-----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, EooCp1muTZbZINWtJLaJ/yKUQGA9VEpfuLz6eQLZzr43cQWONdwpHMj4BETB7iVV vRP06QDjsu//PxO9XM5E2Q== 0001047469-97-007791.txt : 19971216 0001047469-97-007791.hdr.sgml : 19971216 ACCESSION NUMBER: 0001047469-97-007791 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971215 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-K SEC ACT: SEC FILE NUMBER: 001-08654 FILM NUMBER: 97738407 BUSINESS ADDRESS: STREET 1: 555 WEST 57TH STREET STREET 2: 12TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2122653600 MAIL ADDRESS: STREET 1: 555 WEST 57TH STREET STREET 2: 12FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ----- SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended AUGUST 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 Identification No.) incorporation or organization) 555 WEST 57TH STREET, NEW YORK, NEW YORK 10019 - --------------------------------------------- ------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 265-3600 ------------------- Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, $.01 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K (X). (Cover Page: 1 of 2 Pages) The aggregate market value of the voting stock (based on the closing price of such stock on the American Stock Exchange) held by non-affiliates of the Registrant at November 21, 1997 was approximately $16,090,000. There were 2,674,665 shares of Common Stock outstanding at November 21, 1997. DOCUMENTS INCORPORATED BY REFERENCE PART III Certain portions of the Registrant's Proxy Statement for the Registrant's 1997 Annual Meeting of Stockholders. 2 PART I ITEM 1. BUSINESS GENERAL Unitel Video, Inc. (the "COMPANY") provides a full range of services to the video and film communications industry for the recording, editing, creation of digital effects and duplication of television programs, commercials and corporate and other communications on videotape. The Company's services are provided primarily in the following areas: studio videotape recording, mobile videotape recording and live telecasting, film to videotape transfer, editing, digital effects and videotape duplication. The Company also designs and produces custom internet, CD-ROM, DVD, videodisc and networked multimedia presentations. The Company's services are provided at facilities located in New York City and Los Angeles and through the Company's Mobile division based in Pittsburgh, Pennsylvania, Burbank, California, and Montreal, Canada. The Mobile division provides "on-location" services (the "Mobile Business"), including technical personnel, for videotape recording and live telecasting of sports, entertainment, cultural and other events throughout North America. In fiscal 1997, the Company established Unitel Video Canada Inc., a wholly owned subsidiary of the Company, to engage in the Mobile Business in Canada. As the Company is in a service industry it does not use raw materials. It does, however, use videotape. Videotape is readily available from numerous sources and the Company has not experienced, nor does it anticipate experiencing, difficulty in obtaining videotape for its operations. In addition, the Company has service contracts with its customers, generally for facilities and personnel at specific times or on a project or job-by-job basis (as more fully described below under the caption "Marketing") and, accordingly, does not have backlog as such. The Company's cost structure is such that depreciation, selling expenses and general and administrative expenses do not generally fluctuate from quarter to quarter during a fiscal year based on sales volume. Furthermore, a majority of production costs are fixed. Accordingly, relatively small variations in quarterly sales historically have resulted in disproportionately greater variations in net earnings. In part due to the foregoing, during fiscal years 1997, 1996 and 1995, the Company recognized a significantly greater proportion of net earnings in the first quarter, when sales are traditionally higher, as compared to the other quarters of the fiscal year. See Note L to Notes to Consolidated Financial Statements. SERVICES The Company provides services in two broad categories, production services and post production services. In 1995, the Company made a decision to refocus its resources toward the entertainment and corporate communications areas, its traditional strengths. As part of this strategy the Company has reduced its post production assets that service the highly competitive commercial advertising segment of the industry. As a result of this change, revenues generated from post production services have declined from 63% of sales in 1995 to 50% of sales in 1997, while revenues from the production area have increased from 37% of sales in 1995 to 50% of sales in 1997. The Company anticipates that this trend will continue in fiscal 1998. 3 PRODUCTION SERVICES STUDIO VIDEOTAPE RECORDING. The Company provides the studios, equipment and skilled technical personnel needed to record television programs, commercials and corporate and other videotape communications. The equipment provided by the Company includes color television cameras, videotape recorders, sound monitoring and mixing equipment and lighting equipment. The Company does not generally provide program direction or other artistic or non-technical production services, such as the preparation of scripts, the hiring of performers or the supplying of special props or scenery. The Company operates eight studios in New York City. Among the programs produced at the Company's studio facilities are "The Sally Jessy Raphael Show", "Inside Edition", "The Montel Williams Show", "The Chris Rock Show" and "American Journal". Studio recording accounted for approximately 18%, 18% and 16% of the Company's revenues during the fiscal years ended August 31, 1997, 1996 and 1995, respectively. MOBILE VIDEOTAPE RECORDING AND LIVE TELECASTING. The Company's Mobile division provides videotape recording and live telecasting services "on- location" by transporting videotape and other related equipment in its mobile vehicles. These vehicles have been designed to serve as the production control center for events in sports arenas, concert halls, theaters and other locations. The Company also arranges for the skilled technical personnel required to perform these services. The Company's ten mobile vehicles are equipped to travel on a continuous basis throughout North America and can be maintained in the field. The Company's Mobile division accounted for approximately 32%, 27% and 21% of the Company's revenues during the fiscal years ended August 31, 1997, 1996 and 1995, respectively. Some of the events handled by the Company's mobile production units include "Live from the Met", "Live from Lincoln Center", "The Grammy Awards", "The Emmy Awards", "The Academy Awards", major golf and tennis tournaments, broadcast of Pittsburgh Pirates, Montreal Expos and Toronto Blue Jays major league baseball games and the international broadcast of the "Super Bowl". POST PRODUCTION SERVICES. FILM TO VIDEOTAPE TRANSFER. The Company provides the facilities and technical personnel for transferring 16mm and 35mm motion picture positive and negative film and slides to videotape. Through the use of computers, the color of the picture may be corrected, altered or enhanced frame by frame to meet client needs. Film to videotape transfer accounted for approximately 8%, 10% and 9% of the Company's revenues during the fiscal years ended August 31, 1997, 1996 and 1995, respectively. The Company has performed this service for major theatrical motion pictures such as "Amistad" and "The Jackal", and television programs such as "Star Trek:Voyager", "Star Trek: Deep Space Nine" and "The Simpsons". EDITING. The Company provides editing equipment and skilled personnel required to perform the editing, special optical and audio effects, titling and other technical work necessary to produce a master videotape suitable for broadcast, cablecast, duplication or other distribution. Using computer-controlled electronic editing equipment, video and audio tape recorders and special effects and titling equipment, videotape recorded by the Company or others is processed into a finished product. Editing accounted for approximately 26%, 30% and 35% of the Company's revenues during the fiscal years ended August 31, 1997, 1996 and 1995, respectively. Among the programs edited at the Company's facilities are "Star Trek:Voyager", "Star Trek: Deep Space Nine" and "The Sally Jessy Raphael Show". 4 DIGITAL EFFECTS. The Company offers creative consultation, technical assistance and full-service facilities for the creation of computer-generated graphics, special effects and animation in the digital format in both 2-D and 3-D. These services accounted for approximately 7%, 8% and 9% of the Company's revenues during the fiscal years ended August 31, 1997, 1996 and 1995, respectively. The Company's projects in this area include various commercials for Toyota, Sears and Nike and major theatrical motion pictures such as "Air Force One", "Star Ship Troopers" and "Devils Advocate". VIDEOTAPE DUPLICATION. The Company furnishes videotape duplication services in all formats, including formats available for broadcast and cablecast in the United States as well as the multiple formats used abroad. Duplication services accounted for approximately 5%, 4% and 4% of the Company's revenues during the fiscal years ended August 31, 1997, 1996 and 1995, respectively. NEW MEDIA SERVICES. The Company designs and produces custom internet websites and DVD, CD-ROM, videodisc and networked multimedia presentations for clients in the publishing, financial services, pharmaceutical, entertainment, advertising, retail, telecommunications and utility industries. Extensive use of other Company resources are integrated into these productions, including video compression, digital to video transfers, digital effects and studio and location recording. The Company also provides MPEG compression services for Softkey, Sony Interactive and Grey Advertising. New Media Services accounted for approximately 1% of the Company's revenues during each of the fiscal years ended August 31, 1997, 1996 and 1995. MARKETING The Company markets its services principally to cable television program suppliers, independent producers, national television networks, local television stations, motion picture studios, advertising agencies, and program syndicators and distributors through the direct efforts of its internal sales personnel and through advertising in certain trade publications. The Company has no material patents. The Company markets its services through the use of the Unitel and Editel names. Customers for editing services, film-to-tape transfer, digital effects and videotape recording of television commercials generally make arrangements for the Company's services without significant advance notice, on a project or job-by-job basis. Customers for studio and "on-location" videotape recording or live telecasting of programs generally make arrangements longer in advance of the time when the facilities and services are required. The Company has entered into arrangements with several customers for periods ranging up to three years to provide editing, mobile videotape recording and/or studio videotape recording services. No customer accounted for more than 10% of the Company's total sales for the fiscal years ended August 31, 1997, 1996 and 1995. COMPETITION The video services industry is highly competitive. Certain videotape service businesses (both independent companies and divisions of diversified companies) provide most of the same services provided by the Company, while others specialize in one or several of these services. Editing and videotape recording services are also subject to competition from the film industry. While the Company does not perform any services directly on film it does provide services for the motion picture industry, including film to videotape transfer, film in film out and special high resolution digital effects work on feature films. 5 Many competitors of the Company, some with greater financial resources, are located in the New York City and the Los Angeles areas, the principal markets for the Company's services other than "on-location" video services. The Company provides "on-location" video services throughout North America and competes with companies providing similar services throughout that area. The Company competes on the basis of the overall quality of the services it provides, state-of-the-art equipment, breadth of services, reputation in the industry and location. The Company also competes on the basis of its ability to attract and retain qualified, highly skilled personnel. The Company believes that prices for its services are competitive within its industry, although some competitors may offer certain of their services at lower rates than the Company. The video services industry has been and is likely to continue to be subject to technological change to which the Company must respond in order to remain competitive. EMPLOYEES On August 31, 1997 the Company had 292 full-time employees. A portion of the Company's New York post-production personnel (25 employees) are represented by the National Association of Broadcast Employees and Technicians, AFL-CIO ("NABET"). The contract between NABET and the Company expired on April 17, 1997. The Company and NABET are continuing to negotiate a new contract. The technical personnel of the Company's Editel Los Angeles division (55 employees) are represented by the International Alliance of Theatrical Stage Employees ("IATSE"). The contract between IATSE and the Company expired on November 30, 1997. Negotiations for a new contract are underway. The technical personnel of the Company's Mobile division (39 employees) are represented by the International Brotherhood of Electrical Workers, under a contract which expires in August 2000. The Company believes that its employee relations are generally satisfactory. DEVELOPMENTS 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. The Company has determined to focus its resources toward providing services to the entertainment and corporate communications areas, which represent the Company's strength. As part of this strategy, the Company decided to sell its Editel New York, Editel Chicago and Editel Los Angeles divisions, which specialize in the highly competitive commercial advertising portion of the video facilities industry. During the 1995 fiscal year, the three Editel divisions incurred a pretax loss of $3,682,000. As a result of its decision to sell these divisions, the Company identified associated property, plant and equipment, which after an impairment charge of $4,700,000 recorded as of August 31, 1995 had a carrying value of approximately $19,300,000, that it no longer needed for its current and future operations. During the fourth quarter of fiscal 1995, the Company committed to a plan to dispose of the Editel divisions and in the first quarter of fiscal 1996 began marketing these divisions to potential buyers. 6 Based on the Company's decision to sell the Editel divisions, the Company recorded an impairment charge of approximately $2,000,000 in fiscal 1996 relating to the assets at all three Editel divisions. The impairment charge recorded represents 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 used in the past and which management has found to be reasonable and appropriate. In February 1996, the Company announced the closure of its Editel Chicago division and subsequently distributed the majority of that division's assets throughout the Company. The balance of the Editel Chicago division equipment was sold in an auction which was held in May 1996. In March 1996, the Company terminated the lease for its Editel Chicago division by making a lump sum payment to the landlord of $1,600,000. The restructuring charge of $1,246,000 recorded in the quarter ended May 31, 1996 reflects this payment less the reversal of $354,000 of accrued rent which would have been due under the terms of the lease. Previously, in May of 1995, the Company adopted a plan to downsize the operations of its Editel Chicago division and reorganize and reduce its corporate management which resulted in recording a restructuring charge of $400,000 for severance and early retirement expense. During the months of March through May 1996, the editorial and computer graphics departments of the Editel New York division were closed. In May 1996, the Company reached an agreement in principle to sell the film-to-tape transfer business of Editel New York, which was the remaining operating department, to a group of employees backed by a private investor. The Company operated the film-to-tape transfer business through August 1996, at which time discussions with the employee led group were terminated and the business was closed. During the negotiations, the majority of the editorial and computer graphics assets were distributed throughout the Company. At August 31, 1996, the Company estimated the revised value of the remaining assets held for sale to be approximately $1,587,000 and classified them on the balance sheet as short-term. In November 1996, the Company sold the majority of those assets to an unrelated third party for $1,400,000. The balance of the assets were redeployed throughout the Company or disposed of through an auction. Proceeds from the sale of assets from both the Editel Chicago and Editel New York divisions were used by the Company to repay outstanding debt. In May 1996, after reevaluating the potential of the Editel Los Angeles division, the Company decided to retain and expand this division and, accordingly, discontinued seeking a buyer for this business. In April 1997, the Company renamed its Windsor Video division "Unitel Post 38" and reorganized its New York operations into three divisions: the Unitel New York Post Production division, the Unitel New York Studios division and the Unitel Interactive division. In June 1997, the Company merged its Unitel Hollywood and Editel Los Angeles divisions, moving a significant portion of the Unitel Hollywood assets into the Company owned Editel Los Angeles building. Additional equipment was moved to the Company's New York based post production facilities for future use. The balance of the equipment was sold, with approximately $1,700,000 in proceeds used to repay long term debt. As a result of the merger, the Company recorded a $1,055,000 restructuring charge in the third quarter of 1997. Additionally, after a reassessment of the Company's New York post production assets, the Company recorded an impairment charge of $300,000 in the fourth quarter of 1997. 7 In fiscal 1997 the Company announced the construction of two new digital mobile production units. One of the mobile units has been completed. It is anticipated that the second mobile unit will be completed in fiscal 1998. Completion of the second mobile unit is expected to be financed from the proceeds of a second series of industrial revenue bonds to be issued by the Allegheny County (Pennsylvania) Industrial Development Authority. (See Note B to Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations). On August 12, 1997 and on September 8, 1997 the Company issued press releases concerning, among other things, certain unsolicited, non-binding expressions of interest in acquiring the Company and announcing that the Company had retained the investment banking firm of Legg Mason Wood Walker, Incorporated, as its financial advisor in connection with these expressions of interest and any possible transactions that may result. While the Company continues discussions concerning these expressions of interest, there can be no assurance that these discussions will result in a definitive agreement or that a transaction with any party will ultimately be consummated. 8 ITEM 2. PROPERTIES. The following table sets forth, as of August 31, 1997, certain information concerning the Company's facilities. The lease expiration dates exclude option extension periods which exist in certain leases.
APPROXIMATE LEASE EXPIRATION LOCATION SQUARE FEET PRIMARY USE DATE - ----------------------------------------------------------------------------------------------- 555 West 57th Street 3,000 Office space. Dec 2000 New York, New York 515 West 57 Street 40,000 Television studios and post-production Owned New York, New York facilities. 508-510 West 57 Street 15,000 Television studio and support space. Jun 2001 New York, New York 841 Ninth Avenue 21,000 Television studio and support space. Aug 2003 New York, New York 503 West 33 Street 8,000 Television studio and support space. Apr 2001 New York, New York 402 East 76 Street 30,000 Television studio and support space. Jun 1998 New York, New York 5 West 37 Street 13,000 Post-production facilities and New York, New York administrative offices. Mar 2001 8 West 38 Street 10,000 Post-production facilities and New York, New York administrative offices. Mar 2001 222 East 44 Street 43,000 Former Editel New York facility New York, New York subleased to third parties. Dec 1999 433-435 West 53 Street 14,000 Television studio and support space. Owned New York, New York 423 West 55 Street 21,000 Studio support space. Aug 1999 New York, New York 4100 Steubenville Pike 18,000 Mobile production headquarters Sep 1997 Pittsburgh, Pennsylvania and garage. 729 North Highland 26,000 Post-production, film-to-tape transfer Owned Los Angeles, California and computer graphics facilities and administrative offices. 1101 Isabel Street 15,000 Mobile field shop and garage. Month to Month Burbank, California
9 3540 Griffith Street 8,000 Mobile offices and garage. Jun 2002 Saint-Laurent, Quebec Canada
All of the Company's facilities are well maintained structures, in good physical condition and are adequate to meet the Company's current and reasonably foreseeable needs. ITEM 3. LEGAL PROCEEDINGS. (a) There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject. (b) No material pending legal proceeding was terminated during the fourth quarter of the Company's fiscal year ended August 31, 1997. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ OFFICER NAME AGE SINCE POSITIONS WITH THE COMPANY - --------------------------------------------------------------------------------- Barry Knepper 47 1982 President, Chief Executive Officer and Director Richard L. Clouser 57 1982 Senior Vice President - Corporate, President of the Mobile Division and Director Karen Ceil Lapidus 40 1994 Vice President, General Counsel and Secretary Jill Debin Cohen 45 1995 President of the Unitel New York Post Production Division Albert Walton 52 1995 President of the Editel Los Angeles Division Tom Eyring 45 1995 Chief Technology Officer Edwin Levine 58 1996 President of the Unitel New York Studios Division George C. Horowitz 45 1996 Chief Financial Officer
10 CERTAIN INFORMATION CONCERNING THE EXECUTIVE OFFICERS OF THE COMPANY Mr. Knepper has been President and Chief Executive Officer of the Company since April 1996 and a Director since May 1995. He has served as Senior Vice President-Finance and Administration from April 1995 to May 1996 and as Chief Financial Officer from January 1982 to April 1995. Mr. Clouser has been President of the Mobile division of the Company since 1982, Senior Vice President-Corporate since April 1996 and a Director since October 1996. Ms. Lapidus has been General Counsel and Secretary of the Company since January 1994 and a Vice President since April 1996. From 1984 until joining the Company, Ms. Lapidus was an associate attorney at Mudge Rose Guthrie Alexander & Ferdon, a New York law firm. Ms. Debin Cohen has been President of the Unitel New York Post Production division since August 1996. From June 1995 to August 1996 she was President of the Windsor Video division which became a part of the Unitel New York Post Production division in August 1996. From November 1993 to June 1995 she was the Vice President/General Manager of the Windsor Video division. Ms. Debin Cohen was the Vice President of Operations for the Editel New York division from 1988 through November 1993. Mr. Walton has been President of the Editel Los Angeles division since July 1995. From May 1994 through July 1995 he was the Director of New Business Development for the Editel Los Angeles division. He served as Vice President of CIS from 1988 through 1994, a Hollywood based specialized visual effects company. Mr. Eyring has been Chief Technology Officer since June 1995. From 1991 to June 1995 he was Vice President of Engineering of the Editel New York division and from 1982 through 1991 he was Director of Engineering Services for the Editel New York division. Mr. Levine has been President of the Unitel New York Studios division since August 1996. From June 1975 to August 1996 he was Vice President of Technical Operations for the Unitel New York division of the Company. Mr. Horowitz has been Chief Financial Officer of the Company since April 1996. From May of 1993 through June of 1996 he was Director of Finance for the Company. The term of office of each executive director of the Company expires as specified by the Board of Directors of the Company and when his or her respective successor is elected and has qualified. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the American Stock Exchange under the symbol UNV. The following table sets forth, for fiscal years 1997 and 1996, the high and low sales prices of the Common Stock as furnished by the American Stock Exchange: Fiscal Year 1997: LOW HIGH --- ---- First Quarter.......................... 5 3/4 8 1/2 Second Quarter......................... 6 8 3/8 Third Quarter.......................... 5 7/8 6 3/4 Fourth Quarter......................... 5 1/8 8 Fiscal Year 1996: LOW HIGH --- ---- First Quarter.......................... 4 7/8 6 13/16 Second Quarter......................... 5 1/8 8 Third Quarter.......................... 4 7/8 7 3/8 Fourth Quarter......................... 5 1/4 6 1/4 As of November 21, 1997 there were approximately 358 holders of the Company's Common Stock. Since its inception in 1969, the Company has not declared or paid cash dividends on its Common Stock, and it does not anticipate declaring or paying cash dividends in the foreseeable future. The declaration, payment and amount of future dividends will be determined by the Board of Directors in light of conditions then existing, including the Company's earnings, financial condition, capital requirements and other factors. In connection with its financing arrangements, the Company is subject to certain restrictions which prohibit the payment of cash dividends. (See Note B to Notes to Consolidated Financial Statements, and Management's Discussion and Analysis of Financial Condition and Results of Operations). 12
ITEM 6. Selected Financial Data 1997 1996 1995 1994 1993 --------------------------------------------------------------------------------------------------------- OPERATIONS: Sales $58,767,000 $79,287,000 $83,285,000 $80,498,000 $79,390,000 Cost of sales $49,708,000 $65,501,000 $69,219,000 $64,391,000 $62,418,000(b) Interest expense $ 3,430,000 $ 3,686,000 $ 3,649,000 $ 2,388,000 $ 2,815,000 Earnings(loss)before income taxes $(4,398,000) $(5,084,000) $(9,341,000) $ 1,519,000 $ 924,000 Net earnings(loss)(a) $(4,436,000) $(5,124,000) $(6,547,000) $ 859,000 $ 711,000 FINANCIAL POSITION: Total assets $63,083,000 $67,618,000 $74,186,000 $73,245,000 $69,052,000 Working capital (deficiency) $(9,655,000)(f) $(8,356,000)(d) $(3,467,000)(d) $(8,055,000)(c) $ (705,000) Current ratio .41 to 1 .60 to 1 (d) .82 to 1(d) .64 to 1 (c) .95 to 1 Property & equipment-net $51,907,000 $50,466,000(e) $34,491,000(e) $55,425,000 $51,166,000 Long-term debt, less current maturities $26,525,000 $19,706,000 $19,936,000 $14,142,000(c) $21,835,000 Stockholders' equity $13,392,000 $17,810,000 $22,526,000 $28,828,000 $27,673,000 DATA PER COMMON SHARE: Net earnings(loss)per common share $ (1.66) $ (1.96) $ (2.53) $ .33 $ .30 Weighted average number of common and common equivalent shares outstanding 2,665,000 2,613,000 2,582,000 2,617,000 2,066,000
(a) Federal and state tax credits of approximately $14,000 in 1997, $15,000 in 1996, $28,000 in 1995, $58,000 in 1994 and $30,000 in 1993 have been applied as a reduction of the provision for income taxes. (b) Gain on sale or disposal of equipment and amortization of goodwill have been reclassified to depreciation expense to conform with fiscal 1994, 1995, 1996 and 1997 presentation. (See Note H to Notes to Consolidated Financial Statements) (c) The revolving credit portion of the long-term debt, which expired in May 1995, was included in current liabilities. In December 1995, the Company refinanced its revolving credit and term loans outstanding with its bank lenders. (d) The working capital deficiency is primarily due to the inclusion of $3,750,000 in 1995 and $6,588,000 in 1996 of Term Loan B in current liabilities. (See Note B to Notes to Consolidated Financial Statements). (e) The decrease in fiscal 1996 in property and equipment is due to the reclassification of the Editel divisions' net assets to assets held for sale, a separate line in the long-term asset section of the balance sheet. In 1996 the Company decided to retain its Editel Los Angeles division and also redeployed the majority of the assets of the Editel New York and Editel Chicago divisions throughout the Company. These assets were no longer considered assets held for sale and were reclassified to property and equipment. 13 (f) The increase in the working capital deficiency in fiscal 1997 is due primarily to (1) the decrease in accounts receivable resulting from (i) the closure of the Editel New York facility in August 1996, (ii) the merger of the Los Angeles divisions in June 1997 and (iii) the reduction in sales of the Company's Studio and Mobile divisions in fiscal 1997 (See Management's Discussion and Analysis of Financial Condition and Results of Operations), (2) the reduction in net assets held for sale in fiscal 1997 due to the completion of the sale of such assets prior to August 31, 1997 and (3) an increase in other current items, all of which was offset by a reduction in the current portion of long-term debt. 14 ITEM 7. 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 $12,936,000 during fiscal 1997 as compared to $9,134,000 during fiscal 1996 and $9,738,000 (exclusive of the acquisition of GC & Co.) during fiscal 1995. Expenditures made during fiscal 1997 were primarily for two new mobile units of approximately $7,252,000 (one completed and one under construction) and equipment used in the production, post production and computer graphics service areas throughout the Company. It is anticipated that the second mobile unit will be completed in fiscal 1998. Completion of the second mobile unit is expected to be financed from the proceeds of a second series of industrial revenue bonds to be issued by the Allegheny County (Pennsylvania) Industrial Development Authority. (See Note B to Notes to Consolidated Financial Statements). The net change in cash in the fiscal years ended August 31, 1997, 1996 and 1995 was ($55,000), $31,000 and $(1,132,000), respectively. The net cash decrease in 1997 resulted from cash provided by operating activities of $9,271,000 offset by cash used in investing activities of $9,132,000, (primarily capital expenditures net of equipment sales) and $194,000 used in financing activities. For the fiscal year ended August 31, 1997, the decrease in accounts receivable resulted from the closure of the Editel New York facility in August 1996, the merger Editel Los Angeles and Unitel Hollywood divisions in June 1997 and the reduction in sales of the Company's Studio and Mobile divisions in fiscal 1997 due to the cancellation of two television shows in 1996 and the non-recurring nature of the Atlanta Summer Olympics and the Republican and Democratic National Conventions in 1996 for which the Mobile division provided production services. The net cash increase in fiscal 1996 was the result of net cash provided by operating activities of $7,130,000 and financing activities of $884,000 which was offset by $7,983,000 related to investing activities. For the year ended August 31, 1996, the large reduction in accounts receivables and payables was primarily due to the closing of the Company's Editel Chicago and Editel New York divisions. The increase in deferred financing costs and the majority of the net cash provided by financing activities were due to the refinancing of the Company's debt in December of 1995. The majority of the proceeds generated from the disposal of equipment was related to the closure of the Editel Chicago and Editel New York divisions. The net cash decrease in fiscal 1995 was the result of cash provided by operating activities of $8,134,000 and financing activities of $1,420,000 less cash used in investing activities of $10,686,000. The net cash decrease in fiscal 1995 was primarily due to the Company's fixed asset expenditures for the year exceeding the cash generated by operations. 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 (Term Loans A and B). In May 1997, Term Loan A was revised by the inclusion of $2,500,000 of the original Term Loan B and the advance of $518,000 of new funds, resulting in a revised Term Loan A balance of $9,000,000. Term Loan A is payable in fifty five (55) equal monthly principal installments of $100,000 plus interest, with the balance of $3,500,000 due December 2001. In November 1997 Term Loan B was repaid, in part from the proceeds of a new Term Loan D in the amount of $2,500,000 which is due on January 31, 1998. $3,742,000 of the original Term Loan B was repaid from sales of equipment from Editel Chicago, Editel New York and Unitel Hollywood. The Company is currently in negotiations to refinance or sell certain of its owned real estate and anticipates 15 using a portion of the proceeds of the refinancing or sale to repay Term Loan D and other indebtedness and the balance of the proceeds for working capital purposes. In July 1997 the credit facility was further amended by the issuance of a $5,080,000 letter of credit to secure payment of principal and interest on $5,000,000 in principal amount of Allegheny County (Pennsylvania) Industrial Development Authority Variable Rate Demand Revenue Bonds. The proceeds from the sale of the Bonds were loaned to the Company and were used by the Company to build a new digital mobile production unit. The letter of credit requires quarterly principal payments of $179,000 commencing August 1998 to be applied to the redemption in equal principal amount of the Bonds. The Bonds mature on July 1, 2009 and, to the extent not redeemed in full as described in the prior sentence, are required to be repaid by the Company on that date. The terms of the overall credit agreement with the financial institution provide that the lender receive a first lien on all property and equipment and accounts receivable that are not encumbered by another lender. The Company anticipates that funds generated from operations together with funds available under its existing credit facility, proceeds from the refinancing of its owned real estate currently being negotiated and noted above in this item and proceeds from a second series of industrial revenue bonds expected to be issued by the Allegheny County (Pennsylvania) Industrial Development Authority will be sufficient to meet the Company's anticipated working capital and investing needs in fiscal 1998. Additionally, in December 1995 the Company obtained from a bank a $4,000,000 mortgage on its property located on West 57th Street in New York City. The mortgage is payable in equal monthly installments of $22,000 through November 2002, with a final payment of $2,152,000 due in December 2002. In February 1995 the Company purchased the business and assets of GC & Co. (formerly known as Greene, Crowe & Company), a Burbank, California based supplier of "on-location" services for the videotaping and live telecasting of concerts, cultural and other events, including " The Academy Awards", "The Grammy Awards" and "The American Music Awards". The purchase price was $6,750,000, consisting of $6,000,000 in cash and $750,000 of convertible subordinated promissory notes. The cash portion of the purchase price was financed by a $4,700,000, five-year capital lease and a $1,800,000 loan with a fixed interest rate of 9.3% payable in sixty equal monthly payments of principal and interest of $33,000 and a balloon payment at the end of the five-year period of $360,000. The promissory notes bear interest at 1% over prime, were due in full in August 1997 and are convertible into the Company's common stock at $10.00 per share. In August, 1997, noteholders of $640,000 principal outstanding extended the maturity date of their notes to August, 1998 on the same terms and conditions. The balance of the notes have been paid in full. In connection with certain of its financings, the Company must adhere to particular financial ratios and restrictions including restrictions on the future payment of dividends. The Company anticipates that the restrictions will not impair its ability to keep pace with technological developments. See Note B to Notes to Consolidated Financial Statements with respect to compliance with certain financial covenants. The enactment of the Tax Reform Act of 1986 has limited the Company's ability to defer the payment of taxes due to the imposition of an alternative minimum tax which effectively results in the treatment of certain timing differences as tax preference items. 16 RESULTS OF OPERATIONS Sales were $58,767,000, $79,287,000 and $83,285,000 for the fiscal years ended August 31, 1997, 1996 and 1995, respectively. The sales decrease of $20,520,000 was primarily due to the closing of the Editel New York and Editel Chicago divisions in 1996 and the merging of the Unitel Hollywood and Editel Los Angeles Divisions in June 1997. Sales from continuing operations were lower by approximately $5,000,000 in the aggregate in fiscal 1997 primarily due to lower studio sales as a result of the cancellation of the "Mark Walberg" and "Rush Limbaugh" television shows in 1996 and from lower Mobile sales due in part to the non-recurring nature of the Atlanta Summer Olympics and the Republican and Democratic National Conventions in 1996. The Company recorded net losses of $4,436,000, $5,124,000 and $6,547,000 in the fiscal years ended August 31, 1997, 1996 and 1995, respectively. The net loss of $4,436,000 in 1997 is attributable to a loss in the Company's post production operations and the merger related costs in Los Angeles. The net loss of $5,124,000 incurred in fiscal 1996 was attributable to costs relating to the closure of the Company's Editel New York and Editel Chicago divisions and the operating costs of running these divisions until they were closed. The net loss of $6,547,000 incurred in fiscal 1995 was due primarily to the pretax charge of $7,681,000 taken for the impairment of assets of the Editel New York, Editel Chicago, Editel Los Angeles and Unitel Post 38 divisions and the pretax charge of $400,000 for the restructuring of the Editel Chicago division. Throughout fiscal 1997, 1996 and 1995 the Company's New York Studio and Mobile divisions operated profitably. 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 70.4%, 72.7% and 71.1%, for the fiscal years ended August 31, 1997, 1996 and 1995, respectively. The decrease in production costs in fiscal 1997 is primarily due to the closure of the Company's Editel New York and Editel Chicago divisions in fiscal 1996. Production costs as a percentage of sales increased in fiscal 1996 due to the incremental severance costs associated with the closure of the Company's Editel New York and Editel Chicago divisions. During 1996, the Company implemented a program to reduce production costs by closing unprofitable divisions and streamlining operations wherever possible. The increase in production costs for fiscal 1995, as compared with the prior years, is due primarily to an increase in studio and mobile production revenues which incur variable expenses at a higher rate than the Company's other services. Since most of the Company's costs are fixed and a large portion of the costs are subject to price increases, flat sales from year to year result in production costs which are an increased percentage of sales. This same dynamic applies for both selling expenses and general and administrative expenses. Depreciation, as a percentage of sales, was 14.2%, 9.9% and 12.1% in fiscal 1997, 1996 and 1995, respectively. Depreciation expense increased in fiscal 1997 by approximately $500,000 compared to 1996. In fiscal 1997, depreciation decreased approximately $1,500,000 due to the closure in 1996 of the Editel New York and Editel Chicago divisions. In fiscal 1996, $2,000,000 of depreciation was reclassified to impairment charge in connection with the closure of the Editel New York and Editel Chicago divisions. Depreciation in the Company's other divisions in 1997 was approximately the same as in 1996. Depreciation expense decreased in fiscal 1996 due to the reclassification of the net property and equipment of the Editel divisions to net assets held for sale at August 31, 1995. The impairment charge recorded represents management's estimate of the decrease in value of these 17 assets during the period such assets were held for sale in fiscal 1996 based upon the method of depreciation which the Company has used in the past and which management has found to be reasonable and appropriate. The Editel Chicago division was closed in February 1996 and the Editel New York division was closed in August 1996. Depreciation expense increased in 1995 as a result of the $4,750,000 equipment portion of the GC & Co. acquisition and capital expenditures made during the year totaling $9,738,000. Depreciation includes a gain (loss) on disposal of equipment of $220,000, ($58,000) and $352,000 in fiscal 1997, 1996 and 1995, respectively. Had the gain (loss) on disposal of equipment been excluded from depreciation expense, depreciation as a percentage of sales would have been 14.5%, 12.3% and 12.4% in fiscal 1997, 1996 and 1995, respectively. Selling expenses, as a percentage of sales, during fiscal years 1997, 1996 and 1995 were 3.0%, 2.9% and 3.4%, respectively. Selling expense decreased $541,000 in 1997 compared to 1996 as a result of the closure of the Editel New York and Editel Chicago divisions in 1996 and the merger of the Unitel Hollywood and Editel Los Angeles divisions in 1997. Since there was a comparable percent decrease in sales in 1997, selling expense as a percent of sales was essentially the same. The decrease in selling expenses during fiscal 1996 is primarily due to a decrease in the sales staff at the Editel Chicago and Editel New York divisions. In 1995, selling expense as a percentage of sales decreased due to significant cost reductions. General and administrative expenses as a percentage of sales during fiscal years 1997, 1996 and 1995 were 12.4%, 12.2% and 10.6%, respectively. General and Administrative expenses decreased $2,426,000 in 1997 principally from reduced administrative payroll in 1997 due to the closure of the Editel New York and Editel Chicago divisions and the recognition in 1996 of severance pay and other costs in connection with the closure. In addition, there were decreases in allowance for doubtful accounts and corporate expenses. The increase in general and administrative costs in fiscal 1996 is due primarily to severance payments at the Editel Chicago and Editel New York divisions. Cost reductions put into effect in 1994 were reflected in fiscal 1995 by a decrease of approximately 1% from the prior year. Interest expense, as a percentage of sales, during fiscal years 1997, 1996, and 1995 was 5.8%, 4.6% and 4.4%, respectively. Although interest expense decreased 6.9% from 1996, the percent to sales increased due to the decrease in sales resulting from the closing of the Editel Chicago and Editel New York divisions in 1996 and the merger of the Hollywood and Los Angeles divisions in June 1997. Although interest expense increased slightly in 1996, the percent to sales increase to 4.6% in 1996 versus 4.4% in 1995 is due to lower sales in the 1996 fiscal year. The increase in interest expense in fiscal 1995 was due to additional interest incurred relating to the mortgage financings for the Editel Los Angeles building purchased by the Company in June 1994 and financing obtained for the acquisition of GC & Co. in February 1995. During fiscal 1995 the Company wrote off $214,000 of deferred financing costs related to its bank debt which was refinanced in December 1995. Additionally, interest rates were significantly higher in 1995 as compared with the prior year resulting in higher interest payments on the floating rate portion of the Company's debt. The Company's effective tax rates were 1%, 1% and (30%) in fiscal years 1997, 1996 and 1995, respectively. The 1997 and 1996 effective tax rates reflect current year net operating losses for which no tax benefit was provided. The effective tax rate in 1995 differs from prior years primarily due to the impact of the nondeductible goodwill write off and the impairment of assets charge. (See Note F to Notes to Consolidated Financial Statements.) 18 This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which are based upon current expectations and involve certain risks and uncertainties. Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, readers are hereby cautioned that these statements may be impacted by several factors, and, consequently, actual results may differ materially from those expressed herein. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Not Applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. UNITEL VIDEO, INC. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE REPORT OF GRANT THORNTON LLP INDEPENDENT ACCOUNTANTS.........20 CONSOLIDATED FINANCIAL STATEMENTS: BALANCE SHEETS - AUGUST 31, 1997 AND 1996................21-22 STATEMENTS OF OPERATIONS - YEARS ENDED AUGUST 31, 1997, 1996 AND 1995......................23 STATEMENT OF STOCKHOLDERS' EQUITY - YEARS ENDED AUGUST 31, 1997, 1996 AND 1995......................24 STATEMENTS OF CASH FLOWS - YEARS ENDED AUGUST 31, 1997, 1996 AND 1995......................25-27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............28-42 SUPPLEMENTARY FINANCIAL SCHEDULE.............................50 Selected Quarterly Financial Data is set forth in Note L to Notes to the Consolidated Financial Statements. 19 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders Unitel Video, Inc. We have audited the accompanying consolidated balance sheets of Unitel Video, Inc. (a Delaware corporation) at August 31, 1997 and 1996 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended August 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Unitel Video, Inc. as of August 31, 1997 and 1996, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended August 31, 1997, in conformity with generally accepted accounting principles. We have also audited Schedule II of Unitel Video, Inc. for each of the three years in the period ended August 31, 1997. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. /S/GRANT THORNTON LLP - -------------------------------- New York, New York November 4, 1997 20 UNITEL VIDEO, INC. CONSOLIDATED BALANCE SHEETS August 31, ASSETS 1997 1996 - ------ ---- ---- Current assets: Cash $ 137,000 $ 192,000 Accounts receivable, less allowance for doubtful accounts of $412,000 in 1997 and $712,000 in 1996 5,139,000 8,701,000 Other receivables 19,000 333,000 Prepaid income taxes 75,000 142,000 Prepaid expenses 564,000 735,000 Net assets held for sale -- 1,587,000 Deferred tax asset 844,000 844,000 ------------ ----------- Total current assets 6,778,000 12,534,000 Property and equipment - at cost Land, buildings and improvements 20,799,000 19,915,000 Video equipment 87,745,000 97,023,000 Furniture and fixtures 2,591,000 3,502,000 ----------- ----------- 111,135,000 120,440,000 Less accumulated depreciation and amortization 59,228,000 69,974,000 ----------- ----------- 51,907,000 50,466,000 Deferred tax asset 1,625,000 1,625,000 Goodwill 1,721,000 1,859,000 Other assets 1,052,000 1,134,000 ----------- ---------- $63,083,000 $67,618,000 ----------- ----------- ----------- ----------- See accompanying notes. 21 UNITEL VIDEO, INC. CONSOLIDATED BALANCE SHEETS (Continued) August 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 - ------------------------------------ ---- ---- Current liabilities: Accounts payable $ 6,754,000 $ 4,967,000 Accrued expenses 998,000 1,450,000 Payroll and related taxes 2,038,000 2,947,000 Current maturities of long-term debt 3,530,000 8,362,000 Current maturities of subordinated debt 1,167,000 1,166,000 Current maturities of ESOP loan -- 166,000 Current maturities of capital lease obligations 1,946,000 1,832,000 ------------- ------------ Total current liabilities 16,433,000 20,890,000 Deferred rent 121,000 325,000 Long-term debt, less current maturities 26,525,000 19,706,000 Subordinated debt, less current maturities 1,770,000 1,979,000 Long-term leases, less current maturities 3,666,000 5,604,000 Accrued retirement 1,176,000 1,304,000 Stockholders' equity: Common stock, par value $.01 per share: Authorized-5,000,000 shares Issued 3,540,954 shares in 1997 and 3,532,554 shares in 1996, and outstanding 2,674,665 shares in 1997 and 2,666,265 shares in 1996 27,000 26,000 Additional paid-in capital 27,367,000 27,545,000 Accumulated deficit (6,028,000) (1,592,000) Common stock held in treasury, at cost (866,289 shares in 1997 and 1996) (7,974,000) (7,974,000) -------------- ------------- 13,392,000 18,005,000 Unearned employee benefit expense -- (195,000) --------------- ------------- Total stockholders' equity 13,392,000 17,810,000 ------------- ------------- $ 63,083,000 $ 67,618,000 ------------- ------------- ------------- ------------- See accompanying notes. 22
UNITEL VIDEO, INC. ------------------ CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- Year ended August 31, 1997 1996 1995 ---- ---- ---- Sales $58,767,000 $79,287,000 $83,285,000 ----------- ------------ ----------- Cost of sales: Production costs 41,380,000 57,661,000 59,174,000 Depreciation and amortization 8,328,000 7,840,000 10,045,000 ----------- ------------ ---------- 49,708,000 65,501,000 69,219,000 ----------- ------------ ---------- Gross profit 9,059,000 13,786,000 14,066,000 Operating expenses: Selling 1,734,000 2,275,000 2,843,000 General and administrative 7,264,000 9,690,000 8,832,000 Interest 3,430,000 3,686,000 3,649,000 Restructuring charge 1,055,000 1,246,000 400,000 Impairment charge 300,000 2,000,000 7,681,000 ----------- ------------ ---------- 13,783,000 18,897,000 23,405,000 ----------- ------------ ---------- Earnings(loss)from operations (4,724,000) (5,111,000) (9,339,000) Other income (loss) 326,000 27,000 (2,000) ----------- ------------ ----------- Earnings(loss)before income taxes (4,398,000) (5,084,000) (9,341,000) Income taxes (benefit) 38,000 40,000 (2,794,000) ----------- ------------ ----------- Net earnings (loss) applicable to common stock $(4,436,000) $(5,124,000) $(6,547,000) ----------- ------------ ------------ Net earnings (loss) per common share $ (1.66) $ (1.96) $ (2.53) ----------- ------------ ------------ ----------- ------------ ------------ Weighted average number of common and common equivalent shares outstanding 2,665,000 2,613,000 2,582,000 ----------- ----------- ----------- ----------- ----------- -----------
See accompanying notes. 23
UNITEL VIDEO, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY ---------------------------------------------- YEARS ENDED AUGUST 31, 1997, 1996 AND 1995 ------------------------------------------ COMMON STOCK ADDITIONAL ------------- PAID-IN RETAINED COMMON STOCK UNEARNED EMPLOYEE SHARES AMOUNT CAPITAL EARNINGS HELD IN TREASURY BENEFIT EXPENSE ------------------------------------------------------------------------------------------------- BALANCE, August 31, 1994 2,616,465 $26,000 $27,386,000 $10,079,000 $ (7,974,000) $ (689,000) ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- Net loss (6,547,000) Exercise of stock options 5,000 32,000 Employee stock purchase plan 3,700 20,000 Allocation of ESOP shares (87,000) 280,000 ---------------------------------------------------------------------------------------------- BALANCE, August 31, 1995 2,625,165 26,000 27,351,000 3,532,000 (7,974,000) (409,000) ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- Net loss (5,124,000) Exercise of stock options 30,000 174,000 Employee stock purchase plan 11,100 49,000 Allocation of ESOP shares (29,000) 214,000 ---------------------------------------------------------------------------------------------- BALANCE, August 31, 1996 2,666,265 26,000 27,545,000 (1,592,000) (7,974,000) (195,000) ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- Net loss (4,436,000) Employee stock purchase plan 8,400 1,000 38,000 Allocation of ESOP shares (216,000) 195,000 ---------------------------------------------------------------------------------------------- BALANCE, August 31, 1997 2,674,665 $ 27,000 $27,367,000 $(6,028,000) $(7,974,000) $ -0- ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- See accompanying notes.
24
UNITEL VIDEO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- Year Ended August 31, 1997 1996 1995 ---- ---- ---- Cash Flows From Operating Activities: Net (loss) $(4,436,000) $(5,124,000) $(6,547,000) ------------ ------------ ------------ Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization 8,548,000 7,782,000 10,397,000 Net loss (gain) on disposal of equipment ( 220,000) 58,000 (352,000) Impairment and restructuring charge 1,080,000 2,000,000 7,681,000 Amortization of deferred financing costs 153,000 252,000 603,000 Recognition of deferred gain -- -- (117,000) Deferred rent (204,000) (539,000) (123,000) Accrued retirement expense (128,000) 163,000 172,000 Accrued restructuring -- -- 273,000 Deferred income taxes -- 36,000 (2,520,000) Decrease (increase), net of acquired assets and liabilities, in: Accounts receivable, net 3,562,000 3,999,000 (1,928,000) Other receivables 314,000 29,000 20,000 Prepaid expenses 171,000 605,000 213,000 Prepaid taxes 67,000 425,000 (486,000) Other assets (63,000) (30,000) (222,000) Increase (decrease), net of acquired assets and liabilities, in: Accounts payable 1,788,000 (2,372,000) 835,000 Accrued expenses (452,000) (170,000) 559,000 Payroll and related taxes (909,000) 16,000 (324,000) ------------ ------------ ------------ 13,707,000 12,254,000 14,681,000 ------------ ------------ ------------ Net cash provided by operating activities 9,271,000 7,130,000 8,134,000 ------------ ------------ ------------
25
UNITEL VIDEO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) ------------------------------------- Year Ended August 31, 1997 1996 1995 ---- ---- ---- Cash Flows From Investing Activities: Capital expenditures $ (12,936,000) $ (9,134,000) $(9,738,000) Acquisition of GC & Co. assets -- -- (1,300,000) Proceeds from disposal of equipment 3,804,000 1,151,000 352,000 ------------- ------------- ----------- Net cash used in investing activities (9,132,000) (7,983,000) (10,686,000) -------------- ------------- ------------ Cash Flows From Financing Activities: Proceeds from long-term financing 15,976,000 25,717,000 6,120,000 Principal repayments (16,022,000) (24,495,000) (4,187,000) Deferred Financing Costs -- (574,000) (90,000) Repayment of note to Banta -- -- (500,000) Proceeds from issuance of common stock 39,000 223,000 52,000 Repayment of loan to ESOP (166,000) (172,000) (168,000) Release of ESOP quarterly shares (21,000) 185,000 193,000 -------------- ------------- ----------- Net cash (used) provided by financing activities (194,000) 884,000 1,420,000 -------------- ------------- ----------- Net Increase(Decrease) In Cash (55,000) 31,000 (1,132,000) Cash, Beginning of Year 192,000 161,000 1,293,000 ------------- ------------ ----------- Cash, End of Year $ 137,000 $ 192,000 $ 161,000 ------------- ------------ ----------- ------------- ------------ ----------- Schedule of income taxes and interest paid: Income Taxes Paid $ 38,000 $ 85,000 $ 162,000 Interest Paid 3,685,000 3,374,000 3,256,000 ------------- ------------ ----------- $ 3,723,000 $ 3,459,000 $ 3,418,000 ------------- ------------ ----------- ------------- ------------ -----------
26
UNITEL VIDEO, INC. ------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (continued) Year Ended August 31, 1997 1996 1995 ---- ---- ---- Supplemental schedule of non- cash investing and financing activities: Capital lease obligations: $2,622,000 ---------- ---------- Detail of acquisition of GC & Co.: Fair value of assets acquired $6,750,000 Subordinated note to seller (750,000) Capital lease obligation (4,700,000) ----------- Net cash paid for acquisition $1,300,000 ----------- -----------
See accompanying notes. 27 UNITEL VIDEO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED AUGUST 31, 1997, 1996 AND 1995 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) Business -- The Company provides facilities for studio production, videotape editing, mobile production, digital effects, film-to-tape transfer and duplication of videotape in all formats to the entire video communications industry. The Company's facilities are used to produce television programs, corporate communications and commercials on videotape. The Company's mobile division provides "on-location" services for the videotape recording and live telecasting of sports, cultural and other events throughout North America. The Company also designs and produces custom internet, CD-ROM, DVD, videodisc and networked multimedia presentations. Customers for the Company's services include cable television program suppliers, independent producers, national television networks, local television stations, motion picture studios, program syndicators and distributors and advertising agencies. (2) Consolidation -- The consolidated financial statements include the accounts of the Company and its two wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. (3) Depreciation -- Depreciation is provided on a straight-line basis over the estimated useful lives of assets which are: 30-40 years for buildings; 15-30 years for building improvements; length of lease for leasehold improvements; 5-7 years for video equipment; 5-7 years for furniture and fixtures; and 3 years for automobiles. Gain on disposal of equipment is included in depreciation and amortization expense for all years reported. (See Note H to Notes to Consolidated Financial Statements). (4) Goodwill -- Goodwill relating to acquisitions represents the excess of cost over the fair value of net assets acquired and is amortized over 15 years. Accumulated amortization at August 31, 1997, 1996 and 1995 totaled $345,000, $207,000 and $69,000, respectively. (See Note J to Notes to Consolidated Financial Statements). (5) Deferred Financing Costs -- Costs incurred in obtaining long-term debt financing are included in other assets. These costs are being amortized using the interest method over the term of the related obligations. (6) Interest Cost -- The Company had capitalized construction period interest costs of $211,000 in 1997. (7) Income Taxes -- Deferred income taxes arise primarily from the use of different depreciation methods and lives for tax and financial statement purposes, differences in the timing of the deduction for the impairment charge and net operating loss and alternative minimum tax credit carryforwards. (8) Receivables -- The Company grants credit to customers, substantially all of whom are in the entertainment, advertising or corporate communications industries. 28 (9) Earnings per common share were determined by dividing net earnings by the weighted average of common and common equivalent shares outstanding. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share, which is effective for financial statements for both interim and annual periods ending after December 15, 1997. The new standard eliminates primary and fully diluted earnings per share and requires presentation of basic and, if applicable, diluted earnings per share. Basic earnings per share is computed by dividing income available to common shareholders by the weighted average common shares outstanding and dilutive potential common shares such as stock options. The adoption of this new standard is not expected to have a material impact on the disclosure of earnings per share in the financial statements. (10) Revenue Recognition -- Revenue is recorded when services are provided. (11) Financial Instruments -- The Company's principal financial instruments consist of accounts receivable, accounts payable and long-term debt. The Company believes that the carrying amount of such instruments approximates fair value. (12) Use of Estimates -- In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (13) Stock-Based Compensation -- Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock Based Compensation," provided 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 has determined 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. (14) New Accounting Pronouncements -- In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). The Company will implement SFAS 130 and SFAS 131 as required in fiscal 1999, which require the Company to report and display certain information related to comprehensive income and operating segments, respectively. Adoption of SFAS 130 and SFAS 131 will not impact the Company's financial position or results of operations. (15) Reclassifications - Certain amounts in 1996 have been reclassified to conform to 1997 presentation. 29
B. LONG-TERM DEBT AUGUST 31, ---------- 1997 1996 ---- ---- Notes payable to financial institution: Term portion A payable in monthly installments of $100,000 through November 2001 plus interest on the declining balance at Prime plus 1.00% or LIBOR plus 2.75% and final payment of $3,500,000 due December 2001. $ 8,701,000 $ 6,787,000 Term portion B payable from the sale of assets with interest payable monthly at Prime plus 1.25% or LIBOR plus 3.00%. Repaid November 1997. 1,259,000 6,588,000 Revolving portion payable in full in December 2001 with interest payable monthly at Prime plus .75% or LIBOR plus 2.50%. 5,871,000 5,706,000 Mortgage payable to a bank, due in monthly installments of principal of $22,000 through November 2002, plus interest on the declining balance at Prime Plus .75% or LIBOR plus 2.50% with a final payment of $2,152,000 due December 2002. 3,555,000 3,822,000 Mortgage payable to a bank, at a fixed interest rate of 8.6%, due in monthly installments of principal of $6,250, plus interest on the declining balance, through June 2019. 1,644,000 1,719,000 Mortgage payable to an insurance company, at a fixed interest rate of 8.9%, due in monthly installments of $22,000 through July 2009. 1,930,000 2,010,000 Note payable to an insurance company, at a fixed rate of 9.3%, due in monthly installments of $33,000 through February 2000. 1,164,000 1,436,000 Note payable to a financial institution at a fixed rate of 10.6%, due in monthly installments of $25,000 through April, 2001. 923,000 --
30 Subordinated debt consisting of convertible subordinated promissory notes payable to prior owners of GC & Co. at an interest rate of Prime plus 1% due in full August 1998 and a subordinated promissory note payable to Scanline Communications at an interest rate of Prime plus 2% due in monthly installments of principal of $35,000 with a final payment of $1,458,000 due May 1999. 2,937,000 3,145,000 Allegheny County Industrial Development Authority Variable Rate Demand Revenue Bonds. Interest payable monthly based on a weekly remarketing rate, estimated currently at 3.8%. Quarterly principal payments of $179,000, commencing August 1998, to be applied to the redemption of bonds which mature July, 2009. 5,008,000 -- ----------- ------------ 32,992,000 31,213,000 Less current maturities 4,697,000 9,528,000 ----------- ------------ $28,295,000 $ 21,685,000 ----------- ------------ ----------- ------------
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 (Term Loans A and B). In May 1997, Term Loan A was revised by the inclusion of $2,500,000 of the original Term Loan B and the advance of $518,000 of new funds, resulting in a revised Term Loan A balance of $9,000,000. Term Loan A is payable in fifty five (55) equal monthly principal installments of $100,000 plus interest, with the balance of $3,500,000 due December 2001. In November 1997 Term Loan B was repaid, in part from the proceeds of a new Term Loan D in the amount of $2,500,000 which is due January 31, 1998. $3,742,000 of the original Term Loan B was repaid from sales of equipment from the Company's Editel Chicago, Editel New York and Unitel Hollywood divisions. The Company is currently in negotiations to refinance or sell certain of its owned real estate and anticipates using a portion of the proceeds of the refinancing or sale to repay Term Loan D and other indebtedness and the balance of the proceeds for working capital purposes. In July 1997 the credit facility was further amended by the issuance of a $5,080,000 letter of credit to secure payment of principal and interest on $5,000,000 principal amount of Allegheny County (Pennsylvania) Industrial Development Authority Variable Rate Demand Revenue Bonds. The proceeds from the sale of the Bonds were loaned to the Company and were used by the Company to build a new digital mobile production unit. The letter of credit requires quarterly principal payments of $179,000 commencing August 1998 to be applied to the redemption in equal principal amount of the Bonds. The Bonds mature on July 1, 2009 and, to the extent not previously redeemed in full as provided in the prior sentence, are required to be repaid by the Company on that date. The terms of the overall credit agreement with the financial institution provide that the lender receive a first lien on all property and equipment and accounts receivable that are not encumbered by another lender. Additionally, in December 1995 the Company obtained a $4,000,000 mortgage on its property located on West 57th Street in New York City from a bank. The mortgage is payable in equal monthly installments of $22,000 through November 2002, with a final payment of $2,152,000 due in December 2002. 31 In February 1995 the Company purchased the business and assets of GC & Co. The purchase price was $6,750,00, consisting of $6,000,000 in cash and $750,000 of convertible subordinated promissory notes. The cash portion of the purchase price was financed by a $4,700,000, five-year capital lease and a $1,800,000 loan with a fixed interest rate of 9.3% payable in sixty equal monthly payments of principal and interest of $33,000 and a balloon payment at the end of the five-year period of $360,000. The promissory notes bear interest at 1% over prime, were due in full in August 1997 and are convertible into the Company's common stock at $10.00 per share. In August 1997, noteholders of $640,000 principal outstanding extended the maturity date of their notes to August 1998 on the same terms and conditions. The balance of the notes have been paid in full. The costs associated with the merger of the Unitel Hollywood and Editel Los Angeles divisions necessitated the waiver at August 31, 1997 of compliance with certain financial covenants, and amendment of those covenants, by the Company's lenders of its revolving credit and term loan facility and its mortgage on the Company's property on West 57th Street, New York City. Property, equipment and accounts receivable with a carrying value of $57,046,000 at August 31, 1997 are pledged as collateral for all long-term debt outstanding. The agreements relating to certain of these long-term obligations include covenants which, among other terms, place restrictions on the Company's capital expenditures, the maintenance of certain financial ratios (including minimum levels of net worth and debt-to-equity restrictions, all as defined in the agreements) and the payment of dividends. At August 31, 1997, maturities of long-term debt for the next five years are as follows: YEAR ENDED AUGUST 31, ---------------------- 1998 $ 4,697,000 1999 4,762,000 2000 3,174,000 2001 2,576,000 2002 10,965,000 2003 and thereafter 6,818,000 ------------ $ 32,992,000 ------------ ------------ C. OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS The Company has entered into various capital lease agreements for video equipment. The leases expire at various times through 2000. Property recorded under capital leases includes the following: August 31, 1997 1996 ---- ---- Video equipment $10,312,000 $10,447,000 Accumulated depreciation (4,539,000) (2,496,000) ------------ ------------ $ 5,773,000 $ 7,951,000 ----------- ------------ ----------- ------------ 32 Future minimum lease payments, as of August 31, 1997 are as follows: YEAR ENDED CAPITAL AUGUST 31, LEASES - ---------- ------ 1998 $ 2,345,000 1999 1,815,000 2000 2,158,000 2001 28,000 2002 -0- ------------ Net minimum lease payments 6,346,000 Amount representing interest ( 734,000) ------------ Obligation under capital lease agreements $ 5,612,000 ------------ ------------ Current portion $ 1,946,000 Long-term portion 3,666,000 ------------ $ 5,612,000 ------------ ------------ D. STOCK OPTION PLANS In January 1986 the Company's Board of Directors approved a Non-Statutory Stock Option Plan (the "Non-Statutory Plan") to grant options to purchase up to 50,000 shares of the Company's Common Stock to the Company's non-employee directors. Under the Non-Statutory Plan options to purchase 10,000 shares were outstanding at August 31, 1997. In July 1988 the Company's Board of Directors approved a Non-Qualified Stock Option Plan (the "Non-Qualified Plan") to grant options to purchase up to 125,000 shares of the Company's Common Stock primarily to key employees. Options to purchase 10,000 shares granted to several officers under the Non-Qualified Plan were outstanding at August 31, 1997. In July 1992 the Company's shareholders approved the adoption of the 1992 Stock Option Plan (the "1992 Plan") to grant options to purchase up to 350,000 shares of the Company's Common Stock primarily to key employees and non-employee directors. Prior to July 1992, the Company granted options under the plans described above. All future stock option grants will be made under the 1992 Plan. Options to purchase 215,500 shares were outstanding to key employees and non-employee directors under the 1992 Plan at August 31, 1997. Under all plans, options have generally been granted to purchase stock at the fair market value of the shares at the date of grant as determined by the Board of Directors. Options expire ten years after the date of grant. 33 The Company has adopted the disclosure only provisions of SFAS No. 123, "Accounting for Stock Based Compensation." Accordingly, no compensation cost has been recognized for the stock options granted to employees and directors. Had compensation cost been determined based on the fair value at the grant date for stock option awards in fiscal 1996 and 1997, consistent with the provisions of SFAS No. 123 the Company's net loss and loss per share for the years ended August 31, 1996 and 1997 would have been increased by approximately $427,570 and $69,230 or ($.16) and $(.03) per share, respectively. During the initial phase-in period of SFAS No. 123, such compensation may not be representative of the future effects of applying this statement. The weighted average fair value at date of grant for options granted during 1996 and 1997 was $3.73 and $4.07 per option. The fair value of each option at date of grant was estimated using the Black - Scholes option pricing model with the following weighted average assumptions for grants in: 1996 1997 Expected stock price volatility 50% 45% Expected lives of options 10 10 Risk-free interest rate 6.9% 6.9% Expected dividend yield 0% 0% 34 The following table summarizes option activity for the years ended August 31, 1995, 1996 and 1997:
Weighted Average Number of Option Price Exercise Shares Per Share Price - --------------------------------------------------------------------------------------------- Options Outstanding, August 31, 1994 239,700 $ 5.75 - $13.18 $8.20 Granted 34,000 $ 6.63 - $ 7.25 $7.13 Exercised (5,000) $ 6.50 $6.50 Expired and canceled (43,000) $ 5.88 - $13.18 $8.35 ------- Options Outstanding, August 31, 1995 225,700 $ 5.75 - $13.18 $8.05 Granted 111,500 $ 5.13 - $ 5.28 $5.25 Exercised (30,000) $ 5.75 - $ 5.87 $5.81 Expired and canceled (91,700) $ 5.75 - $10.81 $9.15 ------- Options Outstanding, August 31, 1996 215,500 $ 5.13 - $13.18 $6.27 Granted 25,000 $ 5.28 - $ 6.13 $5.79 Expired and canceled (5,000) $ 5.25 - $ 5.25 $5.25 ------- Options Outstanding, August 31, 1997 235,500 $ 5.13 - $13.18 $5.80 ------- -------
At August 31, 1997, a total of 284,500 shares were reserved for future option grants for all plans and options to purchase 235,500 shares were outstanding. The following table summarizes information about stock options outstanding as of August 31, 1997:
WEIGHTED AVERAGE RANGE OF EXERCISE NUMBER REMAINING CONTRACTUAL WEIGHTED AVERAGE PRICES OUTSTANDING LIFE EXERCISE PRICE - ------------------------------------------------------------------------------------- $ 5.13-$7.25 179,500 8 years $ 5.66 $ 8.25-$8.63 54,000 5 years $ 8.62 $ 13.18 2,000 5 years $13.18
E. EMPLOYEE STOCK OWNERSHIP PLAN In June 1987, the Employee Stock Ownership Plan (the "ESOP") obtained financing from a bank amounting to $1,250,000, which was used in acquiring 115,849 shares of newly issued Company stock. The bank loan was repaid in full in June 1997. The loan obligation of the ESOP was considered unearned employee benefit expense and is recorded as a separate reduction of the Company's shareholders' equity. In fiscal 1991, the ESOP purchased 25,810 shares of the Company's Common Stock. These purchases have been financed by a ten-year loan from the Company for $229,193. The loan from the Company was repaid in full in 1997. 35 401(K) EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN Effective July 1, 1992, the ESOP merged into the Unitel Video, Inc. Retirement Investment Plan (a 401(k) Plan), which became the Unitel Video, Inc. 401(k) Employee Savings and Stock Ownership Plan (the "Plan"). The Plan 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. The minimum contribution required to be made each year by the Company is the amount necessary to meet its debt service requirements. The Plan combines a 401(k) plan with certain features of an employee stock ownership plan. Total contributions to the ESOP and the Plan for each of the years ended August 31 are as follows: 1997 ............................. $223,000 1996 ............................. $248,000 1995 ............................. $336,000 The Company adopted Statement of Position 93-6 (SOP 93-6), "Employers' Accounting for Employee Stock Ownership Plans" during fiscal 1995. In accordance with SOP 93-6, compensation cost and liabilities associated with providing the employer's 401(k) match are recognized the way they would be if an ESOP had not been used to fund the benefit. The Plan's compensation expense was $167,000 and $158,000 for the years ended August 31, 1997 and 1996, respectively. A summary of the Plan's shares is as follows: Year ended August 31, 1997 1996 ---- ---- ---- ---- ---- Allocated shares 116,881 96,666 Shares released for allocation 6,807 8,608 Unreleased shares -0- 27,575 ------- ------- 123,688 132,849 ------- ------- Fair value of unreleased shares at August 31 -0- $155,000 ------- -------- ------- -------- Prior to adoption of SOP 93-6, the unreleased shares were considered outstanding for the earnings per share computation. Accordingly, for the years ended August 31, 1997 and 1996, shares were no longer considered outstanding. The effect of adopting SOP 93-6 was not material on the net loss. 36 F. INCOME TAXES Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows: Year ended August 31, 1997 1996 Current portion of deferred tax assets Employee medical benefits $ 231,000 $ 449,000 Bad debt reserve 264,000 395,000 ----------- ---------- 495,000 844,000 ----------- ---------- Long-term portion of deferred tax assets (liabilities) Accrued retirement 504,000 560,000 Net assets held for sale -- 1,646,000 Net operating loss carryforwards 3,242,000 3,062,000 ITC carryforwards-Federal and State (net of ITC valuation allowance) 467,000 467,000 AMT credit carryforwards 2,540,000 2,540,000 Other - net 228,000 501,000 Fixed assets basis difference between book and tax (1,166,000) (5,086,000) ----------- ---------- 5,815,000 3,690,000 Valuation Allowance (3,841,000) (2,065,000) ----------- ---------- 1,974,000 1,625,000 ----------- ---------- Net deferred tax asset $ 2,469,000 $2,469,000 ----------- ---------- ----------- ---------- 37 The provision for income taxes is comprised of the following: Year Ended August 31, 1997 1996 1995 ---- ---- ---- Current: Federal $ -0- $ -0- $ (270,000) State 38,000 40,000 36,000 ---------- --------- ---------- 38,000 40,000 (234,000) Deferred: Federal -0- -0- 1,610,000) State -0- -0- (950,000) ---------- --------- ---------- -0- -0- (2,560,000) ---------- --------- ---------- $ 38,000 $ 40,000 $(2,794,000) ---------- --------- ---------- ---------- --------- ---------- The Company's effective tax rate was (1%) in 1997, (1%) in 1996 and (30%) in 1995. The components of the reconciliation of the Company's effective tax rate to the U.S. statutory rate of 34% are as follows: Year Ended August 31, 1997 1996 1995 ---- ---- ---- Tax expense computed at statutory rate $(1,495,000) $(1,729,000) $(3,176,000) State income tax, net of Federal income tax benefit 25,000 26,000 (607,000) Loss without benefit 1,410,000 1,634,000 -0- Goodwill 47,000 47,000 649,000 Other 51,000 62,000 340,000 ----------- ----------- ----------- Actual tax expense $ 38,000 $ 40,000 $(2,794,000) ----------- ----------- ----------- ----------- ----------- ----------- The Company's total alternative minimum tax credit carryforward is approximately $2,400,000, which can be used against the Company's future regular tax liability. At August 31, 1997, the Company had available for tax purposes in excess of $2,000,000 of State of New York tax credits that will expire through August 31, 2002. The State of New York limits the use of these credits on an annual basis. For financial reporting purposes, a valuation allowance of $1,900,000 has been recognized to offset the deferred tax assets related to those carryforwards for the fiscal year ended August 31, 1997. The deferred tax asset relating to the net operating loss carryforward is attributable to the unused portions of Federal net operating losses generated in fiscal 1997, 1996 and 1993 of $74,000, $665,000 and $515,000, respectively, which are scheduled to expire in 2012, 2011 and 2008, respectively, as well as state net operating losses generated in fiscal 1995 of various amounts scheduled to expire at various times through 2008. 38 Internal Revenue Code Section 382 places a limitation on the utilization of Federal net operating loss and other credit carryforwards when an ownership change, as defined by the tax law, occurs. Generally, this occurs when a greater than 50 percentage point change in ownership occurs. Accordingly, the actual utilization of the alternative minimum tax credit carryforwards and other deferred tax assets for tax purposes may be limited annually to the percentage (about 6%) of the fair market value of the Company at the time of any such ownership changes. G. COMMITMENTS AND CONTINGENCIES Operating Leases -- The following is a schedule by years of future minimum rental payments under operating leases that have an initial non-cancelable lease term in excess of one year: 1998 $ 3,644,000 1999 2,787,000 2000 1,992,000 2001 1,282,000 2002 613,000 2003 and thereafter 500,000 ------------- $ 10,818,000 ------------- ------------- The aggregate rental expense for the years ended August 31, 1997, 1996, and 1995 was $3,385,000, $3,874,000 and $3,867,000, respectively. The Company maintains cash balances at financial institutions located in New York, New York, Pittsburgh, Pennsylvania, Los Angeles, California and Montreal, Canada. These balances are insured by the Federal Deposit Insurance Corporation up to $100,000 in the United States and by the Canada Deposit Insurance Corporation up to $60,000 (Canadian) in Canada. At August 31, 1997, uninsured amounts held at these financial institutions were approximately $221,000 (USD). The Company had a contract with a union that expired on April 17, 1997 and another that expired on November 30, 1997. The Company and the unions are continuing to negotiate new contracts. There are various lawsuits claiming amounts against the Company. It is the opinion of the Company's management that the ultimate liabilities, if any, in these cases will not have a material effect on the Company's financial statements. H. NET GAIN ON DISPOSITION OF EQUIPMENT In June 1990, the Company sold to CBS Inc. a building it owned at 508-510 West 57th Street, New York, New York. The sale price of the property was $4,650,000 payable in cash at the closing. As part of the transaction, the Company entered into an Indenture of Lease with CBS, pursuant to which the Company, as tenant, leased back the premises. The Company recognized a net gain on the disposition of $2,277,000. In addition, under the provisions of Statement of Financial Accounting Standards No. 98, the Company deferred $922,000 of additional gain from the sale, representing the present value of the future minimum rental payment under the portion of the lease which was not subject to early termination. The remaining balance of the deferred gain of $117,000 was recognized in the year ended August 31, 1995 as a reduction of rent expense. 39 The Company has accelerated its efforts to sell equipment which is not fully utilized. In order to properly reflect the sale of equipment as part of the Company's operations, in 1997, 1996 and 1995, $220,000, $(58,000) and $352,000, respectively, of (loss) gain on disposal of assets was included in depreciation expense. I. ACCRUED RETIREMENT Under the terms of employment agreements with two former officers of the Company, retirement payments commenced September 1, 1996. At August 31, 1997, a liability of approximately $1,176,000 has been recorded, based upon the present value of these payments. Approximately $55,000, $163,000 and $172,000 has been charged to operations for the years ended August 31, 1997, 1996 and 1995, respectively. J. 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. The Company has determined to focus its resources toward providing services to the entertainment and corporate communications areas, which represent the Company's strength. As part of this strategy, the Company decided to sell its Editel New York, Editel Chicago and Editel Los Angeles divisions, which specialize in the highly competitive commercial advertising portion of the video facilities industry. During the 1995 fiscal year, the three Editel divisions incurred a pretax loss of $3,682,000. As a result, the Company identified property, plant and equipment associated with these divisions, which after an impairment charge of $4,700,000 recorded as of August 31, 1995 had a carrying value of approximately $19,300,000, that it no longer needed for its current and future operations. During the fourth quarter of fiscal 1995, the Company committed to a plan to dispose of the Editel divisions and in the first quarter of fiscal 1996 began marketing these divisions to potential buyers. Additionally, the Company reevaluated its investment in the Unitel Post 38 division in the fourth quarter of fiscal 1995 and determined that, based upon this division's operating results, the goodwill associated with the purchase of this division, and certain property, plant and equipment that will not provide any future benefits to the Company, were impaired. The Company recognized an impairment charge of approximately $3,000,000 included in impairment charges during the fourth quarter of fiscal 1995 which represents the remaining balances of these assets. Based on the Company's decision to sell the Editel divisions, the Company recorded an impairment charge of approximately $2,000,000 in fiscal 1996 relating to the assets at all three Editel divisions. The impairment charge recorded represents 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 used in the past and which management has found to be reasonable and appropriate. 40 On February 22, 1996, the Company announced the closure of its Editel Chicago division and subsequently distributed the majority of that division's assets throughout the Company. The balance of the Editel Chicago division equipment was sold in an auction which was held in May 1996. In March 1996, the Company terminated the lease for its Editel Chicago division by making a lump-sum payment to the landlord of $1,600,000. The restructuring charge of $1,246,000 recorded in the quarter ended May 31, 1996, reflects this payment less the reversal of $354,000 of accrued rent which would have been due under the terms of the lease. Previously, in May of 1995, the Company adopted a plan to downsize the operations of the Editel Chicago division and reorganize and reduce its corporate management which resulted in recording a restructuring charge of $400,000 for severance and early retirement expense. During the months of March through May 1996, the editorial and computer graphics departments of the Company's Editel New York division were closed. In May 1996, the Company reached an agreement in principle to sell the film-to-tape transfer business of Editel New York, which was the remaining operating department, to a group of employees backed by a private investor. The Company operated the film-to-tape transfer business through August 31, 1996, at which time discussions with the employee-led group were terminated and the business was closed. During the negotiations, the majority of the editorial and computer graphics assets were distributed throughout the Company. At August 31, 1996, the Company estimated the revised value of the remaining assets held for sale to be approximately $1,587,000 and classified them on the balance sheet as short-term. In November 1996, the Company sold the majority of those assets to an unrelated third party for $1,400,000. The balance of the assets were redeployed throughout the Company or disposed of through an auction. Proceeds from the sale of assets were used by the Company to repay outstanding debt. In May 1996, after reevaluating the potential of the Editel Los Angeles division, the Company decided to retain and expand this division and, accordingly, discontinued seeking a buyer for this business. In June 1997 the Company merged its Unitel Hollywood and Editel Los Angeles divisions. A significant portion of the equipment from Unitel Hollywood was moved to the Editel Los Angeles location. Additionally, a portion of the equipment was transferred to the Company's New York Post Production division for future use. The balance of the equipment was sold and the proceeds in the amount of $1,700,000 were used to repay long term debt. As a result of the merger and sale, the company recorded a restructuring charge of $1,055,000 in the fourth quarter of 1997. Additionally, after a reassessment of its New York post production assets, the Company recorded an impairment charge of $300,000 in the fourth quarter of 1997 with respect to those assets. K. FOURTH QUARTER ADJUSTMENTS During the fourth quarter of fiscal 1997, the Company recorded certain adjustments which resulted in restructuring ($1,055,000) and impairment ($300,000) charges being recorded in the amount of $1,355,000. $1,055,000 of these adjustments or $.39 per share, related to previously issued quarterly data for the third quarter of 1997, which the Company is restating on Form 10-Q/A. See Note L to Notes to Consolidated Financial Statements. 41
L. QUARTERLY FINANCIAL DATA (UNAUDITED) ------------------------------------ YEAR ENDED PRIMARY NET AUGUST 31, GROSS NET EARNINGS LOSS 1997 SALES PROFIT EARNINGS(LOSS) PER SHARE ---------------------------------------------------------------------------------- 1st quarter $ 16,370,000 $3,603,000 $ 935,000 $ .35 2nd quarter 15,000,000 2,514,000 (572,000) (.21) 3rd quarter 15,840,000 2,746,000 (1,579,000) (.59) 4th quarter 11,557,000 196,000 (3,220,000) (1.21) YEAR ENDED PRIMARY NET AUGUST 31, GROSS NET EARNINGS LOSS 1996 SALES PROFIT EARNINGS(LOSS) PER SHARE ---------------------------------------------------------------------------------- 1st quarter $22,940,000 $5,805,000 $ 522,000 $ .20 2nd quarter 20,529,000 3,171,000 (1,379,000) (.53) 3rd quarter 19,281,000 3,166,000 (2,290,000) (.88) 4th quarter 16,537,000 1,644,000 (1,977,000) (.75) YEAR ENDED PRIMARY NET AUGUST 31, GROSS NET EARNINGS(LOSS) 1995 SALES PROFIT EARNINGS(LOSS) PER SHARE ---------------------------------------------------------------------------------- 1st quarter $21,233,000 $4,548,000 $ 439,000 $ .17 2nd quarter 20,581,000 3,560,000 50,000 .02 3rd quarter 20,831,000 3,345,000 (798,000) (.31) 4th quarter 20,640,000 2,613,000 (6,238,000) (2.41)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. 42 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item is incorporated herein by reference to the Company's definitive Proxy Statement relating to the Registrant's 1997 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated herein by reference to the Company's definitive Proxy Statement relating to the Registrant's 1997 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated herein by reference to the Company's definitive Proxy Statement relating to the Registrant's 1997 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated herein by reference to the Company's definitive Proxy Statement relating to the Registrant's 1997 Annual Meeting of Stockholders to by filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. The following financial statements of the Company are included in Part II, Item 8: PAGE Report of Grant Thornton LLP Independent Accountants.................20 Consolidated Balance Sheets - August 31, 1997 and 1996...............21-22 Consolidated Statements of Operations - Years Ended August 31, 1997, 1996, and 1995....................................23 Consolidated Statement of Stockholders' Equity - Years Ended August 31, 1997, 1996 and 1995...............................24 Consolidated Statements of Cash Flows - Years Ended August 31, 1997, 1996 and 1995.........................25-27 Notes to Consolidated Financial Statements...........................28-42 2. The following schedule is included in Part IV: Consolidated Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts and Reserves...50 All other schedules are omitted because they are not applicable, not required or the required information is included in the consolidated financial statements or notes thereto. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the three months ended August 31, 1997. (c) Exhibits required to be filed by Item 601 of Regulation S-K: 1. Exhibit 3(A). Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3(A) of the Registrant's Annual Report on Form 10-K filed November 24, 1992 (File No. 1-8654)). 2. Exhibit 3(B). Amended and Restated By-laws (incorporated by reference to Exhibit 3(ii) of the Registrant's Quarterly Report on form 10-Q filed April 15, 1996 (file No. 1-8654)). 3. Exhibit 4(A). Specimen of Stock Certificate (incorporated by reference to Exhibit 4 of the Registrant's Annual Report on form 10-K filed November 29, 1984 (File No. 1-8654)). 44 4. Exhibit 4(B). Amended and Restated Loan and Security Agreement dated as of December 12, 1995 among Unitel Video, Inc., R Squared, Inc., and Heller Financial, Inc. as agent and lender (incorporated by reference to Exhibit 4(B) of the Registrant's Annual Report on form 10-K filed December 14, 1995 (File No. 1-8654)). 5. Exhibit 4(C). First Amendment and Limited Waiver to Loan and Security Agreement dated November 26, 1996. 6. Exhibit 4(D). Second Amendment to Loan and Security Agreement and Limited Waiver dated as of February 24, 1997 (incorporated by reference to Exhibit 4(A) of the Registrant's Quarterly Report on Form 10-Q filed July 9, 1997 (File No. 1-8654)). 7. Exhibit 4(E). Third Amendment and Limited Waiver to Amended and Restated Loan and Security Agreement dated as of March 21, 1997 (incorporated by reference to Exhibit 4(B) of the Registrant's Quarterly Report on Form 10-Q filed July 9, 1997 (File No. 1-8654)). 8. Exhibit 4(F). Fourth Amendment to Amended and Restated Loan and Security Agreement dated as of May 7, 1997 (incorporated by reference to Exhibit 4(C) of the Registrant's Quarterly Report on Form 10-Q filed July 9, 1997 (File No. 1-8654)). 9. Exhibit 4(G). Fifth Amendment to Amended and Restated Loan and Security Agreement dated as of July 24, 1997. 10. Exhibit 4(H). Reimbursement Agreement dated as of July 1, 1997 between Unitel Video, Inc. and Heller Financial, Inc., as agent. 11. Exhibit 4(I). Second Amended and Restated Credit Agreement dated as of December 12, 1995 between Unitel Video, Inc. and The Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 4(C) of the Registrant's Annual Report on Form 10-K filed December 14, 1995 (File No. 1-8654)). 12. Exhibit 4(J). Waiver to Loan and Security Agreement dated April 12, 1996 (incorporated by reference to Exhibit 4(D) of the Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No. 1-8654)). 13. Exhibit 4(K). Waiver and Agreement to Amend Financial Covenants dated November 27, 1996 (incorporated by reference to Exhibit 4(E) of the Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No. 1-8654)). 14. Exhibit 4(L). First Amendment to Second Amended and Restated Credit Agreement dated as of May 31, 1997. 15. Exhibit 4(M). Loan Agreement dated as of July 1, 1997 between Unitel Video, Inc. and the Allegheny County Industrial Development Authority. 16. Exhibit 4(N). Pledge Agreement dated as of July 1, 1997 among Unitel Video, Inc., PNC Bank, National Association and Heller Financial, Inc., as agent. 17. Exhibit 10. Material Contracts: 45 10(A). Amended Non-Qualified Stock Option Plan of Unitel Video, Inc. (incorporated by reference to Exhibit 10(A) of the Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No. 1-8654)).* 10(B). Lease Agreement between Unitel Video, Inc. and Educational Broadcasting Corporation dated July 16, 1993 (incorporated by reference to Exhibit 10(B) of the Registrant's Annual Report on Form 10-K filed November 26, 1993 (File No. 1-8654)). 10(C). Amended Non-Statutory Stock Option Plan of Unitel Video, Inc. (incorporated by reference to Exhibit 10(C) of the Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No. 1-8654)).* 10(D). Amended Employee Stock Purchase Plan of Unitel Video, Inc. (incorporated by reference to Exhibit 10(D) of the Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No. 1-8654)).* 10(E). Employment & Consulting Agreement between Unitel Video, Inc. and Herbert Bass dated as of May 26, 1988 (incorporated by reference to Exhibit 10(R) of the Registrant's Annual Report on Form 10-K filed December 13, 1989 (File No. 1-8654)).* 10(F). Employment & Consulting Agreement between Unitel Video, Inc. and Alex Geisler dated as of May 26, 1988 (incorporated by reference to Item 14(C)4(S) of the Registrant's Annual Report on form 10K filed December 13, 1989 (File No. 1-8654)).* 10(G). Amendment to Employment and Consulting Agreement dated as of February 14, 1996 between Unitel Video, Inc. and Alex Geisler. (incorporated by reference to Exhibit 10(G) of the Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No. 1-8654)).* 10(H). Lease Agreement between UNV, Inc. and HBWC Limited Partnership dated as of August 12, 1988 (incorporated by reference to Exhibit 10(U) of the Registrant's Annual Report on Form 10-K filed December 13, 1989 (File No. 1-8654)). 10(I). Lease Agreements between Windsor Video, Inc. and Time Equities Inc. dated as of September 4, 1986 (incorporated by reference to Exhibit 10(V) of the Registrant's Annual Report on form 10-K filed December 13, 1989 (File No. 1-8654)). 10(J). Amendment to each Lease Agreement between Windsor Video, Inc. and Time Equities Inc. dated as of July 13, 1994 and July 18, 1994 (incorporated by reference to Exhibit 10(K) of the Registrant's Annual Report on form 10-K filed November 28, 1994 (File No. 1-8654)). 10(K). Lease Agreement between Unitel Video, Inc. and CBS, Inc. dated as of June 15, 1990 (incorporated by reference to Exhibit 10(Y) of the Registrant's Annual Report on Form 10-K filed November 26, 1990 (File No. 1-8654)). 10(L). Amendment to Lease Agreement dated July 11, 1996 between Unitel Video, Inc. and CBS, Inc. (incorporated by reference to Exhibit 10(L) of the Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No. 1-8654)). 46 10(M). Assumption and Assignment of Lease between Unitel Video, Inc. and VCA/Teletronics Inc. dated May 19, 1990 (incorporated by reference to Exhibit 10(AA) of the Registrant's Annual Report on Form 10-K filed November 26, 1990 (File No. 1-8654)). 10(N). Amendment to Lease between Unitel Video, Inc. and Stage 57 Co. dated May 14, 1990 (incorporated by reference to Exhibit 10(BB) of the Registrant's Annual Report on Form 10-K filed November 26, 1990 (File No. 1-8654)). 10(O). Second Amendment to Lease between Unitel Video, Inc. and Stage 57 Co. dated as of May 1, 1994 (incorporated by reference to Exhibit 10(O) of the Registrant's Annual Report on Form 10-K filed November 28, 1994 (File No. 1-8654)). 10(P). Amended 1992 Stock Option Plan. (incorporated by reference to Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q filed April 7, 1997 (File No. 1-8654)).* 10(Q). Lease Termination and Release Agreement dated as of March 13, 1996 between Unitel Video, Inc. and Putman Publishing Company (Incorporated by reference to Exhibit 10(Q) of the Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No. 1-8654)). 10(R). Assignment, Assumption and Acceptance of Lease between Scanline Communications and Unitel Video, Inc. (incorporated by reference to Exhibit 10(V) of the Registrant's Annual Report on Form 10-K filed November 24, 1992 (File No. 1-8654)). 10(S). Asset Purchase Agreement dated as of May 5, 1992 between Unitel Video, Inc. and Scanline Communications (incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K dated May 15, 1992 (File No. 1-8654)). 10(T). Amendment dated as of October 29, 1992 to Asset Purchase Agreement dated as of May 5, 1992 between Unitel Video, Inc. and Scanline Communications (incorporated by reference to Exhibit 10(X) of the Registrant's Annual Report on Form 10-K filed November 24, 1992 (File No. 1-8654)). 10(U). Lease Agreement between First East Associates and Unitel Video, Inc. dated May 26, 1993 and Sublease dated May 26, 1993 between Unitel Video, Inc. and KingWorld Productions, Inc.(incorporated by reference to Exhibit 10(U) of the Registrant's Annual Report on Form 10-K filed November 26, 1993 (File No. 1-8654)). 10(V). Sublease Agreement dated April 1, 1987 between R.E. Graphics, Inc. (f/k/a Micor, Inc.) and Scanline Communications, together with Modification dated February 1989 of Sublease Agreement (incorporated by reference to Exhibit 10(AA) of the Registrant's Annual Report on Form 10-K filed November 24, 1992 (File No. 1-8654)). 10(W). Sublease Agreement dated January 1, 1982 between Columbia Pictures Industries, Inc. and Bell & Howell/Columbia Pictures Video Services, together with letter dated April 3, 1989 from Columbia Pictures to Scanline Communications and undated Letter from Columbia Pictures to 43rd Street Estates Corp. (incorporated by reference to Exhibit 10(BB) of the Registrant's Annual Report on Form 10-K filed November 24, 1992 (File No. 1-8654)). 47 10(X). Third Tier Sublease, dated May 14, 1996, between Unitel Video, Inc. and Photo-Magnetic Sound Studios Inc. (incorporated by reference to Exhibit 10(X) of the Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No. 1-8654)). 10(Y). Sublease Agreement dated as of July 3, 1996 between Unitel Video, Inc. and Henry Dreyfuss Associates and Second Tier Sublease dated as of July 3, 1996 between Unitel Video, Inc. and Paramount Pictures Corporation (incorporated by reference to Exhibit 10(Y) of the Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No. 1-8654)). 10(Z). 401K Employee Savings and Stock Ownership Plan of Unitel Video, Inc. effective July 1, 1992 (incorporated by reference to Exhibit 10(X) of the Registrant's Annual Report on Form 10-K filed November 26, 1993 (File No. 1-8654)).* 10(AA). Asset Purchase Agreement dated as of February 24, 1995 between Jee See & Co., Inc. and Unitel Video, Inc. (incorporated by reference to Exhibit 2-1 of the Registrant's Current Report on Form 8-K dated February 24, 1995 (File No. 1-8654)). 10(BB). Two Third Tier Sublease agreements dated November 22, 1996 between Unitel Video, Inc. and Digital Universe II, Inc. (incorporated by reference to Exhibit 10(BB) of the Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No. 1-8654)). 10(CC). Employment Agreement between Editel Los Angeles and Albert Walton dated as of March 20, 1997 (incorporated by reference to Exhibit 10(A) to the Registrant's Quarterly Report on Form 10-Q filed July 9, 1997 (File No. 1-8654)). 10(DD). Deed of Lease dated June 16, 1997 between Olymbec Construction Inc. and Unitel Video Canada Inc. 10(EE). Remarketing Agreement, dated as of July 1, 1997, among Allegheny County Industrial Development Authority, PNC Bank, National Association, Unitel Video, Inc. and RRZ Public Markets, Inc. 18. Exhibit 23. Accountant's consent. 19. Exhibit 24. Power of Attorney from officers and directors to Barry Knepper (included on signature page). 20. Exhibit 27. Financial Data Schedule. * Management contract or compensatory plan or arrangement required to be noted as provided in Item 14(a)(3). 48 UNDERTAKING The Company hereby undertakes to furnish to the Securities and Exchange Commission, upon request, all constituent instruments defining the rights of holders of long-term debt of the Company and its consolidated subsidiaries not filed herewith. Such instruments have not been filed since none are, nor are being, registered under Section 12 of the Securities and Exchange Act of 1934 and the total amount of securities authorized under any of such instruments does not exceed 10% of the total assets of the Company and its subsidiary on a consolidated basis. 49
UNITEL VIDEO, INC. ------------------ SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ------------------------------------------------------------ COLUMN A COLUMN B COLUMN C1 COLUMN D COLUMN E -------- -------- --------- -------- -------- BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD ----------- --------- ---------- ---------- --------- YEAR ENDED AUGUST 31, 1997 Allowance for doubtful accounts $712,000 $(10,000) $290,000 $412,000 -------- -------- -------- -------- -------- -------- -------- -------- YEAR ENDED AUGUST 31, 1996 Allowance for doubtful accounts $686,000 $407,000 $381,000 $712,000 -------- -------- -------- -------- -------- -------- -------- -------- YEAR ENDED AUGUST 31, 1995 Allowance for doubtful accounts $690,000 $125,000 $129,000 $686,000 -------- -------- -------- -------- -------- -------- -------- --------
COLUMN D - -------- Uncollectible accounts written off. COLUMN E - -------- Deducted in balance sheet from accounts receivable. 50 For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statement on form S-8 Nos. 33-7306 (filed July 15, 1986), 33-13660 (filed April 20, 1987), 33-14654 (filed May 28, 1987) and 33-00613 (filed February 8, 1996). Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such directors, officers or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1993 and will be governed by the final adjudication of such issue. 51 SIGNATURE AND POWER OF ATTORNEY Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITEL VIDEO, INC. December 12, 1997 By: /s/ Barry Knepper ------------------------- Barry Knepper Chief Executive Officer December 12, 1997 By: /s/ George Horowitz ------------------------- George Horowitz Chief Financial Officer 52 KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Barry Knepper and George Horowitz, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 53 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Barry Knepper Chief Executive Officer; December 12, 1997 - ------------------------- Barry Knepper President and Director /s/ Richard L. Clouser Senior Vice President - December 12, 1997 - ------------------------- Richard L. Clouser Corporate, President of the Mobile Division and Director /s/ Herbert Bass Director December 12, 1997 - ------------------------- Herbert Bass /s/ Alex Geisler Director December 12, 1997 - ------------------------- Alex Geisler /s/ Walter G. Arader Director December 12, 1997 - ------------------------- Walter G. Arader /s/ Philip Birsh Director December 12, 1997 - ------------------------- Philip Birsh 54 EX-4.(C) 2 FIRST AMEND & WAIVER TO LOAN AND SECURITY AGREEMNT Exhibit 4(C) FIRST AMENDMENT AND LIMITED WAIVER TO LOAN AND SECURITY AGREEMENT This First Amendment and Waiver to Loan and Security Agreement ("Amendment") is dated November 26, 1996, 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 (the "Agreement") dated December 12, 1995; and WHEREAS, Events of Default are in existence under subsection 8.1(C) of the Agreement as a result of Borrower's breach of (i) the Tangible Net Worth covenant contained in subsection 6.1 for the fiscal quarter ending August 31, 1996, (ii) the Fixed Charge Coverage covenant contained in subsection 6.3 for the three fiscal quarters ending August 31, 1996 and (iii) the Leverage Ratio covenant contained in subsection 6.4 for the fiscal quarter ending August 31, 1996 (collectively, the "Existing Events of Default"); and WHEREAS, Borrower and Corporate Guarantor have requested that Agent and Requisite Lenders waive the Existing Events of Default and amend the covenants set forth above; and WHEREAS, Borrower and Corporate Guarantor have requested that Agent and Requisite Lenders defer the payment due date of Term Loan B from October 31, 1996 to December 31, 1996; and WHEREAS, Agent and Requisite Lenders have agreed to waive the Existing Events of Default, amend the Tangible Net Worth, Fixed Charge and Leverage Ratio covenants and defer the payment due date of Term Loan B until December 31, 1996, subject to the following terms and conditions; 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 1.1 "Certain Defined Terms". Subsection 1.1 shall be, and the same is hereby amended by adding the following new definitions, in proper alphabetical order, to said subsection: "Excess Availability" means, as of any date, the A amount (if any) by which the Maximum Revolving Loan Amount exceeds the outstanding principal balance of the Revolving Loan. "Special Reserve" means a reserve in the amount $500,000, which shall be in effect until the earlier to occur of (a) the repayment in full of Term Loan B or (b) Agent's receipt of equipment appraisals, which in Agent's sole discretion, reflect equipment values sufficient to adequately collateralize the Term Loans. Section 2.02. 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 and substituting the following therefor: "Scheduled Installment of Term Loan B" means the principal installment in an amount equal to $6,581,452.70, payable, subject to the provisions of subsection 2.4(B), on or before December 31, 1996 or 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 2.03. 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 the Letter of Credit Reserve. Section 2.04. Amendment to Subsection 6.1 "Tangible Net Worth". Subsection 6.1 shall be, and the same is hereby deleted in its entirety and the following substituted therefor: 2 Borrower shall at all times maintain Tangible Net Worth plus Subordinated Debt of at least $18,000,000. Section 2.05. Amendment to Subsection 6.3 "Fixed Charge Coverage". Subsection 6.3 shall be, and the same is hereby deleted in its entirety and the following substituted therefor: Borrower shall not permit its Fixed Charge Coverage to be less than the ratios set forth below for the periods set forth below: Period Ratio ------ ----- The fiscal quarter ending 2/29/96 1.0: 1.0 The 2 fiscal quarters ending 5/31/96 1.0: 1.0 The 3 fiscal quarters ending 8/31/96 1.0: 1.0 The fiscal quarter ending 11/30/96 .8: 1.0 The 2 fiscal quarters ending 2/28/97 .8: 1.0 The 3 fiscal quarters ending 5/31/97 .8: 1.0 The 4 fiscal quarters ending 8/31/97 1.0: 1.0 and each fiscal quarter thereafter, on a rolling four quarter basis Section 2.06. Amendment to Subsection 6.4 "Leverage Ratio". Subsection 6.4 shall be, and the same is hereby amended by deleting the table appearing in said subsection and the substituting the following therefor: Period Ratio ------ ----- Closing Date and on the last day of each 3.25 to 1.00 fiscal quarter thereafter, through and including 8/31/96 The fiscal quarter ending 11/30/96 4.00 to 1.00 The fiscal quarter ending 2/28/97 3.75 to 1.00 The fiscal quarter ending 5/31/97 3.50 to 1.00 The fiscal quarter ending 8/31/97 3.25 to 1.00 On the last day of each fiscal quarter 2.75 to 1.00 thereafter Section 2.07. Amendment to Section 6 "Financial Covenants". A new subsection 6.5, entitled "Excess Availability" shall be added to section 6 immediately after subsection 6.4, as follows: 3 6.5 "Excess Availability". Borrower shall not permit at any time its Excess Availability to be less than $250,000 for the period commencing September 1, 1996 and ending May 31, 1997. ARTICLE III. LIMITED WAIVER Section 3.01. Waiver of Financial Covenant Defaults. Agent and Requisite Lenders hereby waive the Existing Events of Default. This is a limited waiver and 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 (including, without limitation, a breach of the covenants causing the Existing Events of Default for any periods other than those specified herein). 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) 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. 4 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. 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 P. 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 5 EX-4.(G) 3 5TH AMEND TO AMENDED & RESTATED LOAN & SECURITY AG Exhibit 4(G) FIFTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS FIFTH AMENDMENT ("Amendment") is entered into as of July 24, 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 Agent cause the issuance of an irrevocable letter of credit in favor of PNC Bank, National Association, as trustee, in connection with the issuance by the Allegheny County Industrial Development Authority of Variable Rate Demand Revenue Bonds, Series 1997 (Unitel Mobile Video Project) to finance Borrower's costs of constructing up to two mobile video television production units to be based at Borrower's Allegheny County office. Agent 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 terms in their appropriate alphabetical order: "Bond Amortizing Availability Amount" means $5,080,547.95 less $178,571 per quarter commencing on August 5, 1998 and on the fifth day of each quarter thereafter. "Bond Documentation" means the Bond Loan Agreement, the Bond Pledge Agreement, the Bond Trust Indenture, the Reimbursement Agreement, the Remarketing Agreement and the Purchase Contract. "Bond Letter of Credit" means Irrevocable Letter of Credit No. ____________, dated July 24, 1997, in the original face amount of $5,080,547.95 issued by Bank of America National Trust and Savings Association in favor of the Trustee and any Bond Letter of Credit caused to be issued by Agent in replacement thereof. "Bond Letter of Credit Loans" means advances made pursuant to subsection 2.1(A)(4). "Bond Letter of Credit Note" means the promissory note of Borrower in substantially the form of Exhibit 2.1(A)(4). "Bond Letter of Credit Reimbursement Obligations" means all amounts due and owing by Borrower to Agent, from time to time, under and in accordance with the provisions of the Reimbursement Agreement. "Bond Loan Agreement" means the Loan Agreement dated as of July 1, 1997 by and between Borrower and the Issuer, as amended, modified or supplemented from time to time with the prior written consent of Agent. "Bond Loan Commitment" means (a) as to any Lender, the commitment of such Lender to make a portion of the Bond Letter of Credit Loans in an amount equal to such Lender's Pro Rata Share of the aggregate commitment of all Lenders to make Bond Letter of Credit Loans and (b) as to all Lenders, the aggregate commitment of all Lenders to make Bond Letter of Credit Loans. "Bonds" means the Issuer's Variable Rate Demand Revenue Bonds, Series 1997 (Unitel Mobile Video Project) in the original principal amount of Five Million Dollars ($5,000,000). "Bond Pledge Agreement" means the Pledge Agreement dated as of the Fifth Amendment Effective Date, as amended, modified and supplemented from time to time, among Borrower, the Trustee, as escrow agent, and Agent. "Bond Trust Indenture" means the Trust Indenture dated as of July 1, 1997 between the Issuer and the Trustee, as amended, modified or supplemented from time to time with the prior written consent of Agent. "Fifth Amendment Effective Date" means July 24, 1997. "Issuer" means the Allegheny County Industrial Development Authority. -2- "Purchase Contract" means the Private Placement Agreement dated as of July 1, 1997 among the Issuer, Borrower and RRZ Public Markets, Inc. as underwriter for the Bonds, as amended, modified or supplemented from time to time with the prior written consent of Agent. "Reimbursement Agreement" means the Reimbursement Agreement dated as of the Fifth Amendment Effective Date between Borrower and Agent, as amended, modified and supplemented from time to time. "Remarketing Agent" means RRZ Public Markets, Inc. and any successor Remarketing Agent under the Bond Trust Indenture. "Remarketing Agreement" means the Remarketing Agreement dated as of July 1, 1997 among the Issuer, the Borrower, the Trustee and the Remarketing Agent, as the same may be amended, modified or supplemented from time to time with the prior written consent of Agent. "Tender Advance" has the meaning set forth in Section 2(c) of the Reimbursement Agreement. "Tender Drawing" means a drawing under the Bond Letter of Credit to pay the purchase price of Bonds in the amount set forth in Sections 501 through 505 of the Bond Trust Indenture and not remarketed by the Remarketing Agent on the date such Bonds are to be purchased. "Trustee" means PNC Bank, National Association, or any successor trustee under the Bond Trust Indenture. (ii) amending the following defined terms in their entirety to provide as follows: "Loan Documents" means this Agreement, the Notes, the Corporate Guaranty, the Subordinated Notes, the Reimbursement Agreement, the Bond Pledge Agreement and all other instruments, documents and agreements executed by or on behalf of Borrower or any Loan Party and delivered concurrently herewith or at any time hereafter to or for the benefit of Agent or any Lender in connection with the Loans and other transactions contemplated by this Agreement, all as amended, restated, supplemented or modified from time to time. "Loan" or "Loans" means an advance or advances under the Term Loan Commitment, the Revolving Loan Commitment or the Bond Loan Commitment, as applicable. "Notes" means the Amended and Restated Revolving Note, the Amended and Restated Term Notes and the Bond Letter of Credit Note. -3- "Obligations" means all obligations, liabilities and indebtedness of every nature of each Loan Party from time to time owed to Agent or to any Lender under the Loan Documents including, without limitation, all Bond Letter of Credit Reimbursement Obligations, the principal amount of all debts, claims and indebtedness (whether incurred before or after the Termination Date), accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from time to time hereafter owing, due or payable. "Total Loan Commitment" means the aggregate commitments of any Lender with respect to the Revolving Loan Commitment, the Term Loan Commitment and the Bond Loan Commitment. (b) A new Section 2.1(A)(4) is hereby added to the Loan Agreement to provide as follows: "(A)(4) Bond Letter of Credit Loans. Simultaneously with the execution of the Fifth Amendment to this Agreement, Borrower and Agent entered into a Reimbursement Agreement pursuant to which, among other things, Agent agreed to cause the issuance of the Bond Letter of Credit and Borrower agreed to reimburse Agent for all Bond Letter of Credit Reimbursement Obligations. Subject to the terms and conditions of this Agreement, in reliance upon the representations and warranties of Borrower herein set forth and for the sole purpose of enabling Borrower to reimburse Agent for all Bond Letter of Credit Reimbursement Obligations, each Lender, severally, agrees to lend to Borrower, on the date each Bond Letter of Credit Reimbursement Obligation becomes due, its Pro Rata Share of the lesser of (i) the Bond Letter of Credit Reimbursement Obligation then due and (ii) the Bond Amortizing Availability Amount as of such date ("Bond Letter of Credit Loans"). Borrower acknowledges that on the date each Bond Letter of Credit Reimbursement Obligation becomes due (i) Agent shall charge Borrower's loan account as a Bond Letter of Credit Loan an amount equal to such Bond Letter of Credit Reimbursement Obligation and (ii) Borrower shall be deemed to have irrevocably requested a Bond Letter of Credit Loan in an amount equal to such Bond Letter of Credit Reimbursement Obligation. The outstanding balance of all Bond Letter of Credit Loans together with accrued interest thereon shall be due and payable on the earlier to occur of (i) the Termination Date or (ii) acceleration of the Obligations in accordance with the provisions of subsection 8.3; provided, however, the outstanding balance of all Bond Letter of Credit Loans constituting Tender Advances together with accrued interest thereon shall be due and payable on the earlier to occur of (i) the remarketing, pursuant to Section 507 of the Bond Trust Indenture, of the Bonds purchased with the proceeds of the related Tender Drawing, (ii) the Termination Date or (iii) acceleration of the Obligations in accordance with the provisions of subsection 8.3. Borrower shall be permitted to prepay the Bond Letter of Credit Loans at any time, in whole or in part, subject to the provisions of subsection 2.3(C). Notwithstanding anything to the contrary contained in this Agreement, -4- no references in this Agreement to "Lender Letters of Credit" shall include or be deemed to include Bond Letters of Credit." (c) Subsection 2.1(B) of the Loan Agreement is hereby amended by deleting the reference to "$11,000,000" and replacing the same with "8,500,000". (d) A new sentence is hereby added after the first sentence of subsection 2.1(E) of the Loan Agreement to provide as follows: "Borrower shall execute and deliver to each Lender a Bond Letter of Credit Note to evidence such Lender's portion of the Bond Letter of Credit Loans, such Bond Letter of Credit Note to be in the principal amount of the respective Bond Loan Commitment of such Lender and with other appropriate insertions." (e) Subsection 2.1(F) of the Loan Agreement is hereby amended in its entirety to provide as follows: "(F) Evidence of Revolving Loan and Bond Letter of Credit Loan Obligations. The advances constituting Revolving Loans and Bond Letter of Credit Loans shall be evidenced by this Agreement, the Amended and Restated Revolving Note, the Bond Letter of Credit Note and notations made from time to time by Agent in its books and records, including computer records. Agent shall record in its books and records, including computer records, the principal amount of the Revolving Loans and Bond Letter of Credit Loans owing to each Lender from time to time. Agent's books and records shall constitute presumptive evidence, absent manifest error, of the accuracy of the information contained therein. Failure by Agent to make any such notation or record shall not affect the obligations of Borrower to Lenders with respect to the Revolving Loans and the Bond Letter of Credit Loans." (f) A new sentence is hereby added to the end of subsection 2.2(A)(i) of the Loan Agreement to provide as follows: "Bond Letter of Credit Loans 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 this subsection 2.2(A) applicable to Term Loan A." (g) Subsection 2.3(C) of the Loan Agreement is hereby amended by adding the words "plus the amount of the then outstanding Bond Letter of Credit Loans" to the end of clause "(1)" thereof. (h) A new sentence is hereby added to the end of subsection 2.4(B)(1) of the Loan Agreement to provide as follows: "At any time that the principal balance of the Bond Letter of Credit Loan exceeds the Bond Amortizing Availability Amount, Borrower shall, upon demand by -5- Agent, immediately repay the Bond Letter of Credit Loan to the extent necessary to reduce the principal balance to an amount that is equal to or less than the Bond Amortizing Availability Amount." (i) A new sentence is hereby added at the end of subsection 2.4(C) of the Loan Agreement to provide as follows: "Borrower shall be permitted to prepay the Bond Letter of Credit Loans at any time, in whole or in part, subject to the provisions of subsection 2.3(C)." (j) A new sentence is hereby added at the end of subsection 5.12 of the Loan Agreement to provide as follows: "Within five (5) days after the issuance thereof, Borrower shall (a) deliver to Agent the original certificate of title relating to each mobile video unit constructed by Borrower utilizing the proceeds of the Bonds and based at Borrower's Allegheny County office and (b) take all such other action and execute all such documentation as Agent shall reasonably request to evidence Agent's perfected first priority lien in each such mobile video unit." (k) Subsection 7.1 of the Loan Agreement is hereby amended by: (i) adding after clause (a)(iii) thereof a new clause (a)(iv) to provide as follows: "and (iv) Indebtedness incurred under the Bond Loan Agreement, the Bond Indenture and the Loan and Security Agreement dated May 1, 1997 between Borrower and Charter Financial, Inc. which Indebtedness may be paid only in accordance with the terms of such agreements as originally executed or modified with the prior written consent of Agent". (ii) adding after clause (b)(v) thereof a new clause (b)(vi) to provide as follows: "and (vi) Indebtedness incurred under the Bond Loan Agreement and the Bond Indenture and the Loan and Security Agreement dated May 1, 1997 between Borrower and Charter Financial, Inc. which Indebtedness may be paid only in accordance with the terms of such agreements as originally executed or modified with the prior written consent of Agent". (l) A new subsection 8.1(V) is hereby added to provide as follows: "(V) Cross Default to Bond Documentation. An event of default shall occur and be continuing under any Bond Documentation which is not cured within any applicable grace period. (m) Exhibit 2.1(A)(4) to this Amendment is hereby added to the Loan Agreement as Exhibit 2.1(A)(4). -6- 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) a fully executed copy of each of the following documents: (i) the Reimbursement Agreement, (ii) the Bond Pledge Agreement, (iii) the Bond Trust Indenture, (iv) the Remarketing Agreement, (iv) the Bond Letter of Credit Note, (v) the Bond Loan Agreement, (vi) the Purchase Contract and (vii) the Bond Loan Agreement; (c) all documents set forth in Section 3(b) of the Reimbursement Agreement and (d) 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 Agent and its counsel. 4. 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 or otherwise notified to Lender in writing, 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. (d) Borrower has no defense, counterclaim or offset with respect to the Loan Agreement or the Obligations thereunder. 5. 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- (d) Notwithstanding anything to the contrary in this Amendment, at such time as the Bond Letter of Credit shall be of no further force and effect and all Bond Letter of Credit Reimbursement Obligations shall have been paid in full, the provisions of this Amendment which require the consent of Agent or any other action by Agent with respect to the Bond Documentation or the Bonds shall be of no force and effect. 6. 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. 7. 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. 8. 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. [SIGNATURES 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/ Karen Lapidus -------------------------------- Name: Karen Lapidus Title: Vice President HELLER FINANCIAL, INC., as Agent and Lender By: -------------------------------- Name: Title: IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first written above. UNITEL VIDEO, INC., as Borrower By: -------------------------------- Name: Title: R SQUARED, INC., as Corporate Guarantor By: -------------------------------- Name: Title: HELLER FINANCIAL, INC., as Agent and Lender By: /s/ Jerome P. Sepich -------------------------------- Name: Jerome P. Sepich Title: Vice President EXHIBIT 2.1(A)(4) BOND LETTER OF CREDIT NOTE $5,080,547.95 New York, New York July __, 1997 This Bond Letter of Credit Note is executed and delivered under and pursuant to the terms of that certain Amended and Restated Loan and Security Agreement dated December 12, 1995 (as amended, supplemented or modified from time to time, the "Loan Agreement") by and among UNITEL VIDEO, INC., a Delaware corporation with its principal place of business at 555 West 57th Street, New York, New York 10019 ("Borrower"), R Squared, Inc., a California corporation with its principal place of business at 3300 Cahuenga Boulevard West, Los Angeles, California 90068, Heller Financial, Inc. ("Heller"), each of the financial institutions named in or which hereafter became a party to the Loan Agreement (Heller and such financial institutions, collectively "Lenders") and Heller as agent for Lenders (Heller, in such capacity, "Agent"). Capitalized terms not otherwise defined herein shall have the meanings given them in the Loan Agreement. FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of Heller at its offices located at 500 West Monroe Street, 10th Floor, Chicago, Illinois 60661 or at such other place as holder may from time to time designate to Borrower in writing: (i) the principal sum of FIVE MILLION EIGHTY THOUSAND FIVE HUNDRED FORTY-SEVEN and 95/100 DOLLARS $5,080,547.95 or, if different, such amount of Bond Letter of Credit Loans as may be due and owing under the Loan Agreement, payable in full on the Termination Date, subject to acceleration upon the occurrence of an Event of Default under the Loan Agreement or earlier repayment as permitted or required by the Loan Agreement; and (ii) interest on the principal amount of this Note from time to time outstanding at the Interest Rate with respect to Bond Letter of Credit Loans in accordance with the provisions of the Loan Agreement. Upon the occurrence and during the continuance of an Event of Default and notice thereof by Agent to Borrower (except that no notice shall be required upon the occurrence of an Event of Default under subsection 8.1(G) or 8.1(H) of the Loan Agreement), interest may at Agent's election be payable at the Default Rate. In no event, however, shall interest hereunder exceed the maximum interest rate permitted by law. This Note is the Bond Letter of Credit Note referred to in the Loan Agreement and is secured by the Liens granted pursuant to the Loan Agreement and the Loan Documents, is entitled to the benefits of the Loan Agreement and the Loan Documents and is subject to all of the agreements, terms and conditions therein contained. This Note may be voluntarily prepared, in whole or in part, on the terms and conditions set forth in the Loan Agreement. If an Event of Default under Section 8.1 (G) or (H) of the Loan Agreement shall occur, then this Note shall immediately become due and payable, without notice, together with reasonable attorneys' fees if the collection hereof is placed in the hands of an attorney to obtain or enforce payment hereof. If any other Event of Default shall occur and be continuing under the Loan Agreement or any of the Loan Documents, which is not cured within any applicable grace period, then this Note may, as provided in the Loan Agreement, be declared to be immediately due and payable, with notice to the extent provided in the Loan Agreement, together with reasonable attorneys' fees, if the collection hereof is placed in the hands of an attorney to obtain or enforce payment hereof. This Note shall be governed by and construed in accordance with the laws of the State of New York. Borrower expressly waives any presentment, demand, protest, notice of protest, or notice of any kind except as expressly provided in the Loan Agreement. UNITEL VIDEO, INC. By:______________________________ Its:_____________________________ STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On the ____ day of July, 1997, before me personally came __________________ to me known, who being by me duly sworn, did depose and say that he/she is a _______________ of UNITEL VIDEO, INC., the corporation described in and which executed the foregoing instrument; and that he/she signed his/her name thereto by order of the board of directors of said corporation. ------------------------------- Notary Public EX-4.(H) 4 REIMBURSEMENT AGREEMENT DATED AS OF JULY 1, 1997 Exhibit 4(H) REIMBURSEMENT AGREEMENT dated as of July 1, 1997 between UNITEL VIDEO, INC. and HELLER FINANCIAL, INC., as Agent ----------------------------------------------------------------------- Allegheny County Industrial Development Authority Variable Rate Demand Revenue Bonds, Series 1997 (Unitel Mobile Video Project) ----------------------------------------------------------------------- TABLE OF CONTENTS Page SECTION 1. Definitions; Accounting Terms.................................. 1 SECTION 2. Reimbursement and Other Payments; Bond Letter of Credit Loans.. 3 (a) Reimbursement; Other Payments.................................. 3 (c) Tender Advances................................................ 4 (d) Interest....................................................... 4 (e) Statements of Account.......................................... 4 (f) Commission..................................................... 4 (g) Increased Costs................................................ 4 (h) Reduced Return................................................. 4 (i) Overdue Amounts................................................ 5 SECTION 3. Issuance of the Letter of Credit; Conditions Precedent to Issuance ...................................................... 5 SECTION 4. Reduction of Letter of Credit Amount; Reinstatement of Letter of Credit Amount; Extension of Letter of Credit. .............. 6 SECTION 5. Obligations Absolute........................................... 7 SECTION 6. Representations and Warranties................................. 7 (a) Credit Agreement Representations............................... 7 (b) Corporate Authorization; Contravention......................... 7 (c) Binding Effect................................................. 8 (d) No Material Adverse Change..................................... 8 (e) Litigation..................................................... 8 (f) Government Authorization....................................... 8 (g) Related Documents.............................................. 8 (h) Full Disclosure................................................ 8 SECTION 7. Covenants...................................................... 8 (a) Certain Covenants.............................................. 8 (b) Use of Proceeds................................................ 8 (c) Governmental Authorizations.................................... 8 (d) Amendments, Etc................................................ 9 (e) Compliance with Bond Documents................................. 9 (f) Independence of Covenants and Representations.................. 9 (g) Independence of Covenants and Representations.................. 9 SECTION 8. Events of Default.............................................. 9 SECTION 9. Amendments and Waivers......................................... 10 SECTION 10. Notices....................................................... 10 SECTION 11. No Waiver; Remedies Cumulative................................ 11 SECTION 12. Right of Set-Off.............................................. 11 SECTION 13. Indemnification............................................... 11 -i- SECTION 14. Continuing Obligation......................................... 12 SECTION 16. Credit Agreement Provisions................................... 12 SECTION 17. Transfer of the Letter of Credit.............................. 13 SECTION 18. Limited Liability............................................. 13 SECTION 19. Costs, Expenses and Taxes..................................... 13 SECTION 20. Severability.................................................. 13 SECTION 21. Agent's Agreements............................................ 13 SECTION 22. Governing Law................................................. 14 SECTION 23. CONSENT TO JURISDICTION....................................... 14 SECTION 24. Headings...................................................... 14 SECTION 25. Counterparts.................................................. 14 -ii- REIMBURSEMENT AGREEMENT REIMBURSEMENT AGREEMENT, dated as of July 1, 1997, between UNITEL VIDEO, INC., a Delaware corporation (the "Company"), and HELLER FINANCIAL, INC. ("Heller"), as agent for the financial institutions party to the Credit Agreement (as hereafter defined). It is hereby agreed as follows: SECTION 1. Definitions; Accounting Terms. (a) Capitalized terms used herein and undefined shall have the respective meanings specified in the Credit Agreement (as hereinafter defined). (b) The following terms, as used herein, shall have the following respective meanings: "Agent" means Heller Financial, Inc. in its capacity as agent for the Lenders under the Credit Agreement. "Board of Directors" means either the board of directors of the Company or a duly authorized committee of that board. "Bond Letter of Credit Loans" means advances made from time to time by Lenders to the Company under and in accordance with the provisions of Section 2.1(A)(4) of the Credit Agreement to be utilized by the Company to reimburse Lenders for all amounts payable by Agent on behalf of Lenders to the Letter of Credit Bank on account of all drawings made under the Letter of Credit and all related Letter of Credit charges, fees and expenses which Agent may pay or incur relative to the Letter of Credit (including interest thereon as provided in Section 2(d) of this Agreement). "Bonds" means the Issuer's Variable Rate Demand Revenue Bonds, Series 1997 (Unitel Mobile Video Project) in the original principal amount of $5,000,000. "Code" means the United States Internal Revenue Code of 1986, as from time to time amended. "Company Agreement" means the Loan Agreement, dated as of July 1, 1997, between the Company and the Issuer, as the same may from time to time be amended, supplemented or modified. "Contractual Obligation" means, as to any Person, any provision of any Security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Credit Agreement" means the Amended and Restated Loan and Security Agreement dated as of December 12, 1995 (as amended, modified and supplemented from time to time) among the Company, R Squared, Inc., the lenders named therein (the "Lenders") and Agent. "Credit Agreement Representations" has the meaning set forth in Section 6(a) hereof. "Date of Issuance" means the date on which the Letter of Credit is issued pursuant to Section 3(a) hereof. "Default" means any event or condition which, with the lapse of time or the giving of notice, or both, would constitute an Event of Default. "Disclosure Documents" means (i) the Preliminary Private Placement Memorandum, (ii) the Private Placement Memorandum, (iii) all other materials distributed to the public and used in connection with the original sale of the Bonds or, thereafter, in the remarketing of tendered Bonds and (iv) all amendments and supplements to any of the foregoing. "Event of Default" shall have the meaning specified in Section 8 hereof. "Fee Percentage" means 1.75% per annum. "Fixed Rate" has the meaning assigned to such term in the Indenture. "GAAP" means generally accepted accounting principles in effect from time to time in the United States. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Indenture" means the Trust Indenture, dated as of July 1, 1997, between the Issuer and PNC Bank, National Association, as trustee, as the same may from time to time be amended, supplemented or modified. "Issuer" means the Allegheny County Industrial Development Authority, and its successors and assigns. "Lenders" has the meaning set forth in the defined term "Credit Agreement." "Letter of Credit" means the letter of credit substantially in the form of Exhibit A hereto issued by the Letter of Credit Bank, as the same may from time to time be amended, supplemented or modified. "Letter of Credit Amount" means $5,080,547.95, as reduced and reinstated as provided in the Letter of Credit. "Letter of Credit Bank" means Bank of America, and its successors and assigns. "Participant" means any entity to which a Lender has granted a participation in such Lender's rights and benefits under this Agreement. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or political subdivision or an agency thereof. "Pledge Agreement" means the Pledge Agreement, dated as of July 1, 1997, among the Company, PNC Bank, National Association, as escrow agent, and Agent, as the same may from time to time be amended, supplemented or modified. "Preliminary Private Placement Memorandum" means the Preliminary Private Placement Memorandum relating to the Bonds (including any documents incorporated therein by reference and any amendments or supplements thereto) dated July 18, 1997. "Private Placement Memorandum" means the Private Placement Memorandum relating to the Bonds (including any documents incorporated therein by reference and any amendments or supplements thereto) dated July 23, 1997. "Project" has the meaning given to such term under the Indenture. "Purchase Contract" means the Private Placement Agreement, dated July 23, 1997, among the Issuer, the Company and RRZ Public Markets, Inc., as the same may from time to time be amended, supplemented or modified. -2- "Related Documents" means the Company Agreement, the Indenture, the Purchase Contract, the Remarketing Agreement, the Pledge Agreement, the Bonds and any other agreement or instrument relating thereto or otherwise executed and delivered in connection with the issuance of the Bonds. "Remarketing Agent" means RRZ Public Markets, Inc. and any successor Remarketing Agent under the Indenture. "Remarketing Agreement" means the Remarketing Agreement, dated as of July 1, 1997, among the Issuer, the Company, the Trustee and the Remarketing Agent, as the same may from time to time be amended, supplemented or modified. "Requirement of Law" means as to any Person, the Certificate of Incorporation and By-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, judgment, injunction, order, decree or other determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" means, at any particular time, the President, Vice President, Chief Financial Officer, the treasurer, the chief accounting officer or the controller of the Company duly authorized to act on behalf of the Company with respect to the matters specified and, with respect to any other entity, an officer of equivalent status. "Security" has the meaning ascribed in the Securities Act of 1933, as amended. "Tender Agent" has the meaning given to the term "Trustee's Agent" under the Indenture. "Tender Drawing" means a drawing under the Letter of Credit to pay the purchase price of Bonds in the amount set forth in Sections 501 through 505 of the Indenture and not remarketed by the Remarketing Agent on the date such Bonds are to be purchased. "Termination Date" means the earliest of (i) July 24, 1999, (ii) the date on which the principal amount of and interest on the Bonds shall have been paid in full (or on which no Bonds are outstanding under the Indenture other than Bonds secured by an Alternate Credit Facility (as defined in the Indenture) or Bonds bearing interest at a Fixed Rate) or no Letter of Credit is required for the Bonds in accordance with the Indenture, (iii) the close of business on the first Business Day following the effective date of the conversion of the Bonds to a Fixed Rate, (iv) the close of business on the tenth day following receipt by the Trustee of notice from Agent that an Event of Default has occurred and is continuing, (v) the date the Letter of Credit is surrendered to the Letter of Credit Bank by the Trustee for cancellation or (vi) the date the Letter of Credit Bank honors the final drawing available under the Letter of Credit in respect of principal of the Bonds and interest accrued thereon. (c) Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for changes approved by the Company's independent public accountants) with the most recent consolidated and consolidating financial statements of the Company and its Subsidiaries delivered to Agent. SECTION 2. Reimbursement and Other Payments; Bond Letter of Credit Loans. (a) Reimbursement; Other Payments. The Company shall pay to Agent, for the ratable benefit of Lenders, which payments shall be charged by Agent to the Company's loan account with Agent under the Credit Agreement as a Bond Letter of Credit Loan and shall be deemed paid hereunder when so charged, when due: (i) subject to the provisions of subsection (c) below, immediately after (and on the same Business Day as) any amount is drawn under the Letter of Credit, a sum (and interest on such amount as provided in subsection (d) below) equal to the amount so drawn under such Letter of Credit; -3- (ii) any and all fees, charges, interest and expenses which Agent may pay or incur relative to the Letter of Credit; and (iii) upon any transfer of the Letter of Credit in accordance with its terms, such amount as shall be necessary to cover the costs and expenses of Agent incurred in connection with such transfer, together with a fixed charge of $1,000. (b) Repayment of Bond Letter of Credit Loans. Bond Letter of Credit Loans shall be due and payable by the Company to Agent in accordance with the terms and provisions of the Credit Agreement. (c) Tender Advances. The amount of each Tender Drawing shall constitute a Bond Letter of Credit Loan on the date and in the amount of such drawing, each such advance being hereinafter referred to as a "Tender Advance." The Company shall repay to Agent, for the ratable benefit of Lenders, the amount of each Tender Advance (and unpaid accrued interest on such amount, if any) on the earlier of (i) the remarketing, pursuant to Section 507 of the Indenture, of the Bonds purchased with the proceeds of the related Tender Drawing and (ii) the date for such payment as provided for in the Credit Agreement. (d) Interest. The Company shall pay to Agent, for the ratable benefit of Lenders, interest on all outstanding Bond Letter of Credit Loans at a rate per annum equal to the interest rate applicable to Term Loan A. Such interest shall be payable in accordance with the procedures and on the dates established in the Credit Agreement for the payment of interest on Term Loan A. (e) Statements of Account. Agent shall maintain in accordance with its usual practice an account or accounts evidencing each Bond Letter of Credit Loan and the amounts of principal and interest with respect thereto payable and paid from time to time hereunder. In any legal action or proceeding such accounts shall, in the absence of manifest error, be conclusive evidence of the existence and amounts of the obligations of the Company therein recorded. Notwithstanding the foregoing, the failure of Agent so to maintain such account or accounts or any error in maintaining such accounts shall not affect the obligations of any party hereto with respect to any Bond Letter of Credit Loan. (f) Commission. The Company will pay to Agent, for the ratable benefit of Lenders, a commission with respect to the Letter of Credit computed (on the basis of a year of 360 days for the actual number of days elapsed) at a rate per annum equal to the Fee Percentage on the Letter of Credit Amount. Such commission will be calculated on the basis of a 360 day year for the actual number of days elapsed and will be payable monthly in arrears on the first day of each month. (g) Increased Costs. If any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration thereof shall either (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against letters of credit issued by, or assets held by, or deposits in or for the account of, any Lender or the Letter of Credit Bank or (ii) impose on any Lender or the Letter of Credit Bank any other condition regarding this Agreement or the Letter of Credit, and the result of any event referred to in clause (i) or (ii) of this subsection shall be to increase the cost to any Lender or the Letter of Credit Bank of issuing or maintaining the Letter of Credit, then, within ten days of receipt of written demand from Agent, the Company shall pay to Agent (on behalf of any such Lender or the Letter of Credit Bank, as the case may be) all additional amounts which are necessary to compensate such Lender or the Letter of Credit Bank, as the case may be, for such increased cost incurred by such Person. All payments of increased cost pursuant to this subsection shall bear interest thereon if not paid within ten days of such notice until payment in full thereof at the Default Rate. A certificate as to such increased cost incurred by any such Lender or the Letter of Credit Bank, as the case may be, as a result of any event mentioned in clause (i) or (ii) of this subsection and setting forth the additional amount or amounts to be paid to Agent hereunder shall be prepared in good faith and submitted by Agent to the Company and shall be conclusive (absent manifest error) as to the amount thereof. In determining such amount, Agent may use any reasonable averaging and attribution methods. (h) Reduced Return. If after the date hereof any Lender shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change -4- in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency has the effect of reducing the rate of return on the capital of such Lender as a consequence of such Lender's obligations to reimburse the Letter of Credit Bank for drawings under the Letter of Credit to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) then, upon notice of such change by Agent by submission to the Company of the certificate hereinafter described, the Company shall within ten days of receipt of such notice, pay to Agent (on behalf of such Lender) such additional amount or amounts as will compensate such Lender for such reduction. All payments pursuant to this subsection (g) shall bear interest thereon if not paid within ten days of such notice until payment in full at the Default Rate. A certificate of Agent claiming compensation under this subsection (g) and setting forth the additional amount or amounts to be paid to it hereunder shall be prepared in good faith and submitted by Agent to the Company and shall be conclusive in the absence of manifest error. In determining such amount, Agent may use any reasonable averaging and attribution method. (i) Overdue Amounts. The Company shall pay to Agent, for the ratable benefit of Lenders, interest on any and all amounts unpaid by the Company when due hereunder (in the case of amounts in respect of interest, to the maximum extent permitted by law) for each day from the date such amounts become due until payment in full, payable on demand, at the Default Rate; provided, that such fluctuating interest rate shall in no event be higher (with respect to each amount due and payable hereunder, from the date such amount is due and payable until the date such amount is paid in full) than the maximum rate permitted by applicable law. SECTION 3. Issuance of the Letter of Credit; Conditions Precedent to Issuance. (a) Upon satisfaction of the conditions precedent set forth in subsections (b), (c) and (d) of this Section, Agent shall cause the Letter of Credit Bank to issue on the date requested by the Company (the "Date of Issuance") the Letter of Credit in the initial aggregate amount equal to the initial Letter of Credit Amount, effective on the Date of Issuance and expiring on the Termination Date. (b) As a condition precedent to Agent's causing the Letter of Credit Bank to issue the Letter of Credit, Agent shall have received on or before the Date of Issuance the following, each dated such date, in form and substance satisfactory to Agent: (i) an opinion of Karen Ceil Lapidus, Esq., General Counsel of the Company, substantially in the form of Exhibit B hereto; (ii) opinion of Klett Lieber Rooney & Schorling, bond counsel, in form and substance satisfactory to Agent; (iii) a copy of the resolutions of the Company's Board of Directors authorizing the execution, delivery and performance by the Company of this Agreement and the Related Documents to which the Company is, or is to be, a party, as the case may be, certified by the Secretary or an Assistant Secretary of the Company (which certificate shall state that such resolutions are in full force and effect on the Date of Issuance); (iv) certified copies of all approvals, authorizations, or consents of, or notices to or registrations with, any Governmental Authority required for the Company to enter into this Agreement and the Related Documents to which it is, or is to be, a party; (v) a certificate of a Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to sign this Agreement and the other documents to be delivered by the Company pursuant hereto; (vi) executed copies (or duplicates thereof) of the Related Documents, each of which shall be in form and substance satisfactory to Agent; and -5- (vii) a duly executed Pledge Agreement, substantially in the form of Exhibit C hereto; and (viii) such other documents, instruments, approvals (and, if requested by Agent, certified duplicates of executed copies thereof) or opinions as Agent may reasonably request. (c) The following statements shall be true and correct on the Date of Issuance and Agent shall have received a certificate signed by a Responsible Officer, dated the Date of Issuance, stating that: (i) the representations and warranties contained in Section 6 hereof are true and correct on and as of the Date of Issuance as though made on and as of such date; (ii) no Event of Default or Default has occurred and is continuing or would result from the issuance of the Letter of Credit; and (iii) no Event of Default or Default has occurred and is continuing under and as defined in the Credit Agreement. (d) On or before the Date of Issuance: (i) the Company shall have paid or caused to be paid all accrued costs and expenses of Agent, including the reasonable fees and expenses of its counsel in connection with the preparation, execution and delivery of this Agreement and the Related Documents and the consummation of the transactions contemplated thereby; (ii) the Issuer shall have duly adopted resolutions authorizing the execution, delivery and performance by the Issuer of the Bonds and each of the Related Documents to which the Issuer is, or is to be, a party and certified copies of such resolutions shall have been delivered to Agent; (iii) the Issuer and the Trustee shall have duly authorized and executed the Indenture and the Indenture shall be in full force and effect; (iv) all conditions precedent to the issuance of the Bonds (and to their purchase under the Purchase Contact as specified therein) shall have occurred; and (v) the Issuer shall have duly executed, issued and delivered the Bonds. SECTION 4. Reduction of Letter of Credit Amount; Reinstatement of Letter of Credit Amount; Extension of Letter of Credit. (a) The Letter of Credit Amount shall be reduced or reinstated, as the case may be, as specified in the Letter of Credit. (b) (i) The initial term of the Letter of Credit shall commence on July 24, 1997 and subject to the occurrence of any of the events referred to in the definition of "Termination Date", end on July 24, 1999 (the "Stated Expiration Date"). Notwithstanding the foregoing, the Stated Expiration Date may be extended as provided in paragraph (ii) below. (ii) At least four (4) months prior to the Stated Expiration Date, Agent shall send written notice to the Company indicating whether it shall cause the Letter of Credit Bank to extend the Stated Expiration Date (the "Agent Notice"). In the event the Agent Notice indicates that the Stated Expiration Date shall be extended, such notice shall specify the terms and conditions, including fees and the extension period, to be applicable to such extension. The Company may accept the terms and provisions contained in the Agent Notice by notice to Agent in writing within 30 days after receipt of the Agent Notice. If the Company accepts the extension (including the terms -6- and conditions specified in the Agent Notice as aforesaid), the Stated Expiration Date shall be extended for the period set forth in the Agent Notice; provided, that, if the terms and conditions to be applicable to such extension differ from those then in effect, such extension shall be conditioned upon the prompt preparation, execution and delivery of documentation, satisfactory to Agent, the Letter of Credit Bank and their respective counsel, incorporating such terms and conditions. The Stated Expiration Date may thereafter be successively so extended pursuant to the foregoing procedure upon receipt by the Company of the aforesaid notice from Agent at least four (4) months prior to the then applicable Stated Expiration Date, acceptance by the Company as aforesaid and compliance with any further conditions specified above. Upon the effectiveness of any extension of the Stated Expiration Date, Agent will give the Trustee written notice of the Stated Expiration Date as so extended, which notice the Trustee shall affix to the Letter of Credit and it shall become a part thereof. (iii) Agent may determine from time to time whether or not (and on what terms and conditions) to cause the Letter of Credit Bank to extend the Stated Expiration Date and no course of dealing or other circumstances shall require Agent to cause the Letter of Credit Bank to extend the Stated Expiration Date. (c) The Company may at any time cause the Trustee to surrender the Letter of Credit to the Letter of Credit Bank for cancellation in accordance with the terms of the Letter of Credit. SECTION 5. Obligations Absolute. The obligations of the Company under this Agreement and the Pledge Agreement shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms hereof and thereof, under all circumstances whatsoever, including without limitation the following: (a) any lack of validity or enforceability of this Agreement, the Letter of Credit, the Bonds or any of the Related Documents; or any lack of perfection, release or discharge, in whole or in part, of any collateral security provided or purported to be provided by any therein; (b) any amendment or waiver of or any consent to departure from this Agreement, the Letter of Credit, the Bonds or all or any of the Related Documents; (c) the existence of any claim, set-off, defense or other rights which the Company or any other Person may have at any time against the Trustee, the Tender Agent, any beneficiary or any transferee of the Letter of Credit (or any Person for whom the Trustee, any such beneficiary or any such transferee may be acting), Agent, any Lender, the Letter of Credit Bank, any Participant or any other Person, whether in connection with this Agreement, the Related Documents or any unrelated transaction; provided that nothing herein shall prevent the assertion of any claim by a separate suit or compulsory counterclaim; (d) any statement or any other document presented under the Letter of Credit proving to be forged, fraudulent or invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (e) payment by the Letter of Credit Bank under the Letter of Credit against presentation of a draft or certificate which does not comply with the terms of the Letter of Credit; or (f) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. SECTION 6. Representations and Warranties. The Company represents and warrants to Agent and Lenders: (a) Credit Agreement Representations. The representations and warranties set forth in the Credit Agreement (the "Credit Agreement Representations") are each true and correct in all material respects (except as disclosed in writing by the Company to Agent) on and as of the date hereof and are hereby incorporated herein by reference and made to Agent and Lenders on and as of the date hereof as if set forth herein in full together with the related definitions. -7- (b) Corporate Authorization; Contravention. The execution, delivery and performance by the Company of this Agreement and the Related Documents to which it is, or is to be, a party are within the Company's corporate powers, have been duly authorized by all necessary corporate action, and do not and will not contravene, or constitute a default under, any Contractual Obligation or Requirement of Law of the Company, or result in the creation or imposition of any Lien on any asset of the Company or any Subsidiary (other than pursuant to the Related Documents). (c) Binding Effect. This Agreement and the Related Documents to which the Company is, or is to be, a party constitute, or will constitute, when executed and delivered in accordance with their terms, valid and binding agreements of the Company. (d) No Material Adverse Change. Since May 31, 1997, there has been no material adverse change in the business, financial condition, results of operations or prospects of the Company and its Subsidiaries, taken as a whole. (e) Litigation. There is no action, suit or proceeding pending, or to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary before any court or arbitrator or any Governmental Authority in which there is a reasonable possibility of an adverse decision which could reasonably be expected to materially adversely affect the ability of the Company to perform its obligations under this Agreement or any Related Document to which it is, or is to be, a party, or which in any manner questions the validity of this Agreement or any such Related Document. (f) Government Authorization. No authorization or approval of, or other action by, and no notice to or filing with, any Governmental Authority is required to be obtained or made by the Company for the due execution, delivery and performance of this Agreement or the Related Documents to which it is, or is to be, a party, except as have been obtained or made prior to the date of execution hereof. (g) Related Documents. The representations and warranties of the Company set forth in the Related Documents are true and correct on and as of the date hereof and are hereby made to Agent and Lenders on and as of the date hereof as if set forth herein in full together with the related definitions. (h) Full Disclosure. All information heretofore furnished by the Company to Agent for purposes of, or in connection with, this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Company to Agent will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Company has disclosed to Agent in writing any and all facts that could reasonably be expected to materially and adversely affect or may affect (to the extent the Company can now reasonably foresee), the business, financial condition, results of operations or prospects of the Company and its Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations under this Agreement and the Related Documents. The representations and warranties contained or incorporated herein shall be deemed repeated as true and correct in all material respects on and as of the date of each drawing under the Letter of Credit. The Company may, at any time and from time to time, update the accuracy of any representation or warranty contained herein by providing written notice thereof to Agent, provided, however, in no event may the Company so amend any such representation or warranty if the existence of the information contained in such amendment would reflect or evidence a Default or Event of Default. SECTION 7. Covenants. The Company agrees that during the term of this Agreement: (a) Certain Covenants. Except as may be otherwise provided in this Section 7, the Company will perform, comply with and be bound by, for the benefit of Agent and Lenders, each of its agreements, covenants and obligations contained in the Credit Agreement, each of which (together with the related definitions and ancillary provisions) is hereby incorporated herein by reference. -8- (b) Use of Proceeds. The proceeds of the sale of the Bonds shall not be used in such a manner as to cause any of the Bonds to be treated as "arbitrage bonds" within the meaning of Section 148 of the Code (or any successor provision thereto) and the regulations promulgated or proposed thereunder. (c) Governmental Authorizations. The Company will do and cause to be done all things necessary to comply with all Requirements of Law applicable to it, and obtain, and take all necessary or appropriate action to ensure the continuance of, all consents, licenses, filings, registrations, approvals or authorizations of or with any Governmental Authority which may at any time be required with respect to the validity and enforceability of this Agreement and the Related Documents to which the Company is, or is to be, a party, the obligations of the Company hereunder and thereunder and the performance hereof and thereof. (d) Amendments, Etc. The Company will not amend or otherwise permit to occur any amendment, modification or waiver of any of the terms of any of the Related Documents which could in any way affect the rights of Agent, any Lender or the Letter of Credit Bank without the prior written consent of Agent. (e) Compliance with Bond Documents. The Company will comply with all of its covenants and agreements under the Related Documents and comply with, or cause to be complied with, all requirements and conditions of all contracts and insurance policies which relate to the Company or the Project. (f) Independence of Covenants and Representations. The Company will not exercise its rights under the Related Documents to direct the Issuer to call the Bonds (or any portion thereof) for optional redemption, unless the Company first demonstrates to the reasonable satisfaction of Agent that at the time of such redemption the Letter of Credit Bank and each Lender will be fully reimbursed with respect to all drawings under the Letter of Credit in connection with such redemption. (g) Independence of Covenants and Representations. All covenants and representations contained herein shall be given independent effect, so that if any action or condition would violate any of such covenants (or would breach any of such representations at any time made or deemed made), the fact that such action or condition would not violate or breach another covenant or representation shall not avoid the violation or breach of any such covenant or representation. SECTION 8. Events of Default. The occurrence of and continuance of any of the following events shall be Events of Default hereunder: (a) the Company shall fail to pay any amount due hereunder within five (5) days of the date when due; or (b) for any reason (other than termination or release by Agent), the Pledge Agreement shall cease to be in full force and effect or the Company shall assert that it is not liable thereunder or the pledge and security interest under the Pledge Agreement shall at any time cease to constitute in favor of Agent a prior and perfected lien on and first pledge of the Collateral (as therein defined); or (c) the Company shall default in the observance or performance of any agreement, covenant or term (other than in Section 7(a) hereof) contained in this Agreement; or (d) any representation, warranty, certificate or statement made by the Company in this Agreement, the Pledge Agreement or in any certificate, financial statement or other document delivered pursuant to any of the Related Documents shall prove to have been incorrect in any material respect when made or deemed made; or (e) an event of default under any Related Document shall occur; or (f) an Event of Default under and as defined in the Credit Agreement shall be declared by Agent in writing to the Company; or -9- (g) (1) A court shall enter a decree or order for relief with respect to the Company or any of its Subsidiaries in an involuntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed or other similar relief is not granted under any applicable federal or state law; or (2) the continuance of any of the following events for sixty (60) days unless dismissed, stayed during such period, bonded or discharged: (a) an involuntary case shall be commenced against the Company or any of its Subsidiaries under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or (b) a decree or order of a court for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Company or any of its Subsidiaries, or over all or a substantial part of their respective property, shall be entered; or (c) an interim receiver, trustee or other custodian shall be appointed without the consent of the Company or any of its Subsidiaries, for all or a substantial part of the property of the Company or any such Subsidiary; (h) (1) An order for relief shall be entered with respect to the Company or any of its Subsidiaries or the Company or any of its Subsidiaries commences a voluntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case or to the conversion of an involuntary case to a voluntary case under any such law or consents to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or (2) the Company or any of its Subsidiaries shall make any assignment for the benefit of creditors; or (3) the board of directors of the Company or any of its Subsidiaries shall adopt any resolution or otherwise authorize action to approve any of the actions referred to in this subsection (h); or (i) an Event of Default under and as defined in the Reimbursement Agreement dated as of July 24, 1997 between Heller and Bank of America National Trust and Savings Association. If an Event of Default occurs and is continuing (except an Event of Default described in clause (i) above), Agent may, in its sole discretion: (i) declare all amounts due hereunder and under the Pledge Agreement to be immediately due and payable, and upon such declaration, the same shall become and be immediately due and payable, without presentment, protest or other notice of any kind, all of which are hereby waived by the Company (provided, that, upon the occurrence of an Event of Default described in clause (g) or (h) of this Section 8 no action shall be necessary to accelerate the same, which shall automatically become due and payable); (ii) notify the Trustee of the occurrence of an Event of Default; (iii) pursue all remedies available to it at law, by contract, at equity or otherwise. Notwithstanding anything to the contrary in the Credit Agreement, the occurrence of an Event of Default described in Event of Default "(i)" shall not result in a Default or an Event of Default under the Credit Agreement or any other document or agreement to which the Company is a party or otherwise subject other than the Letter of Credit SECTION 9. Amendments and Waivers. Subject to Section 16(a) hereof, no amendment or waiver of any provision of this Agreement or consent to any departure by the Company therefrom shall in any event be effective unless the same shall be in writing and signed by Agent and the Company. Any such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 10. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telecopy, telex or similar writing) and shall be given to such party at its address, telecopier number or telex number set forth below or such other address, telecopier number or telex number as such party may hereafter specify for the purpose by notice to the other party. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified below and the appropriate answerback is received, (ii) if given by mail, 10 days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, (iii) if given by telecopier, when -10- telecopied with confirmation of receipt or (iv) if given by any other means, when delivered at the address specified in this Section. If to the Company: Unitel Video, Inc. 555 West 57th Street New York, New York 10019 Attention: Barry Knepper, President Telecopier: 212-581-7748 with a copy to: Unitel Video, Inc. 555 West 57th Street New York, New York 10019 Attention: Karen Ceil Lapidus, Esq., General Counsel Telecopier: 212-581-7748 If to Agent: Heller Financial, Inc. 500 West Monroe Chicago, Illinois 60661 Attention: HBC Portfolio Manager Telecopier: 312-441-6133 with a copy to: Heller Financial, Inc. 500 West Monroe Chicago, Illinois 60661 Attention: Legal Department Telecopier: 312-441-7652 If to the Trustee: PNC Bank, National Association One Oliver Plaza, 27th Floor Pittsburgh, Pennsylvania Attention: Corporate Trust Division Telecopier: (412) 762-8226 SECTION 11. No Waiver; Remedies Cumulative. No failure on the part of Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law or otherwise. SECTION 12. Right of Set-Off. Without limiting any other right of Agent or any Lender, Agent or any Lender at its sole election may set off against and apply any and all deposits (general or special, time or demand, provisional or final) at any time held, and other indebtedness or moneys at any time owing, by Agent or such Lender to or for the credit or account of the Company, whether or not due, against any and all amounts due Agent and -11- Lenders hereunder, and Agent and Lenders shall be deemed to have exercised the right of setoff immediately at the time of such election. SECTION 13. Indemnification. The Company hereby indemnifies and holds harmless Agent, Lenders and the Letter of Credit Bank, as applicable, from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which such Person may incur (or which may be claimed against Agent, any Lender or the Letter of Credit Bank, as applicable by any Person or entity whatsoever) (i) by reason of any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in any Disclosure Document, or in any supplement or amendment to any thereof, or the omission (or alleged omission) to state in any therein a material fact necessary to make such statements, in the light of the circumstances under which they are or were made, not misleading; or (ii) by reason of or in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit; provided, that the Company shall not be required to indemnify Agent, any Lender or the Letter of Credit Bank, as applicable, for any such claims, damages, losses, liabilities, costs or expenses in the case of indemnification pursuant to (1) clause (i) above, with respect to any information provided by Agent and contained in (a) the Preliminary Private Placement Memorandum or in the Private Placement Memorandum under the heading "THE INITIAL LETTER OF CREDIT" or (b) in Appendix B to the Preliminary Private Placement Memorandum or the Private Placement Memorandum or (2) clause (ii) above, to the extent, but only to the extent, caused by the willful misconduct or gross negligence of Agent, any Lender or the Letter of Credit Bank, as applicable. The indemnification provided above is in addition to any other rights (including without limitation rights to indemnity) which Agent, each Lender and the Letter of Credit Bank, as applicable, may be entitled to at law, by contract (including without limitation the Credit Agreement) in equity or otherwise. Nothing in this Section is intended to limit the Company's payment obligations contained in subsection (a) of Section 2 hereof. SECTION 14. Continuing Obligation. (a) The obligations of the Company under this Agreement shall continue until the later of (i) the Termination Date or (ii) the date upon which all amounts due or to become due to Agent and Lenders hereunder shall have been paid and satisfied in full and shall (x) be binding upon the Company and its successors and assigns and (y) inure to the benefit of and be enforceable by Agent, each Lender and their respective successors, transferees and assigns; provided, however, that (i) the Company may not assign all or any part of its rights or obligations under this Agreement without the prior written consent of Agent and (ii) the obligations of the Company pursuant to Section 13 shall survive the termination of this Agreement. (b) Any Lender may at any time sell or grant participations to any Participant of all or any part of, or any interest (undivided or divided) in, such Lender's rights and benefits under this Agreement in which event the Participant shall not have any rights hereunder (the Participant's rights against such Lender to be as set forth in the agreement executed by such Lender in favor of the Participant) and all amounts payable by the Company hereunder shall be determined as if such lender had not sold or granted any participation. SECTION 15. Grant of Security Interest. To secure the Company's obligations to Agent and Lenders hereunder and all other Obligations, the Company (1) has caused the Issuer to grant to the Trustee under the Indenture, for the equal and ratable benefit of the owners of the Bonds and the Agent, a security interest in all of the Trust Estate under and as defined in the Indenture and (2) hereby grants to Agent, for the ratable benefit of Lenders, a security interest in all of the Company's goods hereafter acquired with the proceeds of the Bonds and all replacements and substitutions therefor and all proceeds and products thereof. The Company covenants and agrees that it will defend Agent's rights and security interests created by this Section against the claims and demands of all Persons. In addition to its other rights and remedies under this Agreement and the Bond Documents, Agent shall have all the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law with respect to the security interests created by this Section. Agent's rights under this Section are in addition to, and not in lieu of, its rights and security interests under the Credit Agreement. -12- SECTION 16. Credit Agreement Provisions. (a) Notwithstanding any provision of this Agreement to the contrary, Agent and the Company hereby agree that on or after the date hereof any amendment to, or waiver of, (i) the Credit Agreement Representations, (ii) an Event of Default under and as defined in the Credit Agreement or (iii) the covenants from the Credit Agreement referred to in Section 7(a) hereof, which has been consented to by Agent, shall be deemed to be incorporated herein by reference and shall become effective hereunder when such amendment or waiver becomes effective thereunder, without any further action necessary by either the Company or Agent. Any such amendment or waiver shall be effective only in the specific instance and for the specific purpose for which given. (b) The Credit Agreement Representations and the covenants from the Credit Agreement referred to in Section 7(a) hereof incorporated herein by reference, will be deemed to continue in effect for the benefit of Agent and Lenders until the Letter of Credit has terminated and all amounts due hereunder have been paid in full, including, without limitation, whether or not the Credit Agreement or any commitment thereunder remains in effect or whether or not the Credit Agreement is amended or restated after the date hereof. For purposes of the foregoing, (i) references in the provisions of the Credit Agreement incorporated herein by reference to the "Borrower" shall refer to the Company; and (ii) the terms "Agreement," "hereto" and "hereof" when used in the provisions of the Credit Agreement incorporated herein by reference shall refer to this Agreement. SECTION 17. Transfer of the Letter of Credit. The Letter of Credit may be transferred in accordance with the provisions set forth therein. SECTION 18. Limited Liability. The Company assumes all risks of the acts or omissions of the Trustee, the Tender Agent and any transferee of the Trustee with respect to its use of the Letter of Credit. Neither Agent, any Lender, the Letter of Credit Bank nor any of its officers or directors shall be liable or responsible for: (a) the use which may be made of the Letter of Credit or for any acts or omissions of the Trustee, the Tender Agent and any beneficiary or transferee in connection therewith; (b) the validity, or genuineness of documents, or of any endorsement(s) thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged; or (c) any other circumstances whatsoever in making or failing to make payment under the Letter of Credit, except only that the Company shall have a claim against Agent, any Lender or the Letter of Credit Bank, as applicable, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Company which the Company proves were caused by (i) Agent's, any Lender's or the Letter of Credit Bank's, as applicable, willful misconduct or gross negligence in determining whether documents presented under the Letter of Credit comply with the terms thereof or (ii) the Letter of Credit Bank's willful failure to pay under the Letter of Credit after the presentation to it by the Trustee (or a successor under the Indenture to whom the Letter of Credit has been transferred in accordance with its terms) of a draft and certificate strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Letter of Credit Bank, may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 19. Costs, Expenses and Taxes. The Company agrees to pay on demand all out-of-pocket expenses of Agent, Lenders and the Letter of Credit Bank, including reasonable fees and disbursements of counsel, in connection with: (i) the preparation of this Agreement and the Letter of Credit and otherwise in connection with the issuance of the Bonds and the preparation, authorization, execution and delivery of the Related Documents, (ii) any amendments, supplements, consents or waivers hereto or thereto, and (iii) the administration or enforcement of this Agreement, the Related Documents and any other documents which may be delivered in connection herewith or therewith. In addition, the Company shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement and such other documents and agrees to save Agent and Lenders harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. -13- SECTION 20. Severability. Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. SECTION 21. Agent's Agreements. The Agent acknowledges that (a) during the term of this Agreement and so long as no Event of Default has occurred and is continuing hereunder, it will comply with the terms and conditions of its agreement with the Letter of Credit Bank regarding the Letter of Credit so as not to permit a default to occur thereunder and (b) so long as no Event of Default has occurred and is continuing under the Credit Agreement, the Agent shall charge the Company's loan account with Agent under the Credit Agreement as a Bond Letter of Credit Loan at the times and in the amounts necessary to pay all amounts payable hereunder when due so as not to cause a default hereunder with respect to the payment of such amounts. SECTION 22. Governing Law. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. SECTION 23. CONSENT TO JURISDICTION. THE COMPANY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW YORK OVER ANY SUIT, ACTION, OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION, OR PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION, OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 24. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 25. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same agreement. [SIGNATURES LINES ON FOLLOWING PAGE] -14- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. UNITEL VIDEO, INC. By /s/ Barry Knepper ---------------------------- Title: CEO HELLER FINANCIAL, INC., as Agent By ---------------------------- Title: IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. UNITEL VIDEO, INC. By ---------------------------- Title: HELLER FINANCIAL, INC., as Agent By /s/ Jerome P. Sepich ---------------------------- Title: Vice President EX-4.(L) 5 1ST AMEND TO 2ND AMEND CREDIT AGREE DTD 5/31/97 Exhibit 4(L) Execution Copy FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT ("First Amendment") dated as of May 31, 1997 among UNITEL VIDEO, INC. (the "Borrower") and THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A., the "Bank"). PRELIMINARY STATEMENT. Reference is made to the Second Amended and Restated Credit Agreement dated as of December 12, 1995, between the Borrower and the Bank, as waived by Letter Agreement dated as of April 12, 1996, as further waived by a Letter Agreement dated as of July 29, 1996, and as further waived by a Letter Agreement dated November 27, 1996 (as so waived, the "Credit Agreement"). Any term used herein and not otherwise defined herein shall have the meaning assigned to such term in the Credit Agreement. The parties hereto have agreed to amend certain terms and provisions of the Credit Agreement as hereinafter set forth. SECTION 1. Amendments to Credit Agreement. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: (1) Section 1.01, Defined Terms, is amended by deleting the following definitions in their entirety: "Affiliate", "Capital Lease", "Cash Dividends", "Consolidated Capital Expenditures", "Consolidated Current Portion of Long Term Debt", "Consolidated Deferred Financing Costs", "Consolidated Defined Liabilities", "Consolidated Depreciation", "Consolidated Earnings Before Interest, Taxes and Depreciation", "Consolidated Earnings from Operations", "Consolidated Interest Expense", "Consolidated Subsidiaries", "Consolidated Tangible Net Worth", "Consolidated Taxes", "Consolidated Total Liabilities", "Fiscal Year", "GAAP", "Long Term Debt", "Person" and "Subsidiary". (2) Section 101, Defined Terms, is further amended by adding the following definitions in their proper alphabetical order: "Affiliate" means any Person (other than Bank): (a) directly or indirectly controlling, controlled by, or under common control with, the Borrower; (b) directly or indirectly owning or holding five percent (5%) or more of any equity interest in the Borrower; or (c) five percent (5%) or more of whose voting stock or other equity interest is directly or indirectly owned or held by the Borrower. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with") means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or by contract or otherwise. "Asset Disposition" means the disposition, whether by sale, lease, transfer, loss, damage, destruction, condemnation or otherwise, of any or all of the assets of the Borrower or any of its Subsidiaries. "Capital Expenditures" means all expenditures (including deposits) for, or contracts for expenditures (excluding contracts for expenditures under or with respect to Capital Leases, but including cash down payments for assets acquired under Capital Leases) with respect to any fixed assets or improvements, or for replacements, substitutions or additions thereto, which have a useful life of more than one year, including the direct or indirect acquisition of such assets by way of increased product or service charges, offset items or otherwise. "Capital Lease" means any lease of any property (whether real, personal or mixed) that, in conformity with GAAP, should be accounted for as a capital lease. "Chicago Lease" means the Indenture dated April 16, 1987 between La Salle National Trust, N.A. (as successor trustee to La Salle National Bank), as trustee under Trust No. 52082, as landlord and the Borrower (as assignee of Scanline Communications), as tenant, related to the premises located at 301 East Erie Street, Chicago, Illinois, as amended, modified, restated or supplemented from time to time. "Closing Date" means December 12, 1995. "EBITDA" means, for any period, without duplication, the total of the following for the Borrower and its Subsidiaries on a consolidated basis, each calculated for such period: (1) net income determined in accordance with GAAP; plus, to the extent included in the calculation of net income, (2) the sum of (a) income and franchise taxes paid or accrued; (b) Interest Expenses, net of interest income, paid or accrued; (c) interest paid in kind; (d) amortization (including, without limitation, amortization of fees and costs with respect to transactions contemplated under the Heller Loan Agreement on the Closing Date which have been capitalized as transaction costs) and depreciation and (e) other non-cash charges (excluding accruals for cash expenses made in the ordinary course of business); less, to the extent included in the calculation of net income, (3) the sum of (a) the income of any Person (other than wholly owned Subsidiaries of the Borrower) in which the Borrower or a wholly owned Subsidiary of the Borrower has an ownership interest unless such income is received by the Borrower or such wholly owned Subsidiary in a cash distribution; (b) gains or losses from sales or other dispositions of assets; and (c) extraordinary or non-recurring gains, but not net of extraordinary or non-recurring "cash" losses. 2 "Fiscal Year" means each twelve month period ending on the last day of August in each year. "Fixed Charge Coverage" means, for any period, Operating Cash Flow divided by Fixed Charges. "Fixed Charges" means, for any period, and each calculated for such period (without duplication), (a) Interest Expenses paid or accrued by the Borrower and its Subsidiaries; plus (b) scheduled payments of principal with respect to all Indebtedness of the Borrower and its Subsidiaries (other than scheduled principal payments under Term Loan B); plus (c) any provision for (to the extent it is greater than zero) income or franchise taxes included in the determination of net income, excluding any provision for deferred taxes; plus (d) Restricted Junior Payments made in cash to the extent permitted under Section 6.07 hereof; plus (e) payment of deferred taxes accrued in any prior period. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination. "Impairment Add Back Amount" means an amount equal to the sum of (1) the lesser of (a) $1,000,000 and (b) the actual cost incurred by the Borrower in connection with its buy-out of the Chicago Lease, (2) the lesser of (a) $200,000 and (b) the actual employee severance pay costs incurred by the Borrower in connection with its permanent cessation of its Editel-Chicago division and (3) the lesser of (a) $500,000 and (b) the actual employee severance pay costs incurred by the Borrower in connection with its permanent cessation of its Editel New York division. "Indebtedness", as applied to any Person, means without duplication: (a) all indebtedness for borrowed money; (b) obligations under leases which in accordance with GAAP constitute Capital Leases; (c) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (d) any obligation owed for all or any part of the deferred purchase price of property or services if the purchase price is due more than six months from the date the obligation is incurred or is evidenced by a note or similar written instrument; and (e) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. "Intangible Assets" means all intangible assets (determined in conformity with GAAP) including, without limitation, goodwill, trademarks, tradenames, licenses, organizational costs, deferred amounts, covenants not to compete, unearned income and restricted funds. 3 "Interest Expenses" means, without duplication, for any period, the following, for the Borrower and its Subsidiaries each calculated for such period: interest expenses deducted in the determination of net income (excluding (i) the amortization of fees and costs with respect to the transactions contemplated under the Heller Loan Agreement on the Closing Date which have been capitalized as transaction costs; and (ii) interest paid in kind). "Lender" or "Lenders" means the lenders signatory to the Heller Loan Agreement. "Leverage Ratio" means for any period: the ratio of (a) Indebtedness for borrowed money for the Borrower and its Subsidiaries (exclusive of the then outstanding Revolving Loan amount) to (b) EBITDA. "Net Worth" means, as of any date, the sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficit) less unearned employee benefit expense and common stock held in treasury calculated in conformity with GAAP. "Operating Cash Flow" means, for any period, (a) EDITDA; less (b) Capital Expenditures (exclusive of any portion of any Capital Expenditures (a) financed by a Person other than Lenders as permitted under the Heller Loan Agreement, (b) made from the cash proceeds of an Asset Disposition not required herein to pay down any Term Loan or (c) that consist of commitments or contracts to make Capital Expenditures which have not created a cash obligation so long as such amount does not exceed $500,000 in the aggregate at any time outstanding). "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. "Restricted Junior Payment" means: (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of the Borrower or any of its Subsidiaries now or hereafter outstanding, except a stock dividend; (b) any payment or prepayment of principal of, premium, if any, or interest on, or any redemption, conversion, exchange, retirement, defeasance, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any Subordinated Debt or any shares of any class of stock of the Borrower or any of its Subsidiaries now or hereafter outstanding; (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of the Borrower or any of its Subsidiaries now or hereafter outstanding; and (d) any payment by the Borrower or any of its Subsidiaries of any management fees or similar fees to any Affiliate, whether pursuant to a management agreement or otherwise. 4 "Revolving Loan" means all advances made by Lenders pursuant to subsection 2.1(B) of the Heller Loan Agreement and any amounts added to the principal balance of the Revolving Loan pursuant to such Agreement. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than fifty percent (50%) of the total voting power of shares of stock (or equivalent ownership or controlling interest) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other subsidiaries of that Person or a combination thereof. "Tangible Net Worth" means an amount equal to: (a) Net Worth; less (b) Intangible Assets (excluding deferred tax assets); less (c) prepaid expenses; less (d) all obligations owed to such Person by any Affiliate of such Person or any of its Subsidiaries; and less (e) all loans by such Person to its officers, stockholders or employees. "Term Loans" means the advances made pursuant to subsections 2.1(A)(1), (A)(2), (A)(3) and (A)(4) of the Heller Loan Agreement. "Term Loan B" means the advance made pursuant to subsection 2.1(A)(2) of the Heller Loan Agreement. (3) Section 6.03, Investments, is amended by deleting "and" prior to clause "(8)" thereof and inserting after "Works" in the last line thereof the following: ", (9) the Borrower's ownership of Unitel Video Canada Inc., and (10) loans or advances made to Unitel Video Canada Inc. provided that the aggregate amount of all such loans or advances outstanding at any time does not exceed One Hundred Thousand Dollars ($100,000)." (4) Article VII, Financial Covenants, is amended in full to read as follows: "So long as any portion of the Amended and Restated Term Loan remains outstanding or any obligation under any Loan Document remains outstanding: Section 7.01. Tangible Net Worth. The 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 5 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 and thereafter $20,000,000 Section 7.02. Capital Expenditure Limits. The aggregate amount of all Capital Expenditures of the Borrower and its Subsidiaries (excluding trade-ins, excluding Capital Expenditures in respect of replacement assets to the extent funded with casualty insurance proceeds and excluding Capital Expenditures that consist of commitments or contracts to make Capital Expenditures which have not created a cash obligation so long as such amount does not exceed $500,000 in the aggregate at any time outstanding) will not exceed an amount equal to $10,000,000 in any Fiscal Year of the Borrower (the "Annual Amount"); provided, fifty percent (50%) of the unused portion of any Annual Amount (the "Carryover Amount") may be used by the Borrower (in addition to the Annual Amount) in the calculation hereof in the next succeeding Fiscal Year of the Borrower and no subsequent Fiscal Years provided no Default or Event of Default shall have occurred; and provided, further, any Capital Expenditures in such succeeding Fiscal Year shall be allocated first to the Annual Amount for such Fiscal Year and second, to the Carryover Amount from such preceding Fiscal Year. In the event that the Borrower or any of its Subsidiaries enters into a Capital Lease or other contract with respect to fixed assets, for purposes of calculating Capital Expenditures under this subsection only, the amount of the Capital Lease or contract initially capitalized on the Borrower's or any Subsidiary's balance sheet prepared in accordance with GAAP shall be considered expended in full on the date that the Borrower or any of its Subsidiaries enters into such Capital Lease or contract. Notwithstanding anything contained in this Section 7.02 of the Loan Agreement to the contrary, the Annual Amount applicable to the Borrower's 1997 Fiscal Year shall be $15,000,000. Section 7.03. Fixed Charge Coverage. The 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, (a) .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 6 quarter basis. For purposes of the covenant calculations under this Section 7.03, Operating Cash Flow shall exclude financed Capital Expenditures utilized by the 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. Section 7.04. Leverage Ratio. The 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 Section 7.05. Interest Coverage. During each fiscal period when the Borrower's Fixed Charge Coverage is less than 1.00 to 1.00, the 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 7.05, Operating Cash Flow shall exclude financed Capital Expenditures utilized by the 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." SECTION 2. Conditions of Effectiveness. This First Amendment shall become effective as of the date on which each of the following conditions has been fulfilled: (1) This First Amendment. The Borrower and the Bank shall each have executed and delivered this First Amendment; (2) Officer's Certificate. The following statements shall be true and the Bank shall have received a certificate signed by a duly authorized officer of the Borrower dated the date hereof stating that, after giving effect to this First Amendment and the transactions contemplated hereby: (a) The representations and warranties contained in each of the Loan Documents are correct in all material respects on and as of the date hereof as though made on and as of such date; and 7 (b) After giving effect to this First Amendment, no Default or Event of Default has occurred and is continuing; and (3) Legal Bills. Dewey Ballantine has been paid in full for all past due legal fees, costs and expenses and for all fees, costs and expenses in connection with this First Amendment. (4) Other Documents. The Bank shall have received such other approvals, opinions or documents as the Bank may reasonably request. SECTION 3. Reference to and Effect on the Loan Documents. (a) Upon the effectiveness of Section 1 hereof, on and after the date hereof each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in the other Loan Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except as specifically amended above, the Credit Agreement and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this First Amendment shall not operate as a waiver of any right, power or remedy of the Bank under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents, and, except as specifically provided herein, the Credit Agreement and each other Loan Document shall remain in full force and effect and are hereby ratified and confirmed. SECTION 4. Costs, Expenses and Taxes. The Borrower agrees to reimburse the Bank on demand for all costs, expenses and charges (including, without limitation, all reasonable fees and expenses of external legal counsel for the Bank) incurred by the Bank in connection with the preparation, reproduction, execution and delivery of this First Amendment and any other instruments and documents to be delivered hereunder. All such costs, expenses, fees and charges paid by the Borrower shall be non-refundable. SECTION 5. Governing Law. This First Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 6. Headings. Section headings in this First Amendment are included herein for convenience of reference only and shall not constitute a part of this First Amendment for any other purpose. SECTION 7. Counterparts. This First Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this First Amendment by signing any such counterpart. 8 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the day and year first above written. UNITEL VIDEO, INC. By: /s/ Barry Knepper --------------------------------- Name: Barry Knepper Title: CEO THE CHASE MANHATTAN BANK By: --------------------------------- Name: Title: IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the day and year first above written. UNITEL VIDEO, INC. By: --------------------------------- Name: Title: THE CHASE MANHATTAN BANK By: /s/ George Catallo --------------------------------- Name: George Catallo Title: Second Vice President EX-4.(M) 6 LOAN AGREE DATED JULY 1, 1997-UNITEL & ALLEGHENY Exhibit 4(M) ============================================================================== LOAN AGREEMENT between ALLEGHENY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and UNITEL VIDEO, INC. Dated as of July 1, 1997 Relating to the ALLEGHENY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY Variable Rate Demand Revenue Bonds, Series 1997 (Unitel Mobile Video Project) ============================================================================== TABLE OF CONTENTS ARTICLE I DEFINITIONS - ACCEPTANCE OF INDENTURE..............................3 Section 1.01. Definitions..................................................3 Section 1.02. Acceptance of Indenture......................................4 Section 1.03. Assignment to Trustee........................................4 Section 1.04. Accounting Principles........................................4 ARTICLE II THE PROJECT.......................................................5 Section 2.01. The Project..................................................5 Section 2.02. Costs of Project.............................................5 ARTICLE III LOAN OF BOND PROCEEDS............................................6 Section 3.01. Sale and Delivery of Bonds...................................6 Section 3.02. Loan of Bond Proceeds........................................6 Section 3.03. Use of Bond Proceeds.........................................6 Section 3.04. Corporation Contribution.....................................6 Section 3.05. Security.....................................................6 Section 3.06. Conditions Precedent.........................................6 ARTICLE IV INSTALLMENT PAYMENTS..............................................7 Section 4.01. Repayment of Loan............................................7 Section 4.02. Time and Manner of Repayment.................................7 Section 4.03. Payment Credits..............................................9 Section 4.04. Additional Amounts Payable by the Corporation................9 Section 4.05. Payments to Trustee.........................................10 Section 4.06. Payments Unconditional; No Defense or Set-Off...............10 Section 4.07. Optional Prepayments By Corporation.........................10 ARTICLE V WARRANTIES, REPRESENTATIONS AND COVENANTS OF CORPORATION..........12 Section 5.01. General Representations, Warranties and Covenants...........12 Section 5.02. Indemnification of Authority and Trustee....................13 Section 5.03. Reports and Audits..........................................13 Section 5.04. Taxes and Claims............................................14 Section 5.05. Compliance with Laws........................................14 Section 5.06. Tax-Exempt Bond Covenants...................................14 Section 5.07. Insurance...................................................15 Section 5.08. Observance of Terms of Documents............................15 Section 5.09. Covenant With Bondholders...................................15 Section 5.13. Investments.................................................15 Section 5.14. Filings to Protect Security Interest in Trust Estate........16 Section 5.12. Renewal Letter of Credit; Alternate Letter of Credit........16 Section 5.13. Remarketing Agent...........................................16 Section 5.14. Purchase of Bonds...........................................16 ARTICLE VI DEFAULTS AND REMEDIES............................................17 Section 6.01. Events of Default by Corporation............................17 Section 6.02. Remedies Upon Event of Default..............................17 Section 6.03. Remedies of Authority and Control of Remedies by Bank.......18 Section 6.04. Waiver of Errors and Exemptions.............................18 Section 6.05. No Remedy Exclusive.........................................18 Section 6.06. No Waiver Implied...........................................18 Section 6.07. Agreement to Pay Attorney's Fees and Expenses...............18 ARTICLE VII MISCELLANEOUS...................................................20 Section 7.01. Representations and Special Covenants of Authority..........20 Section 7.02. Assignment..................................................20 Section 7.03. Term of Agreement...........................................21 Section 7.04. Notices.....................................................21 Section 7.05. Parties in Interest.........................................22 Section 7.06. Survival of Covenants, Conditions and Representations.......22 Section 7.07. Amendments..................................................22 Section 7.08. Severability................................................23 Section 7.09. Counterparts................................................23 Section 7.10. Applicable Law..............................................23 LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of July 1, 1997 (the "Agreement") between the ALLEGHENY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Authority"), a body corporate and politic duly organized, existing and in good standing under the laws of the Commonwealth of Pennsylvania (the "Commonwealth") and UNITEL VIDEO, INC., a for-profit corporation organized under the laws of the State of Delaware (the "Corporation"). WITNESSETH: WHEREAS, the Authority is a body corporate and politic existing under the laws of the Commonwealth of Pennsylvania pursuant to the Economic Development Financing Law, amended December 17, 1993, P.L. 490, No. 74, as amended (hereinafter called the "Act"), having been duly organized by the County of Allegheny, Pennsylvania (hereinafter called the "County"); and WHEREAS, the Corporation has, by duly authorized resolution, undertaken a project consisting of constructing and equipping up to two mobile video television production units to be based at its Allegheny County, Pennsylvania offices (the "Project"); and WHEREAS, the Authority is authorized under the Act to issue its bonds for the purposes of (i) financing all or a portion of the costs of the Project and (ii) paying all or a portion of the costs of issuance of the Bonds (defined hereinafter) and the Authority has determined that the public interest will be best served and that the purposes of the Act can be more advantageously obtained by the Authority's issuance of bonds in order to obtain funds to loan to the Corporation for the foregoing purposes; and WHEREAS, it has been determined that in order to accomplish such purposes the Authority will issue its revenue bonds pursuant to a Trust Indenture dated as of July 1, 1997 (the "Indenture") between the Authority and PNC Bank, National Association, as trustee (the "Trustee"), in an initial aggregate principal amount of $5,000,000, which shall be designated Allegheny County Industrial Development Authority Variable Rate Demand Revenue Bonds, Series 1997 (Unitel Mobile Video Project) (the "Bonds"); and WHEREAS, the Authority and the Corporation hereby agree to enter into this Agreement, under the terms of which the Authority will lend the proceeds from the sale of the Bonds to the Corporation (the "Loan") to finance the costs of the Project and the Corporation will repay the Loan by making installment payments to the Authority in an aggregate amount sufficient to pay the principal of, premium, if any, and interest on the Bonds as the same become due and payable; and WHEREAS, the Bonds shall be secured by, among other things, the installment payments to be paid pursuant to this Agreement (except for the Unassigned Rights) to the Authority by the Corporation, which payments are to be assigned to the Trustee; and WHEREAS, the Corporation has obtained an Initial Letter of Credit (as hereinafter defined) from Bank of America, (the "Initial Bank") which can be drawn upon prior to the expiration thereof in an amount up to (a) an amount equal to the outstanding principal amount of the Bonds to be used (i) to pay the principal of the Bonds at maturity, earlier redemption or upon acceleration, and (ii) to enable the Trustee's Agent (as hereinafter defined) to pay the portion of the purchase price equal to the principal amount of Bonds delivered or deemed delivered for purchase and not remarketed, plus (b) an initial amount equal to 49 days' accrued interest on the Bonds (calculated at a rate - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Unitel Video, Inc. of 12% per annum) to be used (i) to pay interest on the Bonds and (ii) to pay the portion of the purchase price equal to the accrued interest, if any, on the Bonds properly delivered or deemed delivered for purchase and not remarketed; and WHEREAS, the issuance, sale and delivery of the Bonds and the execution and delivery of this Agreement have been in all respects duly and validly authorized in accordance with the Act by the resolutions of the Authority and as approved by the County; and NOW, THEREFORE, in consideration of the promises and of the mutual representations, covenants and agreements herein set forth, the Authority and the Corporation, each intending to legally bind themselves and their respective successors and assigns, do mutually promise, covenant and agree as follows: - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 2 Unitel Video, Inc. ARTICLE I DEFINITIONS - ACCEPTANCE OF INDENTURE Section 1.01. Definitions. All terms which are defined in the recitals hereto shall have the meaning assigned to them therein, unless otherwise defined herein or unless the context clearly requires otherwise. Capitalized terms used in this Agreement and not defined herein, unless the context clearly requires otherwise, shall have the same meanings as set forth in the Indenture. In addition, the following terms shall have the meanings specified below: "Audited Financial Statements" means financial statements of the Corporation prepared in accordance with generally accepted accounting principles which have been examined and reported on by an independent public accountant. "Code" means the Internal Revenue Code of 1986, as amended from time to time. Each reference to a section of the Code herein shall be deemed to include the United States Treasury Regulations, including temporary and proposed regulations, relating to such section which are applicable to the Bonds or the use of the proceeds thereof. "Cost" or "Costs" shall have the meaning ascribed to such term in the Indenture. "Documents" means this Agreement, the Indenture, the Bonds, the Letter of Credit Agreement, the Pledge Agreement and all other documents executed by the Corporation or the Authority in connection therewith. "GAAP" shall mean generally accepted accounting principles as defined more specifically in Section 1.04 hereof. "Loan" means the loan to the Corporation by the Authority, concurrently with the issuance of the Bonds, of the gross proceeds from the sale of the Bonds for the purpose of financing all or a portion of the Project. "Officer's Certificate" means a certificate signed, in the case of a certificate delivered by the Corporation, by the Chief Executive Officer, Chief Financial Officer, any Vice President, Secretary or Assistant Secretary of the Corporation or, in the case of a certificate delivered by any other Person, the chief executive or chief financial officer of such other Person, in either case whose authority to execute such Certificate shall be evidenced to the satisfaction of the Trustee. "Person" shall mean an individual, a corporation, a partnership, an association, a joint stock company, a joint venture, a trust, an unincorporated organization, a governmental unit or an agency, political subdivision or instrumentality thereof or any other group or organization of individuals. "Unassigned Rights" means the fees and expenses payable to the Authority, the Authority's right to indemnification under Section 5.02 of this Agreement and the Authority's right to execute and deliver supplements and amendments to this Agreement. All definitions of documents herein shall include any and all amendments and supplements thereto and all definitions of persons or entities shall include their respective successors and assigns. - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 3 Unitel Video, Inc. All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP in effect from time to time, as modified by Section 1.04 hereof. Section 1.02. Acceptance of Indenture. The Corporation acknowledges that it has received an executed copy of the Indenture and that it is familiar with the terms and conditions of the Indenture. The Corporation further covenants that it will comply with all the conditions and covenants contained in the Indenture relating to the Corporation and the Project, and that it will not take any action which would cause a default thereunder or jeopardize the rights of the Trustee, the Authority or the Bondholders. Section 1.03. Assignment to Trustee. The Authority hereby notifies the Corporation, and the Corporation hereby acknowledges, that all of the Authority's right, title and interest in this Agreement (except the Unassigned Rights) are being assigned and pledged to the Trustee as security for the Bonds and the Bank or the Bank's Agent, as applicable. The Corporation consents to such assignment and acknowledges that the Bonds are being issued in reliance by the Trustee upon the assignment of the Authority's rights under this Agreement. The Corporation agrees that it shall perform all obligations and pay all amounts due from the Authority under the Bonds and the Indenture so that at all times there shall be no default thereunder. Section 1.04. Accounting Principles. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation, combination or other accounting computation is required to be made for the purposes of this Agreement or any agreement, document or certificate executed and delivered in connection with or pursuant to this Agreement, such determination or computation shall be done in accordance with GAAP. - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 4 Unitel Video, Inc. ARTICLE II THE PROJECT Section 2.01. The Project. The Project consists of constructing and equipping up to two mobile video television production units to be based at the Corporation's Allegheny County, Pennsylvania offices. Section 2.02. Costs of Project. The Corporation agrees and acknowledges that there is no implied or express warranty that the proceeds of the Bonds will be sufficient to pay the Costs of the Project. - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 5 Unitel Video, Inc. ARTICLE III LOAN OF BOND PROCEEDS Section 3.01. Sale and Delivery of Bonds. In order to provide the funds necessary to finance the Project as provided for in this Agreement, the Authority agrees that it will use its best efforts to cause the Bonds to be issued, sold and delivered. All proceeds received from the sale of the Bonds shall be deposited by the Authority in trust with the Trustee in accordance with the requirements of the Indenture, for the benefit, however, of the Corporation, and in consideration of such issuance, sale and delivery of the Bonds, and such deposit, the Corporation shall apply such funds as provided herein and in the Indenture and shall make the payments specified in Article IV hereof and observe all other conditions and provisions hereof. Section 3.02. Loan of Bond Proceeds. Subject to the conditions hereof, the Authority will concurrently with the issuance of the Bonds lend the proceeds from the sale of the Bonds to the Corporation for the purpose of financing the Project. Section 3.03. Use of Bond Proceeds. The Authority shall deposit the proceeds from the sale of the Bonds with the Trustee to be expended and deposited all in accordance with the provisions of the Indenture. Section 3.04. Corporation Contribution. In the event the Loan should not be sufficient to pay the costs of the Project, the Corporation shall pay those costs in excess of the amount of the Loan. Section 3.05. Security. This Agreement is a general obligation of the Corporation and the full faith and credit of the Corporation is pledged to the payment of all sums due hereunder. Section 3.06. Conditions Precedent. The obligation of the Authority to provide the Loan is subject to the satisfaction of the following conditions: (a) The representations and warranties set forth herein shall be true and correct on and as of the date of the issuance of the Bonds and on such date no Event of Default as hereinafter defined and no condition or act which with the giving of notice or the lapse of time or both, would constitute such an Event of Default, shall have occurred and be continuing or shall exist; (b) The Corporation shall furnish to the Authority an Opinion of Counsel for the Corporation in form and substance satisfactory to the Authority as to matters which the Authority shall reasonably request; and (c) All legal details and proceedings in connection with the issuance of the Bonds and the making of the Loan shall be in form and substance satisfactory to the Authority and the Authority shall have received all originals or certified or other copies of such documents and proceedings in connection therewith in form and substance satisfactory to it as it may reasonably request. - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 6 Unitel Video, Inc. ARTICLE IV INSTALLMENT PAYMENTS Section 4.01. Repayment of Loan. The Corporation hereby covenants and agrees that it shall repay the Loan to the Authority by making installment payments, in the manner and at the times hereinafter set forth, in sums sufficient to pay the principal of, premium, if any, and interest payable on the Bonds, and to pay all other amounts payable by the Corporation under the terms of this Agreement. Section 4.02. Time and Manner of Repayment. The Corporation agrees to make the following payments on the following dates: (a) Interest: (i) At all times while the Bonds are secured by a Letter of Credit.: On each Interest Payment Date for the Bonds while the Bonds are secured by a Letter of Credit, an amount which, after taking into consideration any amount on deposit in the Bond Fund (other than in the LOC Debt Service Account), is equal to the amount of the interest to become due on the Bonds on such Interest Payment Date; provided, however, that the Corporation may be entitled to certain credits on or reductions of such payments as permitted under Section 4.03 hereof and Section 408 of the Indenture. (ii) At all times while the Bonds are NOT secured by a Letter of Credit following the Conversion Date: In the event that the Letter of Credit is terminated on and after the Conversion Date in accordance with Section 403 of the Indenture, the Corporation agrees to make the following payments on the following dates: (A) On the 20th day of each month, beginning with the first month following the month in which the Conversion Date for the Bonds occurs, an amount which, together with an equal amount to be paid on the 20th day of each month, if any, occurring before the next succeeding Semiannual Date, will not be less than the interest to become due on the Bonds on the next succeeding Semiannual Date; and (B) on the 20th day of each month thereafter, an amount equal to one-sixth (1/6) of the interest to become due on the Bonds on the next succeeding Semiannual Date; provided, however, that the Corporation may be entitled to certain credits on the payments in this Section 4.02(a)(ii) as permitted under Section 4.03 hereof. (b) Principal: (i) At all times while the Bonds are secured by a Letter of Credit: On each July 1, an amount equal to the principal to become due on the Bonds secured by a Letter of Credit on such date by Maturity; provided, however, that the Corporation may be entitled to certain credits on or reductions of such payments as permitted under Section 4.03 hereof and Section 408 of the Indenture. (ii) At all times while the Bonds are NOT secured by a Letter of Credit following the Conversion Date: On the 20th day of each month beginning with the first month following the month in which the Conversion Date for the Bonds occurs, an amount which, together with an equal amount to be paid on the 20th day of each - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 7 Unitel Video, Inc. month, if any, occurring before the next succeeding July 1, will not be less than the principal to become due on the Bonds on the next succeeding July 1 by Maturity or mandatory redemption, and thereafter on the 20th day of each month an amount equal to one-twelfth (1/12) of the next installment of the principal becoming due on the Bonds on the next succeeding July 1 by Maturity or mandatory redemption; provided, however, that the Corporation may be entitled to certain credits on such payments as permitted under Section 4.03 hereof. (c) The Corporation shall provide for the payment of the principal of, interest and premium, if any, on the Bonds other than Pledged Bonds, Corporation Bonds and Bonds bearing interest at a Fixed Rate (subject to the provisions of Section 403(i) of the Indenture permitting the termination of the Letter of Credit in the Fixed Mode in certain situations) by delivery of a Letter of Credit to the Trustee which complies with the requirements of the Indenture. Simultaneously with the original issuance and delivery of the Bonds, the Corporation shall deliver the Initial Letter of Credit to the Trustee. The Corporation hereby authorizes and directs the Trustee to draw moneys under the Letter of Credit in accordance with the provisions of the Indenture and the Letter of Credit to the extent necessary to pay the principal of, premium, if any, and interest on the Bonds other than Pledged Bonds and Corporation Bonds if and when due. (d) The Corporation shall pay to the Trustee amounts equal to the amounts to be paid by the Trustee and the Trustee's Agent pursuant to Section 506 of the Indenture to purchase outstanding Bonds, such amounts to be paid by the Corporation to the Trustee and the Trustee's Agent, as the case may be, on the dates such payments pursuant to Section 506 of the Indenture are to be made; provided, however, that the obligation of the Corporation to make any such payment hereunder shall be reduced by the amount of any moneys available for such payment under clauses (i) or (ii) of Section 506(a) of the Indenture. (e) The Corporation shall provide for the payment of amounts to be paid by the Trustee or the Trustee's Agent pursuant to Section 506 of the Indenture by the delivery of the Letter of Credit to the Trustee. Simultaneously with the original issuance and delivery of the Bonds, the Corporation shall deliver the Initial Letter of Credit to the Trustee. The Corporation hereby authorizes and directs the Trustee to draw moneys under the Letter of Credit in accordance with the provisions of the Indenture and the Letter of Credit to the extent necessary to provide moneys payable under Section 506 of the Indenture if and when due. (f) Payments Required to Effect Optional Redemption. On or before the Business Day next preceding the date of redemption of any Bonds to be optionally redeemed pursuant to Section 511(a) of the Indenture, an amount not less than the full amount required to pay the principal of and premium, if any, on such Bonds to be optionally redeemed; provided, however, that the Corporation may be entitled to certain credits on or reductions of such payments as permitted under Section 408 of the Indenture. (g) Trustee's Fee. While the Bonds remain Outstanding, the reasonable compensation and expenses of the Trustee under the Indenture shall be paid directly to such Trustee by the Corporation upon the receipt by the Corporation of a bill for such services from the Trustee. (h) Authority's Annual Administrative Fee. The Corporation shall pay an initial closing fee in the amount of $5,000 together with a legal fee in the amount of $2,500 on the Closing Date. Commencing on the Closing Date and on August 1 of each year thereafter while the Bonds remain Outstanding, an amount equal to the Administrative Fee of the Authority shall be payable by (and not subject to refund) the Corporation. The Administrative Fee shall be in the amount of $1,250, together with any other administrative expenses - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 8 Unitel Video, Inc. (including reasonable legal fees) reasonably incurred by the Authority in connection with inquiring into, or enforcing, the performance by the Corporation of its obligations hereunder. The payment of any such administrative expenses shall be due within 30 days of receipt of an itemized statement from the Authority. (i) Rebate to the United States. If there is any amount required to be paid to the United States pursuant to Section 148(f) of the Code and Section 5.06(d) hereof, the Corporation shall pay such amount to the United States. Section 4.03. Payment Credits. Notwithstanding any provision contained in this Loan Agreement or in the Indenture to the contrary, the Corporation shall be entitled to receive a credit against the payments required by Section 4.02 in the following situations: (a) Principal and Interest: Any moneys on deposit in the Bond Fund, other than the LOC Debt Service Account, shall be credited against the obligation of the Corporation under Section 4.02(a) and/or (b) hereof for the payment of principal of and interest on the Bonds. (b) Purchase of Bonds: The principal amount of Bonds purchased by the Corporation and delivered to the Trustee, or purchased by the Trustee and canceled, shall be credited against the obligation of the Corporation to pay amounts equal to the principal due on the Bonds in such order as the Corporation shall elect prior to such purchase or if no such election is made prior to such purchase, in the inverse order thereof; provided, however, that deposit of a Bond of one Maturity may not be credited against an obligation which would be used, in the normal course, to retire a Bond of another Maturity; and provided further, however, that so long as a Letter of Credit is in effect with respect to all or a portion of the Bonds, the Corporation shall be entitled to the credit provided in this Section 4.03(b) only to the extent that Bonds the payment of which is secured by such Letter of Credit which are purchased by the Corporation and delivered to the Trustee, or purchased by the Trustee and canceled, are (in each instance) purchased with Eligible Moneys drawn under the Letter of Credit. (c) In addition, the Corporation shall be entitled to a credit during the year immediately preceding the final maturity date of the Bonds to the extent that any payment required to be made pursuant to Section 4.02 of this Agreement would, together with the amount held by the Trustee in all Funds under the Indenture, other than the LOC Debt Service Account, exceed the principal amount of the Bonds Outstanding and the amount of the interest due both at the final maturity date and the interest payment date immediately preceding the final maturity date. (d The Corporation shall also be entitled to a credit against payments required to be made pursuant to Section 4.02 hereof to the extent that the required payment due on the Bonds has been paid from moneys advanced under the Letter of Credit and the Corporation has directly reimbursed the Bank for such draw. Section 4.04. Additional Amounts Payable by the Corporation. It is the intention of the Authority and the Corporation that, notwithstanding any other provision of this Agreement, the Trustee, on the Authority's behalf, shall receive funds from the Corporation at such times and in such amounts as will enable the Authority to meet all of its obligations under the Bonds, including obligations surviving payment of the Bonds pursuant to the terms thereof. Accordingly, the Corporation agrees (but such agreement shall not limit the generality of the preceding sentence) that if any additional amounts become payable by the Authority pursuant to the terms of the Bonds to any holder of the Bonds, then additional amounts shall be due and payable by the Corporation to the Authority hereunder equal to any additional amounts that may be payable by the Authority under the Bonds, before or after payment of - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 9 Unitel Video, Inc. principal on the Bonds, all of which amounts shall be paid by the Corporation on the date that the comparable amounts are due by the Authority to such owner of the Bonds. The Corporation further agrees to pay any other amounts which the Authority is obligated under the Indenture to pay to the Trustee. Section 4.05. Payments to Trustee. All installment payments and other amounts payable by the Corporation hereunder shall be paid directly to the Trustee, except that indemnification payments due to the Authority pursuant to Section 5.02 hereof shall be paid to the Authority and the Administrative Fee of the Authority shall be paid directly to the Authority. Section 4.06. Payments Unconditional; No Defense or Set-Off. (a) The obligations of the Corporation to pay the installments and other amounts payable hereunder shall be absolute and unconditional without defense or set-off by reason of any default by the Authority under this Agreement or under any other agreement between the Corporation and the Authority or for any other reason, including, without limitation, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project, commercial frustration of purpose or failure of the Authority to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or in connection with this Agreement, it being the intention of the parties that such installment payments and other amounts will be paid in full when due without any delay and will be received by the Authority and the Trustee as a net sum without deductions, abatements, diminution or set-off of any kind whatsoever. (b) Damage to or destruction of all or any portion of the Project by fire or any other cause shall not terminate this Agreement or cause any abatement of or reduction in the payments to be made by the Corporation hereunder, or otherwise alter the respective obligations of the Authority or the Corporation as set forth herein, Section 4.07. Optional Prepayments By Corporation. (a) The Corporation may prepay all or any portion of the Loan to the same extent and upon the same conditions that the Authority has the right to prepay the indebtedness evidenced by the Bonds. Any such amounts prepaid by the Corporation to the Trustee shall be credited against the outstanding balance of the Loan hereunder. Partial prepayments of the Loan made by the Corporation hereunder shall be credited against the obligation of the Corporation to pay amounts equal to the principal due on the Bonds in such order as the Corporation shall elect prior to such payment or if no such election is made prior to such payment, in the inverse order thereof. Payments of principal installments and interest falling due shall continue to be made in accordance with Sections 4.01 and 4.02 hereof until the entire outstanding balance of the Loan and all accrued interest have been paid or provision satisfactory to the Trustee has been made for the defeasance of the Bonds in accordance with Section 1201 of the Indenture. (b) If there are sufficient moneys available with the Trustee to meet the payment of principal of, premium, if any, and interest on all the Outstanding Bonds and sufficient funds available with the Trustee to meet all remaining obligations of the Corporation to the Authority and the Trustee, the Trustee shall so notify the Corporation in writing, and the Corporation shall then be relieved of making any further payments hereunder, and this Agreement shall terminate. (c) With respect to Bonds bearing interest at a Weekly Rate, the Corporation shall give the Trustee and the Authority not less than 35 days' prior written notice of any optional prepayment, which notice shall designate the date of prepayment and the amount - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 10 Unitel Video, Inc. thereof and direct the redemption of Bonds in the amount corresponding to the prepayment. Such notice may be withdrawn by the Corporation prior to delivery of the Trustee's notice of redemption to Bondholders pursuant to Section 512 of the Indenture. No such notice from the Corporation shall be required in the case of prepayments required to be made in order to provide for the payment of the redemption of Bonds required to be redeemed. The Corporation shall provide to the Bank a copy of any notice given pursuant to this Section 4.07(c). (d) In the case of a prepayment to be applied to the redemption of Bonds bearing interest at a Fixed Rate, the Corporation shall give the Trustee and the Authority not less than 50 days' prior written notice, which notice shall designate the date of prepayment and the amount thereof and direct the redemption of Bonds in the amount corresponding to the prepayment. Such notice may be withdrawn by the Corporation prior to delivery of the Trustee's notice of redemption to Bondholders pursuant to Section 512 of the Indenture. No such notice from the Corporation shall be required in the case of prepayments required to be made in order to provide for the payment of the redemption of Bonds required to be redeemed. The Corporation shall provide to the Bank a copy of any notice given pursuant to this Section 4.07(d). (e) Notwithstanding subsections (c) and (d) above, in the case of a prepayment to be applied to the special optional redemption of Pledged Bonds pursuant to Section 511(b) of the Indenture, the Corporation shall give the Trustee not less than one Business Days' prior written notice, which notice shall designate the date of prepayment and the amount thereof and direct the redemption of Pledged Bonds in the amount corresponding to the prepayment. The Corporation shall provide to the Bank a copy of any notice given pursuant to this Section 4.07(e). - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 11 Unitel Video, Inc. ARTICLE V WARRANTIES, REPRESENTATIONS AND COVENANTS OF CORPORATION Section 5.01. General Representations, Warranties and Covenants. The Corporation represents warrants and agrees that: (a) All information, representations and warranties set forth in the certificates, executed and delivered by the Corporation in connection with the issuance of the Bonds by the Authority is true, correct and complete in all material respects as of the date of execution of this Agreement. (b) The Corporation shall not take any action that would cause the occurrence of an Event of Default under the terms of the Indenture. (c) The Corporation has full power and authority to execute and deliver the Documents executed and delivered by the Corporation, and to incur and perform the obligations provided for therein, all of which have been duly authorized by all proper and necessary action and all material governmental licenses, authorizations, consents and approvals required in each case of and for the Corporation in connection with its obligation under the Documents have been obtained. No consent or approval of any other person or public authority or regulatory body (other than the Authority) is required as a condition to the validity or enforceability of any of the Documents against the Corporation, or if required the same has been duly obtained. (d) Each of the Documents executed and delivered by the Corporation has been properly executed by the Corporation, constitutes the valid and legally binding obligation of the Corporation, and is fully enforceable against the Corporation in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights. (e) There is no litigation or proceeding pending or, so far as the Corporation knows, threatened, before any court or administrative agency which, in the opinion of the Corporation, will materially adversely affect the financial condition or operations of the Corporation or the authority of the Corporation to enter into, or the validity or enforceability of, any of the Documents executed and delivered by the Corporation. (f) There is (i) no provision of any existing mortgage, indenture, contract or agreement binding on the Corporation or affecting its property, and (ii) no law binding upon the Corporation or affecting any of its property, which would conflict with or in any way prevent the execution, delivery or performance of any of the Documents executed and delivered by the Corporation or which would be in default or violated as a result of such execution, delivery or performance. (g) The Corporation has filed all federal, state and local tax returns which are required to be filed by the Corporation or has received extensions for filing the same and has paid all taxes as shown on such returns as they have become due. No claims have been assessed and are unpaid with respect to such taxes. (h) There is no default by the Corporation under this Agreement or any other Documents and, no event has occurred and is continuing, and no condition exists which with notice or the passage of time or both would constitute a default under any thereof. - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 12 Unitel Video, Inc. Section 5.02. Indemnification of Authority and Trustee. The Corporation agrees that (i) the Authority and the members, officers and employees thereof; and (ii) the Trustee and its officers, directors, employees and agents, shall not be liable for and the Corporation covenants and agrees to protect, exonerate, defend, indemnify and save the Authority and the members, officers, employees and agents thereof and the Trustee, its officers, directors, employees and agents, harmless from and against any and all costs, damages or liabilities (including the reasonable fees and expenses of legal counsel) which may arise out of the issuance of the Bonds or interpretations or performance of any provision of this Agreement, the Indenture or the Tax Regulatory Certificate, or arising from any breach or default on the part of the Corporation in the performance of any covenant or agreement on the part of the Corporation to be performed pursuant to the terms of this Agreement; and from and against all reasonable costs, counsel fees, expenses and liabilities incurred in or about the defense of any such claims or action or proceedings brought thereon. The Corporation may, at its cost and in its name or in the name of the Authority and/or the Trustee, prosecute or take any other action involving third persons which the Corporation deems necessary in order to insure or protect the Corporation's rights under this Agreement; in such event, the Authority and the Trustee will reasonably cooperate with the Corporation, but at the sole expense of the Corporation. The Authority or Trustee, as the case may be, shall give prompt written notice to the Corporation of any claim asserted against the Authority, its members, officers, employees or agents or the Trustee, its officers, directors, employees or agents, when such claim becomes known and which, if sustained, may result in liability of the Corporation hereunder; provided, however, that the failure by the Authority or the Trustee to give such notice shall not relieve the Corporation from its obligations to protect, exonerate, defend, indemnify and save the Authority and its members, officers or employees or the Trustee, its officers, directors, employees, and agents harmless as aforesaid, except to the extent that the failure to give such notice results in actual loss or damage to the Corporation; and in case any action or proceeding be brought against the Authority, its members, officers, employees or agents or the Trustee, its officers, directors, employees or agents, by reason of any such claim, the Corporation, upon notice as aforesaid, covenants and agrees diligently to resist or defend such action or proceedings; provided, however, that the indemnified party or parties will cooperate and assist in the defense of such action or proceeding if reasonably requested to do so by the Corporation. Notwithstanding anything contained herein to the contrary, the Corporation shall not be obligated to indemnify or hold harmless the Authority or its members, officers, employees or agents for its or their gross negligence or willful misconduct or the Trustee, it's officers, directors, agents and employees for its gross negligence or willful misconduct. Section 5.03. Reports and Audits. The Corporation shall: (a) as soon as practicable but in no event later than five months after the end of each of its fiscal years, file with the Trustee and the Authority Audited Financial Statements of the Corporation prepared as of the end of such fiscal year; (b) as soon as practicable but in no event later than five months after the end of each fiscal year, file with the Trustee and the Authority an Officer's Certificate stating whether to the best knowledge of the signers the Corporation is in default in the performance of any covenant contained in this Agreement and, if so, specifying each such default of which the signers may have knowledge; (c) if an Event of Default hereunder shall have occurred and be continuing, (i) file with the Trustee and the Authority such other financial statements and information concerning the operations and financial affairs of the Corporation (or of any consolidated - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 13 Unitel Video, Inc. group of companies of which the Corporation is a member) as the Trustee or the Authority may from time to time reasonably request, and (ii) provide access to the facilities of the Corporation for the purpose of inspection by the Trustee or the Authority during regular business hours or at such other times as the Trustee or the Authority may reasonably request. Section 5.04. Taxes and Claims. The Corporation shall pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or on its income or properties prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a lien or charge upon any of its properties, provided that the Corporation shall not be required to pay any such tax, assessment, charge, levy or claim, the payment of which is being contested in good faith and by proper proceedings, so long as the security for the Bonds is not, in the opinion of the Trustee, materially impaired during the period of contest. Section 5.05. Compliance with Laws. The Corporation shall comply with all applicable federal, state and local laws, rules, regulations and orders of any governmental authority, subject to its right to contest the same in good faith, including, without limitation, the applicable requirements of Rule 15(c)2-12 as promulgated by the Securities and Exchange Commission (Such Rule not being applicable to the Corporation or the Bonds unless and until the Bonds convert to the Fixed Mode) and recognizing that the Authority is not an "obligated person" within the meaning of said Rule. Section 5.06. Tax-Exempt Bond Covenants. (a) The Corporation hereby covenants and agrees that: (i) it shall at all times do and perform all acts and things necessary or desirable in order to assure that interest paid on the Bonds shall, for purposes of federal income taxation, be and remain excludable from the gross income of the recipients thereof and that it will refrain from doing or performing any act or thing that will cause such interest not to be so excludable. (ii) it will not make any investment or other use of the proceeds (as that term is defined in Section 148 of the Code and all applicable regulations promulgated thereunder) of the Bonds which would cause the Bonds to be "arbitrage bonds" (as that term is defined in Section 148 of the Code and all applicable regulations promulgated thereunder), and that it will comply with the requirements of such Code section and regulations throughout the term of the Bonds. (b) The Corporation hereby covenants that the average maturity of the Bonds does not exceed 120% of the average reasonably expected economic life of the facilities financed with the net proceeds of the Bonds. (c) Interest with respect to the Bonds is not guaranteed (in whole or in part) by the United States or any agency or instrumentality thereof; no portion of the proceeds of the Bonds are to be (a) used in making loans the payment of principal or interest with respect to which is to be guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof), or (b) invested (directly or indirectly) in federally insured deposits or accounts except to the extent permitted under Section 149(b)(3) of the Code which provides exceptions which include (i) investments during any initial temporary period permitted under Section 148 of the Code, such as for certain construction periods, until such proceeds are needed for the purpose for which the Bonds were issued; (ii) investments in a bona fide debt service fund, within the meaning of Section 149(b)(3) of the Code, (iii) investments in a reasonably required reserve or replacement fund, within the meaning of Section 148(d) of the Code or (iv) investments in obligations issued by the United States Treasury; and the payment - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 14 Unitel Video, Inc. of principal of or interest on the Bonds is not otherwise indirectly guaranteed (in whole or in part) by the United States or any agency or instrumentality thereof. (d) The Corporation hereby covenants that it will perform all undertakings of and pay all amounts due to the Internal Revenue Service pursuant to the requirements of Section 148(f) of the Internal Revenue Code and will, in accordance with the Tax Regulatory Certificate: (i) deliver to the Trustee and the Authority, a written statement, with appropriate supporting schedules, of the amount, if any, determined as of any computation date specified in such Tax Regulatory Certificate to be payable to the United States government with respect to the Bonds pursuant to Section 148(f) of the Code (which written statement and supporting schedules may be prepared by the Corporation or by an accounting, consulting or financial advisory firm retained by it for such purpose), and (ii) submit to the Internal Revenue Service sufficient funds to make any payment required to be made under Section 148(f) of the Code, as disclosed in the written statement delivered pursuant to (i) above, accompanied by such related documentation as may be required to be filed with such payment; and will retain records of all determinations made pursuant to the foregoing with regard to the Bonds until six years after the retirement of the last Bond. Section 5.07. Insurance. The Corporation will maintain, or cause to be maintained, insurance with respect to the Project covering such risks and in such amounts as is required by the Letter of Credit Agreement, and which liability policies shall name the Authority as additional insured. The Corporation will deliver evidence of such coverage to the Trustee and the Authority at the times and in the manner specified in the Letter of Credit Agreement. Section 5.08. Observance of Terms of Documents. The Corporation shall comply with all of the terms and conditions and covenants applicable to the Corporation contained in this Agreement and the Indenture. Section 5.09. Covenant With Bondholders. The Authority and the Corporation agree that this Agreement is executed in part to induce the purchase by others of the Bonds and accordingly, all representations, warranties, covenants and agreements on the part of the Corporation and the Authority as set forth herein are declared to be for the benefit of the Trustee and the registered owners from time to time of the Bonds and their respective successors and assigns. Section 5.13. Investments. The Authority and the Corporation agree that all moneys in any fund established under the Indenture may be invested in such Qualified Investments as the Corporation may direct in writing; provided, however, that any such directions shall conform to the requirements of the Indenture. The Trustee is hereby authorized to trade with itself in the purchase and sale of securities as provided in Section 404 of the Indenture. Section 5.11. Filings to Protect Security Interest in Trust Estate. The Corporation hereby agrees to file and refile such instruments as shall, in the Opinion of Counsel, be necessary to preserve the lien of the Indenture upon the Trust Estate or any part thereof granted in the Indenture until the principal of and interest on the Bonds secured by the Indenture shall have been paid and to furnish satisfactory evidence to the Trustee of recording, registering, filing and refiling of such instruments and of every additional instrument which shall, in the Opinion of Counsel, be necessary to preserve the lien of the Indenture upon - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 15 Unitel Video, Inc. the Trust Estate or any part thereof until the principal of and interest on the Bonds secured by the Indenture and all amounts payable under the Letter of Credit Agreement shall have been paid. Section 5.12. Renewal Letter of Credit; Alternate Letter of Credit. (a) The Corporation covenants and agrees not to permit any of the Bonds prior to the Conversion Date to be remarketed unless a Letter of Credit satisfying the requirements of the Indenture is in full force and effect. Similarly, prior to the Conversion Date, the Corporation may not cancel the Letter of Credit then in effect unless it provides a Renewal Letter of Credit or an Alternate Letter of Credit satisfying the requirements of the Indenture. (b) At any time, the Corporation may, at its option, subject to the provisions of the Letter of Credit Agreement, provide for the delivery to the Trustee of a Renewal Letter of Credit or an Alternate Letter of Credit in lieu of the Letter of Credit then in effect, which Letter of Credit shall meet the requirements of Section 403 of the Indenture. Section 5.13. Remarketing Agent. The Corporation covenants and agrees that it will comply with the provisions of Section 918 of the Indenture with respect to the removal and replacement of the Remarketing Agent. Section 5.14. Purchase of Bonds. So long as a Letter of Credit is in effect, the Corporation shall not acquire, and shall not permit any other Affiliate or Insider to acquire, any Bonds (other than Pledged Bonds or Bonds which bear interest at a Fixed Rate) except with Eligible Moneys or as otherwise required by Section 4.02(d) of this Loan Agreement. - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 16 Unitel Video, Inc. ARTICLE VI DEFAULTS AND REMEDIES Section 6.01. Events of Default by Corporation. The occurrence of any of the following shall constitute an Event of Default hereunder: (a) Failure by the Corporation to make any payments under Sections 4.01 and 4.02 of this Agreement when due and such default shall not be cured within five days after such payment becomes due hereunder; or (b) Failure by the Corporation to make any payment hereunder or in the performance of or compliance with any of the provisions, warranties, covenants, agreements, terms or conditions contained in this Agreement, other than those specified in (a) above, which continues for thirty (30) days following written notice thereof to the Corporation from the Authority or the Trustee except in the case of a default which cannot be cured within such thirty (30) days, in which case the period shall be extended for such period as is reasonable to cure the same with due diligence, provided the Corporation commences such performance or compliance within thirty (30) days and proceeds diligently to cure the same; or (c) If the Corporation shall make an assignment of substantially all of its assets for the benefit of creditors or is adjudicated a bankrupt or shall file a bill in equity or otherwise initiate proceedings for the appointment of a receiver of its assets, or shall file a case under the Federal Bankruptcy Code to be declared a bankrupt or for reorganization or otherwise initiate any proceedings in any court for a composition with its creditors or for relief in any manner from the payment of its debts when due under any state or federal laws; or if any proceedings in bankruptcy or for the appointment of a receiver shall be instituted against the Corporation under any state or federal law and shall not be dismissed within sixty (60) days; or (d) the occurrence of an Event of Default (after notice and passage of any applicable cure period) under any of the Documents. Unless and until the Authority or the Trustee shall have exercised any remedies upon an Event of Default, and subject to the rights of the Bank to control all remedies, including any waiver of an Event of Default pursuant to the Indenture, the Corporation (or any other person on behalf of the Corporation) may at any time (a) pay all accrued unpaid payments then due and owing on the outstanding balance of the Loan and all other sums which the Corporation is obligated to pay hereunder; and (b) cure all other existing defaults hereunder, and in every such case, such payment and cure shall be deemed to constitute a waiver of the default and its consequences as though the default had not occurred. Section 6.02. Remedies Upon Event of Default. Upon the occurrence and continuance of an Event of Default: (a) Subject to Section 6.03 hereof, the entire outstanding balance of the Loan and any other sums which the Corporation is obligated to pay to the Authority hereunder shall immediately be due and payable; provided, however, that the Trustee shall have declared the acceleration of the Bonds in accordance with the Indenture. (b) The Trustee, after ten (10) days notice to the Corporation, may perform for the account of the Corporation any covenant of the Corporation hereunder in the performance of which the Corporation is in default or make any payment for which the Corporation is in default. The Corporation shall pay to the Trustee upon demand any amount paid by it in the performance of such covenant and any amounts which the Trustee shall have - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 17 Unitel Video, Inc. paid by reason of failure of the Corporation to comply with any covenant or provision of this Agreement, including reasonable counsel fees incurred in connection with prosecution or defense of any proceedings instituted by reason of default of the Corporation, together with interest at a rate equal to the lesser of the highest rate permitted by applicable law and the cost of the money to the Trustee, from the date of payment until repayment by the Corporation. (c) The Authority and the Trustee, as assignee, may pursue any other right/remedy available at law or in equity. 6.03. Remedies of Authority and Control of Remedies by Bank. (a) In addition to the rights of the Trustee under Section 6.02 hereof, the Authority shall have the right to proceed against the Corporation for payment of Administrative Fees pursuant to Section 4.02(h) hereof and for indemnification pursuant to Section 5.02 hereof. (b) Control of Remedies by Bank. Anything herein to the contrary notwithstanding, if the Bank has not failed to make any payment required under the Letter of Credit, the Bank shall have the exclusive right to exercise or direct the exercise of remedies with respect to the Bonds and the Loan Agreement in accordance with the terms hereof following an Event of Default. Section 6.04. Waiver of Errors and Exemptions. The Corporation hereby waives and releases all technical errors, defects and imperfections whatsoever of a procedural nature in the entering of any judgment or any process or proceedings arising out of this Agreement. The Corporation also waives the benefit of any law which now or hereafter might authorize the stay of any execution to be issued or any judgment recovered hereunder or the exemption of any property from levy or sale thereunder. Section 6.05. No Remedy Exclusive. No right or remedy herein conferred upon or reserved to the Authority or the Trustee is intended to be exclusive of any other right or remedy herein or by law provided, but each shall be cumulative and in addition to every other right or remedy given herein or now or hereafter existing at law or in equity or by statute. Section 6.06. No Waiver Implied. No waiver by the Authority, the Bank or the Trustee of any breach by the Corporation of any of its obligations, agreements or covenants hereunder shall be a waiver of any subsequent breach of any obligation, agreement or covenant, nor shall any forbearance by the Authority, the Bank or the Trustee to seek a remedy for any breach by the Corporation be a waiver by the Authority, the Bank or the Trustee of its rights and remedies with respect to any subsequent breach. Section 6.07. Agreement to Pay Attorney's Fees and Expenses. In the event the Corporation should default under any of the provisions of this Agreement and the Authority, the Bank or the Trustee (in its own name or in the name and on behalf of the Authority) should employ attorneys or incur other expenses for the collection of the payments required hereunder or the enforcement of performance or observance of any obligation or agreement on the part of the Corporation herein contained, the Corporation will, on demand therefor, pay to the Authority or the Trustee (as the case may be) the reasonable fee of such attorneys and such other reasonable expenses so incurred. - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 18 Unitel Video, Inc. ARTICLE VII MISCELLANEOUS Section 7.01. Representations and Special Covenants of Authority. The Authority represents, warrants and agrees that: (a) It is a public body corporate and politic constituting an instrumentality of the Commonwealth and is authorized under the Act to enter into the transactions contemplated by this Agreement and to carry out its obligations hereunder. The Authority has duly authorized the execution and delivery of this Agreement and all other Documents to which the Authority is a party, and will do or cause to be done all things necessary to preserve and keep such Documents in full force and effect. Each of the Documents to which the Authority is a party constitutes the legal, valid and binding obligation of the Authority, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights heretofore and hereafter enacted to the extent constitutionally applicable and except that its enforcement may also be subject to the exercise of judicial discretion in appropriate cases (b) The execution and delivery by the Authority of the Bonds, this Agreement, the Indenture and all other Documents to which it is a party and compliance with the provisions of such instruments will not conflict with or constitute a breach of, or default under, any indenture, commitment, agreement or other instrument to which the Authority is a party or by which it is bound, or, as presently construed, any constitutional or statutory provision, or rule, regulation, ordinance, judgment, order or decree to which the Authority or any of its property, is subject. (c) There is no action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court, public board or body, pending or, to the best of its knowledge, threatened against the Authority (nor is there any basis therefor) (i) which in any way questions the powers of the Authority to enter into this transaction, or the validity of the proceedings taken by the Authority in connection with the issuance of the Bonds, (ii) wherein an unfavorable decision, ruling or finding would materially adversely affect the transaction contemplated by this Agreement, the Indenture or the Bonds or (iii) which in any way would adversely affect the validity or enforceability of the Bonds, this Agreement or the Indenture (or of any other instrument required or contemplated for use in consummating the transactions contemplated thereby or hereby). (d) The Authority has full power and authority to execute and deliver the Documents executed and delivered by the Authority, and to incur and perform the obligations provided for therein, all of which have been duly authorized by all proper and necessary action and all material governmental licenses, authorizations, consents and approvals required in each case of and for the Authority in connection with its obligation under the Documents have been obtained. No consent or approval of any other person or public authority or regulatory body is required as a condition to the validity or enforceability of any of the Documents against the Authority, or if required the same has been duly obtained. Section 7.02. Assignment. The Corporation will not assign all or any part of its obligations under this Agreement to another Person or Persons; provided that the Corporation may assign all or a part of the Corporation's obligations under this Agreement to another Person or Persons subject to the requirement that (a) the assignee assumes in writing all of the obligations of the Corporation, or in the case of an assignment of a part of the Corporation's obligations under this Agreement, that portion of the obligations assigned, under this - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 19 Unitel Video, Inc. Agreement; (b) there is delivered to the Trustee, the Authority and the Bank prior to the consummation of such assignment an Opinion of Counsel to the effect that such assignment is permitted hereunder and does not subject the interest payable on the Bonds to United States income taxes or cause the Bonds to be deemed "arbitrage bonds" within the meaning of Section 148 of the Code and the regulations thereunder, and (c) there is delivered to the Trustee prior to the consummation of such assignment written evidence from the Bank that it consents to such assignment. Every assignee shall be bound by all of the covenants and agreements of the Corporation herein. Upon satisfaction with the preconditions to assignment contained in this Section 7.02 and the execution and delivery of such documents as are reasonably necessary to effect such assignment, the Corporation shall no longer be liable for such portion of its obligations under this Agreement properly assigned to another Person or Persons. Section 7.03. Term of Agreement. This Agreement shall remain in full force and effect for a term commencing on the date of the issuance of the Bonds and terminating at such time as there are no Bonds Outstanding under the provisions of the Indenture; provided, however, that this Agreement and the obligation of the Corporation to make payments pursuant to the provisions of Article IV hereof shall continue following the discharge of the Bonds until such time as any amounts due to the Internal Revenue Service for rebate required by the Indenture and the Tax Regulatory Certificate and any other amounts due under this Agreement have been satisfied. Section 7.04. Notices. Except as otherwise provided in this Agreement, all notices, directions, certificates, requests, requisitions and other communications hereunder shall be in writing and shall be sufficiently given and shall be deemed given when received following mailing, addressed as follows or hand delivered to the following addresses: If to the Authority: Allegheny County Industrial Development Authority 400 Fort Pitt Commons 445 Fort Pitt Blvd. Pittsburgh, Pennsylvania 15219 Attention: Authorities Manager If to the Corporation: Unitel Video, Inc. 555 West 57th Street, Suite 1240 New York, NY 10019 Attention: Chief Financial Officer with a copy to: Karen Ceil Lapidus, General Counsel at the above address If to the Trustee: PNC Bank, National Association One Oliver Plaza, 27th Floor Pittsburgh, PA 15265 Attn: Corporate Trust Division - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 20 Unitel Video, Inc. If to the Initial Bank: Bank of America c/o Heller Financial, Inc. 500 Monroe Street Chicago, IL 60661 Attn: Jerry Sepich A copy of each notice, direction, certificate, request or other communication given hereunder to the Authority, the Corporation or the Trustee shall also be given to the others. Any of the foregoing may, by notice given hereunder, designate any further or different addresses to which subsequent notices, directions, certificates, requests or other communications shall be sent. Section 7.05. Parties in Interest. This Agreement shall inure to the benefit of the Authority, the Corporation, the Trustee and their respective successors and assigns, and shall be binding upon the Authority, the Corporation and their respective successors and assigns, and no other Person, other than the Trustee, the Authority, the Bondholders and the Bank and their respective successors and assigns, shall have any right, remedy or claim under or by reason of this Agreement; provided, however, that, except as provided in the Act, neither the Authority, the County, the Commonwealth nor any political subdivision thereof shall be liable for the payment of the principal of or interest on the Bonds or for the performance of any pledge, mortgage, obligation or agreement created by or arising out of this Agreement or the issuance of the Bonds, except as specifically provided herein, and, further, that neither the Bonds nor any such obligation or agreement of the Authority shall be construed to constitute an indebtedness of the Authority, the County, the Commonwealth or any political subdivision thereof or a charge against their general credit or taxing powers within the meaning of any constitutional or statutory provisions whatsoever, but shall be limited obligations of the Authority payable solely out of the Trust Estate, including the revenues derived from this Agreement, or from the sale of the Bonds or income earned on invested funds, as provided herein and in the Indenture. It is further understood and agreed by the Corporation, that the Authority shall incur no pecuniary liability hereunder, and shall not be liable for any expenses related hereto, including administrative expenses and fees and disbursements of Bond Counsel retained in connection therewith, all of which expenses the Corporation has agreed to pay. The Authority has no taxing power. Section 7.06. Survival of Covenants, Conditions and Representations. Notwithstanding anything herein to the contrary, all covenants, conditions and representations of the Corporation and the Authority contained herein which, by nature, impliedly or expressly involve performance in any particular manner after the settlement pursuant to Article III or which cannot be ascertained to have been performed until after the said settlement shall survive said settlement. Section 7.07. Amendments. (a) Except for the amendments provided for by Section 7.07(b) hereof, this Agreement may not be amended except in accordance with and to give effect to Article XI of the Indenture as evidenced by an instrument in writing signed by the parties. (b) Section 5.06(d) hereof concerning the Corporation's obligation to comply with the rebate requirements of Section 148(f) of the Code, may be amended by an instrument in writing signed by the parties hereto in the event that the Corporation delivers to the Trustee an Officer's Certificate accompanied by an Opinion of Counsel addressed to the - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 21 Unitel Video, Inc. Trustee to the effect that amendments to such section are necessary or desirable to comply with the provisions of Section 148(f) of the Code. (c) The Corporation shall reimburse the Authority and the Trustee for all reasonable costs and expenses, including, without limitation, reasonable attorney's fees, paid or incurred by the Authority or the Trustee in connection with any amendments or modifications of this Agreement or to the Indenture and any document, instrument or agreement related hereto or thereto, and the discussion, negotiation, preparation, approval, execution and delivery of any and all documents necessary or desirable to effect such amendments or modifications. A copy of any amendments shall be sent to the Rating Agency, if any. Section 7.08. Severability. If any clause, provision or section of this Agreement shall be ruled invalid, illegal or unenforceable for any reason, the invalidity of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof, and this Agreement shall be construed as if such clause, provision or section had not been contained herein. Section 7.09. Counterparts. This Agreement may be executed in several counterparts, any or all of which shall constitute one and the same instrument. Section 7.10. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth. - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Page 22 Unitel Video, Inc. IN WITNESS WHEREOF, the ALLEGHENY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and UNITEL VIDEO, INC. have caused this Loan Agreement to be duly executed as of the day and year first above written. ATTEST: ALLEGHENY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY By: /s/ Gregg Bernaciak By: /s/ James M. Edwards --------------------------- ------------------------------- Authorized Designate Chairman ATTEST: UNITEL VIDEO, INC. By: /s/ Karen Ceil Lapidus By: /s/George Horowitz --------------------------- ------------------------------- Authorized Officer Authorized Officer - -------------------------------------------------------------------------------- Loan Agreement, Series 1997 Bonds Unitel Video, Inc. EX-4.(N) 7 PLEDGE AGREEMENT DATED JULY 1, 1997 Exhibit 4(N) PLEDGE AGREEMENT dated as of July 1, 1997 among UNITEL VIDEO, INC., PNC BANK, NATIONAL ASSOCIATION, as Escrow Agent and HELLER FINANCIAL, INC., as Agent PLEDGE AGREEMENT PLEDGE AGREEMENT, dated as of July 1, 1997, among UNITEL VIDEO, INC. (the "Pledgor"), PNC BANK, NATIONAL ASSOCIATION, as escrow agent (in its capacity as such, the "Escrow Agent") and HELLER FINANCIAL, INC., as agent ("Agent") for the financial institutions party to the Credit Agreement (as hereafter defined) ("Heller). W I T N E S S E T H : WHEREAS, the Pledgor has requested the Allegheny County Industrial Development Authority (the "Issuer") to issue and sell $5,000,000 aggregate principal amount of its Variable Rate Demand Revenue Bonds (Unitel Mobile Video Project) Series 1997, issued pursuant to a Trust Indenture, dated as of Jlu 1, 1997 (the "Indenture") between the Issuer and PNC Bank, National Association, as Trustee (in its capacity as such, the "Trustee"), and to lend the principal amount of the Bonds to the Pledgor pursuant to a Loan Agreement, dated as of July 1, 1997 (the "Loan Agreement") between the Issuer and the Pledgor; WHEREAS, in order to provide for payment when due of the principal of, and interest on, the Bonds, and to provide for the payment of the purchase price of Bonds tendered or required to be tendered pursuant to the Indenture, the Pledgor, pursuant to a Reimbursement Agreement (the "Reimbursement Agreement"), dated as of July 1, 1997, between the Pledgor and Agent, has requested Agent to cause Bank of America (the "Letter of Credit Bank') to issue a letter of credit (the "Letter of Credit"), in the initial amount of $5,080,547.95 to support payments of principal of, and interest on, the Bonds and the purchase price of Bonds so tendered or required to be tendered; and WHEREAS, the Pledgor, to induce Agent to enter into the Reimbursement Agreement and to cause the Letter of Credit Bank to issue the Letter of Credit, is willing to pledge the Collateral (as herein defined) and to enter into this Agreement. NOW, THEREFORE, the Pledgor, the Escrow Agent and Agent hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, terms defined in the Reimbursement Agreement and the Indenture shall have the respective meanings assigned to such terms when used herein. 2. Registration and Beneficial Ownership of Specified Bonds. Promptly following the Letter of Credit Bank's honoring any Tender Drawing under the Letter of Credit, the Escrow Agent in its capacity as Tender Agent under the Indenture will, in accordance with the provisions of Section 508(a)(iii) of the Indenture (i) register Bonds purchased with the proceeds of such drawing and not remarketed (the "Specified Bonds") in the name of Agent or (ii) cause to be indicated on its records Agent's beneficial ownership of the Specified Bonds. 3. Pledge. Each delivery to the Escrow Agent of Bonds pursuant to Section 2 hereof shall constitute, without further act or deed of any kind, the pledge, assignment, hypothecation and transfer to Agent of all of the Pledgor's right, title and interest in and to such Bonds (hereinafter referred to as the "Pledged Bonds"), and the Pledgor hereby grants to Agent, for the ratable benefit of Lenders, a first lien on, and security interest in, its right, title and interest in and to the Pledged Bonds, the interest thereon and all proceeds thereof, as collateral security for the prompt and complete payment when due from time to time by the Pledgor (upon acceleration, at stated maturity or otherwise) of all amounts payable from time to time by the Pledgor to Agent under the Reimbursement Agreement, the Indenture and hereunder, including all amounts reinstated as a result of any rescission or other restoration or return of any payment upon the insolvency, bankruptcy or reorganization of the Pledgor (all the foregoing being hereinafter referred to as the "Obligations"). 4. Interest on the Pledged Bonds. All interest payable to Agent in respect of Pledged Bonds shall be paid by the Pledgor or the Escrow Agent, in accordance with the provisions of Section 2.02(a) of the Indenture, by wire transfer to the account of Agent and shall be credited first against the obligation of the Pledgor to pay interest to Agent under the Reimbursement Agreement and applied by Agent to the payment of such interest and thereafter to the payment of other Obligations in such order as Agent shall, in its sole discretion, determine. 5. The Collateral. All Pledged Bonds pledged to Agent hereunder and all interest thereon and the proceeds of any or all thereof are herein collectively sometimes referred to as the "Collateral." 6. Release of Pledged Bonds. Pledged Bonds shall not be released by the Escrow Agent except as provided in this Section 6 and Section 509(b)(iii) of the Indenture. If the Escrow Agent has received (a) written notice from Agent that the Pledgor has made or caused to be made a payment or prepayment of its principal obligations with respect to a Tender Advance and interest accrued thereon or (b) written notice from Agent that the Letter of Credit has been reinstated by an amount equal to such Tender Advance, the Escrow Agent is hereby directed to (x) release from the lien and security interest of this Agreement Pledged Bonds the aggregate principal amount of which shall be equal to the principal amount of such Tender Advance so repaid or prepaid (or of such reinstatement, as the case may be), in either case as so notified to the Escrow Agent, and (y) deliver such Pledged Bonds to the Tender Agent for transfer in accordance with the written instructions of Pledgor or the Tender Agent. The Escrow Agent is hereby authorized, for and on behalf of the Pledgor and Agent, as their attorney-in-fact, to execute any endorsements, bond powers or such other documents and to take such other actions as the Escrow Agent deems appropriate to effect such release, delivery and transfer. Pledged Bonds so released shall cease to be "Pledged Bonds" for purposes of this Agreement unless and until the same are repledged to Agent pursuant hereto. 7. Rights of Agent. Agent shall not be liable for any failure to collect or realize upon the Obligations or any collateral security or guaranty therefor, or any part thereof, or for any delay in so doing, nor shall it be under any obligation to take any action whatsoever with regard thereto. If an Event of Default under the Reimbursement Agreement has occurred and is continuing, Agent may thereafter without notice exercise all rights, privileges or options pertaining to any Pledged Bonds as if it were the absolute owner thereof, upon such terms and conditions as it may determine, all without liability. Agent shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing. 8. Remedies. (a) General. In the event that any portion of the Obligations has become due and payable (upon acceleration, at stated maturity or otherwise) or upon any other Event of Default under the Reimbursement Agreement, Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon the Pledgor or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give an option or options to purchase, contract to sell or otherwise dispose of and deliver said Collateral, or any part thereof, in one or more lots at public or private sale or sales, at any exchange, broker's board or at any of Agent's offices or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, with the right to Agent, upon any such sale or sales, public or private, to purchase the whole or any part of said Collateral so sold. The net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any and all of the Collateral or in any way relating to the rights of Agent hereunder, including reasonable attorneys' fees and disbursements, shall be applied first to the satisfaction of the Obligations, the Pledgor remaining liable for any deficiency remaining unpaid after such application, and only after so applying such net proceeds and after the payment by Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Uniform Commercial Code of the State of New York, need Agent account for the surplus, if any, to the Pledgor. The Pledgor agrees that Agent need not give more than ten (10) days' notice of the time and place of any public sale or of the time after which a private sale or other intended disposition is to take place and that such notice is reasonable notification of such matters. No notification need be given to the Pledgor if it has signed after default a statement renouncing or modifying any right to notification of sale or other intended disposition. In addition to the rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to any of the Obligations, Agent shall have the authority to exercise all the rights and remedies of a secured party under the Uniform Commercial Code. The Pledgor shall be liable for the deficiency if the -2- proceeds of any sale or other disposition of the Collateral are insufficient to pay all amounts to which Agent is entitled, and the fees and disbursements of any attorneys employed by Agent to collect such deficiency. (b) Additional Provisions Concerning Pledged Bonds. (i) The Pledgor recognizes that Agent may not deem it desirable to effect a public sale of any or all of the Pledged Bonds by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act") and applicable state securities laws or otherwise, but may deem it desirable to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner; provided, the conduct of the sale is otherwise commercially reasonable. Agent shall be under no obligation to delay a sale of any of the Pledged Bonds for the period of time necessary to permit the Issuer to register the Pledged Bonds for public sale under the Securities Act, or under applicable state securities laws, even if the Issuer would agree to do so. (ii) The Pledgor further agrees to do or cause to be done all such other acts and things as may be necessary to make such sale or sales of any portion or all of the Pledged Bonds valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at the Pledgor's expense. The Pledgor further agrees that a breach of any of the covenants contained in this Section 8(b) will cause irreparable injury to Agent and that Agent has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 8(b) shall be specifically enforceable against the Pledgor and the Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred. The Pledgor further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by Agent by reason of a breach of any of such covenants and, consequently, agrees that, if Agent shall sue for damages for breach, it shall pay, as liquidated damages and not as a penalty, an amount equal to the outstanding principal amount of the Pledged Bonds on the date Agent shall demand compliance with this Section 8(b). (c) Escrow Agent. The Escrow Agent shall have no responsibility to assist Agent in any remedies pursuant to this Section 8 but may (upon reasonable notice to Agent), and shall (upon the request of Agent), deliver all Collateral held by it to Agent and thereafter have no further liability hereunder. 9. Representations, Warranties and Covenants of the Pledgor. The Pledgor represents and warrants that: (a) on the date of delivery to the Escrow Agent of any Pledged Bonds, neither the Tender Agent nor any other Person (other than Agent or the Escrow Agent on behalf of Agent) will have any right, title or interest in and to the Pledged Bonds; (b) the Pledgor has, and on the date of delivery to the Escrow Agent of any Pledged Bonds will have, full power, authority and legal right to pledge all of its right, title and interest in and to the Pledged Bonds pursuant to this Pledge Agreement; (c) on the date of delivery thereof to the Escrow Agent the Pledged Bonds and the proceeds thereof will not be subject to any prior pledge, lien, mortgage, hypothecation, security interest, charge, option or encumbrance or to any agreement purporting to grant to any third party a security interest in the property or assets of the Pledgor which would include the Pledged Bonds; and (d) Agent has and will have a first and prior perfected security interest in all Collateral delivered to, or held by, Agent or the Escrow Agent or as provided in the Indenture, and no filing or other action is necessary to preserve, perfect or protect such interest or the priority thereof. The Pledgor covenants and agrees that it will defend Agent's and the Escrow Agent's right, title and security interest in and to the Pledged Bonds, the interest thereon and the proceeds thereof against the claims and demands of all Persons whomsoever; and covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to Agent as Collateral hereunder and will likewise defend Agent's and the Escrow Agent's right thereto and security interest therein. -3- 10. No Disposition by the Pledgor. Except as contemplated herein, without the prior written consent of Agent, the Pledgor agrees that it will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, nor will it create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of the Collateral, or any interest therein, or any proceeds thereof, except for the lien and security interest provided for by this Pledge Agreement or created pursuant to any Related Document. 11. Disposition of Collateral by Agent. The Pledgor further agrees to do or cause to be done all such other reasonable acts and things as may be necessary to make any disposition of any portion or all of the Collateral permitted by this Agreement valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such disposition or sale, all at such Pledgor's expense. 12. Further Assurances. The Pledgor agrees that at any time and from time to time upon the written request of Agent or the Escrow Agent, the Pledgor will execute and deliver such further documents and do such further acts and things as Agent or the Escrow Agent may reasonably request in order to effect the purposes of this Agreement. 13. The Escrow Agent. (a) The Escrow Agent may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) Any request, direction, order or demand of Agent shall be sufficiently evidenced by an instrument signed in the name of Agent by one who purports to be an officer thereof. (c) The Escrow Agent may consult with counsel and the advice of such counsel or any opinion of counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion of counsel. (d) The Escrow Agent shall be under no obligation to assist Agent in the exercise of any of the rights or powers vested in it pursuant to Section 8 hereof under circumstances which, in the reasonable judgment of the Escrow Agent, may subject the Escrow Agent to pecuniary liability unless Agent shall have offered to the Escrow Agent reasonable security or indemnity against the costs, expenses and liabilities which might be incurred therein or thereby. The Pledgor agrees to promptly reimburse Agent for all reasonable costs, fees, expenses or liabilities incurred in connection with providing any such security or indemnity. (e) The Escrow Agent shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it pursuant hereto. (f) The Escrow Agent may perform any duties hereunder either directly or by or through agents or attorneys, and the Escrow Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (g) The Escrow Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, advice, opinion, report, notice, request, direction, consent, order, bond, or other paper or document, but the Escrow Agent, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (h) The Escrow Agent makes no representation as to the validity or sufficiency of this Agreement or the Collateral or otherwise. -4- (i) The Escrow Agent in its individual or any capacity, may become the owner or pledgee of Bonds and may otherwise engage in transactions with, and collect obligations owing to it by, the Pledgor with the same rights it would have if it were not Escrow Agent. (j) The Pledgor covenants to indemnify the Escrow Agent for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence or willful misconduct on the part of the Escrow Agent arising out of or in connection with the acceptance of administration of this Agreement and its duties hereunder, including the costs and expenses of defending itself against any claim of liability in the premises (except any liability incurred with gross negligence or willful misconduct on the part of the Escrow Agent). The obligations of the Pledgor hereunder shall survive payment of the Bonds and termination of the Agreement and shall be entitled to a prior lien on the Collateral. (k) It is understood and agreed that should any dispute arise with respect to the payment and/or ownership or right of possession of the Collateral, the Escrow Agent is authorized and directed to retain in its possession, without liability to anyone, all or any part of said Collateral until such dispute shall have been settled either by mutual agreement by the parties concerned or by the final order, decree or judgment of a court or other tribunal of competent jurisdiction in the United States of America and time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings. (l) The Escrow Agent may resign at any time by giving written notice thereof to other parties hereto, but such resignation shall not become effective until a successor Escrow Agent shall have been appointed and shall have accepted such appointment in writing. If an instrument of acceptance by a successor Escrow Agent shall not have been delivered to the Escrow Agent within 30 days after the giving of such notice of resignation, the resigning Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor escrow agent. Any successor Escrow Agent shall promptly notify the Trustee and the Agent of its succession hereunder and of its address for purposes hereof. 14. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or any provision of the Reimbursement Agreement or any Related Document, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 15. No Waiver; Cumulative Remedies. No act, delay or omission of Agent or the Escrow Agent shall be deemed to be a waiver of any rights or remedies granted hereunder and no waiver shall be valid unless in writing, signed by Agent, and then only to the extent therein set forth. A waiver of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have on any future occasion. No failure to exercise or any delay in exercising on the part of Agent or the Escrow Agent any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other right, power or privilege. The rights and remedies herein provided are cumulative and may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law. 16. Waivers, Amendments; Applicable Law. None of the terms or provisions of this Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the parties hereto. This Agreement shall be governed by, and be construed and interpreted in accordance with, the laws of the State of New York. -5- 17. Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written. The Agent: HELLER FINANCIAL, INC., as Agent By: ----------------------------- Title: 500 West Monroe Chicago, Illinois 60661 Attn: HBC Portfolio Manager Telecopy: (312) 441-7026 The Pledgor: UNITEL VIDEO, INC. By: /s/ George Horowitz ----------------------------- Title: CHIEF FINANCIAL OFFICER 555 West 57th Street New York, New York 10019 Attn: Barry Knepper, President Telecopy: (212) 581-7748 The Escrow Agent: PNC BANK, NATIONAL ASSOCIATION By: /s/ Richard Ranii ----------------------------- Title: Vice President One Oliver Plaza, 27th Floor Pittsburgh, Pennsylvania 15265 Attn: Corporate Trust Division Telecopy: (412) 762-8226 17. Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written. The Agent: HELLER FINANCIAL, INC., as Agent By: /s/ Jerome P. Sepich ----------------------------- Title: Vice President 500 West Monroe Chicago, Illinois 60661 Attn: HBC Portfolio Manager Telecopy: (312) 441-7026 The Pledgor: UNITEL VIDEO, INC. By: ----------------------------- Title: 555 West 57th Street New York, New York 10019 Attn: Barry Knepper, President Telecopy: (212) 581-7748 The Escrow Agent: PNC BANK, NATIONAL ASSOCIATION By: ----------------------------- Title: One Oliver Plaza, 27th Floor Pittsburgh, Pennsylvania 15265 Attn: Corporate Trust Division Telecopy: (___) _________ EX-10.(DD) 8 DEED OF LEASE DATED JUNE 16, 1997-OLYMBEC & UNITEL Exhibit 10(DD) DEED OF LEASE BETWEEN OLYMBEC CONSTRUCTION INC. (THE "LESSOR") AND UNITEL (THE "LESSEE") 5584 Cote de Liesse Suite # 208, Town of Mount Royal, Quebec, H4P 1A9. TABLE OF CONTENTS 1. LEASED PREMISES .................................................... 1 2. TERM OF LEASE ...................................................... 1 3. INTENTION OF THE PARTIES ........................................... 1 3.1 RENT ............................................................... 2 3.2 FREE RENTAL ........................................................ 2 3.3 WATER TAX, BUSINESS TAX AND SURTAX ................................. 2 3.2.1 Taxes .............................................................. 3 3.2.2 Operating Expenses ................................................. 3 3.2.3 Charges ............................................................ 4 3.5 CONTEST OF TAXES AND ASSESSMENTS ................................... 5 4. USE OF PREMISES .................................................... 6 5. UTILITIES .......................................................... 6 6. MAINTENANCE AND REPAIRS ............................................ 6 7. SUBLETTING AND ASSIGNMENT .......................................... 6 8. ODOURS, DUST OR NOISE .............................................. 7 9. INSPECTION AND REPAIR, CHARGE, ADDITIONS, IMPROVEMENTS ............. 7 10. INSURANCE .......................................................... 8 11. IMPROVEMENTS AND ALTERATIONS BY LESSEE ............................. 9 12. DESERTION AND SURRENDER ............................................ 11 13. EXPIRATION OF LEASE ................................................ 11 14. COMPLIANCE WITH LAWS AND REGULATIONS ............................... 11 15. FAILURE OF LESSEE TO PERFORM ....................................... 12 16. RENT COLLECTION .................................................... 12 17. FURNISH STATEMENT .................................................. 12 18. DEFAULT ............................................................ 12 19. SIGNS .............................................................. 13 20. ENVIRONMENT ........................................................ 13 21. ASSIGNMENT OR HYPOTHECATION BY LESSOR .............................. 14 22. CONDITION OF PREMISES .............................................. 14 23. WAIVER ............................................................. 14 24. NOTICES AND DEMANDS ................................................ 14 25. DESCRIPTIVE HEADINGS ............................................... 15 26. INTERPRETATION ..................................................... 15 27. CHANGES TO BE IN WRITING ........................................... 15 28. HEATING ............................................................ 15 29. EXPROPRIATION ...................................................... 15 30. EXTENSIONS ......................................................... 16 31. PERMITS, ETC ....................................................... 16 32. RULES AND REGULATIONS .............................................. 16 33. OUTSIDE AREAS & PARKING ............................................ 16 34. RENTAL TAX ("G.S.T/Q.S.T.") ........................................ 17 35. POST-DATED CHEQUES ................................................. 17 36. LESSORS LEGAL HYPOTHEC ............................................. 17 37. COMPENSATION, CLAIMS AND SET-OFF ................................... 17 38. LEASE ENTIRE AGREEMENT ............................................. 17 39. INDEMNIFICATION .................................................... 17 40. FORCE MAJEURE ...................................................... 18 41. SPECIAL CONDITIONS ................................................. 18 41.1 Security Deposit ................................................... 18 41.2 Lessor's Responsibility ............................................ 18 41.3 Improvements ....................................................... 18 41.4 Real Estate Broker ................................................. 19 42. LANGUAGE ........................................................... 19 LEASE AGREEMENT BETWEEN: OLYMBEC CONSTRUCTION INC., having its principal place of business in the Province of Quebec at 5584 Cote de Liesse, Suite 208, in the Town of Mount Royal, H4P 1A9. (hereinafter called the "Lessor") Of the first part, AND: UNITEL, a corporation duly constituted and having a place of business in the Province of Quebec, at 800 Rene Levesque Blvd., Suite 1100, in the city of Montreal, H3B 1X9 herein acting and represented by Brian Harty, its Vice President and General Manager, duly authorized as he herein declares, (hereinafter called the "Lessee") Of the second part, THE PARTIES HEREBY AGREE AS FOLLOWS: 1. LEASED PREMISES The Lessor hereby leases unto the Lessee and the Lessee hereby takes and accepts the Premises, outlined on Schedule "A" attached hereto, having rentable area of approximately EIGHT THOUSAND SQUARE FEET (8,000 square feet) (which includes an allowance for service areas), representing 11.92% of the total rentable area of the Building of which the Leased Premises (hereinafter the "Premises") forms part of the Building owned by the Lessor, bearing Civic Number 3540 Griffith Street, in the City of Saint-Laurent, Province of Quebec, H4T 1A7. 2. TERM OF LEASE The term of this Lease shall be for a period of five (5) years and one (1) month, and shall commence on the 1st day of June 1997 and shall terminate on the 30th day of June 2002, unless sooner terminated under the provisions hereof. Lessee shall have occupancy of the Premises on June 1st, 1997 (hereinafter the "Date of Occupancy"). 3. INTENTION OF THE PARTIES The Lessor and Lessee hereby agree that the term "net net" as herein applied is intended to mean that the rent provided for herein shall be a net net rent to the Lessor for the term of the Lease, and that the Lessee shall be responsible during the term of the Lease for all costs, charges, expenses and outlays of any nature whatsoever arising from or relating to the Premises, or the contents thereof, excepting Lessor's income tax in respect of income received from leasing the Premises and any payments made in connection with any mortgage or mortgages affecting the Premises, and the Lessee shall pay all charges, impositions, costs and expenses of every nature and kind relating to the Premises. 3.1 RENT Lessee covenants and agrees to pay to Lessor in lawful money of Canada without deduction, abatement or set-off, the following rent: (i) for the period starting June 1, 1997 and terminating June 30, 2002, an annual net net rental of $4.25 per square foot, plus G.S.T. and P.S.T. (hereinafter referred to as the "minimum rental"); The minimum monthly rental shall be payable in advance on the first day of each month. In addition to the minimum monthly rental, Lessee shall have the obligation to pay to Lessor in virtue of the terms and conditions of this present Lease the following additional rental: (i) Proportionate share of Taxes, the whole, as more fully defined in Article 3.2.1 of the present Lease; (ii) Proportionate share of Operating Expenses, the whole, as more fully defined in Article 3.2.2 of the present Lease; (iii) All other sums that may be payable by Lessee in virtue of the terms and conditions contained in the present Lease. The rent as herein provided shall be paid to Lessor and/or its nominee at the Office of the Lessor, 5584 Cote de Liesse, Suite: 208, Town of Mount Royal, Qc., or at such other place in Canada as shall be designated by Lessor in writing to Lessee. No tacit renewal - Should the Lessee continue to occupy the Premises after the expiry of the term without a written agreement there shall be no tacit renewal and the Lessee shall pay the Lessor rent and all other charges for the period of occupancy as set out in this Lease plus fifty percent (50%) thereof, without prejudice to such further damage claims as may be available to the Lessor against Lessee. However, the Lessee does not have the right to such occupancy beyond the expiry of the term. 3.2 FREE RENTAL Notwithstanding the provisions contained in Article 3.1 of the Lease, there shall be no minimum rental and no operating expenses payable by the Lessee for the month of June 1997; however, during the free rental period Lessee shall be responsible for surtax and utility charges. 3.3 WATER TAX, BUSINESS TAX AND SURTAX The Lessee shall pay surtax, business taxes & water taxes which may be levied or imposed upon the Premises during the said term, and also all other rates, taxes, licenses, permits fees, public charges, duties, penalties, and all other legal impositions of any kind which may be levied during the term of this Lease or any renewal thereof against the Premises, the Lessee, the occupant or the property or fixtures placed by the Lessee, or which are or may be payable by the Lessee as the tenant and occupant of the premises under the provisions of the charter and/or by-laws of the City of Montreal and of any other laws, whether provincial or federal. Should the mode of collecting taxes, surtax, business taxes or any other levies or assessments be such that the Lessor shall be required to pay for the same, the Lessee undertakes to repay the Lessor within seven (7) days of being called upon to do so, the amount of the benefit derived from such payment by the Lessor. In the event that the surtax is abolished then no abatement in the rent shall apply and any other new taxes imposed shall be the sole responsibility of the Lessee. 2 3.2.1 Taxes The Lessee shall be responsible for: For the purpose of this Article: (i) "real estate taxes" or "taxes" (hereinafter referred to as "taxes") means all taxes, special or general, property taxes, municipal taxes, school taxes, ecclesiastical taxes, Montreal Urban Community taxes, rates including local improvement rates, duties and assessments that may be levied, rated, charged or assessed against the Building and/or all equipment and facilities thereon or therein, and/or the Land relating thereto and/or any property on or in the Building owned or brought thereon or therein by Lessor, by Lessee and any and every of its assignees or sublessees, whether such taxes, rates, duties or assessments are charged by a municipal, parliamentary, school, or any other body of competent jurisdiction. (ii) "proportionate share" means the proportion resulting from the percentage obtained from the ratio between the total area of the Premises and the total area of the Building. Within thirty (30) days of receipt from the Lessor of a written statement of the taxes set out in this paragraph, the Lessee will in each and every year during the term of this Lease pay to the Lessor as additional rental, whether they be special or general, its proportionate share of all taxes, property taxes, municipal taxes, school taxes, ecclesiastical taxes, Montreal Urban Community taxes, rates including local improvement rates, duties and assessments that may be levied, rated, charged or assessed against the Building and/or all equipment and facilities thereon or therein, and/or the Land relating thereto and/or any property on or in the Building owned or brought thereon or therein by Lessor, by Lessee and any and every of its assignees or sublessees, whether such taxes, rates, duties or assessments are charged by a municipal, parliamentary, school, or any other body of competent jurisdiction. If the system of real estate taxation shall be altered or varied and any new tax or levy shall be levied or imposed on the Building and/or the Land relating thereto and/or the revenues therefrom and/or the Lessor in substitution for and/or in addition to the real estate taxes presently levied or imposed on immoveables in the City or Urban Community in which the Building and the said Land are situated, then any such new tax or levy shall be included within the definition of real estate taxes or taxes as contained in this Article and the provisions of this paragraph shall apply mutatis mutandis. The said taxes, property taxes, municipal taxes, school taxes, ecclesiastical taxes, Montreal Urban Community taxes, rates including local improvement rates, duties and assessments in respect of the first and last years of the term hereby leased shall be adjusted between Lessor and Lessee. 3.2.2 Operating Expenses The Lessee shall be responsible for: For the purpose of this Article: (i) "operating expenses" means any and all expenses incurred by the Lessor in connection with the operation, cleaning, maintenance, or repair of the Building and the Land, including, but without limiting the generality of the foregoing: casualty, liability, rental and other insurance premiums; repairs and replacements to, and maintenance, management and operation of the Building and the Land and the systems and facilities serving the Building and the Land; replacement and improvements relating to all common areas forming part of the Building and the Land relating thereto, including the parking areas, roadways, sidewalks; the heating and air-conditioning systems serving the Building (except as charged to tenants); roof 3 repairs; window and brick repairs; snow removal; gardening; sprinkler alarm costs and maintenance thereof; landscaping; repair and maintenance of grounds; service of management fees and expenses; depreciation of equipment used for management and maintenance of the Building; general overhead; administrative expenses; legal and auditing fees with regard to administration and operation of the Building and Land; total or partial remuneration of all personnel, including management, supervisors and salaried employees responsible for the maintenance, cleaning, management and administration of the Building and Land, including all employer contributions for employment insurance, C.S.S.T. premiums, pension premiums, vacation pay and premiums; and all other costs incurred in the administration, repairs and maintenance of the Building and Land; provided that operating expenses shall not include repairs or replacements occasioned by structural defects or structural weaknesses; and an administrative fee equal to five percent (5%) of the aggregate of the surtaxes, charges (as hereinafter defined) and minimum monthly rentals. (ii) "proportionate share" means the proportion resulting from the percentage obtained from the ratio between the total area of the Premises and the total area of the Building. The Lessee will in each and every year during the term of this Lease pay to the Lessor as additional rental operating expenses as hereinabove defined. 3.2.3 Charges For the purpose of this Article: (i) "charges" means the aggregate of all taxes and operating expenses incurred by the Lessor with respect to the Building and the Land relating thereto in the year in question. (ii) "proportionate share" means the proportion resulting from the percentage obtained from the ratio between the total area of the Premises and the total area of the Building. Notwithstanding anything to the contrary herein contained, the Lessor may, prior to the commencement of each year, or so soon thereafter as is reasonably possible, furnish to the Lessee an estimate of the charges as is herein defined for such year; and the Lessee shall pay to the Lessor on the first day of each month in advance during the year, additional rental equal to one twelfth (1/12) of the Lessee's share of the estimated charges. Should the first year of the term not commence on the first day of January, or should the last year of the term not terminate on the 31st day of December, then prior to the commencement of the term, or of the last year of the term, as the case may be, or as soon thereafter as is reasonably possible, the Lessor shall furnish to the Lessee an estimate of the charges for the part of the year in question; and the Lessee shall pay to the Lessor on the first day of each month in advance during the part of the year in question forming part of the term, additional rental equal to the Lessee's share of the estimated charges divided by the number of months during the part of the year in question. After the end of the year, or after the end of the term, in the case of the final year, the Lessor shall furnish the Lessee with a financial statement setting forth the actual charges for such year (or part of the year, as the case may be) and the Lessee shall pay to the Lessor forthwith an amount equal to its share of the excess of the actual charges over the estimated charges. Should the estimated charges exceed the actual charges, the Lessee shall receive credit for its share of the excess. The appropriate adjustments shall be made between the parties hereto within thirty days after the date on which the Lessor has furnished the Lessee with such statement. 4 Upon final determination of the actual amounts payable by Lessee the parties shall adjust any difference between the estimated amounts so paid and the actual amounts payable. 3.3 Upon any termination of this Lease as a condition precedant to being permitted by Lessor to vacate the Premises, Lessee shall, in addition to all other amounts as it is obliged to pay hereunder, pay to Lessor such amount as is estimated by Lessor to represent that portion of the aggregate amount of taxes and operating expenses payable and to become payable by Lessee in virtue of this present Lease, as had not yet been paid. 3.4 Operating Expenses, Taxes and Surtax 1997 3.4.1 The operating expenses and taxes for 1997 to be paid by the Lessee are estimated to be $1.35 per square foot, plus G.S.T. and P.S.T. 3.4.2 The surtax for 1997 to be paid by the Lessee is estimated to be $0.65 per square foot, plus G.S.T. and P.S.T. 3.5 CONTEST OF TAXES AND ASSESSMENTS Lessee shall not be in default hereunder in respect of the payment of any tax, rate, charge, assessment, duty or license fee which Lessee is required by any provision hereof to pay so long as Lessee shall in good faith contest at its own expense the same by appropriate proceedings to prevent the collection thereof; Lessee may file in the name of Lessor, with Lessor's consent, which consent shall not be withheld unreasonably, or in the name of Lessee, all protests or other instruments and institute and prosecute proceedings for the purpose of such contest and Lessor agrees to execute, on the request of Lessee and at Lessee's expense, all necessary deeds and documents for the purpose of such contest. In the event of any such contest, Lessee shall, at the request of Lessor, deposit with Lessor an amount sufficient, in the opinion of Lessor, to fully secure the payment of such tax, rate, charge, assessment, duty or license fee together with any interest, fine or penalty and to prevent the sale or seizure of the Premises by reason of nonpayment. If at any time during the pendency of any such contest, it shall be, in Lessor's sole judgement, necessary or proper to prevent the sale or seizure of the Premises or any part thereof, or to prevent the sale or seizure of the Premises by the holder of any lien, prior right or charge of any mortgage or hypothec affecting the Premises by virtue of the nonpayment of such tax, rate, charge, assessment, duty or license fee, or if such nonpayment shall constitute a default under the terms of any such lien, prior right, charge, mortgage or hypothec Lessor may, after written notice to Lessee, apply the sums so deposited or so much thereof as may be required to prevent such default. If the amount so deposited as aforesaid shall exceed the amount of such payment the excess shall be returned to Lessee, or in case there shall be any deficiency, the amount of such deficiency shall be promptly paid by Lessee to Lessor and if not so paid, shall be forthwith collectible as additional rental. Notwithstanding the foregoing, Lessor shall have the right to contest the taxes levied against the Building and the Land relating thereto and then Lessee shall contribute to the reasonable legal costs of such contestation in the proportion that the area of the Premises bears to the total leasable area of the Building of which the Premises form part. The Lessee shall receive the benefits in the same proportion of Lessor's successful contestation. Lessor shall have no obligation to contest, object to or litigate the levying or imposition of any real estate taxes and may settle, compromise, consent to, waive or otherwise determine in its discretion any real estate taxes without notice to, consent or approval of Lessee. Nothing contained in this Article shall be construed at any time so as to reduce the monthly installments of rent payable under the provisions of the present Lease. 5 4. USE OF PREMISES The Premises shall be used for general offices and repairs of equipment, and for no other purpose whatsoever. Lessee shall upon commencement date and throughout the term of the Lease, be open for business with adequate staff and equipment and shall continuously, actively and diligently operate and conduct business on the whole of the Premises in an up-to-date and reputable manner. Lessee will conduct its business in the Premises in good faith during normal business hours. 5. UTILITIES The Lessee shall pay for its electricity consumed in the Premises (electricity includes, without limitation any electricity used for heating and/or air conditioning the Premises). Lessee shall also pay for its water, heat, gas, telephone and all public utilities with respect to the Premises. 6. MAINTENANCE AND REPAIRS Notwithstanding the provisions of Articles 1854 and 1864 of the Quebec Civil Code, the Lessee, at its own expense shall operate, maintain and keep the Premises including all facilities, equipment and services, both inside and outside, available to the Lessee exclusively in such good order and condition both inside and outside, as they would be kept by a careful owner and shall promptly make all needed repairs and replacements to the Premises (save and except for repairs caused by structural weaknesses and latent defects or negligent acts or omissions of the Lessor or of others for whom the Lessor is in law responsible) which a careful owner would make, including without limitations, broken glass (regardless of how it was broken), the water, gas, drain and sewer connections, pipes and mains, electrical wiring, water closets, sinks and accessories thereof, the heating system, the air-conditioning system, if any, and all equipment belonging to or connected with the Premises or used in its operation. The Lessee shall furthermore pay the cost of the expense required to keep the exterior of the Building in good order and condition and to keep the sidewalks, curbs, lawns and grounds in and about the Building in good condition, clean and free of snow and ice. Such cost is included in the operating expenses. 7. SUBLETTING AND ASSIGNMENT It is agreed between the parties herein, that in the event the Lessee herein desires to assign or sublet the Premises herein or any part therof, it shall give to the Lessor a thirty (30) day written notice of its intention to sublet during which time the Lessor shall have the option to cancel the Lease is Lessee indicates its intention to sublet the entire Premises or that part which the Lessee desires to sublet. However, in the event the Lessor fails to respond during the said thirty (30) day period, the Lessee shall then have the right to sublet the Premises or part thereof sublet to the following: The Lessee shall have the right to assign the Lease or sublet the Premises or any part thereof subject to the Lessee obtaining the prior written consent of the Lessor, which consent shall not be unreasonably withheld. The Lessee shall submit to the Lessor in its notice to sublet the name of the proposed assignee or sublessee at least five (5) clear business days prior to the date upon which the Lessee desires to assign or sub-let the Premises or part thereof. In the event of any such assignment or subletting, the Lessee shall remain jointly and severally responsible with any such sublessee of all other terms, clauses and conditions of the contemplated lease, waiving the benefit of division and discussion. 6 The Lessee may sublet the Premises or assign the Lease to a parent, subsidiary or affiliate company without seeking the consent of the Lessor provided, however, that such sublessee or assignee shall remain bound jointly and severally (solidarily) with the Lessee for all the terms and covenants of this Lease and provided further that Lessee shall notify Lessor in writing prior to such sublet or assignment. 8. ODOURS, DUST OR NOISE Lessee warrants that no noxious odors, dust or noise will emanate from the Premises as a result of the operations conducted by the Lessee thereon. Accordingly, the Lessee agrees that should such odor, dust or noise conditions exist, it will at its own cost and expense take such steps as may be necessary to rectify the same, and such steps may include the installation of equipment, which installation and purchase of equipment shall be at the cost and expense of the Lessee, and which equipment must be in conformity with provincial legislation and regulations and municipal by-laws and regulations. However, if the Lessee shall fail to commence the rectification of the situation within seven (7) days of receipt of written notice and complete the same within a reasonable time after notice is received by the Lessee from the Lessor, then the Lessor may at its option proceed forthwith to take reasonable measures to correct the situation (which reasonable measures shall not include the installation or purchase of equipment as hereinabove mentionned), and the Lessor shall be entitled to recover the cost thereof from the Lessee forthwith upon demand, such cost to be considered as additional rental hereunder or declare this Lease null and void, terminated and no longer binding the parties. These recourses may be cumulative at the option of the Lessor. 9. INSPECTION AND REPAIR, CHARGE, ADDITIONS, IMPROVEMENTS Lessor and its agent shall have the right, at all reasonable business hours, Monday to Friday, during the term of this Lease to enter the Premises to examine the condition thereof and to regulate, repair, install electrical, plumbing or otherwise, and to ascertain whether Lessee is performing its obligations hereunder, and Lessee shall make any repairs which Lessee is obliged to make pursuant to the terms of this Lease. In the case of an emergency, the Lessor shall have the right to enter the Premises at any time. If Lessee fails to make any such repairs within thirty (30) days after written notice from Lessor requesting Lessee to do so, provided that such repairs may reasonably be made within the said period, Lessor may, without prejudice to any other rights or remedies it may have, make such repairs and charge the reasonable cost thereof to Lessee. Nothing in this Lease shall be construed to obligate or require Lessor to make any repairs for which the Lessee is responsible hereunder but Lessor shall have the right at any time to make emergency repairs without prior notice to Lessee and charge the reasonable cost thereof to Lessee. Any costs chargeable to Lessee hereunder shall be payable forthwith on written demand as additional rental and shall bear interest at the rate of four percent (4%) above the prime rate as set by the Royal Bank of Canada from the date of such written demand, or twenty-four percent (24%) per annum, whichever is the greater. Moreover, Lessor may, but shall not be obliged, to make any repairs of an urgent nature without prior notice to Lessee, provided that the Lessor advises the Lessee thereof as soon as is reasonably possible thereafter, but for the account of Lessee and shall charge all reasonable costs to Lessee which costs shall be payable forthwith to Lessor on written demand as additional rental and shall bear interest in the manner hereinbefore provided. In addition to the foregoing, Lessor shall have the right to install and maintain in the Premises whatever is reasonable, useful or necessary for the equipment, use and convenience of the Building or other tenants, and Lessee shall have no claim against Lessor in respect thereof provided that same does not interfere with Lessee's enjoyment of the premises. 7 10. INSURANCE During the whole of the said term, the Lessee will pay as additional rental all premiums with respect to insurance to be placed by Lessor at competitive rates, which premiums are included in the operating expenses herein, and described as follows: (i) Fire, Extended Coverage and Malicious Damage insurance for the full insurable value procurable at the time, of the Building, its improvements and equipment and in addition upon the full annual rental income thereof; (ii) Broad Boiler and Unfired Pressure Vessels insurance, including repair or replacement and rental income coverage in an amount reasonably satisfactory to Lessor; (iii) Such other insurance as institutional lenders may require or as it may be or may become customary for owners of property to carry as respects loss of or damage to the Premises or liability arising therefrom, specifically including any insurance required by reason of the introduction by or on behalf of Lessee and/or its subtenants of any radioactive materials or substances into the Premises or exposing them. In the event of the failure of the parties hereto to agree on the replacement value of the Building, its improvements and equipment, the same shall be determined by an appraisal company to be agreed upon between Lessor and Lessee, which has at least ten (10) years experience and the cost of said appraisal shall be born equally by Lessor and Lessee. Lessee will pay the amount of any increase in insurance premiums on the whole of the Building of which the Premises form part if such increase is caused by Lessee's operations in the Premises. Lessee covenants that nothing will be done or omitted to be done whereby any policy shall be cancelled or the Premises rendered uninsurable. The Lessee shall, at its expense, procure and maintain at all times during the continuance of this Lease, such insurance as will protect the Lessee and the Lessor from any claim for personal injury including death, and for property damage in any way arising out of or attributable to the exercise by the Lessee, or others, of any of the privileges or rights herein granted. This insurance shall provide a combined limit of two million dollars ($2,000,000.00) for personal injury and property damage and shall extend to cover any liability assumed by the Lessee under this Lease. The Lessee shall forward to the Lessor a certificate of insurance and evidence of renewals thereof during the continuance of this Lease. The Lessee hereby agrees and understands that the placing of such insurance shall in no way relieve the Lessee from any obligation assumed under this Lease. In the event of a forced entry into the Premises any damages caused to the immoveable including but not limited to broken windows, walls and/or roofs shall be the sole responsibility of the Lessee to repair or replace said damage. If these repairs are not performed within a seventy-two hour period from the time of the incident then the Lessor may at its option repair the damages and charge the Lessee for the work including an administration fee of ten (10%) percent due immediately. Provided, and it is hereby expressly agreed that if and whenever during the term hereby leased, the Premises shall be destroyed or damaged by fire, lightning or tempest, or any of the perils insured against under the provisions of this Article 10 or otherwise, then and in every such event: 8 (a) If the damage or destruction is such that the Premises are rendered wholly unfit for occupancy or it is impossible or unsafe to use and occupy them and if in either event the damage cannot be repaired with reasonable diligence within one hundred and eighty (180) days from the happening of such damage or destruction, then Lessor may within five (5) days next succeeding the destruction terminate this Lease by giving to the Lessee notice in writing of such termination, in which event this Lease and the term hereby leased shall cease and be at an end as of the date of such destruction or damage and the rent and all other payments for which Lessee is liable under the terms of this Lease shall be apportioned and paid in full to the date of destruction or damage; in the event that Lessor does not terminate this Lease, the Lessor shall repair the Premises with all reasonable diligence and the minimum rental and additional rental hereby reserved shall abate from the date of the happening of the damage until the damage shall be made good to the extent of enabling Lessee to use and occupy the Premises plus an additional thirty (30) day period to permit the Lessee to refixture the Premises. (b) If the damage be such that the Premises are wholly unfit for occupancy, or if it is impossible or unsafe to use or occupy them, but if in either event the damage can be repaired with reasonable diligence within one hundred and eighty (180) days of the happening of such damage, then the minimum rental and additional rental hereby reserved shall abate from the date of the happening of such damage until the damage shall be made good to the extent of enabling Lessee to use and occupy the Premises plus an additional thirty (30) day period to permit the Lessee to refixture the Premises and Lessor shall repair the damage with all reasonable speed. (c) If, the damage can be made good as aforesaid, within one hundred and eighty (180) days of the happening of such destruction or damage and the damage is such that the Premises are capable of being partially used for the purposes for which they are hereby leased, then until such damage has been repaired the minimum rental and additional rental shall abate in the proportion that the part of the Premises rendered unfit for occupancy bears to the whole of the Premises and Lessor shall repair the damage with all reasonable speed. Notwithstanding the above, should the Building and/or Premises be totally destroyed then Lessor shall have the right to relocate Lessee in comparable space in the vicinity of the Building within a reasonable time period but in no case later than the dates mentioned above. 11. IMPROVEMENTS AND ALTERATIONS BY LESSEE The Lessee shall have the right to make at its own expense, only with the prior written consent of the Lessor, which consent shall not be unreasonably withheld, additions, alterations and changes in the Premises (hereinafter referred to as the "work"), provided the following conditions are complied with: (i) Lessee shall furnish to Lessor plans and specifications showing in reasonably complete detail the work proposed to be carried out and the estimated cost thereof and Lessor shall approve or reject such plans and specifications within thirty (30) days after receipt of the same. If such plans and specifications are approved, all work shall be carried out in compliance with the same; (ii) Lessee shall obtain, at its own expense, all necessary permits and authorizations from the governmental authorities having jurisdiction over such work; 9 (iii) Lessee shall provide general comprehensive liability insurance for the mutual benefit of the Lessor and the Lessee expressly covering hazards due to such work, either by issuance of separate policies or endorsements to policies otherwise required to be maintained by the Lessee under this Lease. Such insurance shall name the Lessor as the insured and shall furthermore stipulate that the policy shall not be cancelled without a prior 15 day written notice being sent by the insurer to the Lessor; the Lessee undertakes to furnish written evidence to the Lessor as to its compliance with the foregoing; (iv) The value of the Premises shall not, as a result of the work proposed to be carried on by Lessee, be less than the value of the Premises before the commencement of such work and the Lessor shall be the sole judge of such value; (v) All work shall be carried out with reasonable dispatch and in a good workmanlike manner and in compliance with all applicable permits, authorizations and building and zoning bylaws and with all regulations and requirements of all competent authorities having jurisdiction over the Premises; (vi) The Premises shall at all times be free of all conditional bills of sale, pledges, legal construction hypothecs, prior rights, and other similar liens and charges; (vii) The Lessee shall obtain from each contractor, subcontractor, workman, supplier of materials and architect for the work a complete waiver of liens, and legal hypothecs which it might otherwise have or become entitled to against the Building and/or Land; (viii) If at any time during the construction or performance of such work any legal hypothec or lien is placed on or filed against the Building and/or the Land on account of work or materials furnished to or at the request of the Lessee, the Lessee, shall within five (5) days after notice of the filing of such lien or legal hypothec, cause same to be discharged by payment, bonding or otherwise, provided same is to the satisfaction of the Lessor. If the Lessee shall fail to have any such lien or legal hypothec discharged within the said five (5) days, the Lessor may, but shall not be obligated to, cause same to be discharged by payment, bond or otherwise, the whole without prejudice to any other rights and recourses available to the Lessor in the circumstances. Any amount paid or expenses incurred by the Lessor in connection with the discharge of such legal hypothec or lien by it shall be repaid to the Lessor by the Lessee upon demand and will be treated by the Lessor as additional rental under the present Lease; (ix) If the cost of any work shall be in excess of five thousand dollars ($5,000.00) as reasonably estimated by Lessor, Lessor may require Lessee to furnish security satisfactory to Lessor guaranteeing the completion of the work and the payment of the cost thereof free and clear of all conditional bills of sale, pledges, legal construction hypothecs, prior rights, and other similar liens and charges; (x) Lessee shall maintain Workmen's Compensation insurance covering all persons employed in connection with the work and shall produce evidence of such insurance to Lessor; (xi) Lessor shall not, for any reason whatsoever, be liable for any damage arising from or through any defects in the said work; 10 (xii) All work, when completed, shall be comprised in, and form part of the Premises and shall be subject to all the provisions of this Lease and Lessee shall not have any right to claim compensation therefore and the same shall not be removed by Lessee on termination of this Lease. 12. DESERTION AND SURRENDER The Lessee shall not leave the Premises unoccupied or vacant during the term of the Lease. Acceptance of the surrender of this Lease shall not be effective unless made in writing and signed by the Lessor. Acceptance of the keys shall not constitute acceptance of the desertion or surrender of the Premises. 13. EXPIRATION OF LEASE Lessee shall at the expiration or sooner termination of the term of this Lease peaceably surrender and yield up unto Lessor the Premises together with all buildings, alterations or erections which at any time during the term hereof shall be made therein or thereon in good repair and condition, subject to reasonable wear and tear only. Such wear and tear excludes carpet wear from caster chairs that have not been placed atop a plastic protective covering or covering of equal purpose. Notwithstanding the foregoing, at the termination of the Lease for whatever reason, the Lessee shall, if so required by the Lessor, remove all or specified additions, alterations and changes, and Lessee shall thereupon become obliged to restore the Premises to their original condition, save for such additions, alterations and changes as Lessor permits to remain, ordinary wear and tear excepted. Should Lessee not be required to remove the whole or any part of such additions, alterations and changes, they shall remain without any compensation being allowed to the Lessee for same. The Lessee shall at or prior to the expiration of the term hereof remove its moveable fixtures or other moveable articles belonging to or brought upon the Premises by the Lessee and the Lessee shall repair any damages caused by such removal. 14. COMPLIANCE WITH LAWS AND REGULATIONS The Lessee shall, at its own expense, promptly comply with the requirements of every applicable statute, law and ordinance and with every applicable lawful regulation or order with respect to the removal of any encroachment placed by the Lessee, or to the condition, equipment, maintenance, or use or occupation of the Premises, including the making of any alteration, addition in or to any structure upon, connected with or appurtenant to the Premises, whether or not such alteration be structural or be required on account of any particular use to which the Premises or part thereof may be put and whether or not such requirement, regulation or order be of a kind now existing or within the contemplation of the parties hereto; and shall comply with any applicable regulation, recommendation or order of the Canadian Fire Underwriters' Association, or any body having similar functions or any liability or fire insurance company by which the Lessor and/or the Lessee may be insured. 15. FAILURE OF LESSEE TO PERFORM If Lessee fails to pay when due any taxes, rates, insurance premiums, charges or debts which it owes or has herein covenanted to pay, Lessor may pay the same and shall be entitled to charge to Lessee the sums so paid and the Lessee shall be bound to pay them forthwith on written demand, as additional rental and Lessor, in addition to any other rights, shall have the same remedies and may 11 take the same steps for the recovery of all such sums as it might have and take for the recovery of rent in arrears under the terms of this Lease; all arrears of rent and any monies paid by Lessor hereunder shall bear interest at the rate of four percent (4%) above the prime rate as set by the Royal Bank of Canada from the date of such written demand, or twenty-four percent (24%) per annum, whichever is greater. Moreover, Lessor may demand such sums from the Lessee before payment by the Lessor, with interest at the rate charged by the Taxing Authority or other creditor in question. 16. RENT COLLECTION Should any rental payments under this Lease be unpaid for more than ten (10) days, or cheques covering same be returned by the bank, Lessee agrees to remit a further amount equivalent to fifteen percent (15.0%) of that late or returned payment to cover Lessor's administrative costs. Such additional sums shall be payable in addition to any judicial costs and fees which the Lessee is obliged to pay to Lessor's attorneys and in addition to any damage for which the Lessee may be liable to the Lessor. Such additional sums shall be deemed to be additional rental and may be collected as such. 17. FURNISH STATEMENT Lessee shall from time to time at the request of Lessor produce to Lessor satisfactory evidence of the due payment by Lessee of all payments required to be made by Lessee under this Lease. 18. DEFAULT The following shall be considered defaults under the terms of this Lease: (a) In the event that Lessee shall be in default under any provision of this Lease providing for the payment of rent or additional rental, and such default shall continue for ten (10) days after written notice thereof from Lessor to Lessee; or (b) In the event that Lessee shall be adjudicated a bankrupt or make any general assignment for the benefit of creditors, or take or attempt to take the benefit of any insolvency or bankruptcy legislation; or if a receiver or trustee be appointed for the property of Lessee, or any part thereof, or any execution be issued pursuant to a judgement rendered against Lessee or pursuant to this Lease, or if the estate of Lessee hereunder be transferred or pass to or devolve upon any other person or corporation by operation of law; or (c) In the event that Lessee shall be in default in observing any covenant herein contained and/or performing any of its obligations contained in this Lease (other than a default in the payment of rent or additional rental) or should any prior claim or legal hypothec be registered or made against the Premises as a result of any act or omission on the part of the Lessee, or should the Lessee or any other person at any time during the term of this Lease remove or try to remove from the Premises, without the written consent of the Lessor, any of the moveable property of the Lessee, except during the ordinary course of its activities or when replacement or renovation work is being done, and should any such default continue for fifteen (15) days after written notice specifying such default shall have been given to Lessee by Lessor, unless such default is incapable of being remedied with due diligence within such period of fifteen (15) days, in which case Lessee shall be entitled to such reasonable extension of time to enable such default to be remedied. 12 In the event of any default under the terms of this Lease, the Lessor without prejudice to any rights or remedies it may have hereunder or by law shall have the right to terminate this Lease forthwith upon written notice given to Lessee by Lessor. Lessee upon such a termination of this Lease shall thereupon quit and surrender the Premises to Lessor. The Lessor, its agents and/or servants, may immediately or at any time thereafter, re-enter the Premises and disposes Lessee, and remove any and all persons and any or all property therefrom whether by summary dispossession proceeding or by any suitable action or proceeding at law. The exercise by the Lessor of any right it may have hereunder or by law shall not preclude the exercise by the Lessor of any other right it may have hereunder or by law. In case of any termination resulting from a default of the Lessee pursuant to the terms of this Lease, or in case Lessee in the absence of such termination shall be dispossessed by or at the instance of Lessor in any lawful manner, rent for the then current month and for the six (6) months next succeeding the date of such termination or dispossession shall immediately become due and payable and this Lease shall immediately, at the option of the Lessor become forfeited and terminated, and the Lessor may, without notice or any form of legal process, forthwith re-enter upon and take possession of the Premises and remove the Lessee's effects therefrom, the whole without prejudice to and under reserve of all of the rights and recourses of the Lessor to claim any and all losses and damages sustained by the Lessor by reason of and arising from any default of the Lessee. 19. SIGNS Lessor Lessor shall have the right at all times during the term of this Lease to place upon the Land or Building a notice of reasonable dimensions and reasonably placed so as not to interfere with the business of the Lessee, stating that the Premises are for sale and for six (6) months prior to the termination of this Lease, Lessor shall have the right to place upon the Premises a similar notice that the Premises are for rent, and Lessee will not remove such notice or knowingly permit same to be removed. Lessor shall have the right to exhibit the Premises from time to time to any prospective mortgagee or purchaser or lessee (in case of lessee, only six (6) months prior to the termination of the Lease) during all reasonable business hours. Lessee The Lessee shall be entitled to install on the Premises such signs as are normally installed in connection with its business, provided such signs comply with municipal by-laws and are approved by the Lessor, which approval shall not be unreasonably withheld. Installation, if approved, will be at the sole expense of the Lessee. Any sign installed by the Lessee shall be maintained by it at its own expense. At the termination of the Lease any sign installed by the Lessee will be removed by Lessee, at its own cost, should Lessor request same. 20. ENVIRONMENT The Lessee hereby declares and agrees as follows: (a) that all activities carried on in the Premises shall conform to all laws and regulations respecting the environment; (b) that the property installed by the Lessee in the Premises shall be and shall remain free of any contamination or damage to the environment; 13 (c) that no complaint, suit, investigation or proceedings shall be taken relating to the activities of the Lessee; (d) that it shall inform the Lessor as soon as it becomes aware of any problem relating to the environment; (e) that it shall provide the Lessor with a copy of all its communications with any government official concerning environmental issues and a copy of all studies, reports or evaluations prepared by the Lessee, and in addition the Lessee consents to letting the Lessor communicate with such officials or appraisers and obtain information from them. 21. ASSIGNMENT OR HYPOTHECATION BY LESSOR Lessor declares that it may hypothecate or assign its rights under this Lease to a lending institution as collateral security for a loan to Lessor and in the event that such a hypothec or assignment is given and executed by Lessor and notification thereof is given to Lessee by or on behalf of Lessor, it is expressly agreed between Lessor and Lessee that this Lease shall not be cancelled or modified for any reason whatsoever without the consent in writing of such lending institution. Lessee hereby covenants and agrees that it will whenever reasonably required by Lessor and at Lessor's expense, consent to and become a party to any instrument or instruments permitting a mortgage, trust deed or hypothec to be placed on the Building and the Land relating thereto, or any part thereof of which the Premises are a part and/or on the rents from same, as security for any indebtedness covered by the said trust deed, mortgage or hypothec in order to subordinate this Lease to the said trust deed, mortgage or hypothec. However, no subordination by the Lessor shall have the effect of permitting the holder of any trust deed, hypothec or mortgage to disturb the Lessee's enjoyment of the Premises as long as the Lessee shall comply with the covenants and agreements to be kept and performed by it under this Lease. 22. CONDITION OF PREMISES The Lessee represents that it has examined and viewed the Premises and accepts same in their present condition, save and except for the Improvements outlined in Article 41.3 of the Lease. 23. WAIVER The failure of either party hereto to insist upon a strict performance of any of the agreements, terms, covenants and conditions hereof shall not be deemed a waiver of any rights or remedies that such party may have and shall not be deemed a waiver or subsequent breach or default in any such agreements, terms, covenants and conditions. 24. NOTICES AND DEMANDS Any notice or demand given by Lessor to Lessee or Lessee to Lessor shall be deemed to be duly given if served upon Lessee or Lessor in accordance with the Code of Civil Procedure of Quebec, or if mailed by prepaid registered mail to: (a) LESSOR: (5584 Cote de Liesse Road Suite # 208, Town of Mount Royal, Quebec, H4P 1A9) (b) LESSEE: (at the Premises). Either of the parties hereto may, by notice in writing to the other, change the address to which any notice or demand intended for the party giving such notice shall be addressed. 14 25. DESCRIPTIVE HEADINGS The descriptive headings of this Lease are inserted for convenience in reference only and do not constitute a part of this Lease. 26. INTERPRETATION This Lease shall be constructed and governed by the laws of the Province of Quebec. Should any of the provisions of this Lease and/or its conditions be illegal or not enforceable under the laws of the Province of Quebec, it or they shall be considered severable and the Lease and its conditions shall remain in force and be binding upon the parties as though the said provisions or conditions had never been included. Words importing the singular number only shall include the plural and vice versa and words importing the masculine gender shall include the feminine gender and words importing persons shall include firms and unless the contrary intention appears, the words "Lessor" and "Lessee" wherever they appear in this Lease shall mean respectively "Lessor, its executors, administrators, successors and/or assigns", and "Lessee, its executors, administrators, successors and/or assigns" and if there is more than one Lessee or Lessor or the Lessee or Lessor is a female person or a corporation, this Lease shall be read with all grammatical changes appropriate by reason thereof, and all covenants, liabilities and obligations shall be joint and several (solidary). 27. CHANGES TO BE IN WRITING No assent or consent or waiver or amendment or addendum or change of any part of this Lease shall be deemed or taken as made and legally binding the Lessor or the Lessee unless the same be done in writing and signed thereon by the Lessor. Failure on the part of the Lessor to avail itself of any of the provisions of this Lease shall in no manner constitute a waiver, modificiation or renunciation of the Lessor's rights stipulated in this Lease. 28. HEATING Lessee shall suitably heat the Premises at its own cost and expense. The freezing of any water, heating, sprinklers or other pipes or radiators caused by the failure of the Lessee to take necessary precautions to prevent same, shall be the direct responsibility of the Lessee, and the Lessee agrees to indemnify and save harmless the Lessor from any and all causes of actions and demands whatsoever which may arise as a result of any damage by water leaking from the Lessee premises, so caused, including and not limiting blocked toilets, broken pipes, clean up costs, removal of debris and damaged ceilings, floors and walls. 29. EXPROPRIATION In the event that all or part of the Premises are expropriated, homologated or requisitioned by any governmental body or agency or public utility (amongst others), which would prevent the use or occupation of the inside floor space of the Building (which forms the major part of the Premises), in whole or in part, then the Lessee shall be entitled to a diminution of the rental payable hereunder during the period and for the area of eviction only. Such diminution of rent shall be reckoned from the date the Lessee is forced to vacate the inside floor space and shall be calculated on a prorata basis, the whole without any other claims by the Lessee against the Lessor for any loss or damages occasioned by said eviction and/or loss of use. 15 30. EXTENSIONS The Lessor shall have the right at its option and from time to time during the Lease term to make extensions and/or additions and/or to add one or more additional floors or storeys onto all or part of the Building comprising the Premises and this, only if requested by the Lessee in writing. In the event the Lessor exercises said option the Lessee agrees to permit the Lessor to install and/or extend and/or add all the required improvements including supports, beams, wiring, piping, stairways, elevators, ramps, vents, ducts, shafts and openings for view or light and the like and to close all borrowed lights and the windows and openings which may be required to be closed as a consequence of such construction, the whole without any claims for disturbance and/or inconveniences and the like which may be caused to the Lessee, provided always that the required work is carried out within a reasonable delay and that this clause shall not absolve or release the Lessor from liability in respect for damages or any loss caused to the Lessee as a consequence of any negligence of the Lessor, its employees or representatives. If the Lessee loses the use of any part of the Premises during the making of such additions and/or extensions the Lessee shall be granted a proportionate rent reduction as compensation for loss of use (during the period and for the area of loss of use only), all of the foregoing without any other claims by the Lessee against the Lessor for damage and loss of use. 31. PERMITS, ETC. The Lessee shall obtain all necessary permits and licenses required for the occupancy and carrying on of its business, the Lessor making no warranties whatsoever regarding permits and licenses, which may be required by the Lessee. Should the Lessee fail to obtain any required permit and/or license, it shall remain bound to perform its obligations under the present Lease. 32. RULES AND REGULATIONS The Lessor shall have the right to make reasonable rules and regulations, provided that same are in accordance with the spirit and intent of this Lease, at its discretion and provided that the said rules and regulations are necessary for the safety, care, cleanliness and proper administration of the Building and/or the Premises, and for the preservation of good order therein, and the same shall be observed and performed by the Lessee and by the clerks, servants, employees, agents and customers of the Lessee, and all such rules and regulations now or hereafter to be established by the Lessor as herein provided shall form part of this Lease as if now set forth at length herein. 33. OUTSIDE AREAS & PARKING The Lessee shall not use any part of the exterior parking and loading areas or any other areas outside the Premises for any purpose other than daytime parking, garbage removal, shipping or receiving. The Lessee shall have the right to occupy eight (8) parking spaces in front of the Premises. 34. RENTAL TAX ("G.S.T/Q.S.T.") The Lessee agrees to pay and discharge, to the entire exoneration of the Lessor, any sales tax, rental tax, value added tax or any similar levy or duty or any replacement or modification thereof (herein collectively referred to as the "Tax") that may be imposed upon the rental payable by the Lessee to the Lessor (other than income tax on such rental, and/or any tax on capital which shall be payable by the Lessor), whether such Tax is imposed upon the Lessor or the Lessee. 16 35. POST-DATED CHEQUES If requested, the Lessee shall provide the Lessor on the first day of each Lease year with 12 postdated cheques dated the first day of each of the twelve subsequent months, each representing 1/12 of the minimum monthly rental and additional rental as described herein. 36. LESSOR'S LEGAL HYPOTHEC Lessee hereby grants to the Lessor as security for the payment of all amounts of rent herein described and charges under this Lease and the complete fulfillment of all of the Lessee obligations hereunder a first ranking moveable hypothec on the universality of all moveables and moveable effects belonging to the Lessee. 37. COMPENSATION, CLAIMS AND SET-OFF Lessee hereby waives and renounces any and all existing and future claims, set-off and compensation against any rent and additional rental or other amounts due hereunder and agrees to pay such rent and other amounts regardless of any claim, set-off or compensation which may be asserted by Lessee or on its behalf. 38. LEASE ENTIRE AGREEMENT The Lessee acknowledges that there have been no representations made by the Lessor which are not set out in this Lease. The Lessee further acknowledges that this Lease constitutes the entire agreement between the Lessor and the Lessee and acknowledges that this Lease may not be modified except as herein explicitly provided and/or by agreement in writing duly signed by the Lessor and the Lessee. 39. INDEMNIFICATION Except if caused directly by the gross negligence of the Lessor, its agents, employees, or representatives, or by any breach, violation or nonperformance by the Lessor of any covenant, term or provision hereof, the Lessor shall not be liable nor responsible in any way for any injury of any nature whatsoever that may be suffered or sustained by the Lessee or any employee, agent or customer of the Lessee or any other person who may be upon the Premises or for any loss, theft, damage or destruction to any property belonging to the Lessee or to its employees or to any other person while such property is on the Premises and in particular (but without limiting the generality of the foregoing) the Lessor shall not be liable for any damage or damages of any nature whatsoever to any such property caused by the failure by reason of a breakdown or other cause to supply adequate drainage, snow or ice removal, or by reason of the interruption of any public utility or service or in the event of steam, water, rain or snow which may leak into, issue or flow from any part of the Building or from the water, steam, sprinkler, or drainage pipes or plumbing works of the same, or from any other place or quarter or for any damage caused by anything done or omitted by any tenant, but the Lessor shall use all reasonable diligence to remedy such condition, failure or interruption of service when not directly or indirectly attributable to the Lessee, after notice of same, when it is within its power and obligation so to do. Nor shall the Lessee be entitled to any abatement of rental in respect of any such condition, failure or interruption of service, except if caused by the gross negligence of Lessor, its agents, employees or representatives. The Lessee will indemnify and save harmless the Lessor from and against all fines, liability, damage suits, claims, demands and actions of any kind or nature which the Lessor shall or may become liable for or suffer by reason of any breach, violation or non-performance by the Lessee of any covenant, term, provision, or law hereof or by reason of any injury (including death resulting at any time 17 therefrom) or damage to property occasioned to or suffered by any person or persons including the Lessor by reason of any such breach, violation or nonperformance or of any wrongful act, neglect, or default on the part of the Lessee or any of its employees or officers. 40. FORCE MAJEURE Lessor shall not be required to perform any convenant or obligation in this Lease, or be liable in damages to Lessee, so long as the performance or non-performance of the convenant or obligation is delayed, caused by or prevented by an act of God or force majeure. 41. SPECIAL CONDITIONS 41.1 Security Deposit The Lessor and Lessee acknowledge that the Lessee has deposited and honored a cheque payable to Royal LePage Commercial Inc. "in trust" in the sum of $9,496.23, including G.S.T. and P.S.T., which said cheque amount shall be applied towards the minimum rental, surtax and taxes to become due for the first and last months of the Term. 41.2 Lessor's Responsibility The Lessor warrants that at the Date of Occupancy the washroom, HVAC system, electrical equipment, shipping doors, and mechanical equipment are in good working order, and that the roof is in good state and not leaking. 41.3 Improvements The Lessor, at its costs, shall execute the following improvements to the Premises: (1) Install a new garage door on the truck level side. The door is to be same size as the one beside it on the ramp side. (2) Make a ramp on the truck level side and level both ramps. (3) Install a night lamp on the back wall close to the ramps. (4) Knock down wall "A" as outlined on Schedule "B" attached hereto. (5) Build a new wall "B" up to the ceiling as outlined on Schedule "B" attached hereto. (6) Move the electric panel and upgrade it under the Lessee specifications and install a 45 KVA transformer. (7) Install a drainage system under the Lessee specifications that will run between column 1 and 2 as outlined on Schedule "A" attached hereto. (8) Repair the ceiling. (9) Repair the washroom. (10) Change the carpet in the office section and install a 20-22 oz carpet and carpet base. 18 (11) Paint office section. (12) Change floor tiles in the washrooms and the kitchen area. (13) Remove and change kitchen cabinet and counter and paint the kitchen walls. The foregoing Improvements are to be completed before June 15th, 1997. 41.4 Real Estate Broker 41.4.1 Lessee warrants that save and except for Royal LePage Commercial Inc., the present Lease was not negotiated through any broker or agent, and undertakes to hold Lessor harmless from any commission or fee claimed. 41.4.2 Lessor agrees to pay to Royal LePage Commercial Inc. a real estate leasing commission of five percent (5%) of the first three (3) years of the total minimum rental value and two and one-half percent (2.5%) of the total minimum rental value of the Lease Term thereafter. Such commission shall be due and payable at the signing of the Lease or occupancy by the Lessee, whichever is earlier. 42. LANGUAGE The parties acknowledge having expressly required that this Lease and all writings relating thereto be drawn up in English. Les parties declarent avoir expressement requis que ce Bail et tous les documents s'y rapportant soient rediges en anglais. IN WITNESS WHEREOF WE HAVE SIGNED AT MONTREAL, QUEBEC, THIS 16th DAY OF June, 1997. OLYMBEC CONSTRUCTION INC. "Lessor" /s/ Richard Stern ----------------------------------- Per: Richard Stern /s/ Jack Gilman _____________________________ Witness _____________________________ Witness UNITEL "Lessee" /s/ Brian Harty ----------------------------------- Per: Brian Harty /s/ Jack Gilman _____________________________ Witness _____________________________ Witness [GRAPHIC OMITTED] PLAN [GRAPHIC OMITTED] EX-10.(EE) 9 REMARKETING AGREEMENT DATED JULY 1, 1997 Exhibit 10(EE) REMARKETING AGREEMENT Among ALLEGHENY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY, PNC BANK, NATIONAL ASSOCIATION, UNITEL VIDEO, INC. and RRZ PUBLIC MARKETS, INC. Dated as of July 1, 1997 Relating to ALLEGHENY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY VARIABLE RATE DEMAND REVENUE BONDS SERIES 1997 (UNITEL MOBILE VIDEO PROJECT) 1 This REMARKETING AGREEMENT, dated as of July 1, 1997 (the "Agreement"), among the ALLEGHENY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Authority"), PNC BANK, NATIONAL ASSOCIATION (the "Trustee"), UNITEL VIDEO INC. (the "Corporation") and RRZ PUBLIC MARKETS, INC. (the "Remarketing Agent"). W I T N E S S E T H : WHEREAS, the Authority has issued its $5,000,000 Variable Rate Demand Revenue Bonds, Series 1997 (Unitel Mobile Video Project) (the "Bonds") pursuant to a Trust Indenture, dated as of July 1, 1997 (the "Indenture"), between the Authority and PNC Bank, National Association (the "Trustee"); WHEREAS, the Bonds and the Indenture provide among other things, that the owners of the Bonds (the "Owners"), may elect (or may be required) in certain instances to tender their Bonds for purchase upon the terms and conditions contained in the Bonds and the Indenture; WHEREAS, the Indenture provides for the appointment of a remarketing agent to perform certain duties, including the use of its best efforts to remarket any Bonds tendered for purchase by the Owners; and WHEREAS, the Remarketing Agent has agreed to accept the duties and responsibilities of the remarketing agent under the Indenture and this Agreement; NOW, THEREFORE, for and in consideration of the mutual covenants made herein and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: Section 1. Definitions. Unless otherwise defined herein, all capitalized terms shall have the meanings ascribed to them in the Indenture. Section 2. Appointment of Remarketing Agent. Subject to the terms and conditions contained herein, the Authority hereby appoints RRZ PUBLIC MARKETS, INC. as exclusive Remarketing Agent for the Bonds, and RRZ PUBLIC MARKETS, INC. hereby accepts such appointment. Section 3. Responsibilities of Remarketing Agent. Subject to the terms and conditions set forth in this Agreement, the Remarketing Agent agrees to perform the duties of Remarketing Agent set forth in the Indenture. It is understood that in undertaking to perform such duties, and in the performance thereof, it is the intention of the parties that the Remarketing Agent will act solely as an agent and not as a principal except as expressly provided in Section 12. (a) Determination of Interest Rates. The Remarketing Agent shall determine the interest rates on the Bonds in the manner and at the times specified therefor in the Indenture. (b) Remarketing of Tendered Bonds. (i) The Remarketing Agent shall use its best efforts to remarket Bonds to be purchased as described in the Indenture and to continue to remarket on an ongoing basis any Bonds purchased by the Bank's Agent or the Bank. (ii) The Remarketing Agent 2 (A) will suspend its remarketing efforts upon the receipt of notice of the occurrence and continuation of an event of default under the Letter of Credit Agreement, the Indenture or the Loan Agreement; and (B) may suspend its remarketing efforts immediately upon the occurrence of any of the following events, which suspension will continue so long as the situation continues to exist: (1) suspension or material limitation in trading in securities generally on the New York Stock Exchange; (2) a general moratorium on commercial banking activities in Pennsylvania or New York is declared by either federal, Commonwealth of Pennsylvania or New York State authorities; (3) the engagement by the United States in hostilities if the effect of such engagement, in the Remarketing Agent's judgment, makes it impractical or inadvisable to proceed with the solicitation of offers to purchase the Bonds; (4) legislation shall be introduced by committee, by amendment or otherwise, in, or be enacted by, the House of Representatives or the Senate of the Congress of the United States, or a decision by a court of the United States shall be rendered, or a stop order, ruling, regulation or Private Placement Memorandum by, or on behalf of, the United States Securities and Exchange Commission or other governmental agency having jurisdiction of the subject matter shall be made or proposed, to the effect that the offering or sale of obligations of the general character of the Bonds, as contemplated hereby, is or would be in violation of any provision of the Securities Act of 1933, as amended (the "Securities Act") and as then in effect, or the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as then in effect, or the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and as then in effect, or with the purpose or effect of otherwise prohibiting the offering or sale of obligations of the general character of the Bonds, or the Bonds, as contemplated hereby; (5) any event shall occur or information shall become known, which, in the Remarketing Agent's reasonable opinion, makes untrue, incorrect or misleading in any material respect any statement or information contained in the disclosure documents provided to the Remarketing Agent in connection with the performance of its duties hereunder, whether provided pursuant to Section 5 or otherwise, or causes such documents to contain an untrue, incorrect or misleading statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading; (6) any governmental authority shall impose, as to the Bonds, or obligations of the general character of the Bonds, any material restrictions not now in force, or increase materially those now in force; 3 (7) any of the representations and warranties of the Trustee made hereunder shall not have been true and correct, in all material respects, on the date made; or (8) the Authority in all material respects, fails to observe any of the covenants or agreements made herein. Section 4. Resignation and Removal of Remarketing Agent. The Remarketing Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 60 days' notice to the Authority, the Bank, the Bank's Agent, the Corporation, the Trustee and the Trustee's Agent. The Remarketing Agent may be removed at any time upon 30 days' notice, at the direction of the Corporation, by an instrument, signed by the Corporation, filed with the Remarketing Agent, the Bank, the Bank's Agent, the Trustee and the Trustee's Agent In the event of the resignation or removal of the Remarketing Agent, the Remarketing Agent shall pay over, assign and deliver any moneys and Bonds held by it in such capacity to its successor or, if there be no successor, to the Trustee. Section 5. Disclosure Materials. General. If the Remarketing Agent determines that it is necessary or desirable to use an Private Placement Memorandum or other disclosure document in connection with its remarketing of the Bonds, the Remarketing Agent will notify the Trustee and the Authority which will provide the Remarketing Agent with a disclosure document in respect of the Bonds satisfactory to the Remarketing Agent and its counsel. The Trustee will supply the Remarketing Agent with such number of copies of the disclosure document as the Remarketing Agent requests from time to time and the Trustee will amend the document (and all documents incorporated by reference) so that at all times the document will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. In connection with the use of any disclosure document by the Remarketing Agent in its remarketing of the Bonds, the Trustee will furnish to the Remarketing Agent such certificates, accountants' letters and opinions of counsel as the Remarketing Agent reasonably requests. In addition, the Trustee at its own expense, will take all steps reasonably requested by the Remarketing Agent that the Remarketing Agent or its counsel may consider necessary or desirable to (a) register the sale of the Bonds by the Remarketing Agent under any federal or state securities law or qualify the Indenture under the Trust Indenture Act, or (b) enable the Remarketing Agent to establish a "due diligence" defense to any action commenced against the Remarketing Agent in respect of any disclosure document. Section 6. Indemnification and Contribution. (a) Trustee will indemnify and hold harmless the Remarketing Agent and each of its directors, officers and employees and each person who controls the Remarketing Agent within the meaning of Section 15 of the Securities Act, against any and all losses, claims, damages or liabilities, joint or several, to which any such indemnified party may become subject under any statute or at law or in equity or otherwise, and will reimburse any such indemnified party for any reasonable legal or other expenses incurred by it in connection with investigating any claims against it and defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon (i) an allegation or determination that the Bonds should have been registered under the Securities Act or the Indenture should have been qualified under the Trust Indenture Act, or (ii) any untrue statement or alleged untrue statement of a material fact contained in any disclosure documents furnished pursuant to Section 5 hereof or the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but the Trustee will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in the document in reliance upon and in conformity with written information furnished to the Trustee by the Remarketing Agent specifically 4 for use in connection with the preparation of the documents. This indemnity agreement will not limit any other liability to any such indemnified party the Trustee otherwise may have; provided that in no event will the Trustee be obligated for double indemnification. (b) An indemnified party shall, promptly after receipt of notice of the commencement of any action against such indemnified party in respect of which indemnification may be sought against an indemnifying party, notify the indemnifying party in writing of the commencement of the action. Failure of the indemnified party to give such notice will not relieve the indemnifying party from any liability it may have to such indemnified party. If such an action is brought against an indemnified party and such indemnified party notifies the indemnifying party of its commencement, the indemnifying party may, or if so requested by such indemnified party will, participate in or assume its defense, with counsel reasonably satisfactory to the indemnified party and, after notice from the indemnifying party to such indemnified party of an election to assume the defense, the indemnifying party will not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense other than reasonable costs of investigation. Until the indemnifying party assumes the defense of any such action at the request of such indemnified party, the indemnified party may participate at its own expense in the defense of such action. If the indemnifying party does not retain counsel to take charge of the defense or if the indemnified party reasonably concludes that there may be defenses available to it different from or in addition to those available to the indemnifying party (in which case the indemnifying party will not have the right to assume the defense of such action on behalf of such indemnified party), legal and other expenses reasonably incurred by the indemnified party shall be borne by the indemnifying party. Any obligation under this Section of an indemnifying party to reimburse an indemnified party for expenses shall be payable in reasonable amounts and at reasonable periodic intervals not more often than monthly as required by the indemnified party, but if the indemnified party is later determined not to be entitled to indemnification under this Section or otherwise, the indemnified party will promptly return any moneys paid pursuant to this sentence. No party will be liable with respect to any settlement effected without its consent. Section 7. Fees and Expenses. In connection with the remarketing of Bonds for an Interest Period equal to or less than one year, the Trustee shall pay the Remarketing Agent a reasonable remarketing fee acceptable to the Authority, the Corporation and the Remarketing Agent. In connection with the remarketing of Bonds for an Interest Period greater than one year, the Trustee shall pay the Remarketing Agent a reasonable remarketing fee mutually acceptable to the Authority, the Corporation and the Remarketing Agent. The Trustee will pay all expenses of delivering remarketed Bonds and reimburse the Remarketing Agent for all direct, out-of-pocket expenses incurred by it as Remarketing Agent, including reasonable counsel fees and disbursements. Section 8. Representations, Warranties, Covenants and Agreements of the Remarketing Agent. The Remarketing Agent, by its acceptance hereof, represents, warrants and covenants and agrees with the Trustee as follows: (a) the Remarketing Agent is a member of the National Association of Securities Dealers and meets the requirements for the Remarketing Agent set forth in the Indenture; (b) the Remarketing Agent has been duly incorporated, is validly existing and is in good standing under the laws of the Commonwealth of Pennsylvania and is authorized by law to perform all the duties and obligations imposed upon it as Remarketing Agent by this Agreement and the Indenture; and 5 (c) the Remarketing Agent has full power and authority to take all actions required or permitted to be taken by the Remarketing Agent by or under, and to perform and observe the covenants and agreements on its part contained in, this Agreement and the Indenture. (d) the Remarketing Agent will perform and observe the covenants and agreements on its part contained in this Agreement and the Indenture in compliance with all applicable Federal and State laws. Section 9. Representations, Warranties, Covenants and Agreements of the Trustee. The Trustee, by its acceptance hereof, represents, warrants, covenants, and agrees with the Remarketing Agent that it: (a) in its individual capacity is a national banking association duly organized and validly existing under the laws of the United States of America; (b) has full power and authority to take all actions required or permitted to be taken by the Trustee by or under, and to perform and observe the covenants and agreements on its part contained in, this Agreement and any other instrument or agreement relating thereto to which the Trustee is a party; and (c) has, on or before the date hereof, duly taken all action necessary to be taken by it prior to such date to authorize (i) the execution, delivery and performance of this Agreement, the Loan Agreement and any other instrument or agreement to which the Trustee is a party and which has been or will be executed in connection with the transactions contemplated by the foregoing documents; and (ii) the carrying out, giving effect to, consummation and performance of the transactions and obligations contemplated by the foregoing agreements and by the Private Placement Memorandum. Section 10. Term of Agreement. This Agreement shall become effective on the date hereof and shall continue in full force and effect until the payment in full of the Bonds or the earlier conversion of all Bonds to the Fixed Mode, subject to the right of termination as provided herein. Section 11. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Section 12. Dealing in Bonds by the Remarketing Agent. The Remarketing Agent, in its individual capacity, may in good faith buy, sell, own, hold and deal in any of the Bonds, including, without limitation, any Bonds offered and sold by the Remarketing Agent pursuant to this Agreement, and may join in any action which any Owner may be entitled to take with like effect as if it did not act in any capacity hereunder. The Remarketing Agent, in its individual capacity, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Trustee and may act as depositary, trustee, or agent for any other obligations of the Trustee as freely as if it did not act in any capacity hereunder. Section 13. Intention of Parties. It is the express intention of the parties hereto that any purchase, sale or transfer of any Bonds, as herein provided, shall not constitute or be construed to be the extinguishment of any Bonds or the indebtedness represented thereby or the reissuance of any Bonds. Section 14. Miscellaneous. (a) Except as otherwise specifically provided in this Agreement, all notices, demands and formal actions under this Agreement shall be in writing and either (i) hand-delivered, (ii) sent by electronic means, or (iii) mailed by registered or certified mail, return receipt requested, postage prepaid, to: 6 The Remarketing Agent: RRZ PUBLIC MARKETS, INC. 625 Liberty Avenue 3100 CNG Tower Pittsburgh, Pennsylvania 15222 Attention: Gregory R. Zappala Telephone: (412) 562-1000 Telecopy: (412) 562-0222 The Authority: Allegheny County Industrial Development Authority 400 Fort Pitt Commons 445 Fort Pitt Boulevard Pittsburgh, PA 15219 Attention: Gregg Bernaciak Telephone: (412) 350-1067 Telecopy: (412) 642-2217 The Trustee and Paying Agent: PNC Bank, National Association One Oliver Plaza, 23rd Floor Corporate Trust Department Pittsburgh, Pennsylvania 15222 Attention: Corporate Trust Manager Telephone: (412) 762-5540 Telecopy: (412) 762-8226 The Bank's Agent: Heller Financial, Inc. 500 West Monroe Lane Chicago, IL 60661 Attention: HBC Portfolio Manager Telephone: (312) 441-6916 Telecopy: (312) 441-7026 The Corporation Unitel Video, Inc. 555 West 57th Street New York, NY 10019 Telephone: (212) 265-3600 Telecopy: (212) 581-7748 Attention: General Counsel 7 The Remarketing Agent, the Trustee, the Authority, the Corporation, the Paying Agent and the Agent may, by notice given under this Agreement, designate other addresses to which subsequent notices, requests, reports or other communications shall be directed. (b) This Agreement shall inure to the benefit of and be binding only upon the parties hereto and their respective successors and assigns. The terms "successors" and "assigns" shall not include any purchaser of any of the Bonds merely because of such purchase. Except asexpressly set forth herein, neither the Bank's Agent nor any Owner or other third party shall have any rights or privileges hereunder. (c) All of the representations and warranties of the Trustee and the Remarketing Agent in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of the Remarketing Agent or the Trustee, (ii) the offering and sale of and any payment for any Bonds hereunder or (iii) termination or cancellation of this Agreement. (d) This Agreement and each provision hereof may be amended, changed, waived, discharged or terminated only by an instrument in writing signed by the parties hereto. (e) Nothing herein shall be construed to make any party an employee of the other or to establish any fiduciary relationship between the parties except as expressly provided herein. (f) If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatsoever. (g) This Agreement may be executed in several counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same document. [INTENTIONALLY LEFT BLANK] 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ALLEGHENY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY By: /s/ Gregory D. Bernaciak ----------------------------------- RRZ PUBLIC MARKETS, INC. By: /s/ Nicholas F. Falgione, III ----------------------------------- PNC BANK, NATIONAL ASSOCIATION By: /s/ Richard Ranii ----------------------------------- UNITEL VIDEO, INC. By: /s/ George Horowitz ----------------------------------- EX-23 10 CONSENT (GRANT THORNTON LLP) EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated November 4, 1997, accompanying the consolidated financial statements and schedule included in the Annual Report of Unitel Video, Inc. on Form 10-K for the year ended August 31, 1997. We hereby consent to the incorporation by reference of said report in the Registration Statement of Unitel Video, Inc. on Form S-8, filed on July 15, 1986 (File No. 33-7306), the Registrant's Registration Statement on Form S-8 filed on April 20, 1987 (File No. 33-13660), the Registrant's Registration Statement on Form S-8 filed on May 28, 1987 (File No. 33-14654) the Registrant's Registration Statement on Form S-8 filed on February 1, 1996 (File No. 333-00613) and the Registrant's Registration Statement on Form S-3 (File No. 33-38839). GRANT THORNTON LLP /s/ Grant Thornton LLP New York, New York November 4, 1997 EX-27 11 FDS
5 UNITEL VIDEO, INC., FORM 10-K FOR THE YEAR ENDED AUGUST 31, 1996 1,000 12-MOS AUG-31-1997 SEP-01-1996 AUG-31-1997 137 0 5,551 412 0 6,778 111,135 59,228 63,083 16,433 38,604 0 0 27 13,365 63,083 58,767 58,767 49,708 49,708 13,783 (10) 3,430 (4,398) 38 (4,436) 0 0 0 (4,436) (1.66) (1.66)
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