVE PLAN: (CONTINUED)
105,052 options exercisable at a weighted average exercise price of $7.00, $7.24
and $7.37, at each of the three years ended December 31, 1999, respectively.

11. SALES TO MAJOR CUSTOMER:

    Sales to a single customer were $4,836,000 in 1997 and sales to another
customer were $7,824,000 in 1998. No sales to a single customer were more than
ten percent of sales for 1999.

12. SUBSEQUENT EVENTS: (UNAUDITED)

    On April 3, 2000, the Company announced that their proposed merger with an
affiliate of Bain Capital would be terminated. Concurrently, the Company
announced that its board of directors has authorized the repurchase by
management, in its sole discretion, in open market transactions of up to
$30 million of its common stock at market prices up to $15 per share, subject to
availability of funds.

    The Company is also currently negotiating a $4.0 million increase in its
line of credit with its bank and a $9.0 million increase in its existing term
loan. The Company plans to use these proceeds to retire the $2.5 million note
maturing on April 30, 2000, and to fund capital expenditures.

                                      F-16
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly cause this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated: March 30, 2000

<TABLE>
<S>                                                    <C>  <C>
                                                       VDI MEDIA

                                                       By:             /s/ DONALD R. STINE
                                                            -----------------------------------------
                                                                         Donald R. Stine
</TABLE>

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

<TABLE>
<C>                                                    <S>                          <C>
                /s/ R. LUKE STEFANKO
     -------------------------------------------
                  R. Luke Stefanko                     Chairman of the Board and      March 30, 2000
                                                       Chief Executive Officer

                 /s/ DONALD R. STINE
     -------------------------------------------
                   Donald R. Stine                     Director and President         March 30, 2000
                                                       (principal executive
                                                       officer)

                /s/ CLARKE W. BREWER
     -------------------------------------------
                  Clarke W. Brewer                     Chief Financial Officer and    March 30, 2000
                                                       Treasurer (principal
                                                       financial and accounting
                                                       officer)

                 /s/ THOMAS J. ENNIS
     -------------------------------------------
                   Thomas J. Ennis                     Director                       March 30, 2000

               /s/ ROBERT S. FEUERMAN
     -------------------------------------------
                 Robert S. Feuerman                    Director                       March 30, 2000

                  /s/ FRED S. TENG
     -------------------------------------------
                    Fred S. Teng                       Director                       March 30, 2000
</TABLE>