-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K2YHT+2bvqDmIKwbrW5x+OWpI4+bzlER+YN2vWWTXT4hGgmcDpAh0kdxKYyVjXSf oSZUTBSizDTkR87I7Nk5/A== 0000912057-97-023697.txt : 19970710 0000912057-97-023697.hdr.sgml : 19970710 ACCESSION NUMBER: 0000912057-97-023697 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970709 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITEL VIDEO INC/DE CENTRAL INDEX KEY: 0000740103 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ALLIED TO MOTION PICTURE PRODUCTION [7819] IRS NUMBER: 231713238 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08654 FILM NUMBER: 97637770 BUSINESS ADDRESS: STREET 1: 555 WEST 57TH STREET STREET 2: 12TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125819411 MAIL ADDRESS: STREET 1: 555 WEST 57TH STREET STREET 2: 12FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- ---------------------- Commission file number 1-8654 Unitel Video, Inc. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 23-1713238 - ------------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer) incorporation or organization) Identification No. 555 West 57th Street--New York, New York 10019 - ------------------------------------------------------------------------------ (Address of principal executive offices) (212) 265-3600 - ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) - ------------------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) 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 twelve months and (2) has been subject to such requirements for the past 90 days. Yes / X / No / / APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 2,674,665 Common shares outstanding as of July 8, 1997 (Number of shares) (Date) UNITEL VIDEO, INC. FORM 10-Q QUARTER ENDED May 31, 1997 Page INDEX NUMBER Part I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets May 31, 1997 (Unaudited) and August 31, 1996 3-4 Consolidated Statements of Operations May 31, 1997 (Unaudited) and May 31, 1996 (Unaudited) 5 Consolidated Statements of Cash Flows May 31, 1997 (Unaudited) and May 31, 1996 (Unaudited) 6-7 Notes to Consolidated Financial Statements (Unaudited) 8-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-14 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15 2 UNITEL VIDEO, INC. FORM 10-Q QUARTER ENDED May 31, 1997 Part 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS AUGUST 31, MAY 31, 1997 1996 ------------- -------------- (UNAUDITED) (NOTE) ASSETS - ------ Current Assets: Cash............................................ $ 75,000 $ 192,000 Accounts receivable, net........................ 7,417,000 8,701,000 Other receivables............................... 82,000 333,000 Prepaid income taxes............................ 186,000 142,000 Prepaid expenses................................ 500,000 735,000 Net assets held for sale........................ -- 1,587,000 Deferred tax asset.............................. 844,000 844,000 ------------- ------------- Total current assets.............................. 9,104,000 12,534,000 Property and equipment--at cost Land, buildings and improvements................ 20,287,000 19,915,000 Video equipment................................. 104,043,000 97,023,000 Furniture and fixtures.......................... 4,107,000 3,502,000 ------------- -------------- 128,437,000 120,440,000 Less accumulated depreciation..................... 75,550,000 69,974,000 ------------- -------------- 52,887,000 50,466,000 Deferred tax asset................................ 1,625,000 1,625,000 Goodwill.......................................... 1,755,000 1,859,000 Other assets...................................... 1,126,000 1,134,000 ------------- -------------- $ 66,497,000 $ 67,618,000 ------------- -------------- Note: The balance sheet at August 31, 1996 has been taken from the audited consolidated financial statements at that date. See notes to consolidated financial statements. 3 UNITEL VIDEO, INC. FORM 10-Q CONSOLIDATED BALANCE SHEETS (Continued) AUGUST 31, MAY 31, 1997 1996 (UNAUDITED) (NOTE) ------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable................................ 6,471,000 $ 4,967,000 Accrued expenses................................ 573,000 1,450,000 Payroll, benefits and related taxes............. 1,538,000 2,947,000 Current maturities of long-term debt............ 7,090,000 8,362,000 Current maturities of subordinated debt......... 1,167,000 1,166,000 Current maturities of ESOP loan................. 30,000 166,000 Current maturities of capital lease obligations............................. 2,120,000 1,832,000 ------------- -------------- Total current liabilities....................... 18,989,000 20,890,000 Deferred rent..................................... 114,000 325,000 Long-term debt, less current maturities........... 21,786,000 19,706,000 Subordinated debt, less current maturities........ 1,667,000 1,979,000 Long-term leases, less current maturities......... 4,928,000 5,604,000 Accrued retirement................................ 1,208,000 1,304,000 Stockholders' equity: Common stock, par value $.01 per share Authorized 5,000,000 shares Issued 2,674,665 and 3,532,554 shares respectively, and outstanding and 2,666,265 shares respectively................. 27,000 26,000 Additional paid-in capital........................ 27,538,000 27,545,000 Accumulated deficit............................... (1,754,000) (1,592,000) Common stock held in treasury, at cost (866,289 shares)................................ (7,974,000) (7,974,000) ------------- ------------ 17,837,000 18,005,000 Unearned employee benefit expense................. (32,000) (195,000) ------------- ------------ Total stockholders' equity...................... 17,805,000 17,810,000 ------------- ------------ $ 66,497,000 $ 67,618,000 ------------- ------------ ------------- ------------ Note: The balance sheet at August 31, 1996 has been taken from the audited consolidated financial statements at that date. See notes to consolidated financial statements. 4 UNITEL VIDEO, INC. FORM 10-Q CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED MAY 31, NINE MONTHS ENDED MAY 31, ---------------------------- ---------------------------- 1997 1996 1997 1996 ------------- ------------- ------------- ------------- Sales............................................... $ 15,840,000 $ 19,281,000 $ 47,210,000 $ 62,750,000 Cost of sales: Production costs.................................. 10,993,000 13,910,000 31,937,000 44,897,000 Depreciation...................................... 2,101,000 2,205,000 6,410,000 5,711,000 ------------- ------------- ------------- ------------- 13,094,000 16,115,000 38,347,000 50,608,000 ------------- ------------- ------------- ------------- Gross profit........................................ 2,746,000 3,166,000 8,863,000 12,142,000 Operating expenses: Selling........................................... 413,000 496,000 1,407,000 1,832,000 General and administrative........................ 2,072,000 2,429,000 5,193,000 7,416,000 Interest.......................................... 900,000 984,000 2,674,000 2,755,000 Restructuring charge (Note 5)..................... -- 1,246,000 -- 1,246,000 Impairment charge................................. -- 261,000 -- 2,000,000 ------------- ------------- ------------- ------------- 3,385,000 5,416,000 9,274,000 15,249,000 ------------- ------------- ------------- ------------- Earnings (loss) from operations.................... (639,000) (2,250,000) (411,000) (3,107,000) Other income (loss)................................ 96,000 (37,000) 250,000 (37,000) ------------- ------------- ------------- ------------- Earnings (loss) before income taxes................ (543,000) (2,287,000) (161,000) (3,144,000) Income taxes....................................... (18,000) 3,000 1,000 3,000 ------------- ------------- ------------- ------------- Net earnings (loss) applicable for common stock.... $ (525,000) $ (2,290,000) $ (162,000) $ (3,147,000) ------------- ------------- ------------- ------------- Net earnings (loss) per common share............... $ (.20) $ (.88) $ (.06) $ (1.21) ------------- ------------- ------------- ------------- Weighted average of common and common equivalent shares outstanding............................... 2,681,000 2,611,000 2,690,000 2,591,000 ------------- ------------- ------------- -------------
See notes to consolidated financial statements. 5 UNITEL VIDEO, INC. FORM 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED --------------------------- MAY 31, 1997 MAY 31, 1996 ------------ ------------- Cash Flows From Operating Activities: Net loss......................................................... $ (162,000) $ (3,147,000) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................... 6,621,000 5,728,000 Net gain on disposal of equipment................................ (211,000) (17,000) Amortization of deferred financing costs......................... 115,000 174,000 Deferred financing costs......................................... -- (585,000) Deferred rent.................................................... (211,000) (457,000) Accrued retirement expense....................................... (96,000) 123,000 Impairment charge................................................ -- 2,000,000 Decrease (Increase) in: Accounts receivable.............................................. 1,284,000 3,291,000 Other receivables................................................ 251,000 54,000 Prepaid expenses................................................. 235,000 615,000 Prepaid taxes.................................................... (44,000) 116,000 Other assets..................................................... (104,000) (118,000) Deferred tax asset............................................... -- (79,000) Increase (Decrease) in: Accounts payable................................................. 1,504,000 (3,244,000) Accrued expenses................................................. (877,000) (30,000) Payroll and related taxes........................................ (1,409,000) (716,000) ------------ ------------- Total adjustments................................................ 7,058,000 6,855,000 ------------ ------------- Net cash provided by operating activities...................... 6,896,000 3,708,000 Cash Flows From Investing Activities: Capital expenditures............................................. (9,373,000) (6,340,000) Proceeds from disposal of equipment.............................. 2,230,000 898,000 ------------ ------------- Net cash used in investing activities.......................... (7,143,000) (5,442,000)
6 UNITEL VIDEO, INC. FORM 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
NINE MONTHS ENDED --------------------------- MAY 31, 1997 MAY 31, 1996 ------------ ------------- Cash Flows From Financing Activities: Proceeds from long-term financing.............................. $9,874,000 $ 24,503,000 Proceeds from issuance of common stock......................... 39,000 223,000 Repayment of loan to ESOP...................................... (136,000) (142,000) Principal repayments........................................... (9,765,000) (22,950,000) Release of ESOP quarterly shares............................... 118,000 146,000 ------------ ------------- Net cash provided (used) by financing activities............... 130,000 1,780,000 ------------ ------------- Net Increase (Decrease) in Cash................................. (117,000) 46,000 Cash Beginning of Year.......................................... 192,000 161,000 ------------ ------------- Cash End of Nine Months......................................... $ 75,000 $ 207,000 ------------ ------------- Schedule of income taxes and interest paid: Income Taxes Paid............................................. $ 30,000 $ 77,000 Interest Paid................................................. 2,416,000 2,237,000 ------------ ------------- $2,446,000 $ 2,314,000 ------------ -------------
See notes to consolidated financial statements. 7 UNITEL VIDEO, INC. FORM 10-Q NINE MONTHS ENDED MAY 31, 1997 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheet as of May 31, 1997, the consolidated statements of operations for the nine months and quarters ended May 31, 1997 and 1996, and the consolidated statements of cash flows for the nine months then ended have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at May 31, 1997 and for all periods presented have been made. Certain information and footnote disclosure normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto in the Company's August 31, 1996 Form 10-K filed with the Securities and Exchange Commission. The results of operations for the nine months ended May 31, 1997 are not necessarily indicative of the operating results for the full year. 2. STOCKHOLDERS' EQUITY During the nine months ended May 31, 1997, stockholders' equity decreased due to: Net loss......................................................... $(162,000) Reduction in unearned employee benefit expense................... 163,000 Reduction in additional paid in capital resulting from the allocation of ESOP shares...................................... (45,000) Purchase of stock under the Unitel Video Inc. Employee Stock Purchase Plan.................................................. 39,000 --------- Total decrease in stockholders' equity........................... $ (5,000) --------- 3. PER SHARE DATA Per share data for the quarter and nine months ended May 31, 1997 and 1996 is based on the weighted average number of common shares outstanding. In the quarter and nine months ended May 31, 1997, unreleased Employee Stock Ownership Plan shares are not considered outstanding for earnings per share calculations. (See Note 4). 8 4. 401(k) Employee Savings and Stock Ownership Plan The Company sponsors a 401(k) savings and stock ownership plan (the "Plan") which requires the Company to match employee contributions to the 401(k) portion of the Plan in shares of the Company's Common Stock up to the maximum amount set forth in the Plan. Effective September 1, 1994, the Company has adopted the provisions of Statement of Position 93-6, "Employer's Accounting for Employee Stock Ownership Plans" ("SOP 93-6"). In 1987, to purchase 115,849 shares of the Company's stock, the Plan obtained financing from a bank amounting to $1,250,000. In 1991 the Plan purchased 25,810 shares of the Company's stock financed by a $229,193 loan from the Company. The Plan is funded by the Company as required to provide the Plan with the funds necessary to meet its debt service requirements. The loan obligations of the Plan are considered unearned employee benefit expense and are recorded as a separate reduction of the Company's shareholders' equity. The bank financing is guaranteed by the Company. The Plan's shares are released and allocated to participant accounts based upon Company contributions and certain payments made to reduce the Plan debt. The Company reports compensation expense based on the dollar value of the 401(k) match expense. The Plan's compensation expense was $117,000 and $39,000 for the nine months and quarter ended May 31, 1997, respectively. A summary of the Plan's shares as of May 31, 1997 is as follows: Allocated shares............................... 96,666 Shares released for allocation................. 15,064 Unreleased shares.............................. 21,119 --------- 132,849 --------- Fair value of unreleased shares at May 31, 1997................................. $ 127,000 --------- Prior to adoption of SOP 93-6, the unreleased shares were considered outstanding for the earnings per share computation. Accordingly, for the nine months ended May 31, 1997, 21,119 shares were no longer considered outstanding. The effect of adopting SOP 93-6 was not material on the net loss, and resulted in a decrease of approximately 1% on the net loss per share for the nine months ended May 31, 1997. 5. IMPAIRMENT AND RESTRUCTURING CHARGES In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FASB Statement No. 121") which provides guidance on when to assess and how to measure impairment of long-lived assets, certain intangibles and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The Company adopted FASB Statement No. 121 as of August 31, 1995. 9 In fiscal 1995 the Company determined to focus its resources toward providing services to the entertainment and corporate communications areas, which represent the Company's strength, and decided to sell its three Editel divisions which did not specialize in these areas. The Company recorded the carrying value of the assets related to these divisions as net assets held for sale, and a corresponding impairment charge, since these assets were no longer needed for the current and future operations of the Company. In fiscal 1996 the Company began marketing these divisions to potential buyers. In the first nine months of fiscal 1996 the Company recorded an impairment charge of $2,000,000 relating to the assets at all three Editel divisions. The impairment charge recorded represented management's estimate of the decrease in value of these assets during the period such assets were held for sale based upon the depreciation method which the Company has found to be reasonable and appropriate. In February 1996 the Company closed its Editel Chicago division, distributed the majority of its assets to other divisions throughout the Company and sold the remaining assets at an auction held in May 1996. In the third quarter of 1996 the Company recorded a restructuring charge of $1,246,000 related to the real estate lease buy out for the Editel Chicago division. Also in May 1996, after reevaluating the potential of the Editel Los Angeles division, the Company decided to retain and expand this division, based on its improving business trend, new lines of business, new management and increased cash flow. In August of 1996 the Company closed its Editel New York division and distributed the majority of its editorial and computer graphics assets throughout the Company. In November 1996 the Company sold the majority of this division's remaining net assets held for sale of $1,587,000 to an unrelated third party for $1,400,000. In February 1997 the remaining Editel New York assets were sold at an auction or redeployed throughout the Company. In April 1997 the Company announced the merger of its Unitel Hollywood and Editel Los Angeles divisions under one roof at the Editel Los Angeles facility. A majority of the equipment previously in use at Unitel Hollywood is being used at either the new combined facility or at the Company's facilities in New York City. The balance of the equipment has either already been sold in private sales or will be sold at an auction to be held in July 1997. Proceeds from the sale of assets are used by the Company to repay outstanding debt. 6. STOCK BASED COMPENSATION Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based Compensation," provides companies a choice in the method of accounting used to determine stock-based compensation. Companies may account for such compensation either by using the intrinsic value-based method provided by APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees," or the fair market value based method provided in SFAS No. 123. This statement is required to be adopted by the Company during its fiscal year ending August 31, 1997. The Company intends to use the intrinsic value-based method provided in APB No. 25 to determine stock-based compensation. The sole effect of the adoption of SFAS No. 123 is the obligation imposed on the Company to comply with the new disclosure requirements provided thereunder. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES The Company is committed to keeping pace with technological developments as well as taking advantage of new business opportunities in the video communications industry. Capital expenditures were $9,373,000 during the nine months ended May 31, 1997, and consisted of the purchase of production, post production and graphics equipment for use throughout the Company including approximately $4,700,000 for the construction of a new digital mobile production unit. Net cash provided by operating activities during the nine months ended May 31, 1997 was $6,896,000 and during the nine months ended May 31, 1996 was $3,708,000. Net cash provided by operating activities for the nine months ended May 31, 1997 was offset by $7,143,000 of cash used in investing activities, which consisted primarily of capital expenditures (net of proceeds from asset dispositions of $2,230,000) and was supplemented by net cash provided by financing activities of $130,000, resulting in a net decrease in cash available of $117,000. In August 1995 the Company recorded a deferred tax asset related to the pre-tax losses and impairment charges incurred by the Company's Editel divisions. During fiscal 1996, the Company incurred additional pre-tax losses related to the operations and closure of the Editel New York and Editel Chicago divisions. It is management's determination that the deferred tax asset will be realized in future years based upon the Company's historical record of pre-tax profits prior to the last two fiscal years of pre-tax losses and based on the Company's projected pre-tax earnings. In December 1995, the Company entered into a $26 million revolving credit and term loan agreement with a financial institution, consisting of an $11 million revolving credit facility and two $7.5 million term loans. In May 1997 the loan agreement was renegotiated with $2.5 million of Term loan B rescheduled to become part of Term loan A. The lender also made available an additional $500,000 as part of Term loan A. Term loan A was then rescheduled to be payable in monthly principal payments of $100,000 through December 2001 with the balance of $4,700,000 due on December 12, 2001. Term loan B is repayable from the proceeds of sales of fixed assets. As of May 31, 1997 Term Loan B had a balance of $2,142,000 outstanding, of which $642,000 has been repaid as of June 29, 1997 with the remainder due by September 30, 1997. In addition, the lender has provided the Company with a $3.5 million bridge loan to be repaid from the proceeds of an $8.5 million industrial revenue bond financing, scheduled to close in July 1997. The industrial revenue bonds will be issued by the Allegeny County (Pennsylvania) Industrial Development Authority in an initial principal amount of $5 million and the proceeds of the bonds will be used by the Company to finance expenses incurred in connection with the construction of up to two digital mobile production units. At May 31, 1997 there was $3,000,000 outstanding on the bridge loan and $6,174,000 outstanding under the revolving credit portion of the facility. 11 In May 1997 the Company announced the establishment of a Canadian mobile television operation in Montreal, Canada. The expansion of the Company's mobile operations includes sales and marketing personnel and a maintenance facility which serves as the Company's Canadian hub allowing the Company to better serve its North American clients while also developing business and market share. RESULTS OF OPERATIONS Sales were $15,840,000 and $19,281,000 for the quarters ended May 31, 1997 and 1996, respectively. Sales were $47,210,000, and $62,750,000 for the nine months ended May 31, 1997 and 1996, respectively. The decrease in sales in the nine month period ending May 31, 1997 was due primarily to the closure of the Company's Editel Chicago and Editel New York divisions in fiscal 1996. Also contributing to lower sales was the cancellation of the "Rush Limbaugh" and "Mark Walberg" talk shows, which had been produced at Unitel studios during the majority of fiscal 1996, and the unavailability of one of the Mobile division's most sophisticated units during a substantial portion of the first quarter of fiscal 1997 while being digitally retrofitted by Company engineers. The sales decrease in the first nine months of fiscal 1997 was partially offset by a significant increase in sales at the Company's Editel Los Angeles division. The Company's net loss for the quarter ended May 31, 1997 was $525,000, compared to a net loss of $2,290,000 for the comparable quarter of fiscal year 1996. The Company's net loss was $162,000 for the nine months ended May 31, 1997, compared with a net loss of $3,147,000 for the same period of the prior fiscal year. The Company's 1997 third quarter net loss of $525,000 was due substantially to the Company's decision to merge its West coast Unitel Hollywood and Editel Los Angeles facilities resulting in a loss of $900,000 from the Unitel Hollywood operations during the third quarter. The losses incurred in merging the West coast facilities were attributable to a loss of business related to the transition, severance costs and other costs which the Company incurred in its efforts to maintain client relationships and employee morale during the transition. Production costs, the main component of cost of sales, consist primarily of direct labor, equipment maintenance expenses and occupancy costs. The Company's production costs, as a percentage of sales, were 69% for the quarter ended May 31, 1997, as compared to 72% for the quarter ended May 31, 1996 and were 68% and 72% for the first nine months of fiscal years 1997 and 1996, respectively. The decrease in production expenses as a percentage of sales in the quarter and nine months ended May 31, 1997, as compared with the same period in the prior year, is primarily due to the closure of the Company's Editel Chicago and Editel New York divisions which had been incurring these expenses at a higher percent of sales compared with the Company's other divisions. Also included in the decrease in production expenses from the comparable period in the prior year is the impact of the reduction of certain cost estimates related to the closure of the Editel New York and Editel Chicago divisions. 12 Depreciation, as a percentage of sales, was 13% and 11% for the quarters ended May 31, 1997 and 1996, respectively, and 14% and 9% for the first nine months of the 1997 and 1996 fiscal years, respectively. The increase in the quarter and nine months ended May 31, 1997 as compared with the same period in the prior year, was a result of the reclassification of the net property and equipment of the Company's three Editel divisions to net assets held for sale at August 31, 1995 with the corresponding depreciation expense recorded as impairment charges. In May 1996, the Company determined to retain its Editel Los Angeles division and, accordingly, resumed recording depreciation expense for this division. The impairment charge recorded in the first nine months of fiscal 1996 represents management's estimate of the decrease in value of these assets based upon the depreciation method which the Company has used in the past and which management has found to be reasonable and appropriate. Of the $2,000,000 impairment charge recorded in the first nine months of fiscal 1996, $777,000 related to the Editel Los Angeles division, which if recorded as depreciation expense in 1996 would have resulted in depreciation as a percentage of sales of 10% as compared to 9% in the first nine months of fiscal 1996. In addition, the majority of the assets of the Editel Chicago and Editel New York divisions were redistributed throughout the Company which contributed to the increase in depreciation expense in fiscal 1997. Selling expenses for both quarters ended May 31, 1997 and 1996 were 2.6% of sales, and 3.0% and 2.9% for the nine months ended May 31, 1997 and 1996, respectively. The increase in the nine months ended May 31, 1997 as compared with the same period in the prior year, is mainly due to an increase in the sales staff at the New York divisions and at Editel Los Angeles. General and administrative expenses, as a percentage of sales, for the quarters ended May 31, 1997 and 1996 were 13.1% and 12.6%, respectively, and 11.0% and 11.8% for the nine months ended May 31, 1997 and 1996, respectively. The increase in general and administrative expenses as a percentage of sales during the third quarter of fiscal 1997 when compared with the same period of the prior year is primarily due to costs incurred related to the merger of the Company's West coast divisions. The decrease in general and administrative expenses as a percentage of sales for the nine months ended May 31, 1997 when compared with the same period in the prior year is primarily due to the closure of the Company's Editel Chicago and Editel New York divisions which had been incurring these expenses at a higher percentage of sales compared with the Company's other divisions. Also included in the decrease in general and administrative expenses from the comparable period in the prior year is the impact of the reduction of certain cost estimates related to the closure of the Editel New York and Editel Chicago divisions. Interest expense, as a percentage of sales, for the quarters ended May 31, 1997 and 1996 was 5.7% and 5.1%, respectively, and 5.7% and 4.4% for the nine months ended May 31, 1997 and 1996. Since the level of outstanding debt in the first nine months of fiscal 1997 remained constant with the same period of the prior year and sales decreased in the first nine months of fiscal 1997, interest expense as a percentage of sales increased in fiscal 1997 when compared with the same period of the prior year. 13 The Company's effective tax rate was 5% and 47% for the first nine months of fiscal years 1997 and 1996, respectively. The effective tax rate for the first nine months of fiscal 1997 is less than the federal statutory rate of 34% due to the utilization of net operating loss carryforwards generated by the losses incurred in fiscal 1995 and 1996. The effective tax rate exceeded the federal statutory rate of 34% in fiscal 1996 due to state and local taxes. 14 Part II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required to be filed by Item 601 of Regulation S-K. 1. Exhibit 4(A). Second Amendment to Loan and Security Agreement and Limited Waiver dated as of February 24, 1997. 2. Exhibit 4(B). Third Amendment and Limited Waiver to Amended and Restated Loan and Security Agreement dated as of March 21, 1997. 3. Exhibit 4(C). Fourth Amendment to Amended and Restated Loan and Security Agreement dated as of May 7, 1997. 4. Exhibit 10(A). Employment Agreement between Editel Los Angeles and Albert Walton dated as of March 20, 1997. 5. Exhibit 10(B). Employment Agreement between Unitel Video, Inc. and Mark Miller dated as of March 20, 1997. 6. Exhibit 27. Financial Data Schedule. (b) There were no reports filed on Form 8-K during the nine month period ended May 31, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. UNITEL VIDEO, INC. BY: /S/ BARRY KNEPPER ------------------------------ Barry Knepper CHIEF EXECUTIVE OFFICER BY: /S/ GEORGE HOROWITZ ------------------------------ George Horowitz CHIEF FINANCIAL OFFICER DATED: JULY 8, 1997 15 EX-4.A 2 EXHIBIT 4A Exhibit 4(A) SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT AND LIMITED WAIVER This Second Amendment to Loan and Security Agreement ("Amendment") is dated as of February 24, 1997, and entered into by and among HELLER FINANCIAL, INC., as Agent ("Agent") and Lender ("Lender"), UNITEL VIDEO, INC. ("Borrower") and R Squared, Inc. ("Corporate Guarantor"). WHEREAS, Agent, Lender, Borrower and Corporate Guarantor have entered into a Loan and Security Agreement (as amended, the "Agreement") dated December 12, 1995; and WHEREAS, certain Events of Default are in existence under the Agreement as set forth in (i) that certain letter from Agent to Borrower dated January 2, 1997 and (ii) that certain letter from Agent to Borrower dated January 7, 1997 (the "Existing Events of Default") and, as a result of such Events of Default, Agent and Lenders have, among things, commenced charging the Default Rate on the Obligations; and WHEREAS, Borrower and Corporate Guarantor have requested that Agent and Requisite Lenders waive the Existing Events of Default; and WHEREAS, Borrower and Corporate Guarantor have requested that Agent and Requisite Lenders amend the Agreement to, among other things, defer the principal payment due date of Term Loan B from December 31, 1996 to February 28, 1997, and Agent and Requisite Lenders have agreed to do so, subject to the following terms and conditions; and NOW THEREFORE, in consideration of the mutual conditions and agreements set forth in the Agreement and this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: ARTICLE I. DEFINITIONS Section 1.01. Definitions. Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same meanings as in the Agreement, as amended hereby. ARTICLE II. AMENDMENTS Section 2.01. Amendment to Subsection 2.1(A)(2) "Term Loan B". Subsection 2.1(A)(2) shall be, and the same is hereby amended by deleting the defined term "Scheduled Installment of Term Loan B" appearing in the second paragraph of said subsection in its entirety and substituting the following therefor: "Scheduled Installment of Term Loan B" means the principal installment in an amount equal to $4,934,410.27, payable, subject to the provisions of subSection 2.4(B), on or before February 28, 1997 or the earlier to occur of (i) the Termination Date or (ii) the acceleration of the Obligations in accordance with the provisions of subsection 8.3, at which time the entire unpaid principal amount thereof plus accrued interest thereon shall be due and payable. Section 2.02. Amendment to Subsection 2.1(B) "Revolving Loan". Subsection 2.1(B) shall be, and the same is hereby amended by deleting the definition of "Maximum Revolving Loan Amount" appearing in paragraph (1) in its entirety and substituting the following therefor: "Maximum Revolving Loan Amount" means, as of any date of determination, the lesser of (a) the Revolving Loan Commitment minus (i) the Letter of Credit Reserve and (ii) the Special Reserve and (b) the Borrowing Base minus (i) the Letter of Credit Reserve and (ii) the Special Reserve. Section 2.03. Amendment to Subsection 5.1(F) "Borrowing Base Certificates". Subsection 5.1(F) shall be, and the same is hereby amended by deleting the first sentence of said subsection in its entirety and substituting the following therefor: "As early as possible each week, but in no event later than by 12:00 (noon) (Chicago time) on the fifth Business Day of each Week, Borrower shall deliver to Agent a Borrowing Base Certificate updated to reflect the most recent sales and collections of Borrower and an assignment schedule of all Accounts created by Borrower for the prior week." ARTICLE III. LIMITED WAIVER Agent and Lender hereby waive the Existing Events of Default (which waiver shall be deemed effective as of November 30, 1996), conditioned on the following: (i) that for the period between January 24, 1997 through January 30, 1997, the outstanding principal amount of the Revolving Loan shall not exceed the Maximum Revolving Loan Amount by an amount greater than $545,781.50; (ii) for the period between January 31, 1997 through February 6, 1997, the outstanding principal amount of the Revolving Loan shall not exceed the Maximum Revolving Loan Amount by an amount greater than $195,781.50; (iii) on and after February 7, 1997, the Maximum Revolving Loan Amount shall be greater than or equal to the outstanding principal amount of the Revolving Loan and (iv) for so long as the outstanding principal amount of the Revolving Loan exceeds the Maximum Revolving Loan Amount, (A) the Loans and all other Obligations shall bear interest at a rate equal to two percent (2%) plus the applicable Interest Rate and (B) Borrower may not request any LIBOR Rate Loans and Borrower may not convert any Base Rate Loans into LIBOR Rate Loans. Borrower's compliance with the terms above, shall not be deemed to constitute a commitment by Agent or Lenders to provide advances under the Revolving Loan that exceed the Maximum Loan Amount. This limited waiver shall not be 2 deemed to constitute a waiver of any other existing Events of Default or any future breach of the Agreement or any of the other Loan Documents (including, without limitation, any subsequent breach of the covenants described in the letters referenced above for any subsequent period). ARTICLE IV. MISCELLANEOUS Section 4.01. Conditions. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent (unless specifically waived in writing by Agent and Requisite Lenders): (a) there shall have occurred no material adverse change in the business, operations, financial conditions, profits or prospects, or in the Collateral of the Borrower; (b) Borrower and Corporate Guarantor shall have executed and delivered such other documents and instruments as Agent may require; (c) Borrower shall have paid to Agent, for the benefit of Lenders, a fee in the amount of $10,000, which fee shall have been fully earned upon payment. (d) all corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Agent and its legal counsel. Section 4.02 Ratification. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Agreement and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement, are ratified and confirmed and shall continue in full force and effect. Section 4.03 Corporate Action. The execution, delivery and performance of this Amendment have been authorized by all requisite corporate action on the part of Borrower and Corporate Guarantor and will not violate the Articles of Incorporation or Bylaws of either Borrower or Corporate Guarantor. Section 4.04 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. Section 4.05 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Agent, Lender, Borrower and Corporate Guarantor and their respective successors and assigns. 3 Section 4.06 Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment on the date first above written. HELLER FINANCIAL, INC., as Agent and Lender By: /s/ Jerome Sepich ------------------------ Title: Vice President UNITEL VIDEO, INC., as Borrower By: /s/ Barry Knepper ------------------------- Title: CEO R SQUARED, INC., as Corporate Guarantor By: /s/ Barry Knepper -------------------------- Title: CEO 4 EX-4.B 3 EXHIBIT 4B Exhibit 4(B) THIRD AMENDMENT AND LIMITED WAIVER TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS THIRD AMENDMENT AND LIMITED WAIVER ("Amendment") is entered into as of March 21, 1997, by and among UNITEL VIDEO, INC., a Delaware corporation having its principal place of business at 515 West 57th Street, New York, New York 10019 ("Borrower"), R SQUARED, INC., a California Corporation having its principal place of business at 3330 Cahuenga Boulevard West, Los Angeles, California 90068 ("Corporate Guarantor") and HELLER FINANCIAL, INC., a Delaware corporation having an office at 500 West Monroe Street, Chicago, Illinois 60661, as agent ("Agent") for Lender (as hereafter defined). BACKGROUND WHEREAS, Borrower, Corporate Guarantor, Agent and Heller Financial, Inc. ("Lender") are parties to an Amended and Restated Loan and Security Agreement dated as of December 12, 1995, as amended by First Amendment ("First Amendment") and Limited Waiver dated November 26, 1996 and Second Amendment ("Second Amendment") dated February 24, 1997 (as it may be further amended, supplemented or otherwise modified from time to time, the "Loan Agreement") pursuant to which Lender provided Borrower with certain financial accommodations; and WHEREAS, certain Events of Default continue to be in existence under the Agreement as set forth in (i) that certain letter from Agent to Borrower dated January 2, 1997 and (ii) that certain letter from Agent to Borrower dated January 7, 1997 (the "Existing Events of Default") and, as a result of such Events of Default, Agent and Lenders have been, among other things, charging the Default Rate on the Obligations; and WHEREAS, pursuant to the Second Amendment, Agent and Lenders agreed with Borrower to waive the Existing Events of Default conditioned on the reduction to zero of an outstanding overadvance (the "Overadvance") by February 7, 1997; and WHEREAS, Borrower has failed to reduce the Overadvance in accordance with the Second Amendment and therefore the Existing Events of Default remain outstanding; and WHEREAS, Borrower and Corporate Guarantor have requested that Agent and Requisite Lenders waive the Existing Events of Default; and WHEREAS, Borrower and Corporate Guarantor have requested that Agent and Requisite Lenders amend the Loan Agreement to, among other things, defer the principal payment due date of Term Loan B from February 28, 1997 to June 30, 1997, and Agent and Requisite Lenders have agreed to do so, subject to the following terms and conditions; and NOW, THEREFORE, in consideration of any loan or advance or grant of credit heretofore or hereafter made to or for the account of Borrower by Lender, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings given to them in the Loan Agreement. 2. Amendment to Loan Agreement. Subject to satisfaction of the conditions precedent set forth in Section 4 below, the defined term "Scheduled Installment of Term Loan B" set forth in Section 2.1(A)(2) of the Loan Agreement is hereby amended in its entirety to provide as follows: "Scheduled Installment of Term Loan B" means the principal installment in an amount equal to $4,651,660.27, payable, subject to the provisions of subsection 2.4(B), on or before June 30, 1997, or the earlier to occur of (i) the Termination Date or (ii) acceleration of the Obligations in accordance with the provisions of subsection 8.3, at which time the entire unpaid principal amount thereof plus accrued interest thereon shall be due and payable. 3. Limited Waiver. Agent and Lender hereby waive (i) the Existing Events of Default (which waiver shall be deemed effective as of November 30, 1996) and (ii) compliance with Section 6.5 of the Loan Agreement which section requires Borrower to maintain Excess Availability of at least $250,000, conditioned on the following: (i) that for the period between March 21, 1997 and May 1, 1997, the outstanding principal amount of the Revolving Loan shall not exceed the Maximum Revolving Loan Amount by an amount greater than $1,000,000, (ii) on and after May 2, 1997, the Maximum Revolving Loan Amount shall be greater than or equal to the outstanding principal amount of the Revolving Loan and (iii) for so long as the outstanding principal amount of the Revolving Loan exceeds the Maximum Revolving Loan Amount, (A) the Revolving Loan and all other Obligations shall bear interest at a rate equal to two percent (2% plus the applicable Interest Rate and (B) Borrower may not request any LIBOR Rate Loans and Borrower may not convert any Base Rate Loans into LIBOR Rate Loans. Borrower's compliance with the terms above shall not be deemed to constitute a commitment by Agent or Lenders to provide advances under the Revolving Loan that exceed the Maximum Revolving Loan Amount. This limited waiver shall not be deemed to constitute a waiver of any other existing Events of Default or any future breach of the Agreement or any of the other Loan Documents. In the event Borrower fails to raise -2- $1,000,000 by May 1, 1997, whether by sale or lease of equipment or otherwise, Borrower shall pay Lender a fee equal to $50,000. 4. Conditions of Effectiveness. This Amendment shall become effective when and only when Agent shall have received (a) four (4) copies of this Amendment executed by Borrower and Corporate Guarantor and (b) such other certificates, instruments, documents, agreements and opinions of counsel as may be required by Agent or its counsel, each of which shall be in form and substance satisfactory to Lender and its counsel. 5. Representations and Warranties. Borrower hereby represents and warrants as follows: (a) This Amendment and the Agreement, as amended hereby, constitute legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their respective terms. (b) Upon the effectiveness of this Amendment, Borrower hereby reaffirms all covenants, representations and warranties made in the Loan Agreement to the extent the same are not amended hereby are correct in all material respects and agree that all such covenants, representations and warranties shall be deemed to have been remade as of the effective date of this Amendment. (c) Other than the Existing Events of Default, no Event of Default or Default has occurred and is continuing or would exist after giving effect to this Amendment. (d) Borrower has no defense, counterclaim or offset with respect to the Loan Agreement. 6. Effect on the Loan Agreement. (a) Upon the effectiveness of Section 2 hereof, each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Loan Agreement as amended hereby. (b) Except as specifically amended herein, the Loan Agreement, and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed. -3- (c) Except as specifically provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or Lender, nor constitute a waiver of any provision of the Loan Agreement, or any other documents, instruments or agreements executed and/or delivered under or in connection therewith. 7. Governing Law. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall be governed by and construed in accordance with the laws of the State of New York. 8. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 9. Counterparts. This Amendment may be executed by the parties hereto in one or more counterparts, each of which shall be deemed an original and all of which taken together shall be deemed to constitute one and the same agreement. Any signature received by facsimile transmission shall be deemed an original signature hereto. IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first written above. UNITEL VIDEO, INC. By: /s/ Barry Knepper ------------------------------- Name: Barry Knepper ------------------------------- Title: Chief Executive Officer ------------------------------- R SQUARED, INC. By: /s/ Barry Knepper ------------------------------- Name: Barry Knepper ------------------------------- Title: Chief Executive Officer ------------------------------- HELLER FINANCIAL, INC., as Agent and Lender By: /s/ Jerome P. Sepich ------------------------------- Name: Jerome P. Sepich ------------------------------- Title: Vice President ------------------------------- -4- EX-4.C 4 EXHIBIT 4C Exhibit 4(C) FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS FOURTH AMENDMENT ("Amendment") is entered into as of May 7, 1997, by and among UNITEL VIDEO, INC., a Delaware corporation having its principal place of business at 555 West 57th Street, New York, New York 10019 ("Borrower"), R SQUARED, INC., a California Corporation having its principal place of business at 3330 Cahuenga Boulevard West, Los Angeles, California 90068 ("Corporate Guarantor") and HELLER FINANCIAL, INC., a Delaware corporation having an office at 500 West Monroe Street, Chicago, Illinois 60661, as agent ("Agent") for Lender (as hereafter defined). BACKGROUND Borrower, Corporate Guarantor, Agent and Heller Financial, Inc. ("Lender") are parties to an Amended and Restated Loan and Security Agreement dated as of December 12, 1995 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement") pursuant to which Lender provides Borrower with certain financial accommodations. Borrower has requested that Lender amend the Loan Agreement and Lender is willing to do so on the terms and conditions hereafter set forth. NOW, THEREFORE, in consideration of any loan or advance or grant of credit heretofore or hereafter made to or for the account of Borrower by Lender, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings given to them in the Loan Agreement. 2. Amendment to Loan Agreement. Subject to satisfaction of the conditions precedent set forth in Section 3 below, the Loan Agreement is hereby amended as follows: (a) Section 1.1 of the Loan Agreement is hereby amended by: (i) adding the following defined term in its appropriate alphabetical order: "Fourth Amendment Effective Date" means May 7, 1997." (ii) amending the defined term "Permitted Term Loan B Repayment Source" to provide as follows: "Permitted Term Loan B Repayment Source" means Specified Fixed Asset Dispositions relating solely to Borrower's Editel-Los Angeles and Unitel Hollywood divisions; provided, however, the aggregate Orderly Liquidation Value of Appraised Assets sold or otherwise disposed of in such Specified Fixed Asset Dispositions may not exceed the Threshold Amount; provided, further, Specified Fixed Asset Dispositions relating to Borrower's Editel-Los Angeles division shall only be utilized as a Permitted Term Loan B Repayment Source in the event the Appraised Assets of Borrower's Editel-Los Angeles division so sold are replaced with Appraised Assets of Borrower's Unitel Hollywood division having an Orderly Liquidation Value of not less than the amount of the Appraised Assets of Borrower's Editel-Los Angeles division so sold. (iii) amending the defined term "Amended and Restated Term Note" or "Amended and Restated Term Notes" to provide as follows: "Amended and Restated Term Note" or "Amended and Restated Term Notes" means each promissory note of Borrower in substantially the form of Exhibits 2.1(A)(1), (A)(2) and (A)(3) issued in connection with the term loans referenced in Section 2.1(A). (b) Sections 2.1(A)(1) and 2.1(A)(2) of the Loan Agreement are hereby amended in their entirety to provide as follows: (A)(1) Term Loan A. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrower herein set forth, each Lender, severally, agrees to lend to Borrower on the Fourth Amendment Effective Date such Lender's Pro Rata Share of $9,000,000 minus $6,071,424, such that after giving effect to the loan to be made to Borrower under this subsection 2.1(A)(1) on the Fourth Amendment Effective Date the aggregate outstanding amount of Term Loan A shall equal $9,000,000. Amounts borrowed under this subsection 2.1(A)(1) and repaid may not be reborrowed. Borrower shall make principal payments in the amount of the applicable Scheduled Installment of Term Loan A (or such lesser principal amount of Term Loan A as shall then be outstanding) on the dates and in the amounts set forth below. "Scheduled Installment of Term Loan A" means each of the fifty-six (56) consecutive monthly principal installments commencing on June 1, 1997 and continuing on the first day of each month thereafter, the first fifty-five (55) of which shall, subject to the provisions of subsection 2.4(B), be in an amount equal to $100,000; and the final installment due on December 12, 2001, or the -2- earlier to occur of (a) the Termination Date or (b) acceleration of the Obligations in accordance with the provisions of subsection 8.3, in an amount equal to the unpaid principal amount of Term Loan A plus accrued interest thereon. (A)(2) Term Loan B. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrower herein set forth, each Lender, severally, agrees to lend to Borrower its Pro Rata Share of Term Loan B in an aggregate amount not to exceed $2,151,660.27 (all of which is outstanding as of the Fourth Amendment Effective Date). Amounts borrowed under this subsection 2.1(A)(2) and repaid may not be reborrowed. Borrower shall make principal payments in the amounts of the applicable Scheduled Installment of Term Loan B (or such lesser principal amount of Term Loan B as shall then be outstanding) on the dates and in the amounts set forth below; provided, however, unless Agent otherwise consents in writing, Borrower may only make principal payments on Term Loan B from a Permitted Term Loan B Repayment Source. "Scheduled Installment of Term Loan B" means each of the following two (2) principal installments, the first of which is payable, subject to the provisions of subsection 2.4(B), on or before July 1, 1997 in an amount equal to $651,660.27 and the second of which is payable, subject to the provisions of subsection 2.4(B), on or before September 30, 1997 in an amount equal to the entire unpaid principal amount of Term Loan B plus accrued interest thereon (it being understood that Borrower may prepay Term Loan B, in whole or in part, from time to time, but only from a Permitted Term Loan B Repayment Source), or, in each case, upon the earlier to occur of (i) the Termination Date or (ii) acceleration of the Obligations in accordance with the provisions of subsection 8.3, at which time the entire unpaid principal amount of Term Loan B plus accrued interest thereon shall be due and payable. Borrower hereby acknowledges that in the event any Scheduled Installment of Term Loan B is not made on the dates and in the amounts set forth herein, then it shall pay to Agent (which amount Agent may charge to Borrower's account) a contingency fee in an amount equal to (a) ten percent (10%) times (b) such unpaid Scheduled Installment of Term Loan B; provided, however, Borrower's failure to pay a Scheduled Installment of Term Loan B when due shall constitute an Event of Default and shall entitle Agent to exercise all rights and remedies available to Agent under this Agreement, the Loan Documents and applicable law, notwithstanding payment of the aforementioned contingency fee. -3- (c) A new Section 2.1(A)(3) is hereby added to the Loan Agreement to provide as follows: (A)(3) Term Loan C. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrower herein set forth, each Lender, severally, agrees to lend to Borrower, upon Borrower's request therefor in accordance with the borrowing procedures for Revolving Loan requests set forth in Section 2.1(D) hereof, its Pro Rata Share of Term Loan C in an aggregate amount not to exceed $3,500,000. Amounts borrowed under this subsection 2.1(A)(3) and repaid may not be reborrowed. Borrower shall make a principal payment in the amount of the applicable Scheduled Installment of Term Loan C (or such lesser principal amount of Term Loan C as shall then be outstanding) on the date and in the amount set forth below. Term Loan C shall bear interest from the date such Loan is made to the date paid in full at a rate per annum equal to the interest rate set forth in Section 2.2(A) applicable to Term Loan A. "Scheduled Installment of Term Loan C" means the principal installment in an amount equal to $3,500,000, payable, subject to the provisions of subsection 2.4(B), on or before July 31, 1997, together with all accrued interest thereon (it being understood that Borrower may prepay Term Loan B, in whole or in part, from time to time), or the earlier to occur of (i) the Termination Date or (ii) acceleration of the Obligations in accordance with the provisions of subsection 8.3 at which time the entire unpaid principal amount of Term Loan C plus accrued interest thereon shall be due and payable. (d) Clause "(i)" of the first sentence of Section 2.1(E) is hereby amended to provide as follows: "(i) a Second Amended and Restated Term Note A, a Second Amended and Restated Term Note B and Term Note C to evidence such Lender's portion of the Term Loans, such notes to be in the principal amount of the respective Term Loan Commitments of such Lender and with other appropriate insertions and". (e) Section 2.3(C) of the Loan Agreement is hereby amended by deleting all references to "the second Loan Year" and replacing the same with the following: "the period commencing on the first day of the second Loan Year and ending on April 30, 1999". (f) The first sentence of Section 2.4(C) of the Loan Agreement is hereby amended by adding the following immediately preceding the reference to "2.1(B)": "2.1(A)(2), 2.1(A)(3),". -4- (g) The first sentence of Section 2.5 of the Loan Agreement is hereby amended to provide as follows: "This Agreement shall be effective until December 12, 2001 (the "Termination Date")." (h) Section 6.1 of the Loan Agreement is hereby amended to provide as follows: 6.1 Tangible Net Worth. Borrower shall at all times during the fiscal quarters set forth below maintain Tangible Net Worth plus Subordinated Debt of not less than the amounts set forth opposite such fiscal quarters: Fiscal Quarter End Amount May 31, 1997 $18,000,000 August 31, 1997 $17,000,000 November 30, 1997 $17,500,000 February 28, 1998 $18,000,000 May 31, 1998 $18,500,000 August 31, 1998 $19,500,000 November 30, 1998 and each fiscal quarter end thereafter $20,000,000 (i) Notwithstanding anything contained in Section 6.2 of the Loan Agreement to the contrary, the Annual Amount applicable to Borrower's 1997 Fiscal Year shall be $15,000,000. (j) Section 6.3 of the Loan Agreement is hereby amended to provide as follows: 6.3 Fixed Charge Coverage. Borrower shall not permit its Fixed Charge Coverage to be less than (a) .80 to 1.00 at all times during the three fiscal quarters ending May 31, 1997, (b) .50 to 1.00 at all times during the four fiscal quarters ending August 31, 1997, (c) .50 to 1.00 at all times during the fiscal quarter ending November 30, 1997, calculated on a rolling four quarter basis, (d) .50 to 1.00 at all times during the fiscal quarter ending February 28, 1998, calculated on a rolling four quarter basis, (e) .75 to 1.00 at all times during the fiscal quarter ending May 31, 1998, calculated on a rolling four quarter basis, (f) 1.00 to 1.00 at all times during the fiscal quarter ending August 31, 1998, calculated on a rolling four quarter basis and (g) 1.00 to 1.00 at all times during each fiscal quarter ending thereafter, calculated on a rolling four quarter basis. For purposes of the covenant calculations under this Section 6.3, Operating Cash Flow shall exclude financed Capital Expenditures utilized by Borrower to finance its construction of mobile teleproduction units with the -5- proceeds of industrial revenue bonds to be issued by the Allegheny County Industrial Development Authority. (k) Section 6.4 of the Loan Agreement is hereby amended to provide as follows: 6.4 Leverage Ratio. Borrower shall not permit its Leverage Ratio at the end of each fiscal quarter set forth below (calculated on a rolling four quarter basis) to be greater than the amount set forth below for such fiscal quarter end: Fiscal Quarter End Ratio May 31, 1997 3.75 to 1.00 August 31, 1997 3.75 to 1.00 November 30, 1997 3.25 to 1.00 February 28, 1998 3.00 to 1.00 May 31, 1998 2.75 to 1.00 August 31, 1998 and each fiscal quarter end thereafter 2.75 to 1.00 (l) Section 6.5 to the Loan Agreement is hereby deleted in its entirety and replaced with the following: 6.5 Interest Coverage. During each fiscal period when Borrower's Fixed Charge Coverage is less than 1.00 to 1.00, Borrower shall not permit the ratio of (a) Operating Cash Flow to (b) Interest Expense to be less than 1.30 to 1.00. For purposes of the covenant calculations under this Section 6.5, Operating Cash Flow shall exclude financed Capital Expenditures utilized by Borrower to finance its construction of mobile teleproduction units with the proceeds of industrial revenue bonds to be issued by the Allegheny County Industrial Development Authority. (m) Exhibits 2.1(A)(1) and 2.1(A)(2) to the Loan Agreement are hereby replaced with Exhibits 2.1(A)(1) and 2.1(A)(2) to this Amendment. (n) Exhibit 2.1(A)(3) to this Amendment is hereby added to the Loan Agreement as Exhibit 2.1(A)(3). 3. Conditions of Effectiveness. This Amendment shall become effective when and only when Agent shall have received (a) four (4) copies of this Amendment executed by Borrower and Corporate Guarantor, (b) an amendment fee for Agent's account in an amount equal to $75,000, which may be charged by Agent to Borrower's account (the "Amendment Fee") and (c) such other certificates, instruments, documents, agreements and opinions of counsel as may be required by Agent or its counsel, each of which -6- shall be in form and substance satisfactory to Lender and its counsel. 4. Lender Acknowledgments. Lender hereby acknowledges that (i) Borrower's payment of the Amendment Fee shall compensate Lender for its accommodations provided under this Amendment and a fifth amendment to the Loan Agreement (the "Fifth Amendment") to be executed by the parties hereto on or prior to July 31, 1997 so long as the Fifth Amendment is solely to provide for a letter of credit facility and other accommodations by Lender for the benefit of Borrower in connection with certain industrial revenue bonds to be issued by the Allegheny County Industrial Development Authority to finance Borrower's construction of mobile teleproduction units, on terms and conditions acceptable to Lender, and Lender shall not charge Borrower any additional amendment fee in connection with the execution and delivery of the Fifth Amendment; provided, however, Lender hereby reserves its rights to charge an additional amendment fee in connection with the Fifth Amendment if at the time of its execution either (a) an Event of Default shall be in existence or (b) the matters covered by the Fifth Amendment are additional to those specifically set forth above; provided, further, that Lender shall be under no obligation to enter into the Fifth Amendment if an Event of Default shall then be in existence; (ii) the Special Reserve established under the First Amendment to the Loan Agreement is no longer applicable to Borrower and (iii) upon Lender's receipt of the fully executed and notarized original promissory notes attached to this Amendment, the Amended and Restated Term Note A and the Amended and Restated Term Note B, each dated December 12, 1995 and made by Borrower in favor of Agent shall be of no further force and effect and Lender shall promptly thereafter deliver originals of the same to Borrower marked cancelled. 5. Representations and Warranties. Borrower hereby represents and warrants as follows: (a) This Amendment and the Agreement, as amended hereby, constitute legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their respective terms. (b) Upon the effectiveness of this Amendment, Borrower hereby reaffirms that all covenants, representations and warranties made in the Loan Agreement to the extent the same are not specifically amended hereby are correct in all material respects and agrees that all covenants, representations and warranties shall be deemed to have been remade as of the effective date of this Amendment. (c) No Event of Default or Default has occurred and is continuing or would exist after giving effect to this Amendment. -7- (d) Borrower has no defense, counterclaim or offset with respect to the Loan Agreement or the Obligations thereunder. 6. Effect on the Loan Agreement. (a) Upon the effectiveness of Section 2 hereof, each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Loan Agreement as amended hereby. (b) Except as specifically amended herein, the Loan Agreement, and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or Lender, nor constitute a waiver of any provision of the Loan Agreement, or any other documents, instruments or agreements executed and/or delivered under or in connection therewith. 7. Governing Law. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall be governed by and construed in accordance with the laws of the State of New York. 8. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 9. Counterparts. This Amendment may be executed by the parties hereto in one or more counterparts, each of which shall be deemed an original and all of which taken together shall be deemed to constitute one and the same agreement. Any signature received by facsimile transmission shall be deemed an original signature hereto. [SIGNATURE LINES ON FOLLOWING PAGE] -8- IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first written above. UNITEL VIDEO, INC., as Borrower By: /s/Barry Knepper -------------------------------- Name: Barry Knepper ------------------------------ Title: CEO ----------------------------- R SQUARED, INC., as Corporate Guarantor By: /s/Barry Knepper ------------------------------- Name: Barry Knepper ----------------------------- Title: CEO ---------------------------- HELLER FINANCIAL, INC., as Agent and Lender By: /s/Jerome Sepich ------------------------------ Name: Jerome Sepich ---------------------------- Title: Vice President --------------------------- -9- EX-10.A 5 EXHIBIT 10A Exhibit 10(A) EXECUTION COPY AGREEMENT THIS AMENDED AND RESTATED AGREEMENT, dated as of March 20, 1997, by and between UNITEL VIDEO, INC., a Delaware corporation (herein "Employer") and ALBERT WALTON, an individual residing at 1040 S. Longwood Ave., Los Angeles, CA 90019 (hereinafter "Employee"). W I T N E S S E T H : WHEREAS, Editel Los Angeles, a division of Employer, and Employee have executed an Agreement dated as of December 1, 1996 (the "Original Agreement") relating to the terms of Employee's employment with Employer; and WHEREAS, it is currently contemplated that Editel Los Angeles and Unitel/ Hollywood, also a division of Employer, shall be merged (the new entity consisting of the merged divisions of Editel Los Angeles and Unitel/ Hollywood being hereinafter referred to as the "Merged Division"); and WHEREAS, Employer desires that Employee perform certain duties and have certain responsibilities for both Editel Los Angeles and the Merged Division and Employee accepts such duties and responsibilities in accordance with the terms of this Agreement; and WHEREAS, this Agreement amends and restates the Original Agreement in its entirety and the Original Agreement is of no further force and effect; NOW THEREFORE, in consideration of the premises and the agreements herein contained, Employer and Employee agree as follows: Section 1. Employment. A. Employee shall perform such duties and exercise such powers on behalf of Employer and have such responsibilities as are consistent with the position of (1) for so long as Editel Los Angeles is in existence, "President - - Editel Los Angeles" and (2) upon the establishment of the Merged Division, "President and Chief Executive Officer of the Merged Division," together with any other function as might reasonably be deemed required and necessary for the advancement of the interests of Employer. B. Employee shall devote his best efforts and his time, knowledge, skill, attention and energy exclusively to the business of Employer in the advancement of the interests of Employer. Employee will not engage in any activities that would interfere with his ability to discharge his responsibilities as an employee of Employer. C. Employer shall have the right at any time, and from time to time, to modify the duties to be performed by Employee, or the powers exercised by him, consistent with the discharge of his responsibilities as either President of Editel Los Angeles or President and Chief Executive Officer of the Merged Division, as applicable; provided, however, that Employer may not modify the duties of Employee such that the modification(s) creates a substantial change or alteration in Employee's duties without first obtaining Employee's written consent. Section 2. Term of Employment. A. Employee's employment under this Agreement shall be for a period commencing on March 20, 1997, and ending on August 31, 1998 (the "Employment Period"). B. Notwithstanding the terms of paragraph A of this section, Employee's employment is subject to termination by Employer in accordance with the provisions of Section 5 of this Agreement. Section 3. Compensation. A. In consideration for the services to be rendered by Employee hereunder and in consideration of the covenants herein given by Employee, Employer shall pay to Employee an annual salary of One Hundred Ninety Thousand Dollars ($190,000.00) during the Employment Period. B. Employee shall be paid bonus compensation in respect of each fiscal year of Employer during the Employment Period (commencing with Employer's fiscal year ending August 31, 1997) equal to five (5%) percent of the pre-tax net income of Editel Los Angeles and its successor the Merged Division (calculated in accordance with Employer's accounting practices currently in force; provided that the corporate charge used in calculating such amount shall be whatever was agreed to in the budget for Editel Los Angeles for such fiscal year (whether the actual number for such charge in such fiscal year increases or decreases from such budgeted amount) and the depreciation expense used in such calculation shall be the lesser of the budgeted amount or the actual amount for Editel Los Angeles for such fiscal year unless actual exceeds budgeted due to an increase in Editel Los Angeles' capital budget for such fiscal year in which case the actual amount will be used in such calculation) for such fiscal year. Bonus compensation payable pursuant to this Section 3B shall be paid within 90 days after the end of the applicable fiscal year. Bonus compensation shall be pro rated in respect of any period during the Employment Period which is shorter than a full fiscal year of Employer. C. Employee shall be paid bonus compensation equal to Forty Thousand Dollars ($40,000) for services related to the merger of Unitel Hollywood and Editel Los Angeles divisions. This bonus is payable on a one time basis, within 90 days after the end of the fiscal year ended August 31, 1997. 2 D. All compensation provided for in this paragraph 3, shall be subject to withholding as required by law or by the terms of any applicable benefit plan(s) and shall be paid in accordance with Employer's customary practices. E. Employee shall receive options to purchase 10,000 shares of the common stock of Unitel Video, Inc., at the option price of $5.25, each, in accordance with Employer's stock option plan, a copy of which is attached hereto marked Exhibit "A". Employee acknowledges that he has received such options. Section 4. Benefits. A. During the Employment Period, Employee shall be eligible to participate in such pension, insurance, medical, disability and other employee benefit plans of Employer which may be in effect from time to time, to the extent he is eligible under the terms of those plans on the same basis as other similarly situated employees of Employer. B. Employee shall receive vacation during each annual period during the Employment Period calculated in accordance with Employer policy. C. Employer will pay for (i) lease payments on one automobile leased and utilized for business purposes not to exceed a maximum of $600 per month (including sales taxes) and (ii) the cost of insurance and maintenance for such automobile. Section 5. Termination. A. Employee's employment and his rights hereunder shall terminate on the first to occur of the following dates: (i) the expiration of the Employment Period; (ii) the date on which Employer gives Employee written notice of termination for cause pursuant to subsection (b) hereof; (iii) upon Employee's death; or (iv) at the option of Employer, at the expiration of the maximum period or leave pursuant to the federal Family Medical Leave Act (if applicable to Employee) or 60 days after the onset of Employee's disability, whichever is later. B. Should Employee (in the reasonable opinion of Employer) (i) fail, neglect or refuse (other than by reason of mental or physical disability) to perform or observe any or all of his obligations hereunder at the time and in the manner herein provided; (ii) commit an act of dishonesty, gross negligence or willful misconduct, including, without limitation, fraud or embezzlement; (iii) make or be found to have made any false representation or warranty herein; (iv) be in breach of any material covenant or other 3 obligation contained in this Agreement; (v) be convicted of a felony or any crime involving moral turpitude; or (vi) be found to be in possession or under the influence of illegal drugs, Employer may upon written notice, at its option, terminate this Agreement, and thereupon be released and discharged from the obligation to pay salary accruing after the date of Employee's discharge, and from all other obligations provided for herein, but such termination shall not affect any liability of Employee to Employer for any loss or damages to Employer caused by, or arising out of, the conduct of Employee resulting in his termination under this subsection (B). Section 6. Non-Disclosure Covenant; Ownership of Proceeds Employment. A. Employee shall not, at any time during the term of this Agreement or thereafter, except in the performance of his duties hereunder, communicate or disclose to any person, or use for his own account, without the prior written consent of Employer, any knowledge or information concerning any patents, inventions or equipment used in, or any secret or confidential information (including, without limitation, any customer lists or trade secrets) acquired by Employee by reason of his employment hereunder concerning the business and affairs of Employer or any of its affiliates. Employee shall retain all such proprietary and confidential information in trust for the sole benefit of Employer and its successors and assigns. B. Employer shall be the sole owner of all the fruits and proceeds of Employee's services hereunder all of which Employee will promptly disclose to Employer, including, but not limited to, all formats, suggestions, developments, arrangements, designs, packages, programs, promotions and other intellectual properties which Employee may create in connection with and during the Employment Period, free and clear of any claims by Employee (or anyone claiming through or under him) of any kind or character (other than his right to compensation hereunder). All copyrightable works created by Employee and covered by this paragraph shall be deemed to be Works for Hire. Employee shall, at the request of Employer, execute such assignments, certificates or other instruments as Employer may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend its rights, title or interest in or to any such properties. If Employee is unable or unwilling to perform such acts, Employee hereby appoints Employer his attorney-in-fact with full power and authority to execute any and all documents and take such other action as is necessary to accomplish the foregoing. C. All memoranda, notes, records, and other documents made or compiled by Employee, or made available to him during his employment by Employer, concerning the business of Employer, shall be Employer's property and shall be delivered to Employer on the termination of this Agreement or at any other time on request. 4 Section 7. Covenants not to Compete; Non-Interference. A. Except in the course of his employment or upon the prior written consent of Employer, Employee shall not at any time during the Employment Period (i) render services or advice, for compensation or otherwise, to any other person or entity as an employee, consultant or independent contractor or otherwise; or (iii) enter into any other business affiliation, including, without limitation, the establishment of a proprietorship or the participation in a partnership or joint venture. B. Employee shall not, at any time during the Employment Period and for six (6) months after termination pursuant to Section 5, for compensation or otherwise, acting alone or in conjunction with others, directly or indirectly, as a stockholder, investor, officer or director of a corporation in which he possesses, directly or indirectly, the power to direct or cause the direction of management or policies (including without limitation a 5% or more holder of the voting securities of a corporation), or as sole proprietor or member of a partnership in all cases. (i) for his own account or for the account of any other person, engage, hire, employ or solicit the employment of any person who is then or has been, within three (3) months prior thereto, an officer, manager or employee of Employer, whether or not such person would commit a breach of his or her contract of employment by reason of leaving the services of Employer or (ii) take advantage of any corporate opportunity of Employer. C. The restrictions contained in this section are considered reasonable by the parties and it is the intent of the parties that such restrictions and the other provisions of this Section be enforced to the fullest extent permissible under the laws and the public policies applied in each jurisdiction in which enforcement is ought. Section 8. Compliance With Other Agreements. Employee represents and warrants to Employer that (i) he is legally free to make and perform this Agreement; and (ii) he has no obligation to any other person or entity that would or will affect or conflict with any of his obligations hereunder. Section 9. Full and Complete Agreement; Amendment. This Agreement constitutes the full and complete understanding and agreement of the parties and supersedes all prior understandings and agreements regarding Employee's employment by Employer. This Agreement may be modified only by a written instrument executed by both parties. 5 Section 10. Waiver. No waiver by either party of any failure or refusal to comply with its or his obligation shall be deemed a waiver of any other or subsequent failure or refusal to so comply. Section 11. Partial Invalidity. If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. Section 12. Successors and Assigns. This Agreement shall inure to the benefit of, and shall be binding upon the parties hereto and their respective successors, assigns, heirs, and legal representatives, including any person or entity with which Employer may merge or consolidate or to which it may transfer all or substantially all of its assets. With respect to Employee, this Agreement, being personal, cannot be assigned. Section 13. Authorization. Employer warrants and represents that the person executing this Agreement on behalf of Employer has full right and authority to bind Employer corporation, and was and is authorized in every manner and respect to enter into this Agreement. Section 14. Notices. All notices and other communications which are required or may be given under this agreement shall be in writing and shall be deemed to have been duly given when delivered in person or transmitted by facsimile, or five (5) days after being mailed by registered or certified first class mail, postage prepaid, return receipt requested, in the case of Employer, to its Chief Executive Officer at 555 West 57th Street, New York, NY 10019, and, in the case of Employee, to 1040 S. Longwood Ave., Los Angeles, CA 90019, or to such other address as such party shall have specified by notice to the other party hereto. 6 Section 15. Jurisdiction. This Agreement shall be governed and construed in accordance with the laws of the State of New York (without regard to the principles of conflicts of laws), the principal place of business of Employer. The parties agree that the courts of the State of California shall have exclusive jurisdiction over all matters of this Agreement and either party may bring suit in such jurisdiction. The venue of such action shall be in Los Angeles County. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first set forth above. UNITEL VIDEO, INC. ALBERT WALTON By: /s/ Barry Knepper By: /s/ Albert Walton ----------------- ----------------- Title: Chief Executive Officer Title: President 7 EX-10.B 6 EXHIBIT 10B Exhibit 10(B) EXECUTION COPY EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of March 20, 1997, by and between UNITEL VIDEO, INC., a Delaware corporation (herein "Employer") and MARK MILLER, an individual residing at 55 Flintlock Lane, Bell Canyon, California 91307 (herein "Employee"). W I T N E S S E T H : WHEREAS, it is currently contemplated that Editel Los Angeles and Unitel/ Hollywood, both divisions of Employer, shall be merged (the new entity consisting of the merged divisions of Editel Los Angeles and Unitel/ Hollywood being hereinafter referred to as the "Merged Division"); and WHEREAS, Employer desires that Employee perform certain duties and have certain responsibilities for both Unitel/Hollywood and the Merged Division and Employee accepts such duties and responsibilities in accordance with the terms of this Agreement; NOW THEREFORE, in consideration of the premises and the agreements herein contained, Employer and Employee agree as follows: Section 1. Employment. A. Employee shall perform such duties and exercise such powers on behalf of Employer and have such responsibilities as are consistent with the position of (1) for so long as Unitel/Hollywood is in existence, "President - - Unitel/Hollywood" and (2) upon the establishment of the Merged Division, "Chief Operating Officer of the Merged Division" and such additional duties as shall be reasonably designated from time to time by or at the direction of Employer, together with any other function as might be deemed required and necessary for the advancement of the interests of Employer. B. Employee shall devote his best efforts and his time, knowledge, skill, attention and energy to the business of Employer in the advancement of the interests of Employer. Employee will not engage in any activities that would interfere with his ability to discharge his responsibilities as an employee of Employer. C. Employer shall have the right at any time, and from time to time, to modify the duties to be performed by Employee, or the powers exercised by him, consistent with the discharge of his responsibilities as President of Unitel-Hollywood and Chief Operating Officer of the Merged Division. Section 2. Term of Employment. A. Employee's employment under this Agreement shall be for a period commencing on March 1, 1997 and ending on February 28, 1999 (such period being, the "Employment Period"). B. Notwithstanding the terms of paragraph A of this section, Employee's employment is subject to termination by Employer or Employee in accordance with the provisions of Section 5 of this Agreement. Section 3. Compensation. A. In consideration for the services to be rendered by Employee hereunder and in consideration of the covenants herein given by Employee, Employer shall pay to Employee an annual salary equal to (1) One Hundred Seventy Eight Thousand Five Hundred Dollars ($178,500) (the "Base Salary") during the period from March 1, 1997 through February 28, 1998 and (2) a percentage increase in the Base Salary equal to the percentage increase in the Consumer Price Index, All Urban Consumers in the Los Angeles Metropolitan Area (or its successor index), as published by the Bureau of Labor Statistics of the Department of Labor, from January 30, 1998 ( or as near a date as is available) compared to January 30, 1997 (or the corresponding date in the prior year, as applicable) for the period from March 1, 1998 through February 28, 1999 (for example, if the Consumer Price Index increases by 3% from January 30, 1997 to January 30, 1998, Employee shall receive an annual salary equal to $183,855 during the period from March 1, 1998 through February 28, 1999), payable in accordance with Employer's usual payroll practices, and subject to such withholdings as may be required by law or by the terms of any applicable benefit plan(s). B. Provided that for the months of September 1, 1996 through the earlier of August 31, 1997 and the date that Unitel/Hollywood ceases operation (such months being, the "Base Period") Unitel/Hollywood achieves pre-tax net income, Employee shall be paid bonus compensation for the Base Period equal to five (5%) percent of the pre-tax net income of Unitel/Hollywood for the Base Period. For all fiscal years of Employer after August 31, 1997 and during the Employment Period, Employee shall be paid bonus compensation in respect of each such fiscal year equal to three (3%) percent of the pre-tax net income of the Merged Division for such fiscal year. Bonus compensation in respect of any period (except the Base Period) during the Employment Period which is shorter than a full fiscal year shall be pro rated. Bonus compensation shall be subject to withholding as required by law and shall be paid in accordance with Employer's customary practices. C. Employee shall be paid bonus compensation equal to one percent (1%) of revenues ("Long Form Revenues"), determined on an accrual basis, in respect of all long-form services (such term being defined by reference to the manner in which the customer base was divided between Editel Los Angeles and Unitel/Hollywood in March, 1997) provided by Editel Los Angeles, Unitel/Hollywood and the Merged Division for the period from June 1, 1997 through May 31, 1998. For purposes of calculating Long Form Revenues, there shall not be included any revenues in respect of food, telephone, messengers or any other out-of-pocket costs or any applicable taxes. Bonus compensation shall be subject to withholding as required by law and shall be paid in accordance with Employer's customary practices. D. Subject to the approval of the Board of Directors of Unitel Video, Inc., Employee shall receive options to purchase 10,000 shares of the common stock of Unitel Video, Inc., exercisable as determined by the Board of Directors pursuant to the Unitel Video, Inc. 1992 Stock Option Plan. 2 E. Employee acknowledges that his responsibilities are those of a bona fide professional, whose work is original and creative and requires the theoretical and practical application of highly specialized knowledge and whose knowledge has been acquired through a prolonged course of specialized training and experience. As such, he is exempt from the maximum hours and minimum pay requirements of the Fair Labor Standards Act and similar state laws. Section 4. Benefits. A. During the Employment Period, Employee shall be eligible to participate in such pension, insurance, medical, disability and other employee benefit plans of Employer which may be in effect from time to time, to the extent his is eligible under the terms of those plans on the same basis as other similarly situated employees of Employer. B. Employee shall receive five (5) weeks of vacation during each annual period during the Employment Period, calculated and taken in accordance with Employer policy. Employee hereby acknowledges and agrees that as of March 1, 1997 Employee was entitled to a total of 35 accrued and unused vacation days. C. Employer will pay for (i) lease payments on one automobile leased by Employee and utilized for business purposes not to exceed a maximum of $600 per month (including sales taxes) and (ii) the cost of insurance and maintenance for such automobile. Section 5. Termination. A. Employee's employment and his rights hereunder shall terminate on the first to occur of the following dates: (i) the expiration of the Employment Period; (ii) the date on which Employer gives Employee written notice of termination for cause pursuant to subsection (B) hereof; (iii) upon Employee's death; or (iv) at the option of Employer, at the expiration of the maximum period of leave pursuant to the federal Family Medical Leave Act (if applicable to Employee) or 60 days after the onset of the Employee's disability, whichever is later. B. Should Employee (in the reasonable opinion of Employer, which shall not be conclusive on Employee for purposes of exercising his rights set forth in the last sentence of this subsection B) (i) fail, neglect or refuse (other than by reason of mental or physical disability) to perform or observe any or all of his obligations hereunder at the time and in the manner herein provided; (ii) commit an act of dishonesty, gross negligence or willful misconduct, including, without limitation, fraud or embezzlement; (iii) make or be found to have made any false representation or warranty herein; (iv) be in breach of any material covenant or other obligation contained in this Agreement; (v) be convicted of a felony or any crime involving moral turpitude; or 3 (vi) be found to be in possession or under the influence of illegal drugs, Employer may upon written notice, at its option, terminate this Agreement, and thereupon be released and discharged from all further obligations provided for herein, but such termination shall not affect any liability of Employee to Employer for any loss or damages to Employer caused by, or arising out of, the conduct of Employee resulting in his termination under this subsection (B). Notwithstanding the above but without limiting Employer's rights in any manner, Employee shall be free to contest the validity and reasonableness of Employer's determination regarding any termination for cause, and in the event such determination and/or termination is found to be unreasonable or in bad faith, Employer's obligations under this Agreement will not be terminated nor discharged. C. At any time after January 1, 1998, Employee shall be entitled to terminate his employment hereunder in the event that he is unable in good faith to work together with Mr. Al Walton, President and Chief Executive Officer of the Merged Division; provided that Employee notifies Employer subsequent to the aforementioned date and gives Employer thirty days to endeavor to settle any disagreements between the two individuals. If at the end of such thirty-day period a settlement has not been reached, Employee may upon written notice terminte his employment hereunder and be entitled to severance in an amount equal to one week of his then current salary for each year of employment with Employer. Section 6. Non-Disclosure Covenant; Ownership of Proceeds of Employment A. Employee shall not, at any time during the term of this Agreement or thereafter, except in the performance of his duties hereunder, communicate or disclose to any person, or use for his own account, without the prior written consent of Employer, any knowledge or information concerning any patents, inventions or equipment used in, or any secret or confidential information (including, without limitation, any customer lists or trade secrets) acquired by Employee by reason of his employment hereunder concerning the business and affairs of Employer or any of its affiliates. Employee shall retain all such proprietary and confidential information in trust for the sole benefit of Employer and its successors and assigns. B. Employer shall be the sole owner of all the fruits and proceeds of Employee's services hereunder all of which Employee will promptly disclose to Employer, including, but not limited to, all formats, suggestions, developments, arrangements, designs, packages, programs, promotions and other intellectual properties which Employee may create in connection with and during the Employment Period, free and clear of any claims by Employee (or anyone claiming through or under him) of any kind or character (other than his right to compensation hereunder). All copyrightable works created by Employee and covered by this paragraph shall be deemed to be Works for Hire. Employee shall, at the request of Employer, execute such assignments, certificates or other instruments as Employer may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend its right, title or interest in or to any such properties. If employee is unable or unwilling to perform such acts, Employee hereby appoints Employer his attorney-in-fact with full power and authority to execute any and all documents and take such other action as is necessary to accomplish the foregoing. 4 C. All memoranda, notes, records, and other documents made or compiled by Employee, or made available to him during his employment by Employer, concerning the business of Employer, shall be Employer's property and shall be delivered to Employer on the termination of this Agreement or at any other time on request. Section 7. Covenants not to Compete; Non-Interference. A Except in the course of his employment or upon the prior written consent of Employer, Employee shall not at any time during the Employment Period ( i ) render services or advice, for compensation or otherwise, to any other person or entity as an employee, consultant or independent contractor or otherwise; or ( ii ) enter into any other business affiliation, including, without limitation, the establishment of a proprietorship or the participation in a partnership or joint venture. Notwithstanding the foregoing, Employer hereby gives its consent to Employee's participation solely in an advisory capacity as a consultant in the business of Electric Film Center provided that the amount of time spent by Employee in such advisory role is di minimis and does not otherwise interfere with the performance of his obligations hereunder as determined by Employer and provided further that Employee shall not represent that Employer is involved in any manner in the business or operation of Electric Film Center. In the event that Employer determines that Employee's participation in the business of Electric Film Center is excessive and/or interferes with the performance of his duties hereunder, Employee shall cease or modify his participation in the business of Electric Film Center, as requested by Employer. B. Employee shall not, at any time during the Employment Period and for six (6) months after termination pursuant to Section 5, for compensation or otherwise, acting alone or in conjunction with others, directly or indirectly, as a stockholder, investor, officer or director of a corporation in which he possesses, directly or indirectly, the power to direct or cause the direction of management or policies (including without limitation a 10% or more holder of the voting securities of a corporation), or as sole proprietor or member of a partnership in all cases: (i) for his own account or for the account of any other person, engage, hire, employ or solicit the employment of any person who is then or has been, within three (3) months prior thereto, an officer, manager or employee of Employer, whether or not such person would commit a breach of his or her contract of employment by reason of leaving the services of Employer; or (ii) take advantage of any corporate opportunity of Employer. C. The restrictions contained in this section are considered reasonable by the parties and it is the intent of the parties that such restrictions and the other provisions of this Section be enforced to the fullest extent permissible under the laws and the public policies applied in each jurisdiction in which enforcement is sought. 5 Section 8. Compliance With Other Agreements. Employee represents and warrants to Employer that ( i ) he is legally free to make and perform this Agreement; and ( ii ) he has no obligation to any other person or entity that would or will affect or conflict with any of his obligations hereunder. Section 9. Full and Complete Agreement; Amendment. This Agreement constitutes the full and complete understanding and agreement of the parties and supersedes all prior understandings and agreements regarding Employee's employment by Employer. This Agreement may be modified only by a written instrument executed by both parties. Section 10. Waiver. No waiver by either party of any failure or refusal to comply with its or his obligations shall be deemed a waiver of any other or subsequent failure or refusal to so comply. Section 11. Partial Invalidity. If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. Section 12. Successors and Assigns. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives, including any person or entity with which Employer may merge or consolidate or to which it may transfer all or substantially all of its assts. With respect to Employee, this Agreement, being personal, cannot be assigned. Section 13. Authorizations. Employer warrants and represents that the person executing this Agreement on behalf of Employer has full right and authority to bind Employer corporation, and was and is authorized in every manner and respect to enter into this Agreement. Section 14. Attorney's Fees/Costs In the event of any dispute, action or proceeding under or arising out of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees and costs. 6 Section 15. Notices. All notices and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or transmitted by facsimile, or five (5) days after being mailed by registered or certified first class mail, postage prepaid, return receipt requested, in the case of Employer, to its President at 515 West 57th Street, New York, New York 10019 with a copy to Karen C. Lapidus, Esq., General Counsel, at 515 West 57th Street, New York, New York 10019 and, in the case of Employee, to 55 Flintlock Lane, Bell Canyon, California 91307 or to Employee at his last known address, with a copy to Howard S. Hornreich, Esq., attorney for Employee, 23101 144th Avenue S.E., Kent, Washington 98042, or to such other address as such party shall have specified by notice to the other party hereto. Section 16. Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York (without regard to the principles of conflicts of laws), the principal place of business of Employer. The parties agree that the courts of the State of New York and of the State of California shall have exclusive jurisdiction over all matters of this Agreement and either party may bring suit in either of such jurisdictions. The venue of such action shall be in New York County or Los Angeles County, as applicable. Section 17. Effectiveness. Although dated the above date for convenience, this Agreement shall govern the employment relationship between the parties for the entire Employment Period. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first set forth above. UNITEL VIDEO, INC. MARK MILLER By: /s/ Barry Knepper By: /s/ Mark Miller Title: Chief Executive Officer Title: President 7 EX-27 7 EX-27
5 0000740103 UNITEL VIDEO,INC. 1,000 9-MOS AUG-31-1997 SEP-01-1996 MAY-31-1997 75 0 7909 492 0 9,104 128,437 75,550 66,497 18,989 38,788 0 0 27 17,778 66,497 47,210 47,210 38,347 38,347 9,274 11 2,674 (161) 1 (162) 0 0 0 (162) (.06) 0
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