UNITEL VIDEO INC/DE, 10-Q, 1997-07-09

UNITEL VIDEO INC/DE
10-Q, 1997-07-09
ALLIED TO MOTION PICTURE PRODUCTION

Previous: LIBERTY BANCORP INC /OK/, 4, 1997-07-09

Next: DREYFUS TAX EXEMPT CASH MANAGEMENT, 497, 1997-07-09

<PAGE>
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 1997

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
----------------------- ----------------------

Commission file number 1-8654

Unitel Video, Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 23-1713238
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.

555 West 57th Street--New York, New York 10019
- ------------------------------------------------------------------------------
(Address of principal executive offices)

(212) 265-3600
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such
requirements for the past 90 days.

Yes / X / No / /

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

2,674,665 Common shares outstanding as of July 8, 1997
(Number of shares) (Date)

<PAGE>
UNITEL VIDEO, INC.

FORM 10-Q

QUARTER ENDED May 31, 1997

Page
INDEX NUMBER

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets May 31,
1997 (Unaudited) and August 31, 1996 3-4

Consolidated Statements of
Operations May 31, 1997 (Unaudited)
and May 31, 1996 (Unaudited) 5

Consolidated Statements of Cash
Flows May 31, 1997 (Unaudited) and
May 31, 1996 (Unaudited) 6-7

Notes to Consolidated Financial
Statements (Unaudited) 8-10

Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 11-14

Part II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K 15

<PAGE>

UNITEL VIDEO, INC.

FORM 10-Q

QUARTER ENDED May 31, 1997

Part 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

AUGUST 31,
MAY 31, 1997 1996
------------- --------------
(UNAUDITED) (NOTE)

ASSETS
- ------

Current Assets:

Cash............................................ $ 75,000 $ 192,000
Accounts receivable, net........................ 7,417,000 8,701,000
Other receivables............................... 82,000 333,000
Prepaid income taxes............................ 186,000 142,000
Prepaid expenses................................ 500,000 735,000
Net assets held for sale........................ -- 1,587,000
Deferred tax asset.............................. 844,000 844,000
------------- -------------
Total current assets.............................. 9,104,000 12,534,000

Property and equipment--at cost
Land, buildings and improvements................ 20,287,000 19,915,000
Video equipment................................. 104,043,000 97,023,000
Furniture and fixtures.......................... 4,107,000 3,502,000
------------- --------------
128,437,000 120,440,000

Less accumulated depreciation..................... 75,550,000 69,974,000
------------- --------------
52,887,000 50,466,000

Deferred tax asset................................ 1,625,000 1,625,000
Goodwill.......................................... 1,755,000 1,859,000
Other assets...................................... 1,126,000 1,134,000
------------- --------------
$ 66,497,000 $ 67,618,000
------------- --------------

Note: The balance sheet at August 31, 1996 has been taken from the audited
consolidated financial statements at that date.

See notes to consolidated financial statements.

3
<PAGE>

UNITEL VIDEO, INC.

FORM 10-Q

CONSOLIDATED BALANCE SHEETS
(Continued)

AUGUST 31,
MAY 31, 1997 1996
(UNAUDITED) (NOTE)
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------

Current liabilities:
Accounts payable................................ 6,471,000 $ 4,967,000
Accrued expenses................................ 573,000 1,450,000
Payroll, benefits and related taxes............. 1,538,000 2,947,000
Current maturities of long-term debt............ 7,090,000 8,362,000
Current maturities of subordinated debt......... 1,167,000 1,166,000
Current maturities of ESOP loan................. 30,000 166,000
Current maturities of capital
lease obligations............................. 2,120,000 1,832,000
------------- --------------
Total current liabilities....................... 18,989,000 20,890,000

Deferred rent..................................... 114,000 325,000
Long-term debt, less current maturities........... 21,786,000 19,706,000
Subordinated debt, less current maturities........ 1,667,000 1,979,000
Long-term leases, less current maturities......... 4,928,000 5,604,000
Accrued retirement................................ 1,208,000 1,304,000

Stockholders' equity:
Common stock, par value $.01 per share
Authorized 5,000,000 shares Issued
2,674,665 and 3,532,554 shares
respectively, and outstanding and
2,666,265 shares respectively................. 27,000 26,000
Additional paid-in capital........................ 27,538,000 27,545,000
Accumulated deficit............................... (1,754,000) (1,592,000)
Common stock held in treasury, at cost
(866,289 shares)................................ (7,974,000) (7,974,000)
------------- ------------
17,837,000 18,005,000
Unearned employee benefit expense................. (32,000) (195,000)
------------- ------------
Total stockholders' equity...................... 17,805,000 17,810,000
------------- ------------
$ 66,497,000 $ 67,618,000
------------- ------------
------------- ------------

Note: The balance sheet at August 31, 1996 has been taken from the audited
consolidated financial statements at that date.

See notes to consolidated financial statements.

4
<PAGE>
UNITEL VIDEO, INC.

FORM 10-Q

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, NINE MONTHS ENDED MAY 31,
---------------------------- ----------------------------

<S> <C> <C> <C> <C>
1997 1996 1997 1996
------------- ------------- ------------- -------------

Sales............................................... $ 15,840,000 $ 19,281,000 $ 47,210,000 $ 62,750,000

Cost of sales:
Production costs.................................. 10,993,000 13,910,000 31,937,000 44,897,000
Depreciation...................................... 2,101,000 2,205,000 6,410,000 5,711,000
------------- ------------- ------------- -------------
13,094,000 16,115,000 38,347,000 50,608,000
------------- ------------- ------------- -------------

Gross profit........................................ 2,746,000 3,166,000 8,863,000 12,142,000

Operating expenses:
Selling........................................... 413,000 496,000 1,407,000 1,832,000
General and administrative........................ 2,072,000 2,429,000 5,193,000 7,416,000
Interest.......................................... 900,000 984,000 2,674,000 2,755,000
Restructuring charge (Note 5)..................... -- 1,246,000 -- 1,246,000
Impairment charge................................. -- 261,000 -- 2,000,000
------------- ------------- ------------- -------------
3,385,000 5,416,000 9,274,000 15,249,000
------------- ------------- ------------- -------------
Earnings (loss) from operations.................... (639,000) (2,250,000) (411,000) (3,107,000)

Other income (loss)................................ 96,000 (37,000) 250,000 (37,000)
------------- ------------- ------------- -------------

Earnings (loss) before income taxes................ (543,000) (2,287,000) (161,000) (3,144,000)

Income taxes....................................... (18,000) 3,000 1,000 3,000
------------- ------------- ------------- -------------

Net earnings (loss) applicable for common stock.... $ (525,000) $ (2,290,000) $ (162,000) $ (3,147,000)
------------- ------------- ------------- -------------

Net earnings (loss) per common share............... $ (.20) $ (.88) $ (.06) $ (1.21)
------------- ------------- ------------- -------------
Weighted average of common and common equivalent
shares outstanding............................... 2,681,000 2,611,000 2,690,000 2,591,000
------------- ------------- ------------- -------------
</TABLE>

See notes to consolidated financial statements.

5
<PAGE>

UNITEL VIDEO, INC.

FORM 10-Q

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
MAY 31, 1997 MAY 31, 1996
------------ -------------
<S> <C> <C>
Cash Flows From Operating Activities:

Net loss......................................................... $ (162,000) $ (3,147,000)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 6,621,000 5,728,000
Net gain on disposal of equipment................................ (211,000) (17,000)
Amortization of deferred financing costs......................... 115,000 174,000
Deferred financing costs......................................... -- (585,000)
Deferred rent.................................................... (211,000) (457,000)
Accrued retirement expense....................................... (96,000) 123,000
Impairment charge................................................ -- 2,000,000

Decrease (Increase) in:
Accounts receivable.............................................. 1,284,000 3,291,000
Other receivables................................................ 251,000 54,000
Prepaid expenses................................................. 235,000 615,000
Prepaid taxes.................................................... (44,000) 116,000
Other assets..................................................... (104,000) (118,000)
Deferred tax asset............................................... -- (79,000)
Increase (Decrease) in:
Accounts payable................................................. 1,504,000 (3,244,000)
Accrued expenses................................................. (877,000) (30,000)
Payroll and related taxes........................................ (1,409,000) (716,000)
------------ -------------
Total adjustments................................................ 7,058,000 6,855,000
------------ -------------
Net cash provided by operating activities...................... 6,896,000 3,708,000

Cash Flows From Investing Activities:
Capital expenditures............................................. (9,373,000) (6,340,000)
Proceeds from disposal of equipment.............................. 2,230,000 898,000
------------ -------------

Net cash used in investing activities.......................... (7,143,000) (5,442,000)
</TABLE>

6
<PAGE>
UNITEL VIDEO, INC.

FORM 10-Q

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
MAY 31, 1997 MAY 31, 1996
------------ -------------
<S> <C> <C>
Cash Flows From Financing Activities:
Proceeds from long-term financing.............................. $9,874,000 $ 24,503,000
Proceeds from issuance of common stock......................... 39,000 223,000
Repayment of loan to ESOP...................................... (136,000) (142,000)
Principal repayments........................................... (9,765,000) (22,950,000)
Release of ESOP quarterly shares............................... 118,000 146,000
------------ -------------
Net cash provided (used) by financing activities............... 130,000 1,780,000
------------ -------------

Net Increase (Decrease) in Cash................................. (117,000) 46,000

Cash Beginning of Year.......................................... 192,000 161,000
------------ -------------

Cash End of Nine Months......................................... $ 75,000 $ 207,000
------------ -------------

Schedule of income taxes and interest paid:
Income Taxes Paid............................................. $ 30,000 $ 77,000
Interest Paid................................................. 2,416,000 2,237,000
------------ -------------
$2,446,000 $ 2,314,000
------------ -------------
</TABLE>

See notes to consolidated financial statements.

<PAGE>

UNITEL VIDEO, INC.

FORM 10-Q

NINE MONTHS ENDED MAY 31, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated balance sheet as of May 31, 1997, the
consolidated statements of operations for the nine months and quarters ended May
31, 1997 and 1996, and the consolidated statements of cash flows for the nine
months then ended have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, and cash flows at May 31, 1997 and for all periods presented have
been made.

Certain information and footnote disclosure normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto in the Company's August 31, 1996 Form 10-K filed
with the Securities and Exchange Commission. The results of operations for the
nine months ended May 31, 1997 are not necessarily indicative of the operating
results for the full year.

2. STOCKHOLDERS' EQUITY

During the nine months ended May 31, 1997, stockholders' equity decreased
due to:

Net loss......................................................... $(162,000)
Reduction in unearned employee benefit expense................... 163,000
Reduction in additional paid in capital resulting from the
allocation of ESOP shares...................................... (45,000)
Purchase of stock under the Unitel Video Inc. Employee Stock
Purchase Plan.................................................. 39,000
---------
Total decrease in stockholders' equity........................... $ (5,000)
---------
3. PER SHARE DATA

Per share data for the quarter and nine months ended May 31, 1997 and 1996
is based on the weighted average number of common shares outstanding. In the
quarter and nine months ended May 31, 1997, unreleased Employee Stock Ownership
Plan shares are not considered outstanding for earnings per share calculations.
(See Note 4).

8
<PAGE>

4. 401(k) Employee Savings and Stock Ownership Plan

The Company sponsors a 401(k) savings and stock ownership plan (the "Plan")
which requires the Company to match employee contributions to the 401(k) portion
of the Plan in shares of the Company's Common Stock up to the maximum amount set
forth in the Plan. Effective September 1, 1994, the Company has adopted the
provisions of Statement of Position 93-6, "Employer's Accounting for Employee
Stock Ownership Plans" ("SOP 93-6").

In 1987, to purchase 115,849 shares of the Company's stock, the Plan
obtained financing from a bank amounting to $1,250,000. In 1991 the Plan
purchased 25,810 shares of the Company's stock financed by a $229,193 loan from
the Company. The Plan is funded by the Company as required to provide the Plan
with the funds necessary to meet its debt service requirements. The loan
obligations of the Plan are considered unearned employee benefit expense and are
recorded as a separate reduction of the Company's shareholders' equity. The bank
financing is guaranteed by the Company.

The Plan's shares are released and allocated to participant accounts based
upon Company contributions and certain payments made to reduce the Plan debt.
The Company reports compensation expense based on the dollar value of the 401(k)
match expense.

The Plan's compensation expense was $117,000 and $39,000 for the nine months
and quarter ended May 31, 1997, respectively. A summary of the Plan's shares as
of May 31, 1997 is as follows:

Allocated shares............................... 96,666
Shares released for allocation................. 15,064
Unreleased shares.............................. 21,119
---------
132,849
---------

Fair value of unreleased shares at
May 31, 1997................................. $ 127,000
---------

Prior to adoption of SOP 93-6, the unreleased shares were considered
outstanding for the earnings per share computation. Accordingly, for the nine
months ended May 31, 1997, 21,119 shares were no longer considered outstanding.
The effect of adopting SOP 93-6 was not material on the net loss, and resulted
in a decrease of approximately 1% on the net loss per share for the nine months
ended May 31, 1997.

5. IMPAIRMENT AND RESTRUCTURING CHARGES

In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FASB
Statement No. 121") which provides guidance on when to assess and how to
measure impairment of long-lived assets, certain intangibles and goodwill
related to those assets to be held and used, and for long-lived assets and
certain identifiable intangibles to be disposed of. The Company adopted FASB
Statement No. 121 as of August 31, 1995.

9
<PAGE>

In fiscal 1995 the Company determined to focus its resources toward
providing services to the entertainment and corporate communications areas,
which represent the Company's strength, and decided to sell its three Editel
divisions which did not specialize in these areas. The Company recorded the
carrying value of the assets related to these divisions as net assets held for
sale, and a corresponding impairment charge, since these assets were no longer
needed for the current and future operations of the Company.

In fiscal 1996 the Company began marketing these divisions to potential
buyers. In the first nine months of fiscal 1996 the Company recorded an
impairment charge of $2,000,000 relating to the assets at all three Editel
divisions. The impairment charge recorded represented management's estimate of
the decrease in value of these assets during the period such assets were held
for sale based upon the depreciation method which the Company has found to be
reasonable and appropriate.

In February 1996 the Company closed its Editel Chicago division, distributed
the majority of its assets to other divisions throughout the Company and sold
the remaining assets at an auction held in May 1996. In the third quarter of
1996 the Company recorded a restructuring charge of $1,246,000 related to the
real estate lease buy out for the Editel Chicago division. Also in May 1996,
after reevaluating the potential of the Editel Los Angeles division, the Company
decided to retain and expand this division, based on its improving business
trend, new lines of business, new management and increased cash flow. In August
of 1996 the Company closed its Editel New York division and distributed the
majority of its editorial and computer graphics assets throughout the Company.
In November 1996 the Company sold the majority of this division's remaining net
assets held for sale of $1,587,000 to an unrelated third party for $1,400,000.
In February 1997 the remaining Editel New York assets were sold at an auction or
redeployed throughout the Company. In April 1997 the Company announced the
merger of its Unitel Hollywood and Editel Los Angeles divisions under one roof
at the Editel Los Angeles facility. A majority of the equipment previously in
use at Unitel Hollywood is being used at either the new combined facility or at
the Company's facilities in New York City. The balance of the equipment has
either already been sold in private sales or will be sold at an auction to be
held in July 1997. Proceeds from the sale of assets are used by the Company to
repay outstanding debt.

6. STOCK BASED COMPENSATION

Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock Based Compensation," provides companies a choice in the
method of accounting used to determine stock-based compensation. Companies may
account for such compensation either by using the intrinsic value-based method
provided by APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," or the fair market value based method provided in SFAS No. 123. This
statement is required to be adopted by the Company during its fiscal year ending
August 31, 1997. The Company intends to use the intrinsic value-based method
provided in APB No. 25 to determine stock-based compensation. The sole effect of
the adoption of SFAS No. 123 is the obligation imposed on the Company to comply
with the new disclosure requirements provided thereunder.

10
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

LIQUIDITY AND CAPITAL RESOURCES

The Company is committed to keeping pace with technological developments as
well as taking advantage of new business opportunities in the video
communications industry. Capital expenditures were $9,373,000 during the nine
months ended May 31, 1997, and consisted of the purchase of production, post
production and graphics equipment for use throughout the Company including
approximately $4,700,000 for the construction of a new digital mobile production
unit.

Net cash provided by operating activities during the nine months ended May
31, 1997 was $6,896,000 and during the nine months ended May 31, 1996 was
$3,708,000. Net cash provided by operating activities for the nine months ended
May 31, 1997 was offset by $7,143,000 of cash used in investing activities,
which consisted primarily of capital expenditures (net of proceeds from asset
dispositions of $2,230,000) and was supplemented by net cash provided by
financing activities of $130,000, resulting in a net decrease in cash available
of $117,000.

In August 1995 the Company recorded a deferred tax asset related to the
pre-tax losses and impairment charges incurred by the Company's Editel
divisions. During fiscal 1996, the Company incurred additional pre-tax losses
related to the operations and closure of the Editel New York and Editel Chicago
divisions. It is management's determination that the deferred tax asset will be
realized in future years based upon the Company's historical record of pre-tax
profits prior to the last two fiscal years of pre-tax losses and based on the
Company's projected pre-tax earnings.

In December 1995, the Company entered into a $26 million revolving credit
and term loan agreement with a financial institution, consisting of an $11
million revolving credit facility and two $7.5 million term loans. In May 1997
the loan agreement was renegotiated with $2.5 million of Term loan B rescheduled
to become part of Term loan A. The lender also made available an additional
$500,000 as part of Term loan A. Term loan A was then rescheduled to be payable
in monthly principal payments of $100,000 through December 2001 with the balance
of $4,700,000 due on December 12, 2001. Term loan B is repayable from the
proceeds of sales of fixed assets. As of May 31, 1997 Term Loan B had a balance
of $2,142,000 outstanding, of which $642,000 has been repaid as of June 29, 1997
with the remainder due by September 30, 1997. In addition, the lender has
provided the Company with a $3.5 million bridge loan to be repaid from the
proceeds of an $8.5 million industrial revenue bond financing, scheduled to
close in July 1997. The industrial revenue bonds will be issued by the Allegeny
County (Pennsylvania) Industrial Development Authority in an initial principal
amount of $5 million and the proceeds of the bonds will be used by the Company
to finance expenses incurred in connection with the construction of up to two
digital mobile production units. At May 31, 1997 there was $3,000,000
outstanding on the bridge loan and $6,174,000 outstanding under the revolving
credit portion of the facility.

11
<PAGE>

In May 1997 the Company announced the establishment of a Canadian mobile
television operation in Montreal, Canada. The expansion of the Company's mobile
operations includes sales and marketing personnel and a maintenance facility
which serves as the Company's Canadian hub allowing the Company to better serve
its North American clients while also developing business and market share.

RESULTS OF OPERATIONS

Sales were $15,840,000 and $19,281,000 for the quarters ended May 31,
1997 and 1996, respectively. Sales were $47,210,000, and $62,750,000 for the
nine months ended May 31, 1997 and 1996, respectively. The decrease in sales
in the nine month period ending May 31, 1997 was due primarily to the closure
of the Company's Editel Chicago and Editel New York divisions in fiscal 1996.
Also contributing to lower sales was the cancellation of the "Rush Limbaugh"
and "Mark Walberg" talk shows, which had been produced at Unitel studios
during the majority of fiscal 1996, and the unavailability of one of the
Mobile division's most sophisticated units during a substantial portion of
the first quarter of fiscal 1997 while being digitally retrofitted by Company
engineers. The sales decrease in the first nine months of fiscal 1997 was
partially offset by a significant increase in sales at the Company's Editel
Los Angeles division.

The Company's net loss for the quarter ended May 31, 1997 was $525,000,
compared to a net loss of $2,290,000 for the comparable quarter of fiscal year
1996. The Company's net loss was $162,000 for the nine months ended May 31,
1997, compared with a net loss of $3,147,000 for the same period of the prior
fiscal year. The Company's 1997 third quarter net loss of $525,000 was due
substantially to the Company's decision to merge its West coast Unitel Hollywood
and Editel Los Angeles facilities resulting in a loss of $900,000 from the
Unitel Hollywood operations during the third quarter. The losses incurred in
merging the West coast facilities were attributable to a loss of business
related to the transition, severance costs and other costs which the Company
incurred in its efforts to maintain client relationships and employee morale
during the transition.

Production costs, the main component of cost of sales, consist primarily of
direct labor, equipment maintenance expenses and occupancy costs. The Company's
production costs, as a percentage of sales, were 69% for the quarter ended May
31, 1997, as compared to 72% for the quarter ended May 31, 1996 and were 68% and
72% for the first nine months of fiscal years 1997 and 1996, respectively. The
decrease in production expenses as a percentage of sales in the quarter and nine
months ended May 31, 1997, as compared with the same period in the prior year,
is primarily due to the closure of the Company's Editel Chicago and Editel New
York divisions which had been incurring these expenses at a higher percent of
sales compared with the Company's other divisions. Also included in the decrease
in production expenses from the comparable period in the prior year is the
impact of the reduction of certain cost estimates related to the closure of the
Editel New York and Editel Chicago divisions.

12
<PAGE>

Depreciation, as a percentage of sales, was 13% and 11% for the quarters
ended May 31, 1997 and 1996, respectively, and 14% and 9% for the first nine
months of the 1997 and 1996 fiscal years, respectively. The increase in the
quarter and nine months ended May 31, 1997 as compared with the same period
in the prior year, was a result of the reclassification of the net property
and equipment of the Company's three Editel divisions to net assets held for
sale at August 31, 1995 with the corresponding depreciation expense recorded
as impairment charges. In May 1996, the Company determined to retain its
Editel Los Angeles division and, accordingly, resumed recording depreciation
expense for this division. The impairment charge recorded in the first nine
months of fiscal 1996 represents management's estimate of the decrease in
value of these assets based upon the depreciation method which the Company
has used in the past and which management has found to be reasonable and
appropriate. Of the $2,000,000 impairment charge recorded in the first nine
months of fiscal 1996, $777,000 related to the Editel Los Angeles division,
which if recorded as depreciation expense in 1996 would have resulted in
depreciation as a percentage of sales of 10% as compared to 9% in the first
nine months of fiscal 1996. In addition, the majority of the assets of the
Editel Chicago and Editel New York divisions were redistributed throughout
the Company which contributed to the increase in depreciation expense in
fiscal 1997.

Selling expenses for both quarters ended May 31, 1997 and 1996 were 2.6% of
sales, and 3.0% and 2.9% for the nine months ended May 31, 1997 and 1996,
respectively. The increase in the nine months ended May 31, 1997 as compared
with the same period in the prior year, is mainly due to an increase in the
sales staff at the New York divisions and at Editel Los Angeles.

General and administrative expenses, as a percentage of sales, for the
quarters ended May 31, 1997 and 1996 were 13.1% and 12.6%, respectively, and
11.0% and 11.8% for the nine months ended May 31, 1997 and 1996, respectively.
The increase in general and administrative expenses as a percentage of sales
during the third quarter of fiscal 1997 when compared with the same period of
the prior year is primarily due to costs incurred related to the merger of the
Company's West coast divisions. The decrease in general and administrative
expenses as a percentage of sales for the nine months ended May 31, 1997 when
compared with the same period in the prior year is primarily due to the closure
of the Company's Editel Chicago and Editel New York divisions which had been
incurring these expenses at a higher percentage of sales compared with the
Company's other divisions. Also included in the decrease in general and
administrative expenses from the comparable period in the prior year is the
impact of the reduction of certain cost estimates related to the closure of the
Editel New York and Editel Chicago divisions.

Interest expense, as a percentage of sales, for the quarters ended May 31,
1997 and 1996 was 5.7% and 5.1%, respectively, and 5.7% and 4.4% for the nine
months ended May 31, 1997 and 1996. Since the level of outstanding debt in the
first nine months of fiscal 1997 remained constant with the same period of the
prior year and sales decreased in the first nine months of fiscal 1997, interest
expense as a percentage of sales increased in fiscal 1997 when compared with the
same period of the prior year.

13
<PAGE>

The Company's effective tax rate was 5% and 47% for the first nine months of
fiscal years 1997 and 1996, respectively. The effective tax rate for the first
nine months of fiscal 1997 is less than the federal statutory rate of 34% due to
the utilization of net operating loss carryforwards generated by the losses
incurred in fiscal 1995 and 1996. The effective tax rate exceeded the federal
statutory rate of 34% in fiscal 1996 due to state and local taxes.

14
<PAGE>

Part II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits required to be filed by Item 601 of Regulation S-K.

1. Exhibit 4(A). Second Amendment to Loan and Security Agreement and Limited
Waiver dated as of February 24, 1997.

2. Exhibit 4(B). Third Amendment and Limited Waiver to Amended and Restated
Loan and Security Agreement dated as of March 21, 1997.

3. Exhibit 4(C). Fourth Amendment to Amended and Restated Loan and Security
Agreement dated as of May 7, 1997.

4. Exhibit 10(A). Employment Agreement between Editel Los Angeles and Albert
Walton dated as of March 20, 1997.

5. Exhibit 10(B). Employment Agreement between Unitel Video, Inc. and Mark
Miller dated as of March 20, 1997.

6. Exhibit 27. Financial Data Schedule.

(b) There were no reports filed on Form 8-K during the nine month period
ended May 31, 1997.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.

UNITEL VIDEO, INC.

BY: /S/ BARRY KNEPPER
------------------------------
Barry Knepper
CHIEF EXECUTIVE OFFICER

BY: /S/ GEORGE HOROWITZ
------------------------------
George Horowitz
CHIEF FINANCIAL OFFICER

DATED: JULY 8, 1997

<PAGE>
Exhibit 4(A)

SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT AND LIMITED
WAIVER

This Second Amendment to Loan and Security Agreement ("Amendment") is dated
as of February 24, 1997, and entered into by and among HELLER FINANCIAL,
INC., as Agent ("Agent") and Lender ("Lender"), UNITEL VIDEO, INC.
("Borrower") and R Squared, Inc. ("Corporate Guarantor").

WHEREAS, Agent, Lender, Borrower and Corporate Guarantor have entered
into a Loan and Security Agreement (as amended, the "Agreement") dated
December 12, 1995; and

WHEREAS, certain Events of Default are in existence under the Agreement
as set forth in (i) that certain letter from Agent to Borrower dated January
2, 1997 and (ii) that certain letter from Agent to Borrower dated January 7,
1997 (the "Existing Events of Default") and, as a result of such Events of
Default, Agent and Lenders have, among things, commenced charging the Default
Rate on the Obligations; and

WHEREAS, Borrower and Corporate Guarantor have requested that Agent and
Requisite Lenders waive the Existing Events of Default; and

WHEREAS, Borrower and Corporate Guarantor have requested that Agent and
Requisite Lenders amend the Agreement to, among other things, defer the
principal payment due date of Term Loan B from December 31, 1996 to February
28, 1997, and Agent and Requisite Lenders have agreed to do so, subject to
the following terms and conditions; and

NOW THEREFORE, in consideration of the mutual conditions and agreements
set forth in the Agreement and this Amendment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound, hereby agree as follows:

ARTICLE I. DEFINITIONS

Section 1.01. Definitions. Capitalized terms used in this Amendment,
to the extent not otherwise defined herein, shall have the same meanings as
in the Agreement, as amended hereby.

ARTICLE II. AMENDMENTS

Section 2.01. Amendment to Subsection 2.1(A)(2) "Term Loan B".
Subsection 2.1(A)(2) shall be, and the same is hereby amended by deleting the
defined term "Scheduled Installment of Term Loan B" appearing in the second
paragraph of said subsection in its entirety and substituting the following
therefor:

<PAGE>

"Scheduled Installment of Term Loan B" means the principal
installment in an amount equal to $4,934,410.27, payable, subject
to the provisions of subSection 2.4(B), on or before February 28,
1997 or the earlier to occur of (i) the Termination Date or (ii)
the acceleration of the Obligations in accordance with the
provisions of subsection 8.3, at which time the entire unpaid
principal amount thereof plus accrued interest thereon shall be
due and payable.

Section 2.02. Amendment to Subsection 2.1(B) "Revolving Loan".
Subsection 2.1(B) shall be, and the same is hereby amended by deleting the
definition of "Maximum Revolving Loan Amount" appearing in paragraph (1) in
its entirety and substituting the following therefor:

"Maximum Revolving Loan Amount" means, as of any date of
determination, the lesser of (a) the Revolving Loan Commitment
minus (i) the Letter of Credit Reserve and (ii) the Special
Reserve and (b) the Borrowing Base minus (i) the Letter of Credit
Reserve and (ii) the Special Reserve.

Section 2.03. Amendment to Subsection 5.1(F) "Borrowing Base
Certificates". Subsection 5.1(F) shall be, and the same is hereby amended by
deleting the first sentence of said subsection in its entirety and
substituting the following therefor:

"As early as possible each week, but in no event later than by
12:00 (noon) (Chicago time) on the fifth Business Day of each
Week, Borrower shall deliver to Agent a Borrowing Base
Certificate updated to reflect the most recent sales and
collections of Borrower and an assignment schedule of all
Accounts created by Borrower for the prior week."

ARTICLE III. LIMITED WAIVER

Agent and Lender hereby waive the Existing Events of Default (which
waiver shall be deemed effective as of November 30, 1996), conditioned on the
following: (i) that for the period between January 24, 1997 through January
30, 1997, the outstanding principal amount of the Revolving Loan shall not
exceed the Maximum Revolving Loan Amount by an amount greater than
$545,781.50; (ii) for the period between January 31, 1997 through February 6,
1997, the outstanding principal amount of the Revolving Loan shall not exceed
the Maximum Revolving Loan Amount by an amount greater than $195,781.50;
(iii) on and after February 7, 1997, the Maximum Revolving Loan Amount shall
be greater than or equal to the outstanding principal amount of the Revolving
Loan and (iv) for so long as the outstanding principal amount of the
Revolving Loan exceeds the Maximum Revolving Loan Amount, (A) the Loans and
all other Obligations shall bear interest at a rate equal to two percent (2%)
plus the applicable Interest Rate and (B) Borrower may not request any LIBOR
Rate Loans and Borrower may not convert any Base Rate Loans into LIBOR Rate
Loans. Borrower's compliance with the terms above, shall not be deemed to
constitute a commitment by Agent or Lenders to provide advances under the
Revolving Loan that exceed the Maximum Loan Amount. This limited waiver
shall not be

<PAGE>

deemed to constitute a waiver of any other existing Events of Default or any
future breach of the Agreement or any of the other Loan Documents (including,
without limitation, any subsequent breach of the covenants described in the
letters referenced above for any subsequent period).

ARTICLE IV. MISCELLANEOUS

Section 4.01. Conditions. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent (unless
specifically waived in writing by Agent and Requisite Lenders):

(a) there shall have occurred no material adverse change in the
business, operations, financial conditions, profits or prospects,
or in the Collateral of the Borrower;

(b) Borrower and Corporate Guarantor shall have executed and
delivered such other documents and instruments as Agent may
require;

(c) Borrower shall have paid to Agent, for the benefit of
Lenders, a fee in the amount of $10,000, which fee shall have
been fully earned upon payment.

(d) all corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Agent and its legal counsel.

Section 4.02 Ratification. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions
set forth in the Agreement and, except as expressly modified and superseded
by this Amendment, the terms and provisions of the Agreement, are ratified
and confirmed and shall continue in full force and effect.

Section 4.03 Corporate Action. The execution, delivery and performance
of this Amendment have been authorized by all requisite corporate action on
the part of Borrower and Corporate Guarantor and will not violate the
Articles of Incorporation or Bylaws of either Borrower or Corporate Guarantor.

Section 4.04 Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Amendment and the effect thereof
shall be confined to the provision so held to be invalid or unenforceable.

Section 4.05 Successors and Assigns. This Amendment is binding upon
and shall inure to the benefit of Agent, Lender, Borrower and Corporate
Guarantor and their respective successors and assigns.

<PAGE>

Section 4.06 Counterparts. This Amendment may be executed in one or
more counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the
same instrument.

IN WITNESS WHEREOF, the parties have executed this Amendment on the date
first above written.

HELLER FINANCIAL, INC.,
as Agent and Lender

By: /s/ Jerome Sepich
------------------------
Title: Vice President

UNITEL VIDEO, INC.,
as Borrower

By: /s/ Barry Knepper
-------------------------
Title: CEO

R SQUARED, INC.,
as Corporate Guarantor

By: /s/ Barry Knepper
--------------------------
Title: CEO

<PAGE>
Exhibit 4(B)

THIRD AMENDMENT AND LIMITED WAIVER

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

THIS THIRD AMENDMENT AND LIMITED WAIVER ("Amendment") is entered into as of
March 21, 1997, by and among UNITEL VIDEO, INC., a Delaware corporation having
its principal place of business at 515 West 57th Street, New York, New York
10019 ("Borrower"), R SQUARED, INC., a California Corporation having its
principal place of business at 3330 Cahuenga Boulevard West, Los Angeles,
California 90068 ("Corporate Guarantor") and HELLER FINANCIAL, INC., a Delaware
corporation having an office at 500 West Monroe Street, Chicago, Illinois
60661, as agent ("Agent") for Lender (as hereafter defined).

BACKGROUND

WHEREAS, Borrower, Corporate Guarantor, Agent and Heller Financial, Inc.
("Lender") are parties to an Amended and Restated Loan and Security Agreement
dated as of December 12, 1995, as amended by First Amendment ("First Amendment")
and Limited Waiver dated November 26, 1996 and Second Amendment ("Second
Amendment") dated February 24, 1997 (as it may be further amended, supplemented
or otherwise modified from time to time, the "Loan Agreement") pursuant to which
Lender provided Borrower with certain financial accommodations; and

WHEREAS, certain Events of Default continue to be in existence under the
Agreement as set forth in (i) that certain letter from Agent to Borrower dated
January 2, 1997 and (ii) that certain letter from Agent to Borrower dated
January 7, 1997 (the "Existing Events of Default") and, as a result of such
Events of Default, Agent and Lenders have been, among other things, charging the
Default Rate on the Obligations; and

WHEREAS, pursuant to the Second Amendment, Agent and Lenders agreed with
Borrower to waive the Existing Events of Default conditioned on the reduction to
zero of an outstanding overadvance (the "Overadvance") by February 7, 1997; and

WHEREAS, Borrower has failed to reduce the Overadvance in accordance with
the Second Amendment and therefore the Existing Events of Default remain
outstanding; and

WHEREAS, Borrower and Corporate Guarantor have requested that Agent and
Requisite Lenders waive the Existing Events of Default; and

WHEREAS, Borrower and Corporate Guarantor have requested that Agent and
Requisite Lenders amend the Loan Agreement to, among other things, defer the
principal payment due date of Term Loan B

<PAGE>

from February 28, 1997 to June 30, 1997, and Agent and Requisite Lenders have
agreed to do so, subject to the following terms and conditions; and

NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of Borrower by Lender, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:

1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Loan Agreement.

2. Amendment to Loan Agreement. Subject to satisfaction of the
conditions precedent set forth in Section 4 below, the defined term "Scheduled
Installment of Term Loan B" set forth in Section 2.1(A)(2) of the Loan Agreement
is hereby amended in its entirety to provide as follows:

"Scheduled Installment of Term Loan B" means the principal installment in
an amount equal to $4,651,660.27, payable, subject to the provisions of
subsection 2.4(B), on or before June 30, 1997, or the earlier to occur of
(i) the Termination Date or (ii) acceleration of the Obligations in
accordance with the provisions of subsection 8.3, at which time the entire
unpaid principal amount thereof plus accrued interest thereon shall be due
and payable.

3. Limited Waiver. Agent and Lender hereby waive (i) the Existing Events
of Default (which waiver shall be deemed effective as of November 30, 1996) and
(ii) compliance with Section 6.5 of the Loan Agreement which section requires
Borrower to maintain Excess Availability of at least $250,000, conditioned on
the following: (i) that for the period between March 21, 1997 and May 1, 1997,
the outstanding principal amount of the Revolving Loan shall not exceed the
Maximum Revolving Loan Amount by an amount greater than $1,000,000, (ii) on and
after May 2, 1997, the Maximum Revolving Loan Amount shall be greater than or
equal to the outstanding principal amount of the Revolving Loan and (iii) for so
long as the outstanding principal amount of the Revolving Loan exceeds the
Maximum Revolving Loan Amount, (A) the Revolving Loan and all other Obligations
shall bear interest at a rate equal to two percent (2% plus the applicable
Interest Rate and (B) Borrower may not request any LIBOR Rate Loans and Borrower
may not convert any Base Rate Loans into LIBOR Rate Loans. Borrower's
compliance with the terms above shall not be deemed to constitute a commitment
by Agent or Lenders to provide advances under the Revolving Loan that exceed the
Maximum Revolving Loan Amount. This limited waiver shall not be deemed to
constitute a waiver of any other existing Events of Default or any future breach
of the Agreement or any of the other Loan Documents. In the event Borrower
fails to raise

-2-
<PAGE>

$1,000,000 by May 1, 1997, whether by sale or lease of equipment or
otherwise, Borrower shall pay Lender a fee equal to $50,000.

4. Conditions of Effectiveness. This Amendment shall become effective
when and only when Agent shall have received (a) four (4) copies of this
Amendment executed by Borrower and Corporate Guarantor and (b) such other
certificates, instruments, documents, agreements and opinions of counsel as may
be required by Agent or its counsel, each of which shall be in form and
substance satisfactory to Lender and its counsel.

5. Representations and Warranties. Borrower hereby represents and
warrants as follows:

(a) This Amendment and the Agreement, as amended hereby, constitute
legal, valid and binding obligations of Borrower and are enforceable
against Borrower in accordance with their respective terms.

(b) Upon the effectiveness of this Amendment, Borrower hereby
reaffirms all covenants, representations and warranties made in the Loan
Agreement to the extent the same are not amended hereby are correct in all
material respects and agree that all such covenants, representations and
warranties shall be deemed to have been remade as of the effective date of
this Amendment.

(c) Other than the Existing Events of Default, no Event of Default or
Default has occurred and is continuing or would exist after giving effect
to this Amendment.

(d) Borrower has no defense, counterclaim or offset with respect to
the Loan Agreement.

6. Effect on the Loan Agreement.

(a) Upon the effectiveness of Section 2 hereof, each reference in the
Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of
like import shall mean and be a reference to the Loan Agreement as amended
hereby.

(b) Except as specifically amended herein, the Loan Agreement, and
all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.

-3-
<PAGE>

(c) Except as specifically provided herein, the execution, delivery
and effectiveness of this Amendment shall not operate as a waiver of any right,
power or remedy of Agent or Lender, nor constitute a waiver of any provision of
the Loan Agreement, or any other documents, instruments or agreements executed
and/or delivered under or in connection therewith.

7. Governing Law. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns and
shall be governed by and construed in accordance with the laws of the State of
New York.

8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.

9. Counterparts. This Amendment may be executed by the parties hereto in
one or more counterparts, each of which shall be deemed an original and all of
which taken together shall be deemed to constitute one and the same agreement.
Any signature received by facsimile transmission shall be deemed an original
signature hereto.

IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and
year first written above.

UNITEL VIDEO, INC.

By: /s/ Barry Knepper
-------------------------------
Name: Barry Knepper
-------------------------------
Title: Chief Executive Officer
-------------------------------

R SQUARED, INC.

By: /s/ Barry Knepper
-------------------------------
Name: Barry Knepper
-------------------------------
Title: Chief Executive Officer
-------------------------------

HELLER FINANCIAL, INC., as Agent and
Lender

By: /s/ Jerome P. Sepich
-------------------------------
Name: Jerome P. Sepich
-------------------------------
Title: Vice President
-------------------------------

-4-

<PAGE>

Exhibit 4(C)
FOURTH AMENDMENT

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

THIS FOURTH AMENDMENT ("Amendment") is entered into as of May 7, 1997, by
and among UNITEL VIDEO, INC., a Delaware corporation having its principal place
of business at 555 West 57th Street, New York, New York 10019 ("Borrower"), R
SQUARED, INC., a California Corporation having its principal place of business
at 3330 Cahuenga Boulevard West, Los Angeles, California 90068 ("Corporate
Guarantor") and HELLER FINANCIAL, INC., a Delaware corporation having an office
at 500 West Monroe Street, Chicago, Illinois 60661, as agent ("Agent") for
Lender (as hereafter defined).

BACKGROUND

Borrower, Corporate Guarantor, Agent and Heller Financial, Inc. ("Lender")
are parties to an Amended and Restated Loan and Security Agreement dated as of
December 12, 1995 (as amended, supplemented or otherwise modified from time to
time, the "Loan Agreement") pursuant to which Lender provides Borrower with
certain financial accommodations.

Borrower has requested that Lender amend the Loan Agreement and Lender is
willing to do so on the terms and conditions hereafter set forth.

1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Loan Agreement.

2. Amendment to Loan Agreement. Subject to satisfaction of the
conditions precedent set forth in Section 3 below, the Loan Agreement is hereby
amended as follows:

(a) Section 1.1 of the Loan Agreement is hereby amended by:

(i) adding the following defined term in its appropriate alphabetical
order:

"Fourth Amendment Effective Date" means May 7, 1997."

(ii) amending the defined term "Permitted Term Loan B Repayment Source" to
provide as follows:

<PAGE>

"Permitted Term Loan B Repayment Source" means Specified Fixed Asset
Dispositions relating solely to Borrower's Editel-Los Angeles and Unitel
Hollywood divisions; provided, however, the aggregate Orderly Liquidation
Value of Appraised Assets sold or otherwise disposed of in such Specified
Fixed Asset Dispositions may not exceed the Threshold Amount; provided,
further, Specified Fixed Asset Dispositions relating to Borrower's
Editel-Los Angeles division shall only be utilized as a Permitted Term Loan
B Repayment Source in the event the Appraised Assets of Borrower's
Editel-Los Angeles division so sold are replaced with Appraised Assets of
Borrower's Unitel Hollywood division having an Orderly Liquidation Value of
not less than the amount of the Appraised Assets of Borrower's Editel-Los
Angeles division so sold.

(iii) amending the defined term "Amended and Restated Term Note" or
"Amended and Restated Term Notes" to provide as follows:

"Amended and Restated Term Note" or "Amended and Restated Term Notes" means
each promissory note of Borrower in substantially the form of Exhibits
2.1(A)(1), (A)(2) and (A)(3) issued in connection with the term loans
referenced in Section 2.1(A).

(b) Sections 2.1(A)(1) and 2.1(A)(2) of the Loan Agreement are hereby
amended in their entirety to provide as follows:

(A)(1) Term Loan A. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of
Borrower herein set forth, each Lender, severally, agrees to lend to
Borrower on the Fourth Amendment Effective Date such Lender's Pro Rata
Share of $9,000,000 minus $6,071,424, such that after giving effect to the
loan to be made to Borrower under this subsection 2.1(A)(1) on the Fourth
Amendment Effective Date the aggregate outstanding amount of Term Loan A
shall equal $9,000,000. Amounts borrowed under this subsection 2.1(A)(1)
and repaid may not be reborrowed. Borrower shall make principal payments
in the amount of the applicable Scheduled Installment of Term Loan A (or
such lesser principal amount of Term Loan A as shall then be outstanding)
on the dates and in the amounts set forth below.

"Scheduled Installment of Term Loan A" means each of the fifty-six
(56) consecutive monthly principal installments commencing on June 1, 1997
and continuing on the first day of each month thereafter, the first
fifty-five (55) of which shall, subject to the provisions of subsection
2.4(B), be in an amount equal to $100,000; and the final installment due on
December 12, 2001, or the

-2-

<PAGE>

earlier to occur of (a) the Termination Date or (b) acceleration of the
Obligations in accordance with the provisions of subsection 8.3, in an
amount equal to the unpaid principal amount of Term Loan A plus accrued
interest thereon.

(A)(2) Term Loan B. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of
Borrower herein set forth, each Lender, severally, agrees to lend to
Borrower its Pro Rata Share of Term Loan B in an aggregate amount not to
exceed $2,151,660.27 (all of which is outstanding as of the Fourth
Amendment Effective Date). Amounts borrowed under this subsection
2.1(A)(2) and repaid may not be reborrowed. Borrower shall make principal
payments in the amounts of the applicable Scheduled Installment of Term
Loan B (or such lesser principal amount of Term Loan B as shall then be
outstanding) on the dates and in the amounts set forth below; provided,
however, unless Agent otherwise consents in writing, Borrower may only make
principal payments on Term Loan B from a Permitted Term Loan B Repayment
Source.

"Scheduled Installment of Term Loan B" means each of the following two
(2) principal installments, the first of which is payable, subject to the
provisions of subsection 2.4(B), on or before July 1, 1997 in an amount
equal to $651,660.27 and the second of which is payable, subject to the
provisions of subsection 2.4(B), on or before September 30, 1997 in an
amount equal to the entire unpaid principal amount of Term Loan B plus
accrued interest thereon (it being understood that Borrower may prepay Term
Loan B, in whole or in part, from time to time, but only from a Permitted
Term Loan B Repayment Source), or, in each case, upon the earlier to occur
of (i) the Termination Date or (ii) acceleration of the Obligations in
accordance with the provisions of subsection 8.3, at which time the entire
unpaid principal amount of Term Loan B plus accrued interest thereon shall
be due and payable. Borrower hereby acknowledges that in the event any
Scheduled Installment of Term Loan B is not made on the dates and in the
amounts set forth herein, then it shall pay to Agent (which amount Agent
may charge to Borrower's account) a contingency fee in an amount equal to
(a) ten percent (10%) times (b) such unpaid Scheduled Installment of Term
Loan B; provided, however, Borrower's failure to pay a Scheduled
Installment of Term Loan B when due shall constitute an Event of Default
and shall entitle Agent to exercise all rights and remedies available to
Agent under this Agreement, the Loan Documents and applicable law,
notwithstanding payment of the aforementioned contingency fee.

-3-

<PAGE>

(A)(3) Term Loan C. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of
Borrower herein set forth, each Lender, severally, agrees to lend to
Borrower, upon Borrower's request therefor in accordance with the borrowing
procedures for Revolving Loan requests set forth in Section 2.1(D) hereof,
its Pro Rata Share of Term Loan C in an aggregate amount not to exceed
$3,500,000. Amounts borrowed under this subsection 2.1(A)(3) and repaid
may not be reborrowed. Borrower shall make a principal payment in the
amount of the applicable Scheduled Installment of Term Loan C (or such
lesser principal amount of Term Loan C as shall then be outstanding) on the
date and in the amount set forth below. Term Loan C shall bear interest
from the date such Loan is made to the date paid in full at a rate per
annum equal to the interest rate set forth in Section 2.2(A) applicable to
Term Loan A.

"Scheduled Installment of Term Loan C" means the principal installment
in an amount equal to $3,500,000, payable, subject to the provisions of
subsection 2.4(B), on or before July 31, 1997, together with all accrued
interest thereon (it being understood that Borrower may prepay Term Loan B,
in whole or in part, from time to time), or the earlier to occur of (i) the
Termination Date or (ii) acceleration of the Obligations in accordance with
the provisions of subsection 8.3 at which time the entire unpaid principal
amount of Term Loan C plus accrued interest thereon shall be due and
payable.

(d) Clause "(i)" of the first sentence of Section 2.1(E) is hereby amended
to provide as follows:

"(i) a Second Amended and Restated Term Note A, a Second Amended and
Restated Term Note B and Term Note C to evidence such Lender's portion of
the Term Loans, such notes to be in the principal amount of the respective
Term Loan Commitments of such Lender and with other appropriate insertions
and".

(e) Section 2.3(C) of the Loan Agreement is hereby amended by deleting all
references to "the second Loan Year" and replacing the same with the following:
"the period commencing on the first day of the second Loan Year and ending on
April 30, 1999".

(f) The first sentence of Section 2.4(C) of the Loan Agreement is hereby
amended by adding the following immediately preceding the reference to "2.1(B)":
"2.1(A)(2), 2.1(A)(3),".

-4-

<PAGE>

(g) The first sentence of Section 2.5 of the Loan Agreement is hereby
amended to provide as follows: "This Agreement shall be effective until
December 12, 2001 (the "Termination Date")."

(h) Section 6.1 of the Loan Agreement is hereby amended to provide as
follows:

6.1 Tangible Net Worth. Borrower shall at all times during the fiscal
quarters set forth below maintain Tangible Net Worth plus Subordinated Debt
of not less than the amounts set forth opposite such fiscal quarters:

Fiscal Quarter End Amount

May 31, 1997 $18,000,000
August 31, 1997 $17,000,000
November 30, 1997 $17,500,000
February 28, 1998 $18,000,000
May 31, 1998 $18,500,000
August 31, 1998 $19,500,000
November 30, 1998 and
each fiscal quarter
end thereafter $20,000,000

(i) Notwithstanding anything contained in Section 6.2 of the Loan
Agreement to the contrary, the Annual Amount applicable to Borrower's 1997
Fiscal Year shall be $15,000,000.

(j) Section 6.3 of the Loan Agreement is hereby amended to provide as
follows:

6.3 Fixed Charge Coverage. Borrower shall not permit its Fixed Charge
Coverage to be less than (a) .80 to 1.00 at all times during the three
fiscal quarters ending May 31, 1997, (b) .50 to 1.00 at all times during
the four fiscal quarters ending August 31, 1997, (c) .50 to 1.00 at all
times during the fiscal quarter ending November 30, 1997, calculated on a
rolling four quarter basis, (d) .50 to 1.00 at all times during the fiscal
quarter ending February 28, 1998, calculated on a rolling four quarter
basis, (e) .75 to 1.00 at all times during the fiscal quarter ending May
31, 1998, calculated on a rolling four quarter basis, (f) 1.00 to 1.00 at
all times during the fiscal quarter ending August 31, 1998, calculated on a
rolling four quarter basis and (g) 1.00 to 1.00 at all times during each
fiscal quarter ending thereafter, calculated on a rolling four quarter
basis.

For purposes of the covenant calculations under this Section 6.3, Operating
Cash Flow shall exclude financed Capital Expenditures utilized by Borrower
to finance its construction of mobile teleproduction units with the

-5-

<PAGE>

proceeds of industrial revenue bonds to be issued by the Allegheny County
Industrial Development Authority.

(k) Section 6.4 of the Loan Agreement is hereby amended to provide as
follows:

6.4 Leverage Ratio. Borrower shall not permit its Leverage Ratio at the
end of each fiscal quarter set forth below (calculated on a rolling four
quarter basis) to be greater than the amount set forth below for such
fiscal quarter end:

Fiscal Quarter End Ratio

May 31, 1997 3.75 to 1.00
August 31, 1997 3.75 to 1.00
November 30, 1997 3.25 to 1.00
February 28, 1998 3.00 to 1.00
May 31, 1998 2.75 to 1.00
August 31, 1998 and
each fiscal quarter end
thereafter 2.75 to 1.00

(l) Section 6.5 to the Loan Agreement is hereby deleted in its entirety
and replaced with the following:

6.5 Interest Coverage. During each fiscal period when Borrower's Fixed
Charge Coverage is less than 1.00 to 1.00, Borrower shall not permit the
ratio of (a) Operating Cash Flow to (b) Interest Expense to be less than
1.30 to 1.00. For purposes of the covenant calculations under this Section
6.5, Operating Cash Flow shall exclude financed Capital Expenditures
utilized by Borrower to finance its construction of mobile teleproduction
units with the proceeds of industrial revenue bonds to be issued by the
Allegheny County Industrial Development Authority.

(m) Exhibits 2.1(A)(1) and 2.1(A)(2) to the Loan Agreement are hereby
replaced with Exhibits 2.1(A)(1) and 2.1(A)(2) to this Amendment.

(n) Exhibit 2.1(A)(3) to this Amendment is hereby added to the Loan
Agreement as Exhibit 2.1(A)(3).

3. Conditions of Effectiveness. This Amendment shall become effective
when and only when Agent shall have received (a) four (4) copies of this
Amendment executed by Borrower and Corporate Guarantor, (b) an amendment fee for
Agent's account in an amount equal to $75,000, which may be charged by Agent to
Borrower's account (the "Amendment Fee") and (c) such other certificates,
instruments, documents, agreements and opinions of counsel as may be required by
Agent or its counsel, each of which

-6-

<PAGE>

shall be in form and substance satisfactory to Lender and its counsel.

4. Lender Acknowledgments. Lender hereby acknowledges that (i)
Borrower's payment of the Amendment Fee shall compensate Lender for its
accommodations provided under this Amendment and a fifth amendment to the Loan
Agreement (the "Fifth Amendment") to be executed by the parties hereto on or
prior to July 31, 1997 so long as the Fifth Amendment is solely to provide for a
letter of credit facility and other accommodations by Lender for the benefit of
Borrower in connection with certain industrial revenue bonds to be issued by the
Allegheny County Industrial Development Authority to finance Borrower's
construction of mobile teleproduction units, on terms and conditions acceptable
to Lender, and Lender shall not charge Borrower any additional amendment fee in
connection with the execution and delivery of the Fifth Amendment; provided,
however, Lender hereby reserves its rights to charge an additional amendment fee
in connection with the Fifth Amendment if at the time of its execution either
(a) an Event of Default shall be in existence or (b) the matters covered by the
Fifth Amendment are additional to those specifically set forth above; provided,
further, that Lender shall be under no obligation to enter into the Fifth
Amendment if an Event of Default shall then be in existence; (ii) the Special
Reserve established under the First Amendment to the Loan Agreement is no longer
applicable to Borrower and (iii) upon Lender's receipt of the fully executed and
notarized original promissory notes attached to this Amendment, the Amended and
Restated Term Note A and the Amended and Restated Term Note B, each dated
December 12, 1995 and made by Borrower in favor of Agent shall be of no further
force and effect and Lender shall promptly thereafter deliver originals of the
same to Borrower marked cancelled.

5. Representations and Warranties. Borrower hereby represents and
warrants as follows:

(a) This Amendment and the Agreement, as amended hereby, constitute
legal, valid and binding obligations of Borrower and are enforceable
against Borrower in accordance with their respective terms.

(b) Upon the effectiveness of this Amendment, Borrower hereby
reaffirms that all covenants, representations and warranties made in the
Loan Agreement to the extent the same are not specifically amended hereby
are correct in all material respects and agrees that all covenants,
representations and warranties shall be deemed to have been remade as of
the effective date of this Amendment.

-7-

<PAGE>

(d) Borrower has no defense, counterclaim or offset with respect to
the Loan Agreement or the Obligations thereunder.

6. Effect on the Loan Agreement.

(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.

8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.

-8-

<PAGE>

IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and
year first written above.

UNITEL VIDEO, INC., as Borrower

By: /s/Barry Knepper
--------------------------------
Name: Barry Knepper
------------------------------
Title: CEO
-----------------------------

R SQUARED, INC., as Corporate
Guarantor

By: /s/Barry Knepper
-------------------------------
Name: Barry Knepper
-----------------------------
Title: CEO
----------------------------

HELLER FINANCIAL, INC., as Agent and
Lender

By: /s/Jerome Sepich
------------------------------
Name: Jerome Sepich
----------------------------
Title: Vice President
---------------------------

-9-

<PAGE>

Exhibit 10(A)

EXECUTION COPY

AGREEMENT

THIS AMENDED AND RESTATED AGREEMENT, dated as of March 20, 1997, by and
between UNITEL VIDEO, INC., a Delaware corporation (herein "Employer") and
ALBERT WALTON, an individual residing at 1040 S. Longwood Ave., Los Angeles,
CA 90019 (hereinafter "Employee").

W I T N E S S E T H :

WHEREAS, Editel Los Angeles, a division of Employer, and Employee have
executed an Agreement dated as of December 1, 1996 (the "Original Agreement")
relating to the terms of Employee's employment with Employer; and

WHEREAS, it is currently contemplated that Editel Los Angeles and
Unitel/ Hollywood, also a division of Employer, shall be merged (the new
entity consisting of the merged divisions of Editel Los Angeles and Unitel/
Hollywood being hereinafter referred to as the "Merged Division"); and

WHEREAS, Employer desires that Employee perform certain duties and have
certain responsibilities for both Editel Los Angeles and the Merged Division
and Employee accepts such duties and responsibilities in accordance with the
terms of this Agreement; and

WHEREAS, this Agreement amends and restates the Original Agreement in
its entirety and the Original Agreement is of no further force and effect;

NOW THEREFORE, in consideration of the premises and the agreements
herein contained, Employer and Employee agree as follows:

Section 1. Employment.

A. Employee shall perform such duties and exercise such powers on
behalf of Employer and have such responsibilities as are consistent with the
position of (1) for so long as Editel Los Angeles is in existence, "President
- - Editel Los Angeles" and (2) upon the establishment of the Merged Division,
"President and Chief Executive Officer of the Merged Division," together with
any other function as might reasonably be deemed required and necessary for
the advancement of the interests of Employer.

B. Employee shall devote his best efforts and his time, knowledge,
skill, attention and energy exclusively to the business of Employer in the
advancement of the interests of Employer. Employee will not engage in any
activities that would interfere with his ability to discharge his
responsibilities as an employee of Employer.

<PAGE>

C. Employer shall have the right at any time, and from time to time,
to modify the duties to be performed by Employee, or the powers exercised by
him, consistent with the discharge of his responsibilities as either
President of Editel Los Angeles or President and Chief Executive Officer of
the Merged Division, as applicable; provided, however, that Employer may not
modify the duties of Employee such that the modification(s) creates a
substantial change or alteration in Employee's duties without first obtaining
Employee's written consent.

Section 2. Term of Employment.

A. Employee's employment under this Agreement shall be for a period
commencing on March 20, 1997, and ending on August 31, 1998 (the "Employment
Period").

B. Notwithstanding the terms of paragraph A of this section,
Employee's employment is subject to termination by Employer in accordance
with the provisions of Section 5 of this Agreement.

Section 3. Compensation.

B. Employee shall be paid bonus compensation in respect of each fiscal
year of Employer during the Employment Period (commencing with Employer's
fiscal year ending August 31, 1997) equal to five (5%) percent of the pre-tax
net income of Editel Los Angeles and its successor the Merged Division
(calculated in accordance with Employer's accounting practices currently in
force; provided that the corporate charge used in calculating such amount
shall be whatever was agreed to in the budget for Editel Los Angeles for such
fiscal year (whether the actual number for such charge in such fiscal year
increases or decreases from such budgeted amount) and the depreciation
expense used in such calculation shall be the lesser of the budgeted amount
or the actual amount for Editel Los Angeles for such fiscal year unless
actual exceeds budgeted due to an increase in Editel Los Angeles' capital
budget for such fiscal year in which case the actual amount will be used in
such calculation) for such fiscal year. Bonus compensation payable pursuant
to this Section 3B shall be paid within 90 days after the end of the
applicable fiscal year. Bonus compensation shall be pro rated in respect of
any period during the Employment Period which is shorter than a full fiscal
year of Employer.

C. Employee shall be paid bonus compensation equal to Forty Thousand
Dollars ($40,000) for services related to the merger of Unitel Hollywood and
Editel Los Angeles divisions. This bonus is payable on a one time basis,
within 90 days after the end of the fiscal year ended August 31, 1997.

<PAGE>

D. All compensation provided for in this paragraph 3, shall be subject
to withholding as required by law or by the terms of any applicable benefit
plan(s) and shall be paid in accordance with Employer's customary practices.

E. Employee shall receive options to purchase 10,000 shares of the
common stock of Unitel Video, Inc., at the option price of $5.25, each, in
accordance with Employer's stock option plan, a copy of which is attached
hereto marked Exhibit "A". Employee acknowledges that he has received such
options.

Section 4. Benefits.

A. During the Employment Period, Employee shall be eligible to
participate in such pension, insurance, medical, disability and other
employee benefit plans of Employer which may be in effect from time to time,
to the extent he is eligible under the terms of those plans on the same basis
as other similarly situated employees of Employer.

B. Employee shall receive vacation during each annual period during
the Employment Period calculated in accordance with Employer policy.

C. Employer will pay for (i) lease payments on one automobile leased
and utilized for business purposes not to exceed a maximum of $600 per month
(including sales taxes) and (ii) the cost of insurance and maintenance for
such automobile.

Section 5. Termination.

A. Employee's employment and his rights hereunder shall terminate on
the first to occur of the following dates:

(i) the expiration of the Employment Period;
(ii) the date on which Employer gives Employee written notice of
termination for cause pursuant to subsection (b) hereof;
(iii) upon Employee's death; or
(iv) at the option of Employer, at the expiration of the maximum
period or leave pursuant to the federal Family Medical Leave Act (if applicable
to Employee) or 60 days after the onset of Employee's disability, whichever is
later.

B. Should Employee (in the reasonable opinion of Employer) (i) fail,
neglect or refuse (other than by reason of mental or physical disability) to
perform or observe any or all of his obligations hereunder at the time and in
the manner herein provided; (ii) commit an act of dishonesty, gross
negligence or willful misconduct, including, without limitation, fraud or
embezzlement; (iii) make or be found to have made any false representation or
warranty herein; (iv) be in breach of any material covenant or other

<PAGE>

obligation contained in this Agreement; (v) be convicted of a felony or any
crime involving moral turpitude; or (vi) be found to be in possession or
under the influence of illegal drugs, Employer may upon written notice, at
its option, terminate this Agreement, and thereupon be released and
discharged from the obligation to pay salary accruing after the date of
Employee's discharge, and from all other obligations provided for herein, but
such termination shall not affect any liability of Employee to Employer for
any loss or damages to Employer caused by, or arising out of, the conduct of
Employee resulting in his termination under this subsection (B).

Section 6. Non-Disclosure Covenant; Ownership of Proceeds Employment.

A. Employee shall not, at any time during the term of this Agreement
or thereafter, except in the performance of his duties hereunder, communicate
or disclose to any person, or use for his own account, without the prior
written consent of Employer, any knowledge or information concerning any
patents, inventions or equipment used in, or any secret or confidential
information (including, without limitation, any customer lists or trade
secrets) acquired by Employee by reason of his employment hereunder
concerning the business and affairs of Employer or any of its affiliates.
Employee shall retain all such proprietary and confidential information in
trust for the sole benefit of Employer and its successors and assigns.

B. Employer shall be the sole owner of all the fruits and proceeds of
Employee's services hereunder all of which Employee will promptly disclose to
Employer, including, but not limited to, all formats, suggestions,
developments, arrangements, designs, packages, programs, promotions and other
intellectual properties which Employee may create in connection with and
during the Employment Period, free and clear of any claims by Employee (or
anyone claiming through or under him) of any kind or character (other than
his right to compensation hereunder). All copyrightable works created by
Employee and covered by this paragraph shall be deemed to be Works for Hire.
Employee shall, at the request of Employer, execute such assignments,
certificates or other instruments as Employer may from time to time deem
necessary or desirable to evidence, establish, maintain, perfect, protect,
enforce or defend its rights, title or interest in or to any such properties.
If Employee is unable or unwilling to perform such acts, Employee hereby
appoints Employer his attorney-in-fact with full power and authority to
execute any and all documents and take such other action as is necessary to
accomplish the foregoing.

C. All memoranda, notes, records, and other documents made or compiled
by Employee, or made available to him during his employment by Employer,
concerning the business of Employer, shall be Employer's property and shall
be delivered to Employer on the termination of this Agreement or at any other
time on request.

<PAGE>

Section 7. Covenants not to Compete; Non-Interference.

A. Except in the course of his employment or upon the prior written
consent of Employer, Employee shall not at any time during the Employment
Period (i) render services or advice, for compensation or otherwise, to any
other person or entity as an employee, consultant or independent contractor
or otherwise; or (iii) enter into any other business affiliation, including,
without limitation, the establishment of a proprietorship or the
participation in a partnership or joint venture.

B. Employee shall not, at any time during the Employment Period and
for six (6) months after termination pursuant to Section 5, for compensation
or otherwise, acting alone or in conjunction with others, directly or
indirectly, as a stockholder, investor, officer or director of a corporation
in which he possesses, directly or indirectly, the power to direct or cause
the direction of management or policies (including without limitation a 5% or
more holder of the voting securities of a corporation), or as sole proprietor
or member of a partnership in all cases.

(i) for his own account or for the account of any other person,
engage, hire, employ or solicit the employment of any person who is then or
has been, within three (3) months prior thereto, an officer, manager or
employee of Employer, whether or not such person would commit a breach of his
or her contract of employment by reason of leaving the services of Employer or

(ii) take advantage of any corporate opportunity of Employer.

C. The restrictions contained in this section are considered
reasonable by the parties and it is the intent of the parties that such
restrictions and the other provisions of this Section be enforced to the
fullest extent permissible under the laws and the public policies applied in
each jurisdiction in which enforcement is ought.

Section 8. Compliance With Other Agreements.

Employee represents and warrants to Employer that (i) he is legally
free to make and perform this Agreement; and (ii) he has no obligation to any
other person or entity that would or will affect or conflict with any of his
obligations hereunder.

Section 9. Full and Complete Agreement; Amendment.

This Agreement constitutes the full and complete understanding and
agreement of the parties and supersedes all prior understandings and
agreements regarding Employee's employment by Employer. This Agreement may
be modified only by a written instrument executed by both parties.

<PAGE>

Section 10. Waiver.

No waiver by either party of any failure or refusal to comply with
its or his obligation shall be deemed a waiver of any other or subsequent
failure or refusal to so comply.

Section 11. Partial Invalidity.

If any term or provision of this Agreement or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the application of such
term or provision to persons or circumstances other than those as to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.

Section 12. Successors and Assigns.

This Agreement shall inure to the benefit of, and shall be binding
upon the parties hereto and their respective successors, assigns, heirs, and
legal representatives, including any person or entity with which Employer may
merge or consolidate or to which it may transfer all or substantially all of
its assets. With respect to Employee, this Agreement, being personal, cannot
be assigned.

Section 13. Authorization.

Employer warrants and represents that the person executing this
Agreement on behalf of Employer has full right and authority to bind Employer
corporation, and was and is authorized in every manner and respect to enter
into this Agreement.

Section 14. Notices.

All notices and other communications which are required or may be
given under this agreement shall be in writing and shall be deemed to have
been duly given when delivered in person or transmitted by facsimile, or five
(5) days after being mailed by registered or certified first class mail,
postage prepaid, return receipt requested, in the case of Employer, to its
Chief Executive Officer at 555 West 57th Street, New York, NY 10019, and, in
the case of Employee, to 1040 S. Longwood Ave., Los Angeles, CA 90019, or to
such other address as such party shall have specified by notice to the other
party hereto.

<PAGE>

Section 15. Jurisdiction.

This Agreement shall be governed and construed in accordance with
the laws of the State of New York (without regard to the principles of
conflicts of laws), the principal place of business of Employer. The parties
agree that the courts of the State of California shall have exclusive
jurisdiction over all matters of this Agreement and either party may bring
suit in such jurisdiction. The venue of such action shall be in Los Angeles
County.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first set forth above.

UNITEL VIDEO, INC. ALBERT WALTON

By: /s/ Barry Knepper By: /s/ Albert Walton
----------------- -----------------
Title: Chief Executive Officer Title: President

<PAGE>
Exhibit 10(B)

EXECUTION COPY

EMPLOYMENT AGREEMENT

THIS AGREEMENT, dated as of March 20, 1997, by and
between UNITEL VIDEO, INC., a Delaware corporation (herein
"Employer") and MARK MILLER, an individual residing at 55
Flintlock Lane, Bell Canyon, California 91307 (herein
"Employee").

W I T N E S S E T H :

WHEREAS, it is currently contemplated that Editel Los
Angeles and Unitel/ Hollywood, both divisions of Employer,
shall be merged (the new entity consisting of the merged
divisions of Editel Los Angeles and Unitel/ Hollywood being
hereinafter referred to as the "Merged Division"); and

WHEREAS, Employer desires that Employee perform certain
duties and have certain responsibilities for both
Unitel/Hollywood and the Merged Division and Employee
accepts such duties and responsibilities in accordance with
the terms of this Agreement;

NOW THEREFORE, in consideration of the premises and the
agreements herein contained, Employer and Employee agree as
follows:

Section 1. Employment.

A. Employee shall perform such duties and exercise
such powers on behalf of Employer and have such
responsibilities as are consistent with the position of (1)
for so long as Unitel/Hollywood is in existence, "President
- - Unitel/Hollywood" and (2) upon the establishment of the
Merged Division, "Chief Operating Officer of the Merged
Division" and such additional duties as shall be reasonably
designated from time to time by or at the direction of
Employer, together with any other function as might be
deemed required and necessary for the advancement of the
interests of Employer.

B. Employee shall devote his best efforts and his
time, knowledge, skill, attention and energy to the business
of Employer in the advancement of the interests of Employer.
Employee will not engage in any activities that would
interfere with his ability to discharge his responsibilities
as an employee of Employer.

Section 2. Term of Employment.

A. Employee's employment under this Agreement shall
be for a period commencing on March 1, 1997 and ending on
February 28, 1999 (such period being, the "Employment
Period").

<PAGE>

B. Notwithstanding the terms of paragraph A of this
section, Employee's employment is subject to termination by
Employer or Employee in accordance with the provisions of
Section 5 of this Agreement.

Section 3. Compensation.

A. In consideration for the services to be rendered
by Employee hereunder and in consideration of the covenants
herein given by Employee, Employer shall pay to Employee an
annual salary equal to (1) One Hundred Seventy Eight
Thousand Five Hundred Dollars ($178,500) (the "Base Salary")
during the period from March 1, 1997 through February 28,
1998 and (2) a percentage increase in the Base Salary equal
to the percentage increase in the Consumer Price Index, All
Urban Consumers in the Los Angeles Metropolitan Area (or its
successor index), as published by the Bureau of Labor
Statistics of the Department of Labor, from January 30, 1998
( or as near a date as is available) compared to January 30,
1997 (or the corresponding date in the prior year, as
applicable) for the period from March 1, 1998 through
February 28, 1999 (for example, if the Consumer Price Index
increases by 3% from January 30, 1997 to January 30, 1998,
Employee shall receive an annual salary equal to $183,855
during the period from March 1, 1998 through February 28,
1999), payable in accordance with Employer's usual payroll
practices, and subject to such withholdings as may be
required by law or by the terms of any applicable benefit
plan(s).

B. Provided that for the months of September 1, 1996
through the earlier of August 31, 1997 and the date that
Unitel/Hollywood ceases operation (such months being, the
"Base Period") Unitel/Hollywood achieves pre-tax net income,
Employee shall be paid bonus compensation for the Base
Period equal to five (5%) percent of the pre-tax net income
of Unitel/Hollywood for the Base Period. For all fiscal
years of Employer after August 31, 1997 and during the
Employment Period, Employee shall be paid bonus compensation
in respect of each such fiscal year equal to three (3%)
percent of the pre-tax net income of the Merged Division for
such fiscal year. Bonus compensation in respect of any
period (except the Base Period) during the Employment Period
which is shorter than a full fiscal year shall be pro rated.
Bonus compensation shall be subject to withholding as
required by law and shall be paid in accordance with
Employer's customary practices.

C. Employee shall be paid bonus compensation equal to
one percent (1%) of revenues ("Long Form Revenues"),
determined on an accrual basis, in respect of all long-form
services (such term being defined by reference to the manner
in which the customer base was divided between Editel Los
Angeles and Unitel/Hollywood in March, 1997) provided by
Editel Los Angeles, Unitel/Hollywood and the Merged Division
for the period from June 1, 1997 through May 31, 1998. For
purposes of calculating Long Form Revenues, there shall not
be included any revenues in respect of food, telephone,
messengers or any other out-of-pocket costs or any
applicable taxes. Bonus compensation shall be subject to
withholding as required by law and shall be paid in
accordance with Employer's customary practices.

D. Subject to the approval of the Board of Directors
of Unitel Video, Inc., Employee shall receive options to
purchase 10,000 shares of the common stock of Unitel Video,
Inc., exercisable as determined by the Board of Directors
pursuant to the Unitel Video, Inc. 1992 Stock Option Plan.

<PAGE>

E. Employee acknowledges that his responsibilities
are those of a bona fide professional, whose work is
original and creative and requires the theoretical and
practical application of highly specialized knowledge and
whose knowledge has been acquired through a prolonged course
of specialized training and experience. As such, he is
exempt from the maximum hours and minimum pay requirements
of the Fair Labor Standards Act and similar state laws.

Section 4. Benefits.

A. During the Employment Period, Employee shall be
eligible to participate in such pension, insurance, medical,
disability and other employee benefit plans of Employer
which may be in effect from time to time, to the extent his
is eligible under the terms of those plans on the same basis
as other similarly situated employees of Employer.

B. Employee shall receive five (5) weeks of vacation
during each annual period during the Employment Period,
calculated and taken in accordance with Employer policy.
Employee hereby acknowledges and agrees that as of March 1,
1997 Employee was entitled to a total of 35 accrued and
unused vacation days.

C. Employer will pay for (i) lease payments on one
automobile leased by Employee and utilized for business
purposes not to exceed a maximum of $600 per month
(including sales taxes) and (ii) the cost of insurance and
maintenance for such automobile.

Section 5. Termination.

A. Employee's employment and his rights hereunder
shall terminate on the first to occur of the following
dates:

(i) the expiration of the Employment
Period;
(ii) the date on which Employer gives
Employee written notice of
termination for cause pursuant to
subsection (B) hereof;
(iii) upon Employee's death; or
(iv) at the option of Employer, at the
expiration of the maximum period of
leave pursuant to the federal Family
Medical Leave Act (if applicable to
Employee) or 60 days after the onset
of the Employee's disability, whichever
is later.

B. Should Employee (in the reasonable opinion of
Employer, which shall not be conclusive on Employee for
purposes of exercising his rights set forth in the last
sentence of this subsection B) (i) fail, neglect or refuse
(other than by reason of mental or physical disability) to
perform or observe any or all of his obligations hereunder
at the time and in the manner herein provided; (ii) commit
an act of dishonesty, gross negligence or willful
misconduct, including, without limitation, fraud or
embezzlement; (iii) make or be found to have made any
false representation or warranty herein; (iv) be in breach
of any material covenant or other obligation contained in
this Agreement; (v) be convicted of a felony or any crime
involving moral turpitude; or

<PAGE>

(vi) be found to be in possession or under the influence
of illegal drugs, Employer may upon written notice, at
its option, terminate this Agreement, and thereupon be
released and discharged from all further obligations
provided for herein, but such termination shall not
affect any liability of Employee to Employer for any loss
or damages to Employer caused by, or arising out of, the
conduct of Employee resulting in his termination under
this subsection (B). Notwithstanding the above but
without limiting Employer's rights in any manner,
Employee shall be free to contest the validity and
reasonableness of Employer's determination regarding any
termination for cause, and in the event such
determination and/or termination is found to be
unreasonable or in bad faith, Employer's obligations
under this Agreement will not be terminated nor
discharged.

C. At any time after January 1, 1998, Employee shall
be entitled to terminate his employment hereunder in the
event that he is unable in good faith to work together with
Mr. Al Walton, President and Chief Executive Officer of the
Merged Division; provided that Employee notifies Employer
subsequent to the aforementioned date and gives Employer
thirty days to endeavor to settle any disagreements between
the two individuals. If at the end of such thirty-day period
a settlement has not been reached, Employee may upon written
notice terminte his employment hereunder and be entitled to
severance in an amount equal to one week of his then current
salary for each year of employment with Employer.

Section 6. Non-Disclosure Covenant;
Ownership of Proceeds of Employment

A. Employee shall not, at any time during the term of
this Agreement or thereafter, except in the performance of
his duties hereunder, communicate or disclose to any person,
or use for his own account, without the prior written
consent of Employer, any knowledge or information concerning
any patents, inventions or equipment used in, or any secret
or confidential information (including, without limitation,
any customer lists or trade secrets) acquired by Employee by
reason of his employment hereunder concerning the business
and affairs of Employer or any of its affiliates. Employee
shall retain all such proprietary and confidential
information in trust for the sole benefit of Employer and
its successors and assigns.

B. Employer shall be the sole owner of all the fruits
and proceeds of Employee's services hereunder all of which
Employee will promptly disclose to Employer, including, but
not limited to, all formats, suggestions, developments,
arrangements, designs, packages, programs, promotions and
other intellectual properties which Employee may create in
connection with and during the Employment Period, free and
clear of any claims by Employee (or anyone claiming through
or under him) of any kind or character (other than his right
to compensation hereunder). All copyrightable works created
by Employee and covered by this paragraph shall be deemed to
be Works for Hire. Employee shall, at the request of
Employer, execute such assignments, certificates or other
instruments as Employer may from time to time deem necessary
or desirable to evidence, establish, maintain, perfect,
protect, enforce or defend its right, title or interest in
or to any such properties. If employee is unable or
unwilling to perform such acts, Employee hereby appoints
Employer his attorney-in-fact with full power and authority
to execute any and all documents and take such other action
as is necessary to accomplish the foregoing.

<PAGE>

C. All memoranda, notes, records, and other documents
made or compiled by Employee, or made available to him
during his employment by Employer, concerning the business
of Employer, shall be Employer's property and shall be
delivered to Employer on the termination of this Agreement
or at any other time on request.

Section 7. Covenants not to Compete;
Non-Interference.

A Except in the course of his employment or upon
the prior written consent of Employer, Employee shall not at
any time during the Employment Period ( i ) render services
or advice, for compensation or otherwise, to any other
person or entity as an employee, consultant or independent
contractor or otherwise; or ( ii ) enter into any other
business affiliation, including, without limitation, the
establishment of a proprietorship or the participation in a
partnership or joint venture. Notwithstanding the foregoing,
Employer hereby gives its consent to Employee's
participation solely in an advisory capacity as a consultant
in the business of Electric Film Center provided that the
amount of time spent by Employee in such advisory role is di
minimis and does not otherwise interfere with the
performance of his obligations hereunder as determined by
Employer and provided further that Employee shall not
represent that Employer is involved in any manner in the
business or operation of Electric Film Center. In the event
that Employer determines that Employee's participation in
the business of Electric Film Center is excessive and/or
interferes with the performance of his duties hereunder,
Employee shall cease or modify his participation in the
business of Electric Film Center, as requested by Employer.

B. Employee shall not, at any time during the
Employment Period and for six (6) months after termination
pursuant to Section 5, for compensation or otherwise, acting
alone or in conjunction with others, directly or indirectly,
as a stockholder, investor, officer or director of a
corporation in which he possesses, directly or indirectly,
the power to direct or cause the direction of management or
policies (including without limitation a 10% or more holder
of the voting securities of a corporation), or as sole
proprietor or member of a partnership in all cases:

(i) for his own account or for the account
of any other person, engage, hire, employ or solicit the
employment of any person who is then or has been, within
three (3) months prior thereto, an officer, manager or
employee of Employer, whether or not such person would
commit a breach of his or her contract of employment by
reason of leaving the services of Employer; or

(ii) take advantage of any corporate
opportunity of Employer.

C. The restrictions contained in this section are
considered reasonable by the parties and it is the intent of
the parties that such restrictions and the other provisions
of this Section be enforced to the fullest extent
permissible under the laws and the public policies applied
in each jurisdiction in which enforcement is sought.

<PAGE>

Section 8. Compliance With Other Agreements.

Employee represents and warrants to Employer that
( i ) he is legally free to make and perform this Agreement;
and ( ii ) he has no obligation to any other person or
entity that would or will affect or conflict with any of
his obligations hereunder.

Section 9. Full and Complete Agreement; Amendment.

This Agreement constitutes the full and complete
understanding and agreement of the parties and supersedes
all prior understandings and agreements regarding Employee's
employment by Employer. This Agreement may be modified only
by a written instrument executed by both parties.

Section 10. Waiver.

No waiver by either party of any failure or
refusal to comply with its or his obligations shall be
deemed a waiver of any other or subsequent failure or
refusal to so comply.

Section 11. Partial Invalidity.

If any term or provision of this Agreement or the
application thereof to any person or circumstances shall, to
any extent, be invalid or unenforceable, the remainder of
this Agreement, or the application of such term or provision
to persons or circumstances other than those as to which it
is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by
law.

Section 12. Successors and Assigns.

This Agreement shall inure to the benefit of, and
shall be binding upon, the parties hereto and their
respective successors, assigns, heirs, and legal
representatives, including any person or entity with which
Employer may merge or consolidate or to which it may
transfer all or substantially all of its assts. With
respect to Employee, this Agreement, being personal, cannot
be assigned.

Section 13. Authorizations.

Employer warrants and represents that the person
executing this Agreement on behalf of Employer has full
right and authority to bind Employer corporation, and was
and is authorized in every manner and respect to enter into
this Agreement.

Section 14. Attorney's Fees/Costs

In the event of any dispute, action or proceeding
under or arising out of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees and costs.

<PAGE>

Section 15. Notices.

All notices and other communications which are
required or may be given under this Agreement shall be in
writing and shall be deemed to have been duly given when
delivered in person or transmitted by facsimile, or five (5)
days after being mailed by registered or certified first
class mail, postage prepaid, return receipt requested, in
the case of Employer, to its President at 515 West 57th
Street, New York, New York 10019 with a copy to Karen C.
Lapidus, Esq., General Counsel, at 515 West 57th Street, New
York, New York 10019 and, in the case of Employee, to 55
Flintlock Lane, Bell Canyon, California 91307 or to
Employee at his last known address, with a copy to Howard S.
Hornreich, Esq., attorney for Employee, 23101 144th Avenue
S.E., Kent, Washington 98042, or to such other address as
such party shall have specified by notice to the other party
hereto.

Section 16. Jurisdiction.

This Agreement shall be governed by and construed
in accordance with the laws of the State of New York
(without regard to the principles of conflicts of laws), the
principal place of business of Employer. The parties agree
that the courts of the State of New York and of the State of
California shall have exclusive jurisdiction over all
matters of this Agreement and either party may bring suit
in either of such jurisdictions. The venue of such action
shall be in New York County or Los Angeles County, as
applicable.

Section 17. Effectiveness.

Although dated the above date for convenience,
this Agreement shall govern the employment relationship
between the parties for the entire Employment Period.

IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the date first set forth
above.

UNITEL VIDEO, INC. MARK MILLER

By: /s/ Barry Knepper By: /s/ Mark Miller

Title: Chief Executive Officer Title: President

<PAGE>
<ARTICLE> 5
<CIK> 0000740103
<NAME> UNITEL VIDEO,INC.
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 75
<SECURITIES> 0
<RECEIVABLES> 7909
<ALLOWANCES> 492
<INVENTORY> 0
<CURRENT-ASSETS> 9,104
<PP&E> 128,437
<DEPRECIATION> 75,550
<TOTAL-ASSETS> 66,497
<CURRENT-LIABILITIES> 18,989
<BONDS> 38,788
0
0
<COMMON> 27
<OTHER-SE> 17,778
<TOTAL-LIABILITY-AND-EQUITY> 66,497
<SALES> 47,210
<TOTAL-REVENUES> 47,210
<CGS> 38,347
<TOTAL-COSTS> 38,347
<OTHER-EXPENSES> 9,274
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 2,674
<INCOME-PRETAX> (161)
<INCOME-TAX> 1
<INCOME-CONTINUING> (162)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (162)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0

</TABLE>