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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8654
UNITEL VIDEO, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 23-1713238
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<S> <C>
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
<CAPTION>
555 WEST 57TH STREET, NEW YORK, NEW YORK 10019
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<S> <C>
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (212) 265-3600
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
Common Stock, $.01 par value American Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form10-K. [ ]
The aggregate market value of the voting stock (based on the closing price of
such stock on the American Stock Exchange) held by non-affiliates of the
Registrant at November 16, 1998 was approximately $7,857,333.
There were 2,714,116 shares of Common Stock outstanding at November 16, 1998.
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PART I
ITEM 1. BUSINESS
GENERAL
Unitel Video, Inc. (the "Company") provides a full range of services to the
video and film communications industry for the recording, editing, creation of
digital effects and duplication of television programs, commercials, corporate
communications and feature films. The Company's services are provided primarily
in the following areas: studio videotape recording, mobile videotape recording
and live telecasting, film to videotape transfer, editing, computer generated
visual effects and videotape duplication.
The Company's services are provided at facilities located in New York City
and Los Angeles and through the Company's Mobile division based in Pittsburgh,
Pennsylvania with additional Mobile division facilities in Burbank, California,
and Montreal, Canada. The Mobile division provides "on-location" services (the
"Mobile Business"), including technical personnel, for videotape recording and
live telecasting of sports, entertainment, cultural and other events throughout
North America. In fiscal 1997, the Company established Unitel Video Canada Inc.,
a wholly owned subsidiary of the Company, to engage in the Mobile Business in
Canada.
As the Company is in a service industry it does not use raw materials. It
does, however, use videotape. Videotape is readily available from numerous
sources and the Company has not experienced, nor does it anticipate
experiencing, difficulty in obtaining videotape for its operations. In addition,
the Company has service contracts with its customers, generally for facilities
and personnel at specific times or on a project or job-by-job basis (as more
fully described below under the caption "Marketing") and, accordingly, does not
have backlog as such.
The Company's cost structure is such that depreciation, selling expenses and
general and administrative expenses do not generally fluctuate from quarter to
quarter during a fiscal year based on sales volume. Furthermore, a majority of
production costs are fixed. Accordingly, relatively small variations in
quarterly sales historically have resulted in disproportionately greater
variations in net earnings. In part due to the foregoing, during fiscal years
1998, 1997 and 1996, the Company recognized a significantly greater proportion
of net earnings in the first quarter, when sales are traditionally higher, as
compared to the other quarters of the fiscal year. See Note M to Notes to
Consolidated Financial Statements.
SERVICES
The Company provides services in two broad categories, production services
and post production services. In 1995, the Company made a decision to refocus
its resources toward the entertainment and corporate communications areas, its
traditional strengths. As part of this strategy the Company has reduced its post
production assets that service the highly competitive commercial advertising
segment of the industry. As a result of this change, revenues generated from
post production services have declined from 63% of sales in 1995 to 44% of sales
in 1998, while revenues from the production area have increased from 37% of
sales in 1995 to 56% of sales in 1998. The Company anticipates that this trend
will continue in fiscal 1999.
PRODUCTION SERVICES
STUDIO VIDEOTAPE RECORDING. The Company provides the studios, equipment and
skilled technical personnel needed to record television programs, commercials
and corporate and other videotape communications. The equipment provided by the
Company includes color television cameras, videotape recorders, sound monitoring
and mixing equipment and lighting equipment. The Company does not generally
provide program direction or other artistic or non-technical production
services, such as the preparation of scripts, the hiring of performers or the
supplying of special props or scenery. The Company operates five studios in
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New York City. Among the programs produced at the Company's studio facilities
are "Inside Edition", "The Montel Williams Show" and" The Chris Rock Show".
Studio recording accounted for approximately 19%, 18% and 18% of the Company's
revenues during the fiscal years ended August 31, 1998, 1997 and 1996,
respectively.
MOBILE VIDEOTAPE RECORDING AND LIVE TELECASTING. The Company's Mobile
division provides videotape recording and live telecasting services
"on-location" by transporting videotape and other related equipment in its
mobile vehicles. These vehicles have been designed to serve as the production
control center for events in sports arenas, concert halls, theaters and other
locations. The Company also arranges for the skilled technical personnel
required to perform these services. The Company's ten mobile vehicles are
equipped to travel on a continuous basis throughout North America and can be
maintained in the field. The Company's Mobile division accounted for
approximately 36%, 32% and 27% of the Company's revenues during the fiscal years
ended August 31, 1998, 1997 and 1996, respectively. Some of the events handled
by the Company's mobile production units include "Live from the Met", "The Miss
America Pageant", "The Grammy Awards", "The Emmy Awards", "The Academy Awards",
major golf and tennis tournaments, broadcasts of Pittsburgh Pirates baseball
games and Pittsburgh Penguin Hockey games and the international broadcast of the
"Super Bowl".
POST PRODUCTION SERVICES
FILM TO VIDEOTAPE TRANSFER. The Company provides the facilities and skilled
personnel for transferring of images and sound from 16mm and 35mm motion picture
positive and negative film and slides to videotape. Through the use of
computers, the color of the picture may be corrected, altered or enhanced frame
by frame to meet client needs. Film to videotape transfer accounted for
approximately 6%, 8% and 10% of the Company's revenues during the fiscal years
ended August 31, 1998, 1997 and 1996, respectively. The Company has performed
this service for major theatrical motion pictures such as "Armageddon",
"Pleasantville", "Ants", "Small Soldiers", "Doctor Doolittle", "Rush Hour" and
television programs such as "X-Files" and "Seven Days".
EDITING. The Company provides editing equipment and skilled personnel
required to perform the editing, special optical and audio effects, titling and
other technical work necessary to produce a master videotape suitable for
broadcast, cablecast, duplication or other distribution. Using
computer-controlled electronic editing equipment, video and audio tape recorders
and special effects and titling equipment, videotape recorded by the Company or
others is processed into a finished product. Editing accounted for approximately
24%, 26% and 30% of the Company's revenues during the fiscal years ended August
31, 1998, 1997 and 1996, respectively. Among the projects edited at the
Company's facilities are commercials for Toyota, Sears and Nike and programs
such as Disney's "Bear in the Big Blue House" and "Sesame Street".
COMPUTER GENERATED VISUAL EFFECTS. The Company offers creative
consultation, technical assistance and full-service facilities for the creation
of computer-generated graphics, special effects and animation in the digital
format in both 2-D and 3-D for use in television programs and commercials and
feature films. These services accounted for approximately 9%, 7% and 8% of the
Company's revenues during the fiscal years ended August 31, 1998, 1997 and 1996,
respectively. The Company's projects in this area include various commercials
for Toyota, Sears and Nike and major theatrical motion pictures such as
"Armageddon", "Pleasantville", "Ants", "Small Soldiers", "Doctor Doolittle" and
"Rush Hour".
VIDEOTAPE DUPLICATION. The Company furnishes videotape duplication services
in all formats, including formats available for broadcast and cablecast in the
United States as well as the multiple formats used abroad. Duplication services
accounted for approximately 4%, 5% and 4% of the Company's revenues during the
fiscal years ended August 31, 1998, 1997 and 1996, respectively.
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MARKETING
The Company markets its services principally to cable television program
suppliers, independent producers, national television networks, local television
stations, motion picture studios, advertising agencies, and program syndicators
and distributors through the direct efforts of its internal sales personnel,
management's efforts and through advertising in certain trade publications. The
Company has no material patents. The Company markets its services through the
use of the Unitel and Editel names.
Customers for editing services, film-to-tape transfer, computer generated
visual effects and videotape recording of television commercials generally make
arrangements for the Company's services without significant advance notice, on a
project or job-by-job basis. Customers for studio and "on-location" videotape
recording or live telecasting of programs generally make arrangements longer in
advance of the time when the facilities and services are required. The Company
has entered into arrangements with several customers for periods ranging up to
three years to provide editing, mobile videotape recording and/ or studio
videotape recording services. No customer accounted for more than 10% of the
Company's total sales for the fiscal years ended August 31, 1998, 1997 and 1996.
COMPETITION
The video services industry is highly competitive. Certain videotape service
businesses (both independent companies and divisions of diversified companies)
provide most of the same services provided by the Company, while others
specialize in one or several of these services. Editing and videotape recording
services are also subject to competition from the film industry. While the
Company does not perform any services directly on film it does provide services
for the motion picture industry, including film to videotape transfer, film in
film out and special high resolution digital effects work on feature films.
Many competitors of the Company, some with greater financial resources, are
located in the New York City and the Los Angeles areas, the principal markets
for the Company's services other than "on-location" video services. The Company
provides "on-location" video services throughout North America and competes with
companies providing similar services throughout that area.
The Company competes on the basis of the overall quality of the services it
provides, state-of-the-art equipment, breadth of services, reputation in the
industry and location. The Company also competes on the basis of its ability to
attract and retain qualified, highly skilled personnel. The Company believes
that prices for its services are competitive within its industry, although some
competitors may offer certain of their services at lower rates than the Company.
The video services industry has been and is likely to continue to be subject to
technological change to which the Company must respond in order to remain
competitive.
EMPLOYEES
On August 31, 1998 the Company had 232 full-time employees. The technical
personnel of the Company's Editel Los Angeles division (47 employees) are
represented by the International Alliance of Theatrical Stage Employees
("IATSE"). The contract between IATSE and the Company expires on November 30,
1998. Negotiations for a new contract are underway. The technical personnel of
the Company's Mobile division (34 employees) are represented by the
International Brotherhood of Electrical Workers, under a contract which expires
in August 2000.
The Company believes that its employee relations are generally satisfactory.
DEVELOPMENTS
During the fourth quarter of 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. As part of this
strategy, the Company decided to sell its Editel New York, Editel Chicago
4
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and Editel Los Angeles divisions, which specialized in the highly competitive
commercial advertising portion of the video services industry. During the first
quarter of fiscal 1996, the Company began marketing these divisions to potential
buyers. Based on the Company's decision to sell the Editel divisions, the
Company recorded an impairment charge of approximately $2,000,000 in fiscal 1996
relating to the assets at all three Editel divisions.
In February 1996, the Company announced the closure of its Editel Chicago
division and subsequently distributed the majority of that division's assets
throughout the Company, with the balance sold in an auction. In March 1996, the
Company terminated the office lease for its Editel Chicago division and recorded
a restructuring charge of $1,246,000 in the quarter ended May 31, 1996, related
to the termination of the lease. During 1996 the Editel New York division was
closed and a portion of the editorial and computer graphics assets were
distributed throughout the Company. In November 1996, the Company sold a
majority of the undistributed assets to an unrelated third party for $1,400,000.
The balance of the assets were disposed of through an auction. Proceeds from the
sale of assets from both the Editel Chicago and Editel New York divisions were
used by the Company to repay outstanding debt. In May 1996, after reevaluating
the potential of the Editel Los Angeles division, the Company decided to retain
and expand this division and, accordingly, discontinued seeking a buyer for this
business.
In June 1997, the Company merged its Unitel Hollywood and Editel Los Angeles
divisions, moving a significant portion of the Unitel Hollywood assets into the
Company owned Editel Los Angeles building. Additional equipment was moved to the
Company's New York based post production facilities. The balance of the
equipment was sold, with approximately $1,700,000 in proceeds used to repay long
term debt. As a result of the merger, the Company recorded a $1,055,000
restructuring charge in the third quarter of 1997.
Additionally, after a reassessment of the Company's New York post production
assets, the Company recorded an impairment charge of $300,000 in the fourth
quarter of 1997. Throughout fiscal year 1998, the Company continued to evaluate
its investment in its two New York based post production facilities, Unitel Post
57 and Unitel Post 38. In the third quarter of fiscal 1998, the Company closed
its Unitel Post 57 facility and relocated a significant portion of the Unitel
Post 57 client base, equipment and key personnel to Unitel Post 38.
Additionally, the space formerly used by the Unitel Post 57 facility was
repurposed into studio support space to accommodate a new multi year contract
with King World Productions, Inc. ("King World") for the production of the
"Inside Edition" television program. The Company had previously provided
facilities for King World in another location, the lease for which expired in
June 1998.
In fiscal 1998 the Company received unsolicited expressions of interest in
acquiring the Company from third parties. The Company incurred $685,000 of
advisory and legal fees in connection with its evaluation of these expressions
of interest. Since discussions have terminated, these advisory and legal fees
were expensed in the quarter ended May 31, 1998.
In August, 1998, the Company refinanced its owned New York City real estate
located at 515 West 57(th) Street and 433 West 53(rd) Street for a total of
$10,750,000. The proceeds of the refinancing were used to repay existing first
mortgages on the properties, for costs associated with the financings and
related escrows and to repay Term Loan D of the credit facility described in
Item 7 below, with the balance used for working capital purposes. The new
mortgages, in the amount of $7,550,000 and $3,200,000, respectively, bear
interest at 7.72%, on a 22 year amortization schedule with a term of 10 years,
maturing August, 2008 and require monthly principal and interest payments of
approximately $59,000 and $25,000, respectively. In connection with these
mortgages the Company established a liquidity reserve of $500,000 and is
required to increase the reserve by approximately $95,000 per annum, payable
monthly.
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ITEM 2. PROPERTIES.
The following table sets forth, as of August 31, 1998, certain information
concerning the Company's facilities. The lease expiration dates exclude option
extension periods which exist in certain leases.
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APPROXIMATE LEASE EXPIRATION
LOCATION SQUARE FEET PRIMARY USE DATE
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<S> <C> <C> <C>
555 West 57th Street 3,000 Office space. Dec 2000
New York, New York
515 West 57 Street 43,000 Television studios and post-production facilities. Owned
New York, New York
508-510 West 57 Street 15,000 Television studio and support space. Jun 2001
New York, New York
841 Ninth Avenue 21,000 Television studio and support space. Aug 2003
New York, New York
503 West 33 Street 8,000 Television studio and support space. Apr 2001
New York, New York
5 West 37 Street 13,000 Post-production facilities and administrative Mar 2001
New York, New York offices.
8 West 38 Street 10,000 Post-production facilities and administrative Mar 2001
New York, New York offices.
222 East 44 Street 43,000 Former Editel New York facility. Dec 1999
New York, New York
433-435 West 53 Street 18,000 Television studio and support space. Owned
New York, New York
423 West 55 Street 21,000 Studio support space. Aug 1999
New York, New York
4100 Steubenville Pike 23,000 Mobile production headquarters and garage. Oct 2001
Pittsburgh, Pennsylvania
729 North Highland 26,000 Post-production, film-to-tape transfer and computer Owned
Los Angeles, California graphics facilities and administrative offices.
1101 Isabel Street 15,000 Mobile field shop and garage. Month to Month
Burbank, California
3540 Griffith Street 8,000 Mobile offices and garage. Jun 2002
Saint-Laurent, Quebec
Canada
</TABLE>
All of the Company's facilities are well maintained structures, in good
physical condition and are adequate to meet the Company's current and reasonably
foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
(a) There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party or of which any of their property is the
subject.
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(b) No material pending legal proceeding was terminated during the fourth
quarter of the Company's fiscal year ended August 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Stockholders of the Company was held on July 28,
1998.
(b) At the Annual Meeting, Walter G. Arader and Philip S. Birsh were elected
as Directors for terms expiring in 2001. The term of office as a Director of
Herbert Bass, Alex Geisler, Barry Knepper and Richard Clouser continued after
the meeting.
(c) The total votes cast for, withheld or against, as well as the number of
abstentions and broker non-votes, as to the election of Directors, were as
follows:
<TABLE>
<CAPTION>
TOTAL VOTES TOTAL VOTES
NOMINEE FOR WITHHELD
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<S> <C> <C>
Walter G. Arader......................................... 2,367,140 61,321
Philip S. Birsh.......................................... 2,367,140 61,321
</TABLE>
There were no abstentions or broker non-votes for the election of Directors.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) The Company's Common Stock is traded on the American Stock Exchange
under the symbol UNV. The following table sets forth, for fiscal years 1998 and
1997, the high and low sales prices of the Common Stock as furnished by the
American Stock Exchange:
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LOW HIGH
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<S> <C> <C>
Fiscal Year 1998:
First Quarter......................................................................................... 6 3/8 9
Second Quarter........................................................................................ 5 3/4 8 7/16
Third Quarter......................................................................................... 4 7/8 8 3/16
Fourth Quarter........................................................................................ 3 3/4 5 7/8
<CAPTION>
LOW HIGH
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<S> <C> <C>
Fiscal Year 1997:
First Quarter......................................................................................... 5 3/4 8 1/2
Second Quarter........................................................................................ 6 8 3/8
Third Quarter......................................................................................... 5 7/8 6 3/4
Fourth Quarter........................................................................................ 5 1/8 8
</TABLE>
As of November 16, 1998 there were approximately 355 holders of the
Company's Common Stock.
Since its inception in 1969, the Company has not declared or paid cash
dividends on its Common Stock, and it does not anticipate declaring or paying
cash dividends in the foreseeable future. The declaration, payment and amount of
future dividends will be determined by the Board of Directors in light of
conditions then existing, including the Company's earnings, financial condition,
capital requirements and other factors. In connection with its financing
arrangements, the Company is subject to certain restrictions which prohibit the
payment of cash dividends. (See Note C to Notes to Consolidated Financial
Statements, and Management's Discussion and Analysis of Financial Condition and
Results of Operations).
(b) No Common Stock of the Company was sold by the Company within the past
three years which was not registered under the Securities Act of 1933.
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ITEM 6. SELECTED FINANCIAL DATA
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<CAPTION>
1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
OPERATIONS:
Sales....................... $ 51,699,000 $ 58,767,000 $ 79,287,000 $ 83,285,000 $ 80,498,000
Cost of sales............... $ 44,707,000 $ 49,708,000 $ 65,501,000 $ 69,219,000 $ 64,391,000
Interest expense............ $ 4,127,000 $ 3,430,000 $ 3,686,000 $ 3,649,000 $ 2,388,000
Earnings(loss)before income
taxes..................... $ (5,372,000) $ (4,398,000) $ (5,084,000) $ (9,341,000) $ 1,519,000
Net earnings(loss)(a)....... $ (5,409,000) $ (4,436,000) $ (5,124,000) $ (6,547,000) $ 859,000
FINANCIAL POSITION:
Total assets................ $ 63,732,000 $ 63,083,000 $ 67,618,000 $ 74,186,000 $ 73,245,000
Working capital
(deficiency).............. $ (8,113,000)(f) $(10,004,000)(e) $ (8,356,000)(c) $ (3,467,000)(c) $ (8,055,000)(b)
Current ratio............... .46 to 1 .39 to 1 .60 to 1(c) .82 to 1(c) .64 to 1(b)
Property & equipment-net.... $ 50,941,000 $ 51,907,000 $ 50,466,000(d) $ 34,491,000(d) $ 55,425,000
Long-term debt, less current
maturities................ $ 32,679,000 $ 26,525,000 $ 19,706,000 $ 19,936,000 $ 14,142,000(b)
Stockholders' equity........ $ 8,203,000 $ 13,392,000 $ 17,810,000 $ 22,526,000 $ 28,828,000
DATA PER COMMON SHARE:
Net earnings(loss)per common
share-basic and diluted... $ (2.01) $ (1.66) $ (1.96) $ (2.53) $ .33
Weighted average number of
common shares
outstanding-basic and
diluted................... 2,687,000 2,665,000 2,613,000 2,582,000 2,617,000
</TABLE>
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(a) Federal and state tax credits of approximately $13,000 in 1998, $14,000 in
1997, $15,000 in 1996, $28,000 in 1995 and $58,000 in 1994 have been applied
as a reduction of the provision for income taxes.
(b) The revolving credit portion of the long-term debt, which expired in May
1995, was included in current liabilities. In December 1995, the Company
refinanced its revolving credit and term loans outstanding with its bank
lenders.
(c) The working capital deficiency is primarily due to the inclusion of
$3,750,000 in 1995 and $6,588,000 in 1996 of Term Loan B in current
liabilities.
(d) The decrease in fiscal 1995 in property and equipment is due to the
reclassification of the Editel divisions' net assets to assets held for
sale, a separate line in the long-term asset section of the balance sheet.
In 1996 the Company decided to retain its Editel Los Angeles division and
also redeployed the majority of the assets of the Editel New York and Editel
Chicago divisions throughout the Company. These assets were no longer
considered assets held for sale and were reclassified to property and
equipment.
(e) The increase in the working capital deficiency in fiscal 1997 is due
primarily to (1) the decrease in accounts receivable resulting from (i) the
closure of the Editel New York facility in August 1996, (ii) the merger of
the Los Angeles divisions in June 1997 and (iii) the reduction in sales of
the Company's Studio and Mobile divisions in fiscal 1997 (See Management's
Discussion and Analysis of Financial Condition and Results of Operations),
(2) the reduction in net assets held for sale in fiscal 1997 due to the
completion of the sale of such assets prior to August 31, 1997 and (3) an
increase in other current items, all of which was offset by a reduction in
the current portion of long-term debt.
(f) The decrease in the working capital deficiency in fiscal 1998 is due
primarily to proceeds of new financings which were used to repay a portion
of short term debt and the balance added to working capital.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES.
The Company has taken several steps to increase its liquidity which had been
significantly reduced by the losses incurred during the past several fiscal
years.
In August 1998, the Company refinanced its owned New York City real estate
generating funds of approximately $4,600,000 after repayment of the existing
first mortgages on such properties, closing costs and escrows. These funds were
used to repay Term Loan D of the credit facility described below in this item in
the amount of $1,600,000, with the balance used for working capital purposes.
Additionally, the holders of subordinated debt of the Company related to the
acquisition of the mobile facilities company GC & Co. by the Company in 1995,
which had been due in August 1998, agreed to a new payment schedule providing
for payments of fifty percent of the $640,000 in October 1998 and the balance in
six equal installments beginning in November 1998. The October payment and the
November installment have been paid as of November 1998.
In a third step, another holder of subordinated debt of the Company, agreed
to restructure its note with the Company by postponing the maturity date from
May 1999 to September 1999 and by eliminating principal payments that had been
due for the months of April 1998 through April 1999, totaling $450,000. The
holder also agreed to add $108,000 of accrued but unpaid interest to the
principal balance payable in September 1999. The new terms require that interest
only be paid on a current basis effective September 1, 1998 through the
September 30, 1999 maturity date. Interest for September, October and November
1998 has been paid as of November 1998.
Further, the Company recently negotiated amendments to certain covenants
contained in the credit facility described below in this item, including
revising the tangible net worth covenant, the fixed charge coverage covenant and
the capital expenditure covenant, adding an Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) covenant and deleting the leverage ratio
and interest coverage ratio covenants previously contained in the agreement,
which amendments to the agreement are based in part upon substantially meeting
the Company's fiscal 1999 operating plan. As a result of these amendments,
management is of the opinion that the Company will be in compliance with the
covenants contained in the Company's credit facility. However, in the event that
the Company is not in compliance with the terms of its credit facility, the
Company's ability to operate could be hampered.
The Company anticipates that the steps enumerated above, together with funds
generated by operations and sales of selected fixed assets no longer useful in
the Company's business, will be sufficient to meet the Company's anticipated
working capital and investment needs in fiscal 1999.
Capital expenditures were $8,208,000 (which includes equipment under
capitalized leases of $3,045,000) during fiscal 1998 as compared to $12,936,000
during fiscal 1997 and $9,134,000 during fiscal 1996. Expenditures made during
fiscal 1998 were primarily for the completion of the second digital mobile
teleproduction unit, for building improvements at a Company owned building in
New York City made to accommodate a multiyear contract with King World and for
equipment used in the production, post production and computer graphics service
areas throughout the Company. Completion of the second digital mobile
teleproduction unit was primarily financed from the proceeds of a second series
of industrial revenue bonds issued by the Allegheny County (Pennsylvania)
Industrial Development Authority. (See Note C to Notes to Consolidated Financial
Statements).
The net change in cash in the fiscal years ended August 31, 1998, 1997 and
1996 was $1,053,000, ($55,000) and $31,000, respectively. The net cash increase
in 1998 resulted from cash provided by operating activities of $2,892,000,
offset by cash used in investing activities of $4,790,000, (primarily capital
expenditures net of equipment sales) and $2,951,000 provided from financing
activities, primarily the refinancing of Company owned real estate and proceeds
from the Pennsylvania industrial revenue bonds
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which were used to complete the second digital mobile teleproduction unit. The
net cash decrease in 1997 resulted from cash provided by operating activities of
$9,271,000, offset by cash used in investing activities of $9,132,000 and
$194,000 of cash used in financing activities. The 1997 net cash decrease was a
result of the closure of the Editel New York facility in August 1996, the merger
of the Editel Los Angeles and Unitel Hollywood divisions in June 1997 and the
reduction in sales of the Company's Studio and Mobile divisions in fiscal 1997
due to the cancellation of two television shows in 1996 and the non-recurring
nature of the Atlanta Summer Olympics and the Republican and Democratic National
Conventions in 1996 for which the Mobile division provided production services.
The net cash increase in fiscal 1996 was the result of net cash provided by
operating activities of $7,130,000 and financing activities of $884,000 which
was offset by $7,983,000 related to investing activities. For the year ended
August 31, 1996, the large reduction in accounts receivables and payables was
primarily due to the closing of the Company's Editel Chicago and Editel New York
divisions. The increase in deferred financing costs and the majority of the net
cash provided by financing activities were due to the refinancing of the
Company's debt in December of 1995. The majority of the proceeds generated from
the disposal of equipment was related to the closure of the Editel Chicago and
Editel New York divisions.
In December 1995, the Company entered into a $26 million revolving credit
and term loan agreement (the "credit facility") with a financial institution,
consisting of an $11 million revolving credit facility and two $7.5 million term
loans (Term Loans A and B). In May 1997, Term Loan A was revised by the
inclusion of $2,500,000 of the original Term Loan B and the advance of $518,000
of new funds, resulting in a revised Term Loan A balance of $9,000,000. Term
Loan A is payable in equal monthly principal installments of $100,000 plus
interest, with the balance of $6,000,000 due March 2000. In November 1997 Term
Loan B was repaid, in part from the proceeds of a new Term Loan D in the amount
of $2,500,000. $3,742,000 of the original Term Loan B was repaid from sales of
equipment from the Company's Editel Chicago, Editel New York and Unitel
Hollywood divisions. The Company refinanced its New York owned real estate in
August 1998 and used a portion of the proceeds of the refinancing to repay Term
Loan D and other indebtedness and the balance of the proceeds for working
capital purposes. (see discussion below in this Item 7).
In July 1997 the credit facility was further amended by the issuance of a
$5,080,000 letter of credit to secure payment of principal and interest on
$5,000,000 in principal amount of Allegheny County (Pennsylvania) Industrial
Development Authority Variable Rate Demand Revenue Bonds (the "Bonds"). The
proceeds from the sale of the Bonds were loaned to the Company and were used by
the Company to build a new digital mobile teleproduction unit. The letter of
credit requires quarterly principal payments of $179,000 commencing December
1998 to be applied to the redemption in equal principal amount of the Bonds. The
Bonds mature on July 1, 2009 and, to the extent not redeemed in full as
described in the prior sentence, are required to be repaid by the Company on
that date. In December 1997, a second series of Bonds were issued, in an amount
of $3,500,000. The proceeds of the second series of Bonds were used to finance
the construction of a second digital mobile unit. Quarterly principal payments
of $125,000 will begin in February 1999 on these bonds which also mature on July
1, 2009. The terms of the credit facility with the financial institution provide
that the lender receive a first lien on all property and equipment and accounts
receivable that are not encumbered by another lender.
In February 1995 the Company purchased the business and assets of GC & Co.
The purchase price was $6,750,000, consisting of $6,000,000 in cash and $750,000
of convertible subordinated promissory notes. The promissory notes bear interest
at 1% over prime and are convertible into the Company's common stock at $10.00
per share. At August 31, 1998, $640,000 of the convertible notes were
outstanding. In October 1998, one half of this amount was repaid and noteholders
of $320,000 principal outstanding agreed to repayment of the balance then due in
six equal monthly installments beginning November 1998.
In connection with certain of its financings, the Company must adhere to
particular financial ratios and restrictions including restrictions on the
future payment of dividends. The Company anticipates that the restrictions will
not impair its ability to keep pace with technological developments.
11
<PAGE>
See Note C to Notes to Consolidated Financial Statements with respect to
compliance with certain financial covenants.
The enactment of the Tax Reform Act of 1986 has limited the Company's
ability to defer the payment of taxes due to the imposition of an alternative
minimum tax which effectively results in the treatment of certain timing
differences as tax preference items.
RESULTS OF OPERATIONS
Sales were $51,699,000, $58,767,000 and $79,287,000 for the fiscal years
ended August 31, 1998, 1997 and 1996, respectively. The sales decrease of
$7,068,000 in 1998 compared to 1997 was due primarily to the closure of Unitel
Post 57 in May 1998 and the Unitel Hollywood division in May 1997. The sales
decrease of $20,520,000 in 1997 compared to 1996 was primarily due to the
closing of the Editel New York and Editel Chicago divisions in 1996 and the
merging of the Unitel Hollywood and Editel Los Angeles divisions in 1997. Sales
from continuing operations were lower by approximately $5,000,000 in the
aggregate in fiscal 1997 due to lower studio sales as a result of the
cancellation of the "Mark Walberg" and "Rush Limbaugh" television shows in 1996
and from lower Mobile sales due in part to the non-recurring nature of the
Atlanta Summer Olympics and the Republican and Democratic National Conventions
in 1996.
The Company recorded net losses of $5,409,000, $4,436,000 and $5,124,000 in
the fiscal years ended August 31, 1998, 1997 and 1996, respectively. The net
loss of $5,409,000 in fiscal 1998 is attributable to the following significant
items:
- During the 1998 fiscal year the Company received unsolicited expressions
of interest in acquiring the Company from third parties. The Company
incurred $685,000 of advisory and legal fees in connection with its
evaluation of these expressions of interest. Since discussions have
terminated, these costs were expensed during the 1998 fiscal year.
- In the third quarter of fiscal 1998 the Company closed its Unitel Post 57
division, one of its two New York City based post production facilities. A
portion of the equipment, clients and personnel were relocated to Unitel
Post 38, the Company's other New York City based post production facility.
The Company incurred significant severance, relocation and closure costs
in connection with this consolidation.
- In August 1998, the Company refinanced its owned New York City real estate
for a total of $10,750,000. Part of the proceeds were used to repay
existing first mortgages on the properties, which necessitated the write
off of deferred financing costs related to the existing first mortgages in
an amount of $183,000.
- The Company experienced a loss of revenues related to the relocation of
the Company's studio client King World from a facility where the lease had
terminated to the Company's owned facility on West 57(th) Street in New
York City. In order to accommodate the client, extensive remodeling of the
building was required which necessitated the closure of three studios for
a two month period.
- Expenses at the Mobile division increased significantly due to the payroll
and occupancy expenses of a new field shop in Montreal, Canada, opened in
the third quarter of fiscal 1997 and from promotional expenses and
additional depreciation and interest costs related to two new digital
mobile teleproduction units introduced during fiscal 1998.
The net loss of $4,436,000 in 1997 was attributable to a loss in the
Company's post production operations and the merger related costs in Los
Angeles. The net loss of $5,124,000 incurred in fiscal 1996 was attributable to
costs relating to the closure of the Company's Editel New York and Editel
Chicago divisions and the operating costs of running these divisions until they
were closed.
12
<PAGE>
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 69.2%, 70.4% and 72.7%, for the
fiscal years ended August 31, 1998, 1997 and 1996, respectively. Production
costs decreased from fiscal 1997 primarily due to the merger of the Editel Los
Angeles and Unitel Hollywood divisions. The decrease in production costs in
fiscal 1997 was primarily due to the closure of the Company's Editel New York
and Editel Chicago divisions in fiscal 1996. Production costs as a percentage of
sales increased in fiscal 1996 due to the incremental severance costs associated
with the closure of the Company's Editel New York and Editel Chicago divisions.
During 1996, the Company implemented a program to reduce production costs by
closing unprofitable divisions and streamlining operations wherever possible.
Since most of the Company's costs are fixed and a large portion of the costs are
subject to price increases, flat sales from year to year result in production
costs which are an increased percentage of sales. This same dynamic applies for
both selling expenses and general and administrative expenses.
Depreciation and amortization, as a percentage of sales, was 17.3%, 14.2%
and 9.9% in fiscal 1998, 1997 and 1996, respectively. Depreciation expenses
increased in fiscal 1998 due to the addition of the Mobile division's newest
digital mobile teleproduction units introduced in fiscal 1998 as well as
increased depreciation resulting from additions to property and equipment at
other divisions during fiscal 1997. This increase was offset from the merger of
the Editel Los Angeles and Unitel Hollywood divisions in fiscal 1997.
Depreciation expense increased in fiscal 1997 by approximately $500,000 compared
to 1996. In fiscal 1997, depreciation decreased approximately $1,500,000 (when
including the $2,000,000 1996 impairment charge) due to the closure in 1996 of
the Editel New York and Editel Chicago divisions. In fiscal 1996, $2,000,000 of
depreciation was reclassified to impairment charge in connection with the
closure of the Editel New York and Editel Chicago divisions. Depreciation in the
Company's other divisions in 1997 was approximately the same as in 1996.
Depreciation expense decreased in fiscal 1996 due to the reclassification of the
net property and equipment of the Editel divisions to net assets held for sale
at August 31, 1995. The impairment charge recorded represents management's
estimate of the decrease in value of these assets during the period such assets
were held for sale in fiscal 1996 based upon the method of depreciation which
the Company has used in the past and which management has found to be reasonable
and appropriate. The Editel Chicago division was closed in February 1996 and the
Editel New York division was closed in August 1996. Depreciation includes a gain
(loss) on disposal of equipment of $(31,000), $220,000 and $(58,000) in fiscal
1998, 1997 and 1996, respectively. Had the gain (loss) on disposal of equipment
been excluded from depreciation expense and the 1996 impairment charge of
$2,000,000 been included, depreciation as a percentage of sales would have been
17.2%, 14.5% and 12.3% in fiscal 1998, 1997 and 1996, respectively.
Selling expenses, as a percentage of sales, during fiscal years 1998, 1997
and 1996 were 2.6%, 3.0%, and 2.9%, respectively. Selling expense in 1998
decreased $395,000 primarily as a result of the merger of the Unitel Hollywood
and Editel Los Angeles divisions in June 1997. Selling expense decreased
$541,000 in 1997 compared to 1996 as a result of the closure of the Editel New
York and Editel Chicago divisions in 1996 and the merger of the Unitel Hollywood
and Editel Los Angeles divisions in 1997. The decrease in selling expenses
during fiscal 1996 is primarily due to a decrease in the sales staff at the
Editel Chicago and Editel New York divisions.
General and administrative expenses as a percentage of sales during fiscal
years 1998, 1997 and 1996 were 12.7%, 12.4% and 12.2%, respectively. General and
administrative expenses decreased $706,000 in 1998, principally from the merger
of the Unitel Hollywood and Editel Los Angeles divisions in 1997 offset by
severance costs accrued. General and administrative expenses decreased
$2,426,000 in 1997 principally from reduced administrative payroll in 1997 due
to the closure of the Editel New York and Editel Chicago divisions and the
recognition in 1996 of severance pay and other costs in connection with the
closure. In addition, there were decreases in allowance for doubtful accounts
and corporate expenses.
13
<PAGE>
Interest expense, as a percentage of sales, during fiscal years 1998, 1997
and 1996 was 8.0%, 5.8% and 4.6%, respectively. Interest expense increased
approximately $700,000 in fiscal 1998 primarily as a result of new financing
including the Bonds, increased costs on the Company's credit facility and
deferred finance charges expensed in connection with the refinancing of existing
mortgages on the Company's owned real estate in New York City. Since sales
decreased in fiscal 1998 and interest expense is higher, interest increased as a
percentage of sales. Although interest expense decreased $256,000 in 1997, it
increased as a percentage of sales due to the significant decrease in sales in
1997 resulting from the closing of the Editel Chicago and Editel New York
divisions in 1996 and the merger of the Hollywood and Los Angeles divisions in
June, 1997.
The Company's effective tax rate was (1%) in fiscal years 1998, 1997 and
1996. This effective tax rate reflects current year net operating losses for
which no tax benefit was provided. (See Note G to Notes to Consolidated
Financial Statements.)
YEAR 2000 UPDATE
General
The Company's company-wide Year 2000 Project (the "Project") is proceeding
on schedule. The purpose of the Project is to evaluate the ability of computer
programs (software) and embedded chips to distinguish between the year 1900 and
the year 2000. The Project has been underway since the middle of calendar year
1998, is proceeding on schedule and is expected to be completed by the middle of
calendar year 1999. While many different types of equipment and software
products may be prone to the Year 2000 problem, major emphasis is being placed
on those items considered to be material to the operation of the Company's
business.
The Company's primary business is to provide services to the video and film
communications industry for the recording, editing, creation of digital effects
and duplication of television programs, commercials, corporate communications
and feature films. Because the various operating divisions of the Company share
much of the software and hardware necessary to provide these services, Year 2000
research done at one division is largely applicable at the Company's other
divisions. This fact will greatly simplify the process of evaluating the impact
of Year 2000 issues on the Company's business and minimize the costs to the
Company involved in becoming Year 2000 compliant.
Project
The Company's Project is divided into four major sections:
1. Administrative Functions--accounts payable, accounts receivable, client
scheduling, purchasing and payroll.
2. Technical Services--equipment/systems, software packages, interconnectivity
issues.
3. Infrastructure--personal computers (PC's and MAC's), owned telephone system
equipment, networks (Novell, Microsoft), office equipment, etc.
4. External Services Vendors--401K/health care management, payroll services,
property/liability insurance providers, etc.
Administrative Functions:
The accounts payable, accounts receivable and client scheduling tasks at
most divisions of the Company are provided by industry standard software
applications, for example J.D. Edwards Accounting Package or Xytech Systems
(Xymox), or both, depending on the division. Both J.D. Edwards and Xytech
Systems have available Year 2000 upgrade programs and the Company anticipates
these will be installed in early calendar year 1999. Standard PC based
applications, used for these and other applications, are either currently
compliant or are expected to have suitable upgrades available in early calendar
year 1999.
14
<PAGE>
Similarly, the payroll services vendor expects to have Year 2000 software
available early in calendar year
1999. These will be purchased by the Company as soon as they become available.
Technical Services:
The Company utilizes technical hardware from various vendors to provide a
wide range of services to its clients. All divisions have been compiling lists
of equipment considered critical to their operations. Based on written responses
from various vendors, the Company has been advised that the majority of these
items are either Year 2000 compliant or not affected by Year 2000 issues. Some
software packages utilized on Silicon Graphics and Apple platforms are still
being evaluated with respect to Year 2000 issues, but since these items are
routinely upgraded by the Company as part of its ongoing operations to insure
that the Company is staying current with technology it is anticipated that the
Year 2000 issues in such cases should be minimal. Furthermore, the products
produced by the Company for its clients are delivered to the client at the
conclusion of a job and such products are not thereafter affected by Year 2000
issues. Therefore, Year 2000 compliance is not considered a material issue for
already completed client work. All critical equipment and software products
utilized in the production of client material will have been certified, either
through testing by the Company or vendor representation, to be Year 2000
compliant or not affected by Year 2000 issues by the middle of calendar year
1999.
Infrastructure:
It is expected that general purpose PC workstations purchased within the
past 12 months should be able to recognize the date change to the Year 2000. A
comprehensive checklist is being prepared that will assist each division in
determining which PCs need to have some form of upgrade. Some older PCs may
require replacement, or may be upgraded through inexpensive after-market clock
upgrades. Also being evaluated are Company owned telephone systems which contain
embedded chips which may be date sensitive. To date, all telephone systems
checked have been found to be either Year 2000 compliant or not affected by the
Year 2000 issue. Novell or Microsoft computer network products have upgrades
available supplied and represented by the vendor to be Year 2000 compliant which
will be installed by the Company by the middle of calendar 1999. Other general
purpose office equipment such as copy machines and fax machines are being
evaluated but are not considered to be material.
External Services Vendors:
The Company utilizes numerous outside vendors for management of such
services as payroll, health care benefits, 401K administration and insurance
coverages. All of these vendors are being asked to supply a written statement
concerning Year 2000 compliance and a general scope of appropriate needed
actions, costs, and time-frames. This part of the Project is expected to be
completed by the middle of calendar 1999.
Costs
The total cost of the Year 2000 Project is not expected to be material to
the Company's financial position. Because some investigation is still ongoing,
total costs can only be estimated. Based on mission critical hardware and
software upgrade costs that are known, and reasonable expectations of results
from further testing, the total cost of the Project is not expected to exceed
$100,000 Company-wide and will be expensed as incurred.
Risks
The Company supplies a wide range of services to its clients. Once those
services are delivered, whether on videotape, CD Rom, computer disk, or other
media, Year 2000 compliance is no longer a concern. Since it has already been
determined that much of the hardware and software material to the internal
operation of the Company's business is or will be compliant, there appears to be
minimal risk to the internal operations of the Company due to the Year 2000
issue. This does not include any serious problems or outages caused by Year 2000
problems that could exist at local utilities that supply telephone,
15
<PAGE>
electrical, natural gas and similar services or with external services vendors.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of outside vendors or
clients, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. However, the Company's
internal Project is expected to significantly reduce the level of uncertainty
about the Year 2000 problem particularly with respect to the effect on the
Company of the readiness of its vendors. It is the opinion of the Company that,
with the installation of new equipment which the Company is advised to be Year
2000 compliant and the completion of the Project as scheduled, the possibility
of significant interruptions of normal operations should be significantly
reduced.
Contingency Plan
Based on the Company's expectation that Year 2000 issues will be adequately
addressed by the scheduled completion of the Project, no contingency plans have
been formulated. In the event an unexpected Year 2000 problem is discovered that
will affect either the completion or delivery of client material, the Company
expects that a sufficient number of alternative production methods exist in the
industry to mitigate any substantial problems.
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE BASED UPON CURRENT
EXPECTATIONS AND INVOLVE CERTAIN RISKS AND UNCERTAINTIES. UNDER THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, READERS ARE
HEREBY CAUTIONED THAT THESE STATEMENTS MAY BE IMPACTED BY SEVERAL FACTORS, AND,
CONSEQUENTLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED HEREIN.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to interest rate change market risk with respect to
its credit facility with a financial institution which is priced based on the
prime rate of interest. At August 31, 1998 $12,226,000 was outstanding under the
credit facility. Changes in the prime interest rate during fiscal 1999 will have
a positive or negative effect on the Company's interest expense. Each 1%
fluctuation in the prime interest rate will increase or decrease interest
expense for the Company by approximately $122,000.
In addition, the Company is exposed to interest rate change market risk with
respect to the Bonds in the amount of $8,500,000. The Bonds bear interest at a
floating rate established weekly by the remarketing agent. During fiscal 1998
the interest rate on the Bonds approximated 3.5%. Each 1% fluctuation in
interest rates will increase or decrease interest expense on the Bonds by
approximately $85,000.
The impact of interest rate fluctuations on other floating rate debt of the
Company and foreign exchange fluctuation on the Company's Canadian subsidiary is
not material.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
UNITEL VIDEO, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS........................................................ 18
CONSOLIDATED FINANCIAL STATEMENTS:
BALANCE SHEETS--AUGUST 31, 1998 AND 1997.............................................................. 19
STATEMENTS OF OPERATIONS--YEARS ENDED
AUGUST 31, 1998, 1997 AND 1996...................................................................... 20
STATEMENT OF STOCKHOLDERS' EQUITY--YEARS ENDED
AUGUST 31, 1998, 1997 AND 1996...................................................................... 21
STATEMENTS OF CASH FLOWS--YEARS ENDED
AUGUST 31, 1998, 1997 AND 1996...................................................................... 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................................ 23-36
SUPPLEMENTARY FINANCIAL SCHEDULE.......................................................................... 50
</TABLE>
Selected Quarterly Financial Data is set forth in Note M to Notes to the
Consolidated Financial Statements.
17
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Unitel Video, Inc.
We have audited the accompanying consolidated balance sheets of Unitel
Video, Inc. (a Delaware corporation) at August 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended August 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Unitel Video, Inc. as of August 31, 1998 and 1997, and the consolidated results
of its operations and its consolidated cash flows for each of the three years in
the period ended August 31, 1998, in conformity with generally accepted
accounting principles.
We have also audited Schedule II of Unitel Video, Inc. for each of the three
years in the period ended August 31, 1998. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.
/s/ GRANT THORNTON LLP
- ---------------------------------
New York, New York
November 25, 1998
18
<PAGE>
UNITEL VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 1,190,000 $ 137,000
Accounts receivable, less allowance for doubtful accounts of
$400,000 in 1998 and $412,000 in 1997.......................... 4,784,000 5,139,000
Other receivables................................................ 93,000 19,000
Prepaid income taxes............................................. 62,000 75,000
Prepaid expenses................................................. 498,000 564,000
Deferred tax asset............................................... 312,000 495,000
----------- -----------
Total current assets......................................... 6,939,000 6,429,000
Property and equipment--at cost
Land, buildings and improvements................................. 23,490,000 20,799,000
Video equipment.................................................. 78,113,000 87,745,000
Furniture and fixtures........................................... 1,758,000 2,591,000
----------- -----------
103,361,000 111,135,000
Less accumulated depreciation and amortization..................... 52,420,000 59,228,000
----------- -----------
50,941,000 51,907,000
Deferred tax asset................................................. 2,157,000 1,974,000
Goodwill........................................................... 1,583,000 1,721,000
Other assets....................................................... 2,112,000 1,052,000
----------- -----------
$63,732,000 $63,083,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 5,282,000 $ 6,754,000
Accrued expenses................................................. 2,056,000 998,000
Payroll and related taxes........................................ 1,434,000 2,038,000
Current maturities of long-term debt............................. 3,563,000 3,530,000
Current maturities of subordinated debt.......................... 640,000 1,167,000
Current maturities of capital lease obligations.................. 2,077,000 1,946,000
----------- -----------
Total current liabilities.................................... 15,052,000 16,433,000
Deferred rent...................................................... 112,000 121,000
Long-term debt, less current maturities............................ 32,679,000 26,525,000
Subordinated debt, less current maturities......................... 2,171,000 1,770,000
Long-term leases, less current maturities.......................... 4,468,000 3,666,000
Accrued retirement................................................. 1,047,000 1,176,000
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized-5,000,000 shares Issued 3,541,754 shares in 1998 and
3,540,954 shares in 1997, and outstanding 2,711,016 shares in
1998 and 2,674,665 shares in 1997............................ 27,000 27,000
Additional paid-in capital......................................... 27,275,000 27,367,000
Accumulated deficit................................................ (11,454,000) (6,028,000)
Common stock held in treasury, at cost (830,738 in 1998 and 866,289
in 1997)......................................................... (7,645,000) (7,974,000)
----------- -----------
Total stockholders' equity......................................... 8,203,000 13,392,000
----------- -----------
$63,732,000 $63,083,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
UNITEL VIDEO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Sales............................................................... $ 51,699,000 $ 58,767,000 $ 79,287,000
------------- ------------- -------------
Cost of sales:
Production costs.................................................. 35,769,000 41,380,000 57,661,000
Depreciation and amortization..................................... 8,938,000 8,328,000 7,840,000
------------- ------------- -------------
44,707,000 49,708,000 65,501,000
------------- ------------- -------------
Gross profit........................................................ 6,992,000 9,059,000 13,786,000
Operating expenses:
Selling........................................................... 1,339,000 1,734,000 2,275,000
General and administrative........................................ 6,558,000 7,264,000 9,690,000
Interest.......................................................... 4,127,000 3,430,000 3,686,000
Restructuring charge.............................................. -- 1,055,000 1,246,000
Impairment charge................................................. -- 300,000 2,000,000
Merger Related Costs.............................................. 685,000
------------- ------------- -------------
12,709,000 13,783,000 18,897,000
------------- ------------- -------------
Loss from operations................................................ (5,717,000) (4,724,000) (5,111,000)
Other income........................................................ 345,000 326,000 27,000
------------- ------------- -------------
Loss before income taxes............................................ (5,372,000) (4,398,000) (5,084,000)
Income taxes........................................................ 37,000 38,000 40,000
------------- ------------- -------------
Net loss applicable to common stock-basic and diluted............... $ (5,409,000) $ (4,436,000) $ (5,124,000)
------------- ------------- -------------
------------- ------------- -------------
Net loss per common share-basic and diluted......................... $ (2.01) $ (1.66) $ (1.96)
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding................ 2,687,000 2,665,000 2,613,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
UNITEL VIDEO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
UNEARNED
COMMON STOCK ADDITIONAL COMMON STOCK EMPLOYEE
---------------------- PAID-IN ACCUMULATED HELD IN BENEFIT
SHARES AMOUNT CAPITAL DEFICIT TREASURY EXPENSE
----------- -------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, September 1,
1995................ 2,625,165 $26,000 $ 27,351,000 $ 3,532,000 $(7,974,000) $(409,000)
----------- -------- ------------ -------------- -------------- --------------
----------- -------- ------------ -------------- -------------- --------------
Net loss.............. (5,124,000)
Exercise of stock
options............. 30,000 174,000
Employee stock
purchase plan....... 11,100 49,000
Allocation of ESOP
shares.............. (29,000) 214,000
----------- -------- ------------ -------------- -------------- --------------
BALANCE, August 31,
1996................ 2,666,265 26,000 27,545,000 (1,592,000) (7,974,000) (195,000)
----------- -------- ------------ -------------- -------------- --------------
----------- -------- ------------ -------------- -------------- --------------
Net loss.............. (4,436,000)
Employee stock
purchase plan....... 8,400 1,000 38,000
Allocation of ESOP
shares.............. (216,000) 195,000
----------- -------- ------------ -------------- -------------- --------------
BALANCE, August 31,
1997................ 2,674,665 $27,000 $ 27,367,000 $ (6,028,000) $(7,974,000) $ -0-
----------- -------- ------------ -------------- -------------- --------------
----------- -------- ------------ -------------- -------------- --------------
Net loss.............. $ (5,409,000)
Treasury stock issued
to 401(K) Plan...... 35,551 (94,000) 329,000
Translation
Adjustment.......... (17,000)
Employee stock
purchase plan....... 800 -- 2,000
----------- -------- ------------ -------------- -------------- --------------
BALANCE, August 31,
1998................ 2,711,016 $27,000 $ 27,275,000 $ (11,454,000) $(7,645,000) $ -0-
----------- -------- ------------ -------------- -------------- --------------
----------- -------- ------------ -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
UNITEL VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Cash Flows From Operating
Activities:
Net loss.................... $(5,409,000) $ (4,436,000) $(5,124,000)
----------- ------------ -----------
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and
amortization.............. 8,907,000 8,548,000 7,782,000
Net loss (gain) on disposal
of equipment.............. 31,000 (220,000) 58,000
Impairment and restructuring
charge.................... -- 1,080,000 2,000,000
Amortization of deferred
financing costs........... 509,000 153,000 252,000
Deferred rent and other..... (26,000) (204,000) (539,000)
Accrued retirement
expense................... (129,000) (128,000) 163,000
Deferred income taxes....... -- -- 36,000
Changes in operating assets
and liabilities:
Accounts receivable,
net..................... 355,000 3,562,000 3,999,000
Other receivables......... (74,000) 314,000 29,000
Prepaid expenses.......... 66,000 171,000 605,000
Prepaid taxes............. 13,000 67,000 425,000
Other assets.............. (568,000) (63,000) (30,000)
Accounts payable.......... (1,472,000) 1,788,000 (2,372,000)
Accrued expenses.......... 1,058,000 (452,000) (170,000)
Payroll and related
taxes................... (369,000) (909,000) 16,000
----------- ------------ -----------
8,301,000 13,707,000 12,254,000
----------- ------------ -----------
Net cash provided by operating
activities.................. 2,892,000 9,271,000 7,130,000
----------- ------------ -----------
Cash Flows From Investing
Activities:
Capital expenditures........ $(5,163,000) $(12,936,000) $(9,134,000)
Proceeds from disposal of
equipment................. 373,000 3,804,000 1,151,000
----------- ------------ -----------
Net cash used in investing
activities................ (4,790,000) (9,132,000) (7,983,000)
----------- ------------ -----------
Cash Flows From Financing
Activities:
Proceeds from long-term
financing................. 22,115,000 15,976,000 25,717,000
Principal repayments........ (18,165,000) (16,022,000) (24,495,000)
Deferred Financing Costs.... (1,001,000) -- (574,000)
Proceeds from issuance of
common stock.............. 2,000 39,000 223,000
Repayment of loan to ESOP... -- (166,000) (172,000)
Release of ESOP quarterly
shares.................... -- (21,000) 185,000
----------- ------------ -----------
Net cash (used) provided by
financing activities........ 2,951,000 (194,000) 884,000
----------- ------------ -----------
Net Increase(Decrease) In
Cash........................ 1,053,000 (55,000) 31,000
Cash, Beginning of Year....... 137,000 192,000 161,000
----------- ------------ -----------
Cash, End of Year............. $ 1,190,000 $ 137,000 $ 192,000
----------- ------------ -----------
----------- ------------ -----------
Schedule of income taxes and
interest paid:
Income Taxes Paid........... $ 32,000 $ 38,000 $ 85,000
Interest Paid............... 3,670,000 3,685,000 3,374,000
----------- ------------ -----------
$ 3,702,000 $ 3,723,000 $ 3,459,000
----------- ------------ -----------
----------- ------------ -----------
Supplemental schedule of
non-cash investing and
financing activities:
Issuance of treasury
stock..................... $ 235,000
-----------
-----------
Equipment under capital
leases...................... $ 3,045,000
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Business--The Company provides a full range of services to the video and
film communications industry for studio production, videotape editing,
mobile production, computer generated visual effects, film-to-tape transfer
and duplication. The Company's facilities are used to produce television
programs, corporate communications, commercials and feature films. The
Company's mobile division provides "on-location" services for the videotape
recording and live telecasting of sports, cultural and other events
throughout North America. Customers for the Company's services include cable
television program suppliers, independent producers, national television
networks, local television stations, motion picture studios, program
syndicators and distributors and advertising agencies.
(2) Consolidation--The consolidated financial statements include the accounts of
the Company and its two wholly-owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated.
(3) Depreciation--Depreciation is provided on a straight-line basis over the
estimated useful lives of assets which are: 30-40 years for buildings; 15-40
years for building improvements; length of lease for leasehold improvements;
5-7 years for video equipment and 5-7 years for furniture and fixtures.
Accelerated methods are used for tax purposes. Gain or loss on disposal of
equipment is included in depreciation and amortization expense for all years
reported. (See Note I to Notes to Consolidated Financial Statements).
(4) Goodwill--Goodwill relating to acquisitions represents the excess of cost
over the fair value of net assets acquired and is amortized over 15 years.
Accumulated amortization at August 31, 1998, 1997 and 1996 totaled $483,000,
$345,000 and $207,000, respectively.
(5) Long Lived Assets--The Company reviews for the impairment of long-lived
assets and certain identifiable intangibles (including goodwill and property
and equipment) whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from
the use of the asset and its eventual disposition is less than its carrying
amount.
(6) Deferred Financing Costs--Costs incurred in obtaining long-term debt
financing are included in other assets. These costs are being amortized
using the interest method over the term of the related obligations.
(7) Interest Cost--The Company had capitalized construction period interest
costs of $129,000 in 1998 and $211,000 in 1997.
(8) Income Taxes--Deferred income taxes are recognized for temporary differences
between financial statement and income tax bases of assets and liabilities
and loss carryforwards for which income tax benefits are expected to be
realized in future years. A valuation allowance has been established to
offset the deferred tax assets as it is more likely than not at all, or some
portion, of such deferred tax assets will not be realized. The effect on
deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
(9) Receivables--The Company grants credit to customers, substantially all of
whom are in the entertainment, advertising or corporate communications
industries.
23
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(10) Net Loss Per Common Share--In fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share", which supercedes Accounting Principles Board Opinion No. 15.
Pursuant to SFAS No. 128, earnings (loss) per common share is computed by
dividing net income (loss) available to common stockholders by the weighted
average number of shares outstanding during the period. Diluted earnings per
share reflect the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock. For the fiscal years
ended August 31, 1998, 1997 and 1996, there is no difference between basic
and diluted net loss per share or between the basic and diluted net loss per
share as previously reported. Potential common shares from stock options,
warrants and convertible preferred stock are excluded in computing basic and
diluted net loss per share as their effects would be antidilutive.
(11) Revenue Recognition--Revenue is recorded when services are provided.
(12) Financial Instruments--The Company's principal financial instruments
consist of accounts receivable, accounts payable and long-term debt. The
Company believes that the carrying amount of such instruments approximates
fair value.
(13) Use of Estimates--In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(14) Stock Compensation--The Company measures stock-based awards using the
intrinsic value method. As provided in Note E, proforma disclosure of the
effect on net loss and loss per share has been computed as if the fair
value-based method had been applied in measuring compensation expense.
(15) New Accounting Pronouncements--In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131). The Company will implement SFAS 130 and
SFAS 131 in fiscal 1999, which requires the Company to report and display
certain information related to comprehensive income and operating segments,
respectively. Adoption of SFAS 130 and SFAS 131 will not impact the
Company's financial position or results of operations.
(16) Reclassifications--Certain amounts in 1997 have been reclassified to
conform to 1998 presentation.
B. LIQUIDITY
The Company recorded net losses of $5,409,000, $4,436,000 and $5,124,000 in
the fiscal years ended August 31, 1998, 1997 and 1996, respectively, and at
August 31, 1998 had stockholders equity of $8,203,000 and a working capital
deficiency of $8,113,000. The Company has taken the following steps to improve
operations and provide for adequate resources to fund the Company's capital
needs for the next twelve months:
In the third quarter of fiscal 1998 the Company closed its Unitel
Post 57 division, one of its two New York City based post
production facilities. A portion of the equipment,
24
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
B. LIQUIDITY (CONTINUED)
clients and personnel were relocated to Unitel Post 38, the
Company's other New York City based post production facility.
In August 1998, the Company refinanced its owned New York City
real estate generating funds of approximately $4,600,000 after
repayment of the existing first mortgages on such properties,
closing costs and escrows. These funds were used to repay Term
Loan D of the Company's credit facility in the amount of
$1,600,000, with the balance used for working capital purposes.
The holders of subordinated debt of the Company related to the
acquisition of the mobile facilities company GC & Co. by the
Company in 1995, which had been due in August 1998, agreed to a
new payment schedule providing for payments of fifty percent of
the $640,000 in October 1998 and the balance in six equal
installments beginning in November 1998. The October payment and
the November installment have been paid as of November 1998.
Another holder of subordinated debt of the Company agreed to
restructure its note with the Company by postponing the maturity
date from May 1999 to September 1999 and by eliminating principal
payments that had been due for the months of April 1998 through
April 1999, totaling $450,000. The holder also agreed to add
$108,000 of accrued but unpaid interest to the principal balance
payable in September 1999. The new terms require that interest
only be paid on a current basis effective September 1, 1998
through the September 30, 1999 maturity date. Interest for
September, October and November 1998 has been paid as of November
1998.
In addition, the Company recently negotiated amendments to certain covenants
contained in the Company's credit facility with a financial institution,
including revising the tangible net worth covenant, the fixed charge coverage
covenant and the capital expenditure covenant, adding an Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA) covenant and deleting
the leverage ratio and interest coverage ratio covenants previously contained in
the agreement, which amendments to the agreement are based in part upon
substantially meeting the Company's fiscal 1999 operating plan. As a result of
these amendments, management is of the opinion that the Company will be in
compliance with the covenants contained in the Company's credit facility.
However, in the event that the Company is not in compliance with the terms of
its credit facility, the Company's ability to operate could be hampered.
C. LONG-TERM DEBT
<TABLE>
<CAPTION>
AUGUST 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Notes payable to financial institution:
Term portion A payable in monthly installments of
$100,000 through March 2000 plus interest on the
declining balance at Prime plus 2% and final
payment of $6,000,000 due March 2000............ $ 7,800,000 $ 8,701,000
Term portion D payable from the sale of assets.
Repaid August 1998.............................. -- 1,259,000
</TABLE>
25
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
C. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revolving portion payable in full in March 2000
with interest payable monthly at Prime plus
2%.............................................. 4,426,000 5,871,000
Mortgage payable to a financial institution at a
fixed interest rate of 7.72%, due in monthly
installments of $25,000 through August 2008..... 3,200,000 --
Mortgage payable to a financial institution, at a
fixed interest rate of 7.72%, due in monthly
installments of $59,000 through August, 2008.... 7,550,000 --
Mortgage payable to a bank. Repaid August, 1998... -- 3,555,000
Mortgage payable to a bank. Repaid August, 1998... -- 1,644,000
Mortgage payable to an insurance company, at a
fixed interest rate of 8.9%, due in monthly
installments of $22,000 through July 2009....... 1,835,000 1,930,000
Note payable to an insurance company, at a fixed
rate of 9.3%, due in monthly installments of
$33,000 through February 2000................... 864,000 1,164,000
Note payable to a financial institution at a fixed
rate of 10.6%, due in monthly installments of
$25,000 through April, 2001..................... 706,000 923,000
Subordinated debt, consisting of $640,000 of
convertible subordinated promissory notes
payable to prior owners of GC & Co. at an
interest rate of Prime plus 1%, one half of
principal outstanding payable in October 1998
and the balance in six equal monthly payments
beginning November 1998 and a subordinated
promissory note payable to Scanline
Communications at an interest rate of Prime plus
2%, due monthly, with a principal payment of
$2,171,000 due September, 1999.................. 2,811,000 2,937,000
Note payable to a financial institution at a fixed
rate of 11.20%, due in monthly installments of
$23,000 through September 2002.................. 906,000 --
Note payable to Commonwealth of Pennsylvania
machinery and equipment loan fund at a fixed
rate of 5.25%, due in monthly installments of
$7,000 through October, 2004.................... 455,000 --
Allegheny County Industrial Development Authority
Variable Rate Demand Revenue Bonds. Interest
payable monthly based on a weekly remarketing
rate, estimated currently at 3.8%. Quarterly
principal payments of $179,000, commencing
December 1998, to be applied to the redemption
of bonds which mature July, 2009................ 5,000,000 5,008,000
Allegheny County Industrial Development Authority
Variable Rate Demand Revenue Bonds. Interest
payable monthly based on a weekly remarketing
rate, estimated currently at 3.8%. Quarterly
principal payments of $125,000, commencing
February, 1999, to be applied to the redemption
of bonds which mature July, 2009................ 3,500,000 --
----------- -----------
39,053,000 32,992,000
</TABLE>
26
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
C. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Less current maturities........................... 4,203,000 4,697,000
----------- -----------
$34,850,000 $28,295,000
----------- -----------
----------- -----------
</TABLE>
In December 1995, the Company entered into a $26 million revolving credit
and term loan agreement (the "credit facility") with a financial institution,
consisting of an $11 million revolving credit facility and two $7.5 million term
loans (Term Loans A and B). In May 1997, Term Loan A was revised by the
inclusion of $2,500,000 of the original Term Loan B and the advance of $518,000
of new funds, resulting in a revised Term Loan A balance of $9,000,000. Term
Loan A is payable in equal monthly principal installments of $100,000 plus
interest, with the balance of $6,000,000 due March 2000. In November 1997 Term
Loan B was repaid, in part from the proceeds of a new Term Loan D in the amount
of $2,500,000. $3,742,000 of the original Term Loan B was repaid from sales of
equipment from the Company's Editel Chicago, Editel New York and Unitel
Hollywood divisions. The Company refinanced its New York owned real estate in
August 1998 and used a portion of the proceeds of the refinancing to repay Term
Loan D and other indebtedness and the balance of the proceeds for working
capital purposes.
In July 1997 the credit facility was further amended by the issuance of a
$5,080,000 letter of credit to secure payment of principal and interest on
$5,000,000 in principal amount of Allegheny County (Pennsylvania) Industrial
Development Authority Variable Rate Demand Revenue Bonds (the "Bonds"). The
proceeds from the sale of the Bonds were loaned to the Company and were used by
the Company to build a new digital mobile teleproduction unit. The letter of
credit requires quarterly principal payments of $179,000 commencing December
1998 to be applied to the redemption in equal principal amount of the Bonds. The
Bonds mature on July 1, 2009 and, to the extent not redeemed in full as
described in the prior sentence, are required to be repaid by the Company on
that date. In December 1997, a second series of Bonds was issued, in an amount
of $3,500,000. The proceeds of the second series of Bonds were used to finance a
second digital mobile unit. Quarterly principal payments of $125,000 will begin
in February 1999 and these bonds also mature on July 1, 2009. The terms of the
credit facility with the financial institution provide that the lender receive a
first lien on all property and equipment and accounts receivable that are not
encumbered by another lender.
The terms of the credit facility with the financial institution provide that
the lender receive a first lien on all property and equipment and accounts
receivable that are not encumbered by another lender. In addition, under certain
circumstances the Company is required to prepay the loans under the credit
facility from funds generated by the sale of assets. The Company has at certain
times not been in compliance with certain financial covenants contained in
certain of its loan documents and the lenders have waived such non-compliance
and have revised such financial covenants to a level such that it is expected
that the Company will be in compliance with such covenants on a going forward
basis.
In August, 1998, the Company refinanced its owned New York City real estate
facilities located at 515 West 57(th) Street and 433 West 53(rd) Street for a
total of $10,750,000. The proceeds of the refinancing were used to repay the
existing first mortgages, closing expenses and required reserves and escrow
deposits and repayment of Term Loan D as described above, with the balance used
for working capital purposes. The new mortgages, in the amount of $7,550,000 and
$3,200,000, respectively, bear interest at 7.72%, on a
27
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
C. LONG-TERM DEBT (CONTINUED)
22 year amortization schedule, with a term of 10 years maturing August, 2008 and
require monthly payments of $59,000 and $25,000 to be applied to interest and
principal, respectively. In connection with these mortgages the Company
established a liquidity reserve of $500,000 and is required to increase the
reserve by approximately $95,000 per annum, payable monthly.
In February 1995 the Company purchased the business and assets of GC & Co.
The purchase price was $6,750,000, consisting of $6,000,000 in cash and $750,000
of convertible subordinated promissory notes. The promissory notes bear interest
at 1% over prime and are convertible into the Company's common stock at $10.00
per share. At August 31, 1998, $640,000 of the convertible notes were
outstanding. In October 1998, one half of this amount was repaid and noteholders
of $320,000 principal outstanding agreed to repayment of the balance then due in
six equal monthly installments beginning November 1998.
Property, equipment and accounts receivable with a carrying value of
$55,725,000 at August 31, 1998 are pledged as collateral for all long-term debt
outstanding.
The agreements relating to certain of these long-term obligations include
covenants which, among other terms, place restrictions on the Company's capital
expenditures, the maintenance of certain financial ratios (including minimum
levels of net worth and debt-to-equity restrictions, all as defined in the
agreements) and the payment of dividends.
At August 31, 1998, maturities of long-term debt for the next five years are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
- ------------
<S> <C>
1999............................................................................... $ 4,203,000
2000............................................................................... 15,806,000
2001............................................................................... 2,054,000
2002............................................................................... 1,919,000
2003............................................................................... 1,748,000
2004 and thereafter................................................................ 13,323,000
-------------
$ 39,053,000
-------------
-------------
</TABLE>
D. OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS
The Company has entered into various capital lease agreements for video
equipment. The leases expire at various times through 2003.
Property recorded under capital leases includes the following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Video equipment............... $13,358,000 $10,312,000
Accumulated depreciation...... (6,477,000) (4,539,000)
----------- -----------
$ 6,881,000 $ 5,773,000
----------- -----------
----------- -----------
</TABLE>
28
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
D. OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS (CONTINUED)
Future minimum lease payments, as of August 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED CAPITAL
AUGUST 31, LEASES
- ------------ ------------
<S> <C>
1999................................................................................................ $ 2,572,000
2000................................................................................................ 2,914,000
2001................................................................................................ 793,000
2002................................................................................................ 758,000
2003................................................................................................ 541,000
------------
Net minimum lease payments.......................................................................... 7,578,000
Amount representing interest........................................................................ 1,033,000
------------
Obligation under capital lease agreements........................................................... $ 6,545,000
------------
------------
Current portion..................................................................................... $ 2,077,000
Long-term portion................................................................................... 4,468,000
------------
$ 6,545,000
------------
------------
</TABLE>
E. STOCK OPTION PLANS
In January 1986 the Company's Board of Directors approved a Non-Statutory
Stock Option Plan (the "Non-Statutory Plan") to grant options to purchase up to
50,000 shares of the Company's Common Stock to the Company's non-employee
directors. Under the Non-Statutory Plan options to purchase 10,000 shares were
outstanding at August 31, 1998.
In July 1988 the Company's Board of Directors approved a Non-Qualified Stock
Option Plan (the "Non-Qualified Plan") to grant options to purchase up to
125,000 shares of the Company's Common Stock primarily to key employees. Options
to purchase 10,000 shares granted to several officers under the Non-Qualified
Plan were outstanding at August 31, 1998.
In July 1992 the Company's shareholders approved the adoption of the 1992
Stock Option Plan (the "1992 Plan") to grant options to purchase up to 350,000
shares of the Company's Common Stock primarily to key employees and non-employee
directors. Prior to July 1992, the Company granted options under the plans
described above. All future stock option grants will be made under the 1992
Plan. Options to purchase 227,500 shares were outstanding to key employees and
non-employee directors under the 1992 Plan at August 31, 1998.
Under all plans, options have generally been granted to purchase stock at
the fair market value of the shares at the date of grant as determined by the
Board of Directors. Options expire ten years after the date of grant.
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." Accordingly, no compensation cost has
been recognized for the stock options granted to employees and directors. Had
compensation cost been determined based on the fair value at the grant date for
stock option awards in fiscal 1996,1997 and 1998, consistent with the provisions
of SFAS No. 123 the Company's net loss and loss per share for the years ended
August 31, 1996, 1997 and 1998
29
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
E. STOCK OPTION PLANS (CONTINUED)
would have been increased by approximately $427,570, $69,230 and $17,746 or
($.16), ($.03) and $(.01) per share, respectively. The weighted average fair
value at date of grant for options granted during 1996, 1997 and 1998 was $3.73,
$4.07 and $4.03 per option, respectively. The fair value of each option at date
of grant was estimated using the Black--Scholes option pricing model with the
following weighted average assumptions for grants in:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Expected stock price volatility.......................................... 50% 45% 50%
Expected lives of options................................................ 10 10 10
Risk-free interest rate.................................................. 6.9% 6.9% 6.9%
Expected dividend yield.................................................. 0% 0% 0%
</TABLE>
The following table summarizes option activity for the years ended August
31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE
SHARES PER SHARE PRICE
----------- --------------- --------------
<S> <C> <C> <C>
Options Outstanding, September 1, 1995............................ 225,700 $ 5.75--$13.18 $8.05
Granted........................................................... 111,500 $ 5.13--$5.28 $5.25
Exercised......................................................... (30,000) $ 5.75--$5.87 $5.81
Expired and canceled.............................................. (91,700) $ 5.75--$10.81 $9.15
-----------
Options Outstanding, August 31, 1996.............................. 215,500 $ 5.13--$13.18 $6.27
Granted........................................................... 25,000 $ 5.28--$6.13 $5.79
Expired and canceled.............................................. (5,000) $5.25 $5.25
-----------
Options Outstanding, August 31, 1997.............................. 235,500 $ 5.13--$13.18 $6.40
Granted........................................................... 22,000 $ 4.75--$6.25 $5.87
Expired and canceled.............................................. (10,000) $5.25 $5.25
-----------
Options Outstanding, August 31, 1998.............................. 247,500 $ 4.75--$13.18 $6.40
-----------
-----------
</TABLE>
At August 31, 1998, a total of 277,500 shares were reserved for future
option grants for all plans and options to purchase 247,500 shares were
outstanding.
The following table summarizes information about stock options outstanding
as of August 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------ OPTIONS EXERCISABLE
WEIGHTED AVERAGE --------------------------------
REMAINING NUMBER WEIGHTED
RANGE OF NUMBER CONTRACTUAL WEIGHTED AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE AUGUST 31, 1998 EXERCISE PRICE
- -------------------- ----------- ---------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$4.75--$7.13........ 176,500 8 years $ 5.57 105,600 $ 5.58
$7.25--$10.88....... 69,000 5 years $ 8.32 66,000 $ 8.37
$13.18 2,000 5 years $13.18 2,000 $13.18
</TABLE>
30
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
F. 401(k) EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Plan requires the Company to match employee contributions to the 401(k)
portion of the Plan in shares of the Company's Common Stock up to the maximum
amount set forth in the Plan. The minimum contribution required to be made each
year by the Company is the amount necessary to meet its debt service
requirements. The Plan combines a 401(k) plan with certain features of an
employee stock ownership plan.
Total contributions to the ESOP and the Plan for each of the years ended
August 31 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 231,000
1997.............................................................. $ 223,000
1996.............................................................. $ 248,000
</TABLE>
The Plan's compensation expense was $121,000 and $167,000 for the years
ended August 31, 1998 and 1997, respectively. A summary of the Plan's shares is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Allocated shares.................................................... 113,174 116,881
Shares released for allocation...................................... -0- 6,807
--------- ---------
113,174 123,688
--------- ---------
</TABLE>
31
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
G. INCOME TAXES
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
Current portion of deferred tax assets
Employee medical benefits....................................................... $ 141,000 $ 231,000
Bad debt reserve................................................................ 171,000 264,000
------------- -------------
312,000 495,000
------------- -------------
Long-term portion of deferred tax assets (liabilities)
Accrued retirement.............................................................. 449,000 504,000
Net operating loss carryforwards................................................ 6,333,000 3,242,000
ITC carryforwards-Federal and State (net of ITC valuation allowance)............ 467,000 467,000
AMT credit carryforwards........................................................ 3,400,000 2,540,000
Other--net...................................................................... 548,000 228,000
Fixed assets basis difference between book and tax.............................. (767,000) (1,166,000)
------------- -------------
10,430,000 5,815,000
Valuation Allowance............................................................. (8,273,000) (3,841,000)
------------- -------------
2,157,000 1,974,000
------------- -------------
Net deferred tax asset.......................................................... $ 2,469,000 $ 2,469,000
------------- -------------
------------- -------------
</TABLE>
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal...................................................... $ -0- $ -0- $ -0-
State........................................................ 37,000 38,000 40,000
--------- --------- ---------
37,000 38,000 40,000
Deferred:
Federal...................................................... -0- -0- -0-
State........................................................ -0- -0- -0-
--------- --------- ---------
-0- -0- -0-
--------- --------- ---------
$ 37,000 $ 38,000 $ 40,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
32
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
G. INCOME TAXES (CONTINUED)
The Company's effective tax rate was (1%) in 1998, 1997 and 1996,
respectively. The components of the reconciliation of the Company's effective
tax rate to the U.S. statutory rate of 34% are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------- -------------
Tax expense (benefit) computed at statutory rate..................... $ (1,826,000) $ (1,495,000) $ (1,729,000)
State income tax, net of Federal income tax benefit.................. 24,000 25,000 26,000
Loss without benefit................................................. 1,751,000 1,410,000 1,634,000
Goodwill............................................................. 47,000 47,000 47,000
Other................................................................ 41,000 51,000 62,000
------------- ------------- -------------
Actual tax expense................................................... $ 37,000 $ 38,000 $ 40,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The Company's total alternative minimum tax credit carryforward is
approximately $3,400,000, which can be used against the Company's future regular
tax liability.
The Company has net operating loss carryforwards as of August 31, 1998 of
$14,700,000 which will expire at various times throughout 2018. Internal Revenue
Code Section 382 places a limitation on the utilization of Federal net operating
loss and other credit carryforwards when an ownership change, as defined by the
tax law, occurs. Generally, this occurs when a greater than 50 percentage point
change in ownership occurs. Accordingly, the actual utilization of the
alternative minimum tax credit carryforwards and other deferred tax assets for
tax purposes may be limited annually to the percentage (about 6%) of the fair
market value of the Company at the time of any such ownership changes.
H. COMMITMENTS AND CONTINGENCIES
Operating Leases--The following is a schedule by years of future minimum
rental payments under operating leases that have an initial non-cancelable lease
term in excess of one year:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AMOUNT
- ------------------ -------------
<S> <C>
1999........................................................................... $ 3,430,000
2000........................................................................... 4,609,000
2001........................................................................... 2,005,000
2002........................................................................... 1,264,000
2003 and thereafter............................................................ 500,000
-------------
$ 11,808,000
-------------
-------------
</TABLE>
The aggregate rental expense for the years ended August 31, 1998, 1997, and
1996 was $3,683,000, $3,385,000 and $3,874,000, respectively.
The Company maintains cash balances at financial institutions located in New
York, New York, Pittsburgh, Pennsylvania, Los Angeles, California and Montreal,
Canada. These balances are insured by the Federal Deposit Insurance Corporation
up to $100,000 in the United States and by the Canada Deposit Insurance
Corporation up to $60,000 (Canadian) in Canada. At August 31, 1998, uninsured
amounts held at these financial institutions were approximately $110,000 (USD).
33
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
H. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has contractual obligations with several employees in respect of
salary, bonus and severance compensation.
The Company has a contract with a union that expires on November 30, 1998.
The Company and the union are negotiating a new contract.
There are various lawsuits claiming amounts against the Company. It is the
opinion of the Company's management that the ultimate liabilities, if any, in
these cases will not have a material adverse effect on the Company's financial
statements.
I. NET GAIN ON DISPOSITION OF EQUIPMENT
The Company has accelerated its efforts to sell equipment which is not fully
utilized. In order to properly reflect the sale of equipment as part of the
Company's operations, in 1998, 1997 and 1996, $(31,000), $220,000 and $(58,000),
respectively, of (loss) gain on disposal of assets was included in depreciation
expense.
J. ACCRUED RETIREMENT
Under the terms of employment agreements with two former officers of the
Company, retirement payments commenced September 1, 1996. At August 31, 1998, a
liability of approximately $1,047,000 has been recorded, based upon the present
value of these payments. Approximately $55,000, $55,000 and $163,000 has been
charged to operations for the years ended August 31, 1998, 1997 and 1996,
respectively.
K. IMPAIRMENT AND RESTRUCTURING CHARGES
The Company has determined to focus its resources toward providing services
to the entertainment and corporate communications areas, which represent the
Company's strength. As part of this strategy, the Company decided to sell its
Editel New York, Editel Chicago and Editel Los Angeles divisions, which
specialized in the highly competitive commercial advertising portion of the
video facilities industry.
Based on the Company's decision to sell the Editel divisions, the Company
recorded an impairment charge of approximately $2,000,000 in fiscal 1996
relating to the assets at all three Editel divisions. The impairment charge
recorded represents management's estimate of the decrease in value of these
assets during the period such assets were held for sale based upon the
depreciation method which the Company has used in the past and which management
has found to be reasonable and appropriate.
In February 1996, the Company announced the closure of its Editel Chicago
division and subsequently distributed the majority of that division's assets
throughout the Company with the balance of the Editel Chicago division assets
sold in an auction. In March 1996, the Company terminated the office lease for
its Editel Chicago division and recorded a restructuring charge of $1,246,000 in
the quarter ended May 31, 1996. During 1996, the Company's Editel New York
division was closed and a majority of the editorial and computer graphics assets
were distributed throughout the Company. In November 1996, the Company sold the
majority of the remaining assets to an unrelated third party for $1,400,000. The
balance of the assets were disposed of through an auction. Proceeds from the
sale of assets were used by the Company to repay outstanding debt. In May 1996,
after reevaluating the potential of the Editel Los Angeles division, the
34
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
K. IMPAIRMENT AND RESTRUCTURING CHARGES (CONTINUED)
Company decided to retain and expand this division and, accordingly,
discontinued seeking a buyer for this business.
In June 1997 the Company merged its Unitel Hollywood and Editel Los Angeles
divisions. A significant portion of the equipment from Unitel Hollywood was
moved to the Editel Los Angeles location. Additionally, a portion of the
equipment was transferred to the Company's New York post production operation
for future use. The balance of the equipment was sold and the proceeds in the
amount of $1,700,000 were used to repay long term debt. As a result of the
merger and sale, the company recorded a restructuring charge of $1,055,000 in
the fourth quarter of 1997.
Additionally, after a reassessment of the Company's New York post production
assets, the Company recorded an impairment charge of $300,000 in the fourth
quarter of 1997. Throughout fiscal year 1998, the Company continued to evaluate
its investment in its two New York based post production facilities, Unitel Post
57 and Unitel Post 38. In the third quarter of fiscal 1998, the Company closed
its Unitel Post 57 facility and relocated a portion of the Unitel Post 57 client
base, equipment and key personnel to Unitel Post 38. Additionally, the space
formerly used by the Unitel Post 57 facility was repurposed into studio support
space to accommodate a new multi year contract with King World for the
production of the "Inside Edition" television show. The Company had previously
provided facilities for King World in another location, the lease for which
expired in June 1998.
L. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal 1997, the Company recorded certain
adjustments which resulted in restructuring ($1,055,000) and impairment
($300,000) charges being recorded in the amount of $1,355,000. $1,055,000 of
these adjustments or $.39 per share, related to previously issued quarterly data
for the third quarter of 1997--See Note M to Consolidated Financial Statements.
35
<PAGE>
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
M. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED PRIMARY NET
AUGUST 31, GROSS NET EARNINGS(LOSS)
1998 SALES PROFIT EARNINGS(LOSS) PER SHARE
- --------------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1(st) quarter $ 13,768,000 $ 2,338,000 $ (456,000) $ (.17)
2(nd) quarter 12,429,000 1,455,000 (1,308,000) (.49)
3(rd) quarter 13,957,000 2,636,000 (677,000) (.25)
4(th) quarter 11,545,000 563,000 (2,968,000) (1.10)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PRIMARY NET
AUGUST 31, GROSS NET EARNINGS LOSS
1997 SALES PROFIT EARNINGS(LOSS) PER SHARE
- --------------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1(st) quarter $ 16,370,000 $ 3,603,000 $ 935,000 $ .35
2(nd) quarter 15,000,000 2,514,000 (572,000) (.21)
3(rd) quarter 15,840,000 2,746,000 (1,579,000) (.59)
4(th) quarter 11,557,000 196,000 (3,220,000) (1.21)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PRIMARY NET
AUGUST 31, GROSS NET EARNINGS LOSS
1996 SALES PROFIT EARNINGS(LOSS) PER SHARE
- --------------------- --------------------- --------------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
1(st) quarter $ 22,940,000 $ 5,805,000 $ 522,000 $ .20
2(nd) quarter 20,529,000 3,171,000 (1,379,000) (.53)
3(rd) quarter 19,281,000 3,166,000 (2,290,000) (.88)
4(th) quarter 16,537,000 1,644,000 (1,977,000) (.75)
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
36
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Barry Knepper........................................ 48 President, Chief Executive Officer and Director
Richard L. Clouser................................... 58 Senior Vice President--Corporate, President of the
Mobile Division and Director
Karen Ceil Lapidus................................... 41 Vice President, General Counsel and Secretary
Edwin Levine......................................... 59 President of the Unitel New York Studios Division
Albert Walton........................................ 53 President of the Editel Los Angeles Division
Tom Eyring........................................... 46 Chief Technology Officer
Neil Marcus.......................................... 56 Chief Financial Officer
Michael Granowsky.................................... 32 President of the Unitel New York Post Production
Division
Herbert Bass......................................... 69 Director
Alex Geisler......................................... 75 Director
Philip S. Birsh...................................... 40 Director
Walter G. Arader..................................... 78 Director
</TABLE>
There are no family relationships among any of the persons listed above.
Mr. Knepper has been President and Chief Executive Officer of the Company
since April 1996, a Director of the Company since May 1995 and its Treasurer
since 1983. He has served as Senior Vice President-Finance and Administration
from May 1995 to April 1996 and as Chief Financial Officer from January 1982 to
April 1996.
Mr. Clouser has been President of the Mobile division of the Company since
1982, Senior Vice President-Corporate since April 1996 and a Director since
October 1996.
Ms. Lapidus has been General Counsel and Secretary of the Company since
January 1994 and a Vice President since April 1996. From 1984 until joining the
Company, Ms. Lapidus was an associate attorney at Mudge Rose Guthrie Alexander &
Ferdon, a New York law firm.
Mr. Walton has been President of the Editel Los Angeles division since July
1995. From May 1994 through July 1995 he was the Director of New Business
Development for the Editel Los Angeles division. He served as Vice President of
CIS from 1988 through 1994, a Hollywood based specialized visual effects
company.
Mr. Eyring has been Chief Technology Officer since June 1995. From 1991 to
June 1995 he was Vice President of Engineering of the Editel New York division
and from 1982 through 1991 he was Director of Engineering Services for the
Editel New York division.
Mr. Levine has been President of the Unitel New York Studios division since
August 1996. From June 1975 to August 1996 he was Vice President of Technical
Operations for the Unitel New York division of the Company.
Mr. Marcus has been Chief Financial Officer of the Company since May 1998
and a financial consultant to the Company from August 1997 to April 1998. From
1973 until joining the Company, Mr. Marcus served as Chief Financial Officer of
Kavanau Real Estate Trust, a publicly traded company, and Sanford Nalitt and
Associated Companies, a Staten Island real estate developer.
37
<PAGE>
Mr. Granowsky has been President of the Unitel New York Post Production
Division since July 1998. From October 1994 Mr. Granowsky was General Manager of
the Unitel Post 38 division of the Company. From April 1992 until October 1994
he held other operational positions at such division.
Messrs. Bass and Geisler have served as Directors of the Company since its
founding in 1969. Mr. Bass served as President of the Company and Mr. Geisler as
Executive Vice President of the Company from 1969 until 1989, when they became
Co-Chairmen and Co-Chief Executive Officers. In August 1993, they relinquished
their duties as Co-Chief Executive Officers and, from that date through August
1996 they each served as consultants to the Company. Messrs. Bass and Geisler
have been private investors since September 1996.
Mr. Arader has been a Director of the Company since March 1981 and has been
Chairman and Chief Executive Officer of Walter G. Arader & Associates, a
financial and management consulting firm, since January 1993. For more than five
years prior thereto, Mr. Arader was Chairman and Chief Executive Officer of the
financial and management consulting firm of Arader, Herzig & Associates, Inc.
Mr. Arader is a former Commissioner of the Pennsylvania Securities Commission
and a former Secretary of Commerce of the Commonwealth of Pennsylvania. Mr.
Arader is a Director of HMG/Courtland, Inc.
Mr. Birsh has been a Director of the Company since April 1992 and Publisher
of Playbill Incorporated, which publishes "Playbill" Magazine, and President and
Publisher of Racing Today Publishing Inc., which publishes a variety of racing
magazines, since March 1992. In January 1992, Mr. Birsh became President of AJP
Realty Corp., a real estate investment company. From May 1989 to February 1992,
Mr. Birsh was Senior Vice President and Director of the private business group
of Kidder Peabody & Co. Incorporated, and for the nine years prior to May 1989,
Mr. Birsh was with Drexel Burnham Lambert Incorporated. At his departure in
1989, Mr. Birsh was a vice president in the mergers and acquisitions department.
The Company's Board of Directors presently consists of six Directors divided
into three classes. Walter G. Arader and Philip S. Birsh serve as Class I
Directors, Barry Knepper and Richard Clouser serve as Class II Directors and
Herbert Bass and Alex Geisler serve as Class III Directors. The term of office
of Class I Directors continues until the Company's 2001 Annual Meeting of
Stockholders, the term of office of Class II Directors continues until the
Company's 1999 Annual Meeting of Stockholders and the term of office of Class
III Directors continues until the Company's 2000 Annual Meeting of Stockholders.
Each officer of the Company serves, at the pleasure of the Board of
Directors, for a term of one year and until his successor is elected and
qualified.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Michael Granowsky, President of the Company's Unitel New York Post
Production division, filed late his Initial Statement of Beneficial Ownership on
Form 3. In addition, Walter Arader, Philip Birsh and Herbert Bass, Directors of
the Company, and Neil Marcus, Chief Financial Officer of the Company, filed late
their Annual Statement of Changes in Beneficial Ownership on Form 5.
38
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning
compensation with respect to each person who served as the Company's Chief
Executive Officer during the fiscal year ended August 31, 1998 and each of the
Company's four other most highly compensated executive officers:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------- SECURITIES
NAME AND BONUS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY $ (1) $ OPTIONS(#) COMPENSATION $
- ---------------------------------------- ---- -------- ------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Barry Knepper........................... 1998 $204,115 $ 870(2)
President and 1997 $183,365 $1,568
Chief Executive Officer 1996 $159,413 25,000 $1,389
Richard Clouser......................... 1998 $210,809 $ 870(2)
Senior Vice President 1997 $206,654 $1,568
Corporate and 1996 $191,083 $73,405 12,500 $1,389
President, Mobile Division
Edwin Levine............................ 1998 $133,039 $ 870(2)
President of the Unitel 1997 $124,999 $17,250 $1,568
New York Studios Division (3) 1996 $121,432 $17,250 5,000 $1,389
Albert Walton........................... 1998 $190,000 $ 870(2)
President, Editel- 1997 $207,231(3) $40,000 $1,568
Los Angeles Division 1996 $152,454 10,000 $ 141
Thomas Eyring........................... 1998 $162,878 $10,000 $ 870(2)
Chief Technology Officer 1997 $162,254 $1,568
1996 $157,587 $ 8,100 7,500 $ 776
</TABLE>
- ------------------------
(1) Bonus compensation is shown for the fiscal year in which earned.
(2) Includes the value, as at August 31, 1998, of shares of the Company's Common
Stock allocated to such executive officer under the Company's 401(k)
Employee Savings and Stock Ownership Plan (the "Savings Plan") during the
fiscal year ended August 31, 1998.
(3) Includes $24,957 in respect of salary earned in fiscal 1996 and paid in
fiscal 1997.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
During fiscal 1998, Mr. Albert Walton was a party to an employment agreement
with the Company pursuant to which he served as President of the Editel Los
Angeles division of the Company. Under the agreement, the term of which ended on
August 31, 1998, Mr. Walton received a base salary at the rate of $190,000 per
annum. In addition, Mr. Walton received bonus compensation during the term of
the agreement equal to 5% of the pre-tax net income of the Editel Los Angeles
division for the Company's 1997 and 1998 fiscal years and a one time $40,000
bonus payment. Under the agreement, Mr. Walton was provided with an automobile
and related expense allowance.
Commencing September 1, 1997, Mr. Barry Knepper has an employment agreement
with the Company pursuant to which he serves as President and Chief Executive
Officer of the Company. Under
39
<PAGE>
the agreement, the term of which is one year with automatic one-year renewals
unless either party gives 90 days notice of termination, Mr. Knepper receives a
base salary at the rate of $200,000 per annum with a consumer price index
increase each May 1(st) (a minimum of 5%) during the term. In addition, Mr.
Knepper is entitled to receive bonus compensation for all fiscal years of the
Company during the term of the agreement equal to 2 1/2% of consolidated pretax
profits of the Company. Under the Agreement Mr. Knepper is also provided with an
automobile and related expense allowance. In the event of a change in control
(as defined in the agreement) of the Company and the termination of Mr.
Knepper's employment in certain circumstances, under the agreement the Company
will pay to Mr. Knepper severance in an amount equal to the greater of one
year's base salary and the remaining base salary for the employment term plus a
pro-rata portion of the current year's bonus amount.
The Company has entered into severance agreements with Messrs. Clouser,
Eyring, Walton and Levine through December 31, 1998 which automatically renew on
such date and on every one-year anniversary thereafter unless terminated by the
Company. In the event of a change of control (as defined in such agreements) of
the Company and the termination of the officer's employment in certain
circumstances, the Company will pay to such officer severance in an amount equal
to one-half of his annual base salary.
STOCK OPTIONS
The Company currently grants stock options to employees and directors under
the Company's 1992 Stock Option Plan (the "1992 Plan"). During the fiscal year
ended August 31, 1998, no stock options were granted to or exercised by any of
the executive officers named in the Summary Compensation Table. The following
table sets forth certain information with respect to the number and value of
unexercised options held by such officers as of August 31, 1998.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND
FISCAL 1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
SHARES ACQUIRED AT FY-END(#) AT FY-END($)
ON EXERCISE VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ------------------- ------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Barry Knepper.................................... -- -- 45,000/12,000 --/--
Richard Clouser.................................. -- -- 37,500/ 5,000 --/--
Edwin Levine..................................... -- -- 3,000/ 2,000 --/--
Albert Walton.................................... -- -- 6,000/ 4,000 --/--
Thomas Eyring.................................... -- -- 5,000/ 2,500 --/--
</TABLE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive $2,500 each fiscal
quarter and $1,000 for each Board of Directors' meeting and each committee
meeting attended. Pursuant to the terms of the 1992 Plan, each director of the
Company who is not an employee of the Company or any subsidiary of the Company
is automatically granted an option to purchase 3,000 shares of the Company's
Common Stock on May 1 of each year during the term of the 1992 Plan. During
fiscal 1998, Messrs. Arader, Birsh, Bass and Geisler were granted an option
under the 1992 Plan to purchase 3,000 shares of the Company's Common Stock at an
exercise price of $6.25, the fair market value per share of Common Stock of the
Company on the date of grant.
40
<PAGE>
ITEM 12. SHARE OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The following table sets forth information on November 11, 1998 (except as
indicated below) with respect to each person (including any "group" as that term
is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), who is known by the Company to be the beneficial owner or
more than 5% of the Company's Common Stock. Unless otherwise indicated, each
beneficial owner named below has sole voting and dispositive power with respect
to the shares of Common Stock indicated as beneficially owned by such owner.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------------------------------------------------------------------- -------------------- ---------------
<S> <C> <C>
Herbert Bass................................................................... 184,379(1) 6.8%
146 Waters Edge
Admiral's Cove
Jupiter, Florida 33477
Alex Geisler................................................................... 215,353(2) 7.9%
131 Regatta Drive
Admiral's Cove
Jupiter, Florida 33477
Dimensional Fund Advisors Inc. ................................................ 176,500(3) 6.5%
1299 Ocean Avenue
Santa Monica, California 90401
Investment Counselors of Maryland.............................................. 175,000(4) 6.4%
803 Cathedral Street
Baltimore, Maryland 21201
Metro Networks, Inc. .......................................................... 165,360(5) 6.1%
2800 Post Oak Boulevard
Suite 4000
Houston, Texas 77056
</TABLE>
- ------------------------
(1) Includes 11,000 shares subject to presently exercisable stock options.
(2) Includes 11,000 shares subject to presently exercisable stock options,
57,193 shares held by Jean Z. Geisler (Mr. Geisler's wife) as trustee for
the benefit of the Geisler's children and 67,234 shares held by Mrs.
Geisler, with respect to all of which shares Mr. Geisler has sole voting and
dispositive power. Mr. and Mrs. Geisler disclaim beneficial ownership as to
the 57,193 shares held by Mrs. Geisler as trustee.
(3) Pursuant to a Schedule 13G, dated February 9, 1998, filed by Dimensional
Fund Advisors Inc. ("DFA") with the Securities and Exchange Commission (the
"SEC"), DFA has indicated that all shares listed in the table above opposite
its name are owned by advisory clients of DFA, no one of which, to DFA's
knowledge, owns more than 5% of the Company's Common Stock. DFA has
indicated that it has sole dispositive power with respect to all such shares
of Common Stock, that it has sole voting power with respect to 123,100 of
such shares and that certain of its officers, who also serve as officers of
DFA Investment Dimensions Group Inc. (the "Fund") and The DFA Investment
Trust Company (the "Trust"), each an open-end management investment company
registered under the Investment Company Act of 1940, vote 23,200 additional
shares of the Company's Common Stock
41
<PAGE>
which are owned by the Fund and 30,200 shares of the Company's Common Stock
which are owned by the Trust.
(4) Pursuant to a Schedule 13G, dated March 19, 1998, filed by Investment
Counselors of Maryland Inc., an investment advisor registered under the
Investment Advisor's Act of 1940 ("ICM"), with the SEC, ICM has indicated
that all of the shares listed in the table above opposite its name are owned
by advisory clients of ICM, no one of which, to ICM's knowledge, owns more
than 5% of the Company's Common Stock. ICM has indicated that it has sole
dispositive power with respect to all of such shares and sole voting power
as to 130,000 of such shares of Common Stock.
(5) Pursuant to a Schedule 13D, dated January 29, 1998, filed by Metro Networks,
Inc. ("Metro Networks") with the SEC, Metro Networks indicated that it has
sole dispositive power and sole voting power with respect to all of the
shares listed in the table above opposite its name.
The following table sets forth information at November 16, 1998 with respect
to the beneficial ownership of the Company's Common Stock by (a) each director
(b) each executive officer named in the Summary Compensation Table under the
caption "EXECUTIVE COMPENSATION" and (c) all directors and executive officers of
the Company as a group (12 persons). Unless otherwise indicated, each person
named below and each person in the group named below has sole voting and
dispositive power with respect to the shares of the Company's Common Stock
indicated as beneficially owned by such person or group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- -------------------------------------------------- -------------------- ---------
<S> <C> <C>
Herbert Bass...................................... 184,379(1) 6.8%
Alex Geisler...................................... 215,353(2) 7.9%
Walter G. Arader.................................. 31,000(3) 1.0%
Philip S. Birsh................................... 20,400(4) *
Barry Knepper..................................... 69,768(5) 2.5%
Richard Clouser................................... 44,840(6) 1.6%
Edwin Levine...................................... 14,232(7) *
Thomas Eyring..................................... 9,194(8) *
Albert Walton..................................... 10,082(9) *
All directors and executive officers as a group
(12 persons).................................... 617,882(10) 21.3%
</TABLE>
- ------------------------
* Less than one percent.
(1) See footnote (1) above to the first table under the caption "Share Ownership
of Certain Beneficial Owners and Management" for information as to the
beneficial ownership by Mr. Bass of the Company's Common Stock.
(2) See footnote (2) above to the first table under the caption "Share Ownership
of Certain Beneficial Owners and Management" for information as to the
beneficial ownership by Mr. Geisler of the Company's Common Stock.
(3) Includes 23,000 shares issuable to Mr. Arader pursuant to presently
exercisable stock options.
(4) Includes 13,000 shares issuable to Mr. Birsh pursuant to presently
exercisable stock options.
(5) Includes 45,000 shares issuable to Mr. Knepper pursuant to presently
exercisable stock options, 4,868 shares allocated to Mr. Knepper and held in
his account under the Savings Plan and 2,100 shares held by Mr. Knepper in
an Individual Retirement Account.
(6) Includes 37,500 shares issuable to Mr. Clouser pursuant to presently
exercisable stock options, 2,146 shares allocated to Mr. Clouser and held in
his account under the Savings Plan and 3,600 shares purchasable by Mr.
Clouser under the Company's Employee Stock Purchase Plan (the "Purchase
42
<PAGE>
Plan"). Also includes 1,594 shares allocated to Mr. Clouser's wife and held
in her account under the Savings Plan.
(7) Includes 3,000 shares issuable to Mr. Levine pursuant to presently
exercisable stock options, 3,632 shares allocated to Mr. Levine and held in
his account under the Savings Plan and 3,600 shares purchasable by Mr.
Levine under the Purchase Plan.
(8) Includes 5,000 shares issuable to Mr. Eyring pursuant to presently
exercisable stock options, 594 shares allocated to Mr. Eyring and held in
his account under the Savings Plan and 3,600 shares purchasable by Mr.
Eyring under the Purchase Plan.
(9) Includes 6,000 shares issuable to Mr. Walton pursuant to presently
exercisable stock options, 482 shares allocated to Mr. Walton and held in
his account under the Savings Plan and 3,600 shares purchasable by Mr.
Walton under the Purchase Plan.
(10) Includes 163,500 shares issuable to executive officers and directors of the
Company pursuant to presently exercisable stock options and 21,600 shares
purchasable by executive officers of the Company under the Purchase Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company is a party to an agreement (each, an "Agreement") with each of
Messrs. Herbert Bass and Alex Geisler, Directors and former Co-Chairmen and
Co-Chief Executive Officers of the Company. Under the Agreements, Messrs. Bass
and Geisler served as consultants to the Company through August 31, 1996.
Beginning September 1, 1996, Mr. Bass and Mr. Geisler are each entitled to
receive retirement benefits for the rest of his life at an annual rate of
$92,061 per annum. These retirement benefits are payable for a minimum of 10
years and will be paid to the person's estate in the event of his death prior to
August 31, 2006. They are also entitled to receive non-competition payments of
$50,000 per annum for the 10 years following the terms of the Agreements.
During fiscal 1998, Ms. Susan Devlin, wife of Richard Clouser, Senior Vice
President--Corporate and President of the Company's Mobile division, was a party
to an employment agreement with the Company pursuant to which she served as Vice
President-General Manager of the Company's Mobile division. In fiscal 1998, Ms.
Devlin received compensation of $196,593 under such agreement and was provided
with an automobile. Ms. Devlin's employment with the Company terminated in
August 1998.
43
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The following financial statements of the Company are included in
Part II, Item 8:
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Grant Thornton LLP Independent Accountants...................................................... 18
Consolidated Balance Sheets--August 31, 1998 and 1997..................................................... 19
Consolidated Statements of Operations--Years Ended August 31, 1998, 1997, and 1996........................ 20
Consolidated Statement of Stockholders' Equity--Years
Ended August 31, 1998, 1997 and 1996.................................................................... 21
Consolidated Statements of Cash Flows--Years Ended August 31, 1998, 1997 and 1996......................... 22
Notes to Consolidated Financial Statements................................................................ 23-36
</TABLE>
2. The following schedule is included in Part IV:
Consolidated Financial Statement Schedule
<TABLE>
<S> <C>
Schedule II--Valuation and Qualifying Accounts and Reserves.......................... 50
</TABLE>
All other schedules are omitted because they are not applicable, not
required or the required information is included in the consolidated financial
statements or notes thereto.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the three months ended August 31, 1998.
(c) Exhibits required to be filed by Item 601 of Regulation S-K:
1. Exhibit 3(A). Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3(A) of the Registrant's Annual Report on Form 10-K filed
November 24, 1992 (File No. 1-8654)).
2. Exhibit 3(B). Amended and Restated By-laws (incorporated by reference to
Exhibit 3(ii) of the Registrant's Quarterly Report on form 10-Q filed April 15,
1996 (file No. 1-8654)).
3. Exhibit 4(A). Specimen of Stock Certificate (incorporated by reference to
Exhibit 4 of the Registrant's Annual Report on form 10-K filed November 29, 1984
(File No. 1-8654)).
4. Exhibit 4(B). Amended and Restated Loan and Security Agreement dated as
of December 12, 1995 among Unitel Video, Inc., R Squared, Inc., and Heller
Financial, Inc. as agent and lender (incorporated by reference to Exhibit 4(B)
of the Registrant's Annual Report on form 10-K filed December 14, 1995 (File No.
1-8654)).
5. Exhibit 4(C). First Amendment and Limited Waiver to Loan and Security
Agreement dated November 26, 1996 (incorporated by reference to Exhibit 4(C) of
the Registrant's Annual Report on Form 10-K filed December 15, 1997 (File No.
1-8654)).
6. Exhibit 4(D). Second Amendment to Loan and Security Agreement and Limited
Waiver dated as of February 24, 1997 (incorporated by reference to Exhibit 4(A)
of the Registrant's Quarterly Report on Form 10-Q filed July 9, 1997 (File No.
1-8654)).
7. Exhibit 4(E). Third Amendment and Limited Waiver to Amended and Restated
Loan and Security Agreement dated as of March 21, 1997 (incorporated by
reference to Exhibit 4(B) of the Registrant's Quarterly Report on Form 10-Q
filed July 9, 1997 (File No. 1-8654)).
8. Exhibit 4(F). Fourth Amendment to Amended and Restated Loan and Security
Agreement dated as of May 7, 1997 (incorporated by reference to Exhibit 4(C) of
the Registrant's Quarterly Report on Form 10-Q filed July 9, 1997 (File No.
1-8654)).
44
<PAGE>
9. Exhibit 4(G). Fifth Amendment to Amended and Restated Loan and Security
Agreement dated as of July 24, 1997 (incorporated by reference to Exhibit 4(G)
of the Registrant's Annual Report on Form 10-K filed December 15, 1997 (File No.
1-8654)).
10. Exhibit 4(H). Reimbursement Agreement dated as of July 1, 1997 between
Unitel Video, Inc. and Heller Financial, Inc., as agent (incorporated by
reference to Exhibit 4(H) of the Registrant's Annual Report on Form 10-K filed
December 15, 1997 (File No. 1-8654)).
11. Exhibit 4(I). Waiver to Loan and Security Agreement dated April 12, 1996
(incorporated by reference to Exhibit 4(D) of the Registrant's Annual Report on
Form 10-K filed November 27, 1996 (File No. 1-8654)).
12. Exhibit 4(J). Loan Agreement dated as of July 1, 1997 between Unitel
Video, Inc. and the Allegheny County Industrial Development Authority
(incorporated by reference to Exhibit 4(M) of the Registrant's Annual Report on
Form 10-K filed December 15, 1997 (File No. 1-8654)).
13. Exhibit 4(K). Pledge Agreement dated as of July 1, 1997 among Unitel
Video, Inc., PNC Bank, National Association and Heller Financial, Inc., as
agent. (incorporated by reference to Exhibit 4(N) of the Registrant's Annual
Report on Form 10-K filed December 15, 1997 (File No. 1-8654)).
14. Exhibit 4(L). Sixth Amendment to Amended and Restated Loan and Security
Agreement, dated as of November 13, 1997, among Unitel Video, Inc., R Squared,
Inc. and Heller Financial, Inc. (incorporated by reference to Exhibit 4(A) of
the Registrant's Quarterly Report on Form 10-Q filed April 14, 1998 (File No.
1-8654)).
15. Exhibit 4(M). Letter Agreement amending Amended and Restated Loan and
Security Agreement, dated December 11, 1997, from Heller Financial, Inc.
(incorporated by reference to Exhibit 4(B) of the Registrant's Quarterly Report
on Form 10-Q filed April 14, 1998 (File No. 1-8654)).
16. Exhibit 4(N). Seventh Amendment to Amended and Restated Loan and
Security Agreement, dated as of December 15, 1997, among Unitel Video, Inc., R
Squared, Inc. and Heller Financial, Inc. (incorporated by reference to Exhibit
4(C) of the Registrant's Quarterly Report on Form 10-Q filed April 14, 1998
(File No. 1-8654)).
17. Exhibit 4(O). Eighth Amendment to Amended and Restated Loan and Security
Agreement, dated as of February 12, 1998, among Unitel Video, Inc., R Squared,
Inc. and Heller Financial, Inc. (incorporated by reference to Exhibit 4(D) of
the Registrant's Quarterly Report on Form 10-Q filed April 14, 1998 (File No.
1-8654)).
18. Exhibit 4(P). Loan Agreement, dated October 27, 1997, between Unitel
Video, Inc. and the Commonwealth of Pennsylvania. (incorporated by reference to
Exhibit 4(E) of the Registrant's Quarterly Report on Form 10-Q filed April 14,
1998 (File No. 1-8654)).
19. Exhibit 4(Q). First Supplemental Loan Agreement, dated as of December
15, 1997, between the Allegheny County Industrial Development Authority and
Unitel Video, Inc. (incorporated by reference to Exhibit 4(F) of the
Registrant's Quarterly Report on Form 10-Q filed April 14, 1998 (File No.
1-8654)).
20. Exhibit 4(R). First Amendment to Pledge Agreement, dated as of December
15, 1997, among Unitel Video, Inc., Heller Financial, Inc. and PNC National
Bank, National Association. (incorporated by reference to Exhibit 4(G) of the
Registrant's Quarterly Report on Form 10-Q filed April 14, 1998 (File No.
1-8654)).
21. Exhibit 4(S). First Amendment to Reimbursement Agreement, dated as of
December 15, 1997, between Unitel Video, Inc. and Heller Financial, Inc.
(incorporated by reference to Exhibit 4(H) of the Registrant's Quarterly Report
on Form 10-Q filed April 14, 1998 (File No. 1-8654)).
45
<PAGE>
22. Exhibit 4(T). Consolidation, Modification, Spreader and Extension
Agreement dated as of August 31, 1998 between Unitel 57 LLC and Bear Stearns
Funding, Inc.
23. Exhibit 4(U). Ninth Amendment to Amended and Restated Loan and Security
Agreement dated as of July 9, 1998 among Unitel Video, Inc., R Squared, Inc. and
Heller Financial, Inc.
24. Exhibit 10. Material Contracts:
10(A). Amended Non-Qualified Stock Option Plan of Unitel Video, Inc.
(incorporated by reference to Exhibit 10(A) of the Registrant's Annual Report on
Form 10-K filed November 27, 1996 (File No. 1-8654)).*
10(B). Lease Agreement between Unitel Video, Inc. and Educational
Broadcasting Corporation dated July 16, 1993 (incorporated by reference to
Exhibit 10(B) of the Registrant's Annual Report on Form 10-K filed November 26,
1993 (File No. 1-8654)).
10(C). Amended Non-Statutory Stock Option Plan of Unitel Video, Inc.
(incorporated by reference to Exhibit 10(C) of the Registrant's Annual Report on
Form 10-K filed November 27, 1996 (File No. 1-8654)).*
10(D). Amended Employee Stock Purchase Plan of Unitel Video, Inc.
(incorporated by reference to Exhibit 10(D) of the Registrant's Annual Report on
Form 10-K filed November 27, 1996 (File No. 1-8654)).*
10(E). Employment & Consulting Agreement between Unitel Video, Inc. and
Herbert Bass dated as of May 26, 1988 (incorporated by reference to Exhibit
10(R) of the Registrant's Annual Report on Form 10-K filed December 13, 1989
(File No. 1-8654)).*
10(F). Employment & Consulting Agreement between Unitel Video, Inc. and Alex
Geisler dated as of May 26, 1988 (incorporated by reference to Item 14(C)4(S) of
the Registrant's Annual Report on form 10K filed December 13, 1989 (File No.
1-8654)).*
10(G). Amendment to Employment and Consulting Agreement dated as of February
14, 1996 between Unitel Video, Inc. and Alex Geisler. (incorporated by reference
to Exhibit 10(G) of the Registrant's Annual Report on Form 10-K filed November
27, 1996 (File No. 1-8654)).*
10(H). Lease Agreements between Windsor Video, Inc. and Time Equities Inc.
dated as of September 4, 1986 (incorporated by reference to Exhibit 10(V) of the
Registrant's Annual Report on form 10-K filed December 13, 1989 (File No.
1-8654)).
10(I). Amendment to each Lease Agreement between Windsor Video, Inc. and
Time Equities Inc. dated as of July 13, 1994 and July 18, 1994 (incorporated by
reference to Exhibit 10(K) of the Registrant's Annual Report on form 10-K filed
November 28, 1994 (File No. 1-8654)).
10(J). Lease Agreement between Unitel Video, Inc. and CBS, Inc. dated as of
June 15, 1990 (incorporated by reference to Exhibit 10(Y) of the Registrant's
Annual Report on Form 10-K filed November 26, 1990 (File No. 1-8654)).
10(K). Amendment to Lease Agreement dated July 11, 1996 between Unitel
Video, Inc. and CBS, Inc. (incorporated by reference to Exhibit 10(L) of the
Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No.
1-8654)).
10(L). Assumption and Assignment of Lease between Unitel Video, Inc. and
VCA/Teletronics Inc. dated May 19, 1990 (incorporated by reference to Exhibit
10(AA) of the Registrant's Annual Report on Form 10-K filed November 26, 1990
(File No. 1-8654)).
46
<PAGE>
10(M). Amendment to Lease between Unitel Video, Inc. and Stage 57 Co. dated
May 14, 1990 (incorporated by reference to Exhibit 10(BB) of the Registrant's
Annual Report on Form 10-K filed November 26, 1990 (File No. 1-8654)).
10(N). Second Amendment to Lease between Unitel Video, Inc. and Stage 57 Co.
dated as of May 1, 1994 (incorporated by reference to Exhibit 10(O) of the
Registrant's Annual Report on Form 10-K filed November 28, 1994 (File No.
1-8654)).
10(O). Amended 1992 Stock Option Plan. (incorporated by reference to Exhibit
10 to the Registrant's Quarterly Report on Form 10-Q filed April 7, 1997 (File
No. 1-8654)).*
10(P). Asset Purchase Agreement dated as of May 5, 1992 between Unitel
Video, Inc. and Scanline Communications (incorporated by reference to Exhibit
2.1 of the Registrant's Current Report on Form 8-K dated May 15, 1992 (File No.
1-8654)).
10(Q). Amendment dated as of October 29, 1992 to Asset Purchase Agreement
dated as of May 5, 1992 between Unitel Video, Inc. and Scanline Communications
(incorporated by reference to Exhibit 10(X) of the Registrant's Annual Report on
Form 10-K filed November 24, 1992 (File No. 1-8654)).
10(R). Assignment, Assumption and Acceptance of Lease between Scanline
Communications and Unitel Video, Inc. (incorporated by reference to Exhibit
10(V) of the Registrant's Annual Report on Form 10-K filed November 24, 1992
(File no. 1-8654)).
10(S). Sublease Agreement dated January 1, 1982 between Columbia Pictures
Industries, Inc. and Bell & Howell/Columbia Pictures Video Services, together
with letter dated April 3, 1989 from Columbia Pictures to Scanline
Communications and undated Letter from Columbia Pictures to 43rd Street Estates
Corp. (incorporated by reference to Exhibit 10(BB) of the Registrant's Annual
Report on Form 10-K filed November 24, 1992 (File No. 1-8654)).
10(T). Third Tier Sublease, dated May 14, 1996, between Unitel Video, Inc.
and Photo-Magnetic Sound Studios Inc. (incorporated by reference to Exhibit
10(X) of the Registrant's Annual Report on Form 10-K filed November 27, 1996
(File No. 1-8654)).
10(U). Sublease Agreement dated as of July 3, 1996 between Unitel Video,
Inc. and Henry Dreyfuss Associates and Second Tier Sublease dated as of July 3,
1996 between Unitel Video, Inc. and Paramount Pictures Corporation (incorporated
by reference to Exhibit 10(Y) of the Registrant's Annual Report on Form 10-K
filed November 27, 1996 (File No. 1-8654)).
10(V). 401K Employee Savings and Stock Ownership Plan of Unitel Video, Inc.
effective July 1, 1992 (incorporated by reference to Exhibit 10(X) of the
Registrant's Annual Report on Form 10-K filed November 26, 1993 (File No.
1-8654)).*
10(W). Asset Purchase Agreement dated as of February 24, 1995 between Jee
See & Co., Inc. and Unitel Video, Inc. (incorporated by reference to Exhibit 2-1
of the Registrant's Current Report on Form 8-K dated February 24, 1995 (File No.
1-8654)).
10(X). Deed of Lease dated June 16, 1997 between Olymbec Construction Inc.
and Unitel Video Canada Inc. (incorporated by reference to Exhibit 10(DD) of the
Registrant's Annual Report on Form 10-K filed December 15, 1997 (File No.
1-8654)).
10(Y). Remarketing Agreement, dated as of July 1, 1997, among Allegheny
County Industrial Development Authority, PNC Bank, National Association, Unitel
Video, Inc. and RRZ Public Markets, Inc. (incorporated by reference to Exhibit
10(EE) of the Registrant's Annual Report on Form 10-K filed December 15, 1997
(File No. 1-8654)).
47
<PAGE>
10(Z). Employment Agreement dated as of September 1, 1997 between Unitel
Video, Inc. and Barry Knepper (incorporated by reference to Exhibit 10(FF) of
Amendment No. 1 to the Registrant's Annual Report on Form 10-K filed December
29, 1997 (File No. 1-8654)).*
10(AA) Agreement dated December 8, 1997 between Unitel Video, Inc. and
Richard Clouser (incorporated by reference to Exhibit 10(GG) of Amendment No. 1
to the Registrant's Annual Report on Form 10-K filed December 29, 1997 (File No.
1-8654)).*
10(BB) Agreement dated December 8, 1997 between Unitel Video, Inc. and
Thomas Eyring (incorporated by reference to Exhibit 10(HH) of Amendment No. 1 to
the Registrant's Annual Report on Form 10-K filed December 29, 1997 (File No.
1-8654)).*
10(CC) Agreement dated December 8, 1997 between Unitel Video, Inc. and Edwin
Levine.*
10(DD) Amendment to Lease, dated February 16, 1998, between Unitel Video
Canada Inc. and Olymbec Construction Inc. (incorporated by reference to Exhibit
10(A) of the Registrant's Quarterly Report on Form 10-Q filed April 14, 1998
(File No. 1-8654)).
10(EE) Agreement dated December 8, 1997 between Unitel Video, Inc. and
Albert Walton.*
18. Exhibit 23. Accountant's consent.
19. Exhibit 24. Power of Attorney from officers and directors to Barry
Knepper (included on signature page).
20. Exhibit 27. Financial Data Schedule.
- ------------------------
* Management contract or compensatory plan or arrangement required to be noted
as provided in Item 14(a)(3).
UNDERTAKING
The Company hereby undertakes to furnish to the Securities and Exchange
Commission, upon request, all constituent instruments defining the rights of
holders of long-term debt of the Company and its consolidated subsidiaries not
filed herewith. Such instruments have not been filed since none are, nor are
being, registered under Section 12 of the Securities and Exchange Act of 1934
and the total amount of securities authorized under any of such instruments does
not exceed 10% of the total assets of the Company and its subsidiary on a
consolidated basis.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned Registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statement on form S-8
Nos. 33-7306 (filed July 15, 1986), 33-13660 (filed April 20, 1987), 33-14654
(filed May 28, 1987) and 33-00613 (filed February 8, 1996).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such directors, officers or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1993 and will be governed by the final adjudication of such issue.
THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE BASED UPON
CURRENT EXPECTATIONS AND INVOLVE CERTAIN RISKS AND UNCERTAINTIES. UNDER THE SAFE
HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,
READERS ARE HEREBY CAUTIONED THAT THESE STATEMENTS MAY BE IMPACTED BY SEVERAL
FACTORS, AND, CONSEQUENTLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
EXPRESSED HEREIN.
48
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
UNITEL VIDEO, INC.
November 30, 1998 By: /s/ BARRY KNEPPER
-----------------------------------------
Barry Knepper
Chief Executive Officer
November 30, 1998 By: /s/ NEIL MARCUS
-----------------------------------------
Neil Marcus
Chief Financial Officer
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry Knepper and Neil Marcus, and each of them,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this report, and to file the same,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------- -------------------------------------------- ----------------------
<S> <C> <C>
/s/ BARRY KNEPPER Chief Executive Officer; President and
- ---------------------------------- Director
Barry Knepper November 30, 1998
/s/ RICHARD L. CLOUSER Senior Vice President--Corporate, President
- ---------------------------------- of the Mobile Division and Director
Richard L. Clouser November 30, 1998
/s/ HERBERT BASS Director
- ----------------------------------
Herbert Bass November 30, 1998
/s/ ALEX GEISLER Director
- ----------------------------------
Alex Geisler November 30, 1998
/s/ WALTER G. ARADER Director
- ----------------------------------
Walter G. Arader November 30, 1998
/s/ PHILIP BIRSH Director
- ----------------------------------
Philip Birsh November 30, 1998
</TABLE>
49
<PAGE>
UNITEL VIDEO, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COLUMN B COLUMN C1 COLUMN E
------------ ------------- ------------
COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE
- --------------------------------------------------------- BEGINNING COSTS AND ------------ AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- --------------------------------------------------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1998
Allowance for doubtful accounts.......................... $ 412,000 $ (38,000) $ (26,000) $ 400,000
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
YEAR ENDED AUGUST 31, 1997
Allowance for doubtful accounts.......................... $ 712,000 $ (10,000) $ 290,000 $ 412,000
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
YEAR ENDED AUGUST 31, 1996
Allowance for doubtful accounts.......................... $ 686,000 $ 407,000 $ 381,000 $ 712,000
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
COLUMN D
Uncollectible accounts written off.
COLUMN E
Deducted in balance sheet from accounts receivable.
50
<PAGE>
Exhibit 4(T)
================================================================================
UNITEL 57 LLC, as mortgagor
(Borrower)
to
BEAR, STEARNS FUNDING, INC., as mortgagee
(Lender)
CONSOLIDATION, MODIFICATION,
SPREADER AND EXTENSION AGREEMENT
Dated: August 31, 1998
Location: 513-519 West 57th Street
Section: 4
Block: 1086
Lot: 24
County: New York
PREPARED BY AND UPON
RECORDATION RETURN TO:
Greenberg Traurig
200 Park Avenue
New York, New York 10166
Attention: Richard A. Rosenbaum, Esq.
================================================================================
<PAGE>
THIS CONSOLIDATION, MODIFICATION, SPREADER AND EXTENSION AGREEMENT (the
"Security Instrument") is made as of the 31st day of August, 1998, by and
between UNITEL 57 LLC, having its principal place of business c/o Unitel Video,
Inc., at 555 West 57th Street, Suite 1240, New York, New York 10019 as mortgagor
("Borrower"), and BEAR, STEARNS FUNDING, INC., a Delaware corporation, having an
address at 245 Park Avenue, New York, New York 10167, as mortgagee ("Lender").
RECITALS:
(a) Borrower is the owner of the fee simple estate in the Land (defined in
Section 1.4) as more particularly described in Exhibit A hereto.
(b) Lender has acquired by assignment those certain mortgages listed on
Exhibit B hereto (the "Assigned Mortgages") and the notes or bonds secured
thereby (the "Assigned Notes"), on which Assigned Mortgages and Assigned Notes
there is currently outstanding an aggregate principal amount of THREE MILLION
TWO HUNDRED EIGHTY-EIGHT THOUSAND DOLLARS AND NO/100 ($3,288,000).
(c) Lender is also the holder of that certain Mortgage and Security
Agreement made by Borrower of even date herewith in favor of Lender (the "Gap
Mortgage") affecting the Property (defined in Section 1.4) and securing
Borrower's obligation under that certain Promissory Note of even date herewith
made by Borrower in favor of Lender in the principal amount FOUR MILLION TWO
HUNDRED SIXTY-TWO THOUSAND DOLLARS AND NO/100 ($4,262,000) (the "Gap Note").
(d) Lender and Borrower have entered into that certain Consolidation,
Extension and Restatement of Notes Agreement of even date herewith (the "Note
Consolidation") whereby the Assigned Notes and the Gap Note have been
consolidated, extended and restated into a single note (the "Note") in the
principal amount of SEVEN MILLION FIVE HUNDRED FIFTY THOUSAND DOLLARS
($7,550,000).
(e) Lender and Borrower have agreed to consolidate, coordinate and spread
the liens of the Gap Mortgage and the Assigned Mortgages and to modify and
restate the terms thereof in the manner hereinafter appearing.
(f) Simultaneously herewith, Lender is lending the sum of Three Million Two
Hundred Thousand Dollars ($3,200,000) to Unitel 53 LLC, an affiliate of
Borrower. The indebtedness of Unitel 53 LLC to Lender is evidenced by a note
(the "Unitel 53 Note"), of even date herewith, to Lender and is secured hereby
and by a Consolidation, Modification, Spreader and Extension Agreement (the
"Unitel 53 Mortgage") and other security documents (for purposes of this
Security Instrument, the term "Unitel 53 Security Documents" shall mean the
documents defined as "Other Security Documents" in the Unitel 53 Mortgage), of
even date herewith, between Unitel 53 LLC and Lender.
NOW, THEREFORE in pursuance of said agreement and consideration of the sum
of Ten Dollars and other valuable consideration, each to the other in hand paid
receipt of which is hereby acknowledged, the parties hereto mutually covenant
and agree as follows:
Article 1. CONSOLIDATION AND RESTATEMENT OF MORTGAGES;
GRANT OF SECURITY
<PAGE>
Section 1.1. SINGLE LIEN. The liens of the Assigned Mortgages and the
Gap Mortgage are hereby consolidated, coordinated and spread so that together
they shall constitute in law but one mortgage, a single first priority lien on
the Property (as defined in Section 1.4), securing the Obligations (as defined
in Section 2.1) of the Borrower under the Note and under any other document or
instrument executed by or on behalf of Borrower securing, evidencing or relating
to the Note or any of the security therefor (in each case as the same may
hereafter be amended from time to time, such documents and instruments, being
referred to collectively herein as the "Other Security Documents").
Section 1.2. RESTATEMENT OF MORTGAGE. The above mentioned mortgages, as
consolidated, coordinated and spread, are hereby restated in their entirety to
contain the terms hereinafter set forth.
Section 1.3. SECURITY INSTRUMENT. The above mentioned mortgages as
consolidated, coordinated and spread by this Security Instrument are hereinafter
collectively referred to and described as this "Security Instrument" and, except
as modified hereby, shall remain in full force and effect and, as modified
hereby, are ratified and confirmed in all respects. In the event of any conflict
in the Gap Mortgage and the Assigned Mortgages as heretofore in effect and this
Security Instrument, the terms of this Security Instrument shall govern and
control.
Section 1.4. GRANTS OF SECURITY. In consideration of the premises, and
to secure the full repayment and performance of the Obligations, BORROWER DOES
HEREBY, GIVE, GRANT, BARGAIN, SELL, WARRANT, CONVEY, MORTGAGE, TRANSFER, GRANT A
SECURITY INTEREST IN, SET OVER, DELIVER, CONFIRM AND CONVEY UNTO LENDER, upon
the terms and conditions of this Security Instrument, the following:
(a) Property Mortgaged. Borrower does hereby irrevocably mortgage, grant,
bargain, sell, pledge, assign, warrant, transfer and convey to Lender, and grant
a security interest to Lender in, the following property, rights, interests and
estates now owned, or hereafter acquired, by Borrower (collectively, the
"Property"):
(i) Land. The real property described in Exhibit A attached hereto and
made a part hereof (the "Land");
(ii) Additional Land. All additional lands, estates and development rights
hereafter acquired by Borrower for use in connection with the Land and
development of the Land and all additional lands and estates therein which may,
from time to time, by supplemental mortgage or otherwise be expressly made
subject to the lien of this Security Instrument;
(iii) Improvements. The buildings, structures, fixtures. additions,
enlargements, extensions, modifications, repairs, replacements and improvements
now or hereafter erected or located on the Land (the "Improvements");
(iv) Easements. All easements, rights-of-way or use, rights, strips and
gores of land, streets, ways, alleys, passages, sewer rights, water, water
courses, water rights and powers, air rights and development rights, and all
estates, rights, titles, interests, privileges, liberties, servitudes,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
now or hereafter belonging, relating or pertaining to the Land and the
Improvements and the reversion and reversions, remainder and remainders, and all
land lying in the bed of any street, road or avenue, opened or proposed, in
front of or adjoining the Land, to the center line thereof and all estates,
rights, titles, interests, dower and rights of dower, curtsey and rights of
curtsey, property, possession, claim and demand whatsoever, both at law and in
equity, of Borrower of, in
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and to the Land and the Improvements and every part and parcel thereof, with the
appurtenances thereto;
(v) Fixtures and Personal Property. All machinery, equipment.,
fixtures (including, but not limited to, all heating, air conditioning,
plumbing,. lighting, communications and elevator fixtures) and other property of
every kind and nature whatsoever owned by Borrower, or in which Borrower has or
shall have an interest now or hereafter located upon the Land and the
Improvements, or appurtenant thereto, and usable in connection with the present
or future operation and occupancy of the Land and the Improvements and all
building equipment, materials and supplies of any nature whatsoever owned by
Borrower, or in which Borrower has or shall have an interest, now or hereafter
located upon the Land and the Improvements, or appurtenant thereto, or usable in
connection with the present or future operation and occupancy of the Land and
the Improvements (collectively, the "Personal Property"), and the right, title
and interest of Borrower in and to any of the Personal Property which may be
subject to any security interests, as defined in the Uniform Commercial Code, as
adopted and enacted by the state or states where any of the Property is located
(the "Uniform Commercial Code"), superior in lien to the lien of this Security
Instrument and all proceeds and products of the above;
(vi) Leases and Rents. All leases and other agreements affecting the
use, enjoyment or occupancy of the Land and the Improvements heretofore or
hereafter entered into, including a guaranty of any such lease (a "Lease" or
"Leases") and all right, title and interest of Borrower, its successors and
assigns therein and thereunder, including, without limitation, cash or
securities deposited thereunder to secure the performance by the lessees of
their obligations thereunder and all rents, additional rents, revenues, issues
and profits (including all oil and gas or other mineral royalties and bonuses)
from the Land and the Improvements (the "Rents") and all proceeds from the sale
or other disposition of the Leases and the right to receive and apply the Rents
to the payment of the Debt;
(vii) Condemnation Awards. All awards or payments. including interest
thereon. which may heretofore and hereafter be made with respect to the
Property, whether from the exercise of the right of eminent domain (including
but not limited to any transfer made in lieu of or in anticipation of the
exercise of the right) or for a change of grade, or for any other injury to or
decrease in the value of the Property;
(viii) Insurance Proceeds. All proceeds of and any unearned premiums on
any insurance policies covering the Property, including, without limitation, the
right to receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Property;
(ix) Tax Certiorari. All refunds. rebates or credits in connection with
a reduction in real estate taxes and assessments charged against the Property as
a result of tax certiorari or any applications or proceedings for reduction;
(x) Conversion. All proceeds of the conversion, voluntary or
involuntary, of any of the foregoing including, without limitation, proceeds of
insurance and condemnation awards, into cash or liquidation claims;
(xi) Rights. The right, in the name and on behalf of Borrower, to
appear in and defend any action or proceeding brought with respect to the
Property and to commence any action or proceeding to protect the interest of
Lender in the Property;
(xii) Agreements. All agreements, contracts, certificates, instruments,
franchises, permits, licenses, plans, specifications and other documents, now or
hereafter entered into, and all rights therein and thereto, respecting or
pertaining to the use, occupation, construction, management or operation of the
Land and any part thereof and any Improvements
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or respecting any business or activity conducted by Borrower on the Land and any
part thereof and all right, title and interest of Borrower therein and
thereunder, including, without limitation, the right, upon the happening of any
default hereunder, to receive and collect any sums payable to Borrower
thereunder;
(xiii) Trademarks. All tradenames, trademarks, servicemarks, logos,
copyrights, goodwill, books and records and all other general intangibles
relating to or used in connection with the operation of the Property; and
(xiv) Other Rights. Any and all other rights of Borrower in and to the
items set forth in Subsections (i) through (xiii) above.
(xv) Excluded Property. But excluding all trade fixtures and other
personal property owned and/or used by Unitel Video, Inc. ("Unitel") in
connection with its business operations on the Property, regardless of whether
the same is or shall become affixed to the Property, the production facilities
agreements and production services agreements between Unitel and its customers
in effect on the date hereof and any such agreements entered into in compliance
with the Unitel Lease (as defined in Section 3.7(b)) from time to time hereafter
(collectively, the "Facilities Agreements"), and the income generated in
connection with such agreements, and all furniture, furnishings, trade fixtures
or property owned and supplied by Unitel's customers (all such excluded property
being, hereinafter, collectively, the "Excluded Property"). Lender by its
acceptance hereof acknowledges that and agrees that no interest of any kind in
the Excluded Property has been granted to Lender pursuant to this Security
Instrument or the Other Security Documents or any other document executed in
connection with the Obligations.
(b) Assignment of Rents. Borrower hereby absolutely and unconditionally
assigns to Lender Borrower's right, title and interest in and to all current and
future Leases and Rents; it being intended by Borrower that this assignment
constitutes a present, absolute assignment and not an assignment for additional
security only. Nevertheless, subject to the terms of this paragraph b and
Section 3.7, Lender grants to Borrower a revocable license to collect and
receive the Rents. Borrower shall hold the Rents, or a portion thereof
sufficient to discharge all current sums due on the Debt, for use in the payment
of such sums. Notwithstanding the foregoing or anything in this Security
Instrument to the contrary, the Facilities Agreements shall not be deemed to be
a Lease, the customer thereunder shall not be deemed a lessee, and income
therefrom shall not be deemed Rents for purposes of the Note, this Security
Instrument and the Other Security Documents and Lender shall not, by virtue of
this Security Instrument or any Other Security Documents, have any interest in
the Facilities Agreements or the income therefrom.
(c) Security Agreement. This Security Instrument is both a real
property mortgage and a "security agreement" within the meaning of the Uniform
Commercial Code. The Property includes both real and personal property and all
other rights and interests, whether tangible or intangible in nature, of
Borrower in the Property. By executing and delivering this Security Instrument,
Borrower hereby grants to Lender, as security for the Obligations (defined in
Section 2.1), a security interest in the Property to the full extent that the
Property may be subject to the Uniform Commercial Code.
(d) Pledge of Monies Held. Borrower hereby pledges to Lender any and
all monies now or hereafter held by Lender, including, without limitation, any
sums deposited in the Escrow Fund (as defined in Section 3.5), Net Proceeds (as
defined in Section 4.4) and condemnation awards or payments described in Section
3.6. as additional security for the Obligations until expended or applied as
provided in this Security Instrument.
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TO HAVE AND TO HOLD the above granted and described Property unto and to
the use and benefit of Lender, and the successors and assigns of Lender,
forever;
CONDITIONS TO GRANT
PROVIDED, HOWEVER, these presents are upon the express condition that, if
Borrower shall well and truly pay to Lender the Debt (as defined in Section 2.1)
at the time and in the manner provided in the Note and this Security Instrument,
shall well and truly perform the Other Obligations (as defined in Section 2.1)
as set forth in this Security Instrument and shall well and truly abide by and
comply with each and every covenant and condition set forth herein and in the
Note, these presents and the estate hereby granted shall cease, terminate and be
void.
Article 2. - PAYMENTS
Section 2.1. DEBT AND OBLIGATIONS SECURED. This Security Instrument and
the grants, assignments and transfers made in Article 1 are given for the
purpose of securing the following, in such order of priority as Lender may
determine in its sole discretion (the "Debt"): (a) the payment of the
indebtedness evidenced by the Note and the Unitel 53 Note in lawful money of the
United States of America; (b) the payment of interest, prepayment premiums,
default interest, late charges and other sums, as provided in the Note, the
Unitel 53 Note, this Security Instrument, the Unitel 53 Mortgage, the Other
Security Documents (as defined in Section 3.2) or the Unitel 53 Security
Documents; (c) the payment of all other moneys agreed or provided to be paid by
Borrower in the Note, the Unitel 53 Note, this Security Instrument, the Unitel
53 Mortgage, the Other Security Documents or the Unitel 53 Security Documents;
(d) the payment of all sums advanced by Lender pursuant to this Security
Instrument or the Unitel 53 Mortgage to protect and preserve the Property or the
property encumbered by the Unitel 53 Mortgage and the lien and the security
interest created hereby or thereby; and (e) the payment of all sums advanced and
costs and expenses incurred by Lender in connection with the Debt or any part
thereof, any renewal, extension, or change of or substitution for the Debt or
any part thereof, or the acquisition or perfection of the security therefor,
whether made or incurred at the request of Borrower or Lender. This Security
Instrument and the grants, assignments and transfers made in Article 1 are also
given for the purpose of securing the performance of all other obligations of
Borrower or Unitel 53 LLC contained herein and in the Unitel 53 Mortgage and the
performance of each obligation of Borrower contained in any renewal, extension,
amendment, modification, consolidation, change of, or substitution or
replacement for, all or any part of this Security Instrument, the Unitel 53
Mortgage, the Note, the Unitel 53 Note, the Other Security Documents or the
Unitel 53 Security Documents (collectively, the "Other Obligations").
Borrower's obligations for the payment of the Debt and the performance of the
Other Obligations shall be referred to collectively herein as the "Obligations."
Notwithstanding the foregoing, Lender may at any time, at its sole option, amend
this Security Instrument so that it no longer secures the Unitel 53 Note, the
Unitel 53 Mortgage or the Unitel 53 Security Documents.
Section 2.2. PAYMENTS. Unless payments are made in the required amount in
immediately available funds at the place where the Note is payable, remittances
in payment of all or any part of the Debt shall not, regardless of any receipt
or credit issued therefor, constitute payment until the required amount is
actually received by Lender in funds immediately available at the place where
the Note is payable (or any other place as Lender, in Lender's sole discretion,
may have established by delivery of written notice thereof to Borrower) and
shall be made and accepted subject to the condition that any check or draft may
be handled for collection in accordance with the practice of the collecting bank
or banks. Acceptance by Lender of any payment in an amount less than the amount
then due shall be deemed an acceptance on account only, and the failure to pay
the entire amount then due shall be and continue to be, after any required
notice and the expiration of any applicable grace periods, an Event of Default
(as defined in Section 10.1).
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Article 3.- BORROWER COVENANTS
Borrower covenants and agrees that:
Section 3.1. PAYMENT OF DEBT. Borrower will pay the Debt at the time and
in the manner provided in the Note and in this Security Instrument.
Section 3.2. INCORPORATION BY REFERENCE. All the covenants, conditions
and agreements contained in (a) the Note and (b) all and any of the documents
other than the Note or this Security Instrument now or hereafter executed by
Borrower and/or others and by or in favor of Lender, which wholly or partially
secure or guaranty payment of the Note (the "Other Security Documents"), are
hereby made a part of this Security Instrument to the same extent and with the
same force as if fully set forth herein.
Section 3.3. INSURANCE.
(a) Borrower, at its sole cost and expense, for the mutual benefit of
Borrower and Lender, shall obtain and maintain during the entire term of this
Security Instrument policies of insurance against loss or damage by fire and
against loss or damage by other risks and hazards covered by a standard extended
coverage insurance policy including, without limitation, riot and civil
commotion, vandalism, malicious mischief, burglary and theft. Such insurance
shall be in an amount equal to the greatest of (i) the then full replacement
cost of the Improvements and Personal Property, without deduction for physical
depreciation, (ii) the outstanding principal balance of the Note, and (iii) such
amount that the insurer would not deem Borrower a co-insurer under said
policies. The policies of insurance carried in accordance with this paragraph
shall be paid annually in advance and shall contain a "Replacement Cost
Endorsement" with a waiver of depreciation.
(b) Borrower, at its sole cost and expense, for the mutual benefit of
Borrower and Lender, shall also obtain and maintain during the entire term of
this Security Instrument the following policies of insurance:
(i) Flood insurance if any part of the Property is located in an area
identified by the Federal Emergency Management Agency as an area having special
flood hazards and in which flood insurance has been made available under the
National Flood Insurance Act of 1968 (and any amendment or successor act
thereto) in an amount at least equal to the outstanding principal amount of the
loan evidenced by the Note or the maximum limit of coverage available with
respect to the Improvements and Personal Property under said Act, whichever is
less.
(ii) Commercial general liability insurance providing bodily injury,
property damage, personal injury, blanket contractual liability, broad form
property damage and elevator collision coverages with a $1,000,000 per
occurrence limit and umbrella coverage providing excess limits of not less than
$5,000,000 per occurrence over the primary liability coverage.
(iii) Rental loss and/or business interruption insurance (including
rental value if any of the Property is leased in whole or in part) in an annual
aggregate amount equal to all rents or estimated gross revenues from the
operations of the Property, as may be applicable, and covering rental losses or
business interruption, as may be applicable, for a period of at least one (1)
year after the date of the fire or casualty in question. The amount of such
insurance shall be increased from time to time during the term of this Security
Instrument as and when new Leases and renewal Leases are entered into and the
rents payable increase or the annual estimate of (or the actual) gross revenue,
as may be applicable, increases to reflect such increases. The proceeds of such
insurance shall be and are hereby assigned to Lender, to be applied to the
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payment of current installments when due of the following: principal and
interest on the Note, "Taxes" (as defined in Section 3.4(a)), "Other Charges"
(as defined in Section 3.4 (a)), and "Insurance Premiums" (as defined in Section
3.3(c)), in any order of preference determined by Lender, until such time as the
damaged Improvements shall have been restored and placed in full operation, at
which time, provided Borrower is not then in default under this Security
Instrument, the balance of such insurance proceeds, if any, held by Lender shall
be returned to Borrower.
(iv) Insurance against loss or damage from (y) leakage of
sprinkler systems and (z) explosion of steam boilers, air conditioning
equipment, high pressure piping, machinery and equipment, pressure vessels or
similar apparatus now or hereafter installed in the Improvements.
(v) Worker's compensation insurance with respect to any
employees of Borrower, as required by any governmental authority or legal
requirement.
(vi) During any period of repair or restoration, builder's "all
risk" insurance in an amount equal to not less than the full insurable value of
the Property against such risks (including, without limitation, fire and
extended coverage and collapse of the Improvements to agreed limits) as Lender
may request, in form and substance acceptable to Lender.
(vii) Such other insurance as may from time to time be reasonably
required by Lender in order to protect its interests.
(c) All policies of insurance (the "Policies") required pursuant to
this paragraph shall be under blanket policies and: (i) shall be issued by
companies approved by Lender and licensed to do business in the state where the
Property is located, with a claims paying ability rating of "A" or better by
Standard & Poor's Corporation or a rating of "A:VII" or better in the current
Best's Insurance Reports; (ii) in the case of liability insurance, shall name
Lender as an additional insured; (iii) in the case of property and business
interruption insurance, shall contain a Non-Contributory Standard Mortgagee
Clause and a Lender's Loss Payable Endorsement (Form 438 BFU NS), or their
equivalents, naming Lender as the person to which all payments made by such
insurance company shall be paid; (iv) shall contain a waiver of subrogation
against Lender; (v) shall be maintained throughout the term of this Security
Instrument without cost to Lender; (vi) shall have the originals thereof (or
duplicate originals certified to be true and correct by the related insurer)
delivered to Lender; (vii) shall contain such provisions as Lender deems
reasonably necessary or desirable to protect its interest including, without
limitation, endorsements providing that neither Borrower, Lender nor any other
party shall be a co-insurer under said Policies and that Lender shall receive at
least thirty (30) days prior written notice of any modification, reduction or
cancellation; and (viii) shall be reasonably satisfactory in form and substance
to Lender and shall be approved by Lender as to amounts, form, risk coverage,
deductibles, loss payees and insureds. Borrower shall pay the premiums for such
Policies (the "Insurance Premiums") as the same become due and payable and shall
furnish to Lender evidence of the renewal of each of the new Policies with
receipts for the payment of the Insurance Premiums or other evidence of such
payment reasonably satisfactory to Lender (provided that such Insurance Premiums
have not been paid to Lender or Lender's servicing agent pursuant to Section 3.5
hereof). If Borrower does not furnish such evidence and receipts at least
thirty (30) days prior to the expiration of any apparently expiring Policy, then
Lender may procure, but shall not be obligated to procure, such insurance and
pay the Insurance Premiums therefor, and Borrower agrees to reimburse Lender for
the cost of such Insurance Pemiums promptly on demand. Within thirty (30) days
after request by Lender, Borrower shall obtain such increases in the amounts of
coverage required hereunder as may be reasonably requested by Lender, taking
into consideration changes in the value of money over time, changes in liability
laws, changes in prudent customs and practices, and the like.
(d) If the Property shall be damaged or destroyed, in whole or in part,
by fire or other casualty, Borrower shall give prompt notice of such damage to
Lender and shall
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promptly commence and diligently prosecute the completion of the repair and
restoration of the Property as nearly as possible to the condition the Property
was in immediately prior to such fire or other casualty, with such alterations
as may be reasonably approved by Lender (the "Restoration") and otherwise in
accordance with Section 4.4 of this Security Instrument. Borrower shall pay all
costs of such Restoration whether or not such costs are covered by insurance.
In case of loss covered by Policies, Lender may either (1) settle and adjust any
claim without the consent of Borrower, or (2) allow Borrower to agree with the
insurance company or companies on the amount to be paid upon the loss; provided,
that (A) Borrower may adjust losses aggregating not in excess of $100,000 if
such adjustment is carried out in a competent and timely manner and (B) if no
Event of Default shall have occurred and be continuing, Lender shall not settle
or adjust any such claim without the consent of Borrower, which consent shall
not be unreasonably withheld or delayed. In any case Lender shall and is hereby
authorized to collect and receipt for any such insurance proceeds; and the
expenses incurred by Lender in the adjustment and collection of insurance
proceeds shall become part of the Debt and be secured hereby and shall be
reimbursed by Borrower to Lender upon demand.
Section 3.4. PAYMENT OF TAXES, ETC. (a) Borrower shall pay all taxes,
assessments, water rates, sewer rents, governmental impositions, and other
charges, including without limitation vault charges and license fees for the use
of vaults, chutes and similar areas adjoining the Land, now or hereafter levied
or assessed or imposed against the Property or any part thereof (the "Taxes"),
all ground rents, maintenance charges and similar charges, now or hereafter
levied or assessed or imposed against the Property or any part thereof (the
"Other Charges"), and all charges for utility services provided to the Property
prior to the same becoming delinquent. Borrower will deliver to Lender,
promptly upon Lender's request, evidence satisfactory to Lender that the Taxes,
Other Charges and utility service charges have been so paid or are not then
delinquent. Borrower shall not suffer and shall promptly cause to be paid and
discharged any lien or charge whatsoever in respect to Taxes and Other Charges
which may be or become a lien or charge against the Property. Except to the
extent sums sufficient to pay all Taxes and Other Charges have been deposited
with Lender in accordance with the terms of this Security Instrument, Borrower
shall furnish to Lender paid receipts for the payment of the Taxes and Other
Charges prior to the date the same shall become delinquent.
(b) After prior written notice to Lender, Borrower, at its own expense,
may contest by appropriate legal proceeding, promptly initiated and conducted in
good faith and with due diligence, the amount or validity or application in
whole or in part of any of the Taxes, provided that (i) no Event of Default has
occurred and is continuing under the Note, this Security Instrument or any of
the Other Security Documents, (ii) Borrower is permitted to do so under the
provisions of any other mortgage, deed of trust or deed to secure debt affecting
the Property, (iii) such proceeding shall suspend the collection of the Taxes
from Borrower and from the Property or Borrower shall have paid all of the Taxes
under protest, (iv) such proceeding shall be permitted under and be conducted in
accordance with the provisions of any other instrument to which Borrower is
subject and shall not constitute a default thereunder, (v) neither the Property
nor any part thereof or interest therein will be in danger of being sold,
forfeited, terminated, cancelled or lost, (vi) Borrower shall have deposited
with Lender adequate reserves for the payment of the Taxes, together with all
interest and penalties thereon, unless Borrower has paid all of the Taxes under
protest, and (vii) Borrower shall have furnished the security as may be required
in the proceeding, or as may be requested by Lender to insure the payment of any
contested Taxes, together with all interest and penalties thereon.
Section 3.5. ESCROW FUND. In addition to the initial deposits with
respect to Taxes made by Borrower to Lender on the date hereof to be held by
Lender in escrow, Borrower shall pay to Lender on the first day of each calendar
month one-twelfth of an amount which would be sufficient to pay the Taxes
payable, or estimated by Lender to be payable, during the next ensuing twelve
(12) months (such amounts shall be called the "Escrow Fund"). Borrower agrees
to notify Lender immediately of any changes to the amounts, schedules and
instructions for payment of any Taxes of which it has obtained knowledge and
authorizes Lender or its agent
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to obtain the bills for Taxes and Other Charges directly from the appropriate
taxing authority. The Escrow Fund and the payments of interest or principal or
both, payable pursuant to the Note, shall be added together and shall be paid as
an aggregate sum by Borrower to Lender. Lender will apply the Escrow Fund to
payments of Taxes required to be made by Borrower pursuant to Section 3.3
hereof. If the amount of the Escrow Fund shall exceed the amounts due for Taxes
pursuant to Section 3.3 hereof, Lender shall, in its discretion, return any
excess to Borrower or credit such excess against future payments to be made to
the Escrow Fund. In allocating such excess, Lender may deal with the person
shown on the records of Lender to be the owner of the Property. If the Escrow
Fund is not sufficient to pay the Taxes when due, Borrower shall promptly pay to
Lender, upon demand, an amount which Lender shall estimate as sufficient to make
up the deficiency. The Escrow Fund shall not constitute a trust fund and may be
commingled with other monies held by Lender. No earnings or interest on the
Escrow Fund shall be payable to Borrower.
Section 3.6. CONDEMNATION. Borrower shall promptly give Lender notice of
the actual or threatened commencement of any condemnation or eminent domain
proceeding and shall deliver to Lender copies of any and all papers served in
connection with such proceedings. Lender is hereby irrevocably appointed as
Borrower's attorney-in-fact coupled with an interest, with exclusive powers to
collect, receive and retain any award or payment for any taking accomplished
through a condemnation or eminent domain proceeding and to make any compromise
or settlement in connection therewith. All condemnation awards or proceeds
shall be either (a) to the extent not permitted to be applied by Borrower to
Restoration in accordance with Section 4.4 hereof, paid to Lender for
application against the Debt or (b) to the extent so permitted hereunder,
applied by Borrower to Restoration of the Property in accordance with Section
4.4 hereof. Notwithstanding any taking by any public or quasi-public authority
through eminent domain or otherwise (including but not limited to any transfer
made in lieu of or in anticipation of the exercise of such taking), Borrower
shall continue to pay the Debt at the time and in the manner provided for its
payment in the Note and in this Security Instrument and the Debt shall not be
reduced until any award or payment therefor shall have been actually received
and applied by Lender, after the deduction of expenses of collection, to the
reduction or discharge of the Debt. Lender shall not be limited to the interest
paid on the award by the condemning authority but shall be entitled to receive
out of the award interest at the rate or rates provided herein or in the Note.
Any award or payment to be applied to the reduction or discharge of the Debt or
any portion thereof may be so applied whether or not the Debt or such portion
thereof is then due and payable. If the Property is sold, through foreclosure
or otherwise, prior to the receipt by Lender of the award or payment, Lender
shall have the right, whether o not a deficiency judgment on the Note shall have
been or may be sought, recovered or denied, to receive the award or payment, or
a portion thereof sufficient to pay the Debt.
Section 3.7. LEASES AND RENTS. (a) Borrower does hereby absolutely and
unconditionally assign to Lender Borrower's right, title and interest in all
current and future Leases and Rents, it being intended by Borrower that this
assignment constitutes a present, absolute assignment and not an assignment for
additional security only. Such assignment to Lender shall not be construed to
bind Lender to the performance of any of the covenants, conditions or provisions
contained in any such Lease or otherwise impose any obligation upon Lender
except that Lender shall be accountable for money actually received pursuant to
such assignment. Borrower agrees to execute and deliver to Lender such
additional instruments, in form and substance satisfactory to Lender, as may
hereafter be requested by Lender to further evidence and confirm such
assignment. Nevertheless, subject to the terms of this Section 3.7, Lender
grants to Borrower a revocable license to operate and manage the Property and to
collect the Rents. Borrower shall hold the Rents, or a portion thereof
sufficient to discharge all current sums due on the Debt, in trust for the
benefit of Lender for use in the payment of such sums. Upon an Event of
Default, without the need for notice or demand, the license granted to Borrower
herein shall automatically be revoked, and Lender shall immediately be entitled
to possession of all Rents, whether or not Lender enters upon or takes control
of the Property. Lender shall notify Borrower of such an event within a
reasonable time thereafter. Lender is
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hereby granted and assigned by Borrower the right, at its option, upon
revocation of the license granted herein, to enter upon the Property in person,
by agent or by court-appointed receiver to collect the Rents. Any Rents
collected after the revocation of the license may be applied toward payment of
the Debt in such priority and proportions as Lender in its sole discretion shall
deem proper.
(b) All Leases shall be written on the standard form of lease
which has been approved by Lender. Lender acknowledges that the Lease between
Borrower and Unitel in effect on the date hereof (the "Unitel Lease") has been
approved by Lender. No changes may be made to the Lender-approved standard
lease without the prior written consent of Lender except for commercially
reasonable changes agreed to in the ordinary course of Borrower's business. All
Leases shall provide that they are subordinate to this Security Instrument and
that the tenant thereunder agrees to attorn to Lender.
(c) Borrower (i) shall observe and perform all the obligations
imposed upon the lessor under the Leases and shall not do or permit to be done
anything to impair the value of the Leases as security for the Debt; (ii) shall
promptly send copies to Lender of all notices of default which Borrower shall
receive thereunder; (iii) shall not collect any of the Rents more than one (1)
month in advance; and (iv) shall not execute any other assignment of the
lessor's interest in the Leases or the Rents. Borrower shall promptly send
copies to Lender of all notices of default which Borrower shall send under any
Lease in excess of 5,000 square feet; and, (A) shall enforce all of the terms,
covenants and conditions contained in the Lease upon the part of the lessee
thereunder to be observed or performed, short of termination thereof; (B) shall
not alter, modify or change the terms of the Leases in any material respect
without the prior written consent of Lender; (C) shall not convey or transfer or
suffer or permit a conveyance or transfer of the Property or of any interest
therein so as to effect a merger of the estates and rights, or a termination or
diminution of the obligations of, tenants under the Leases; (D) shall not
consent to any assignment of or subletting under the Leases not in accordance
with the terms of the Leases, without the prior written consent of Lender; and
(E) shall not cancel or terminate the Leases or accept a surrender thereof,
except that any Lease of less than 10,000 square feet may be canceled if at the
time of the cancellation thereof a new Lease is entered into on substantially
the same terms or more favorable terms as the canceled Lease. This section is
made with reference to Section 291-f of the New York Real Property Law.
(d) Borrower, as the lessor thereunder, may enter into proposed
lease renewals and new leases without the prior written consent of Lender,
provided each such proposed lease: (i) is not for greater than or equal to
10,000 square feet of the net rentable area of the Property; (ii) shall have an
initial term of not less than three (3) years or greater than ten (10) years;
(iii) shall provide for rental rates comparable to then-existing local market
rates and shall be an arm's-length transaction; (iv) shall not contain any
options for renewal or expansion by the tenant thereunder at rental rates which
are either below comparable market levels or less than the rental rates paid by
the tenant during the initial lease term; (v) shall be to a tenant which is
experienced, creditworthy and reputable; and (vi) shall comply with the
provisions of subsection (b) above. Borrower may enter into a proposed lease
which does not satisfy all of the conditions set forth in clauses (i) through
(v) immediately above, provided Lender consents in writing to such proposed
lease, such consent not to be unreasonably withheld or delayed. Borrower
expressly understands that any and all proposed leases are included in the
definition of "Lease" or "Leases" as such terms may be used throughout this
Security Instrument, the Note and the Other Security Documents. Borrower shall
furnish Lender with executed copies of all Leases and any amendments or other
agreements pertaining thereto within ten (10) days of the execution thereof.
(e) All security deposits of tenants, whether held in cash or
any other form, shall not be commingled with any other funds of Borrower and, if
cash, shall be deposited by Borrower at such commercial or savings bank or banks
as may be reasonably satisfactory to Lender. Any bond or other instrument which
Borrower is permitted to hold in lieu of cash security deposits under any
applicable legal requirements shall be maintained in full force and
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effect in the full amount of such deposits unless replaced by cash deposits as
hereinabove described, shall be issued by an institution reasonably satisfactory
to Lender, shall, if permitted pursuant to any legal requirements, name Lender
as payee or lender thereunder (or at Lender's option, be fully assignable to
Lender) and shall, in all respects, comply with any applicable legal
requirements and otherwise be reasonably satisfactory to Lender. Borrower
shall, upon request, provide Lender with evidence reasonably satisfactory to
Lender of Borrower's compliance with the foregoing. Following the occurrence
and during the continuance of any Event of Default, Borrower shall, upon
Lender's request, if permitted by any applicable legal requirements, turn over
to Lender the security deposits (and any interest theretofore earned thereon)
with respect to all or any portion of the Property, to be held by Lender subject
to the terms of the Leases.
Section 3.8. MAINTENANCE OF PROPERTY. Borrower shall cause the Property
to be maintained in a good and safe condition and repair. The Improvements and
the Personal Property shall not be removed, demolished or materially altered
(except for normal replacement of the Personal Property) without the consent of
Lender which shall not be unreasonably withheld in the case of any alteration
required under any Facilities Agreement. The consent of Lender shall not be
required for any alteration with a cost of less than One Hundred Thousand
Dollars ($100,000). Borrower shall promptly repair, replace or rebuild any part
of the Property which may be destroyed by any casualty, or become damaged, worn
or dilapidated or which may be affected by any proceeding of the character
referred to in Section 3.6 hereof and shall complete and pay for any structure
at any time in the process of construction or repair on the Land. Borrower
shall not initiate, join in, acquiesce in, or consent to any change in any
private restrictive covenant, zoning law or other public or private restriction,
limiting or defining the uses which may be made of the Property or any part
thereof which may have a material adverse affect on the use, operation or value
of the Property. If under applicable zoning provisions the use of all or any
portion of the Property is or shall become a nonconforming use, Borrower will
not cause or permit the nonconforming use to be discontinued or abandoned
without the express written consent of Lender.
Section 3.9. WASTE. Borrower shall not commit or suffer any waste of the
Property or make any change in the use of the Property which will in any way
materially increase the risk of fire or other hazard arising out of the
operation of the Property, or take any action that might invalidate or give
cause for cancellation of any Policy, or do or permit to be done thereon
anything that may in any way impair the value of the Property or the security of
this Security Instrument. Borrower will not, without the prior written consent
of Lender, permit any drilling or exploration for or extraction, removal, or
production of any minerals from the surface or the subsurface of the Land,
regardless of the depth thereof or the method of mining or extraction thereof.
Section 3.10. COMPLIANCE WITH LAWS. (a) Borrower shall promptly comply
with all existing and future federal, state and local laws, orders, ordinances,
governmental rules and regulations or court orders affecting or which may be
interpreted to affect the Property, or the use thereof ("Applicable Laws").
Borrower shall from time to time, upon Lender's request, provide Lender with
evidence satisfactory to Lender that the Property complies with all Applicable
Laws or is exempt from compliance with Applicable Laws. Borrower shall give
prompt notice to Lender of the receipt by Borrower of any notice related to a
violation of any Applicable Laws and of the commencement of any proceedings or
investigations which relate to compliance with Applicable Laws.
(b) Notwithstanding anything to the contrary contained in this Security
Instrument, Borrower shall have the right to contest any Applicable Law by
appropriate legal proceedings and the Borrower shall be entitled to postpone
compliance with such Applicable Law so long as (i) an Event of Default shall not
have occurred and be continuing hereunder, (ii) Borrower shall give the Lender
prior written notice of the commencement of such contest, (iii) noncompliance
shall not subject the Borrower or the Lender to criminal penalty or to any
penalty in excess of $25,000 or to prosecution for a crime, (iv) no portion of
the Property shall be in
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danger of being sold, forfeited or lost, the certificate of occupancy for the
Property shall not be in danger of being suspended and the lien and conveyance
of the this Security Instrument shall not in any way be impaired, by reason of
such contest, and (v) if requested by the Lender, the Borrower shall have
furnished to the Lender a bond or other security in all respects acceptable to
the Lender in an amount equal 150% of the cost of compliance (including
penalties and interest thereon) plus an amount sufficient to indemnify and hold
the Lender harmless from and against all liability, loss, cost and expense
(including attorneys' fees) attributable to such postponement or failure of
compliance, both such amounts as estimated by the Lender.
Section 3.11. BOOKS AND RECORDS. (a) Borrower shall keep adequate books
and records of account in accordance with methods acceptable to Lender in its
sole discretion, consistently applied and furnish to Lender:
(i) annual rent rolls signed, dated and certified by Borrower
(or an officer, general partner, managing member or principal of Borrower
if Borrower is not an individual) under penalty of perjury to be true and
complete to the best knowledge of such person after having made due
inquiry, detailing the names of all tenants of the Improvements, the
portion of Improvements occupied by each tenant, the base rent and any
other charges payable under each Lease and the term of each Lease,
including the expiration date, and any other information as is reasonably
required by Lender, within fifteen (15) days after the end of each fiscal
year of Borrower;
(ii) an annual operating statement of the Property certified by
Borrower (or an officer, general partner, managing member or principal of
Borrower if Borrower is not an individual) under penalty of perjury to be
true and complete to the best knowledge of such person after having made
due inquiry, detailing the total revenues received, total expenses
incurred, total capital expenditures (including, but not limited to, all
capital improvements (including, but not limited to, tenant improvements)),
leasing commissions and other leasing costs, total debt service and total
cash flow, and if available, any quarterly operating statement prepared by
an independent certified public accountant, within thirty (30) days after
the close of each fiscal year of Borrower; and
(iii) an annual balance sheet and profit and loss statement of
Borrower, in the form required by Lender, prepared and certified by
Borrower, and, if available, any financial statements prepared by an
independent certified public accountant within ninety (90) days after the
close of each fiscal year of Borrower.
(b) If at any time Unitel is not the sole tenant of the
Property, upon request from Lender, Borrower and its affiliates shall furnish to
Lender: (i) a property management report for the Property, showing the number
of inquiries made and/or rental applications received from tenants or
prospective tenants and deposits received from tenants and any other information
requested by Lender, in reasonable detail and certified by Borrower (or an
officer, general partner, managing member or principal of Borrower if Borrower
is not an individual) under penalty of perjury to be true and complete, but no
more frequently than quarterly; (ii) an accounting of all security deposits held
in connection with any Lease of any part of the Property, including the name and
identification number of the accounts in which such security deposits are held,
the name and address of the financial institutions in which such security
deposits are held and the name of the person to contact at such financial
institution, along with any authority or release necessary for Lender to obtain
information regarding such accounts directly from such financial institutions;
and (iii) an annual operating budget presented on a monthly basis consistent
with the annual operating statement described above for the Property and all
proposed capital replacements and improvements at least fifteen (15) days prior
to the start of each calendar year.
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(c) Borrower and its affiliates shall furnish Lender with such other
additional financial or management information as may, from time to time, be
reasonably required by Lender in form and substance satisfactory to Lender.
Section 3.12. PAYMENT FOR LABOR AND MATERIALS. Borrower will promptly pay
when due all bills and costs for labor, materials, and specifically fabricated
materials incurred in connection with the Property and never permit to exist
beyond the due date thereof in respect of the Property or any part thereof any
lien or security interest, even though inferior to the liens and the security
interests hereof, and in any event never permit to be created or exist in
respect of the Property or any part thereof any other or additional lien or
security interest other than the liens or security interests hereof, except for
the Permitted Exceptions (defined below). Nothing contained herein shall affect
or impair Borrower's ability to diligently and in good faith contest any lien or
bill for labor or materials, provided that any lien placed upon the Property
must be fully and irrevocably discharged (by bond or otherwise) within 60 days
after the date the same is first placed upon the Property.
Section 3.13. PERFORMANCE OF OTHER AGREEMENTS. Borrower shall observe and
perform each and every term to be observed or performed by Borrower pursuant to
the terms of any agreement or recorded instrument affecting or pertaining to the
Property, or given by Borrower to Lender for the purpose of further securing an
obligation secured hereby and any amendments, modifications or changes thereto.
Section 3.14. PROPERTY MANAGEMENT. Borrower represents and warrants that
it self-manages the Property. Borrower shall not engage a property manager
without Lender's prior consent. In the event that Lender determines that the
Property is not being managed in accordance with generally accepted management
practices for properties similar to the Property, Lender shall deliver written
notice thereof to Borrower, which notice shall specify with particularity the
grounds for Lender's determination. If Lender determines that the conditions
specified in Lender's notice are not remedied to Lender's satisfaction by
Borrower within thirty (30) days from receipt of such notice or that Borrower
has failed to diligently undertake correcting such conditions within such thirty
(30) day period, Borrower shall enter into a Property management agreement
acceptable to Lender with a professional third party property management company
acceptable to Lender and Borrower and such manager shall execute an agreement
acceptable to Lender conditionally assigning Borrower's interest in such
management agreement to Lender and subordinating manager's right to receive fees
and expenses under such agreement while the Debt remains outstanding.
Article 4.- SPECIAL COVENANTS
Borrower covenants and agrees that:
Section 4.1. PROPERTY USE. The Property shall be used only for a
film and video production and post production facility and uses incidental
thereto and for general office use, and for no other use without the prior
written consent of Lender, which consent may be withheld in Lender's sole and
absolute discretion.
Section 4.2. ERISA. (a) Borrower shall not engage in any
transaction which would cause any obligation, or action taken or to be taken,
hereunder (or the exercise by Lender of any of its rights under the Note, this
Security Instrument and the Other Security Documents) to be a non-exempt (under
a statutory or administrative class exemption) prohibited transaction under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Borrower further covenants and agrees to deliver to Lender
such certifications or other evidence from time to time throughout the term of
the Security Instrument,
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as requested by Lender in its sole discretion, that (i) Borrower is not an
"employee benefit plan" as defined in Section 3(3) of ERISA, or other retirement
arrangement, which is subject to Title I of ERISA or Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"), or a "governmental plan"
within the meaning of Section 3(32) of ERISA; (ii) Borrower is not subject to
state statutes regulating investments and fiduciary obligations with respect to
governmental plans; and (iii) one or more of the following circumstances is
true:
(A) Equity interests in Borrower are publicly offered
securities, within the meaning of 29 C.F.R. Section
2510.3-101(b)(2);
(B) Less than 25 percent of each outstanding class of
equity interests in Borrower are held by "benefit plan investors"
within the meaning of 29 C.F.R. ' 2510.3-101(f)(2); or
(C) Borrower qualifies as an "operating company" or a "real
estate operating company" within the meaning of 29 C.F.R. Section
2510.3-101(c) or (e) or an investment company registered under The
Investment Company Act of 1940.
Section 4.3. SINGLE PURPOSE ENTITY. Borrower has not and shall
not: (a) engage in any business or activity other than the ownership, operation
and maintenance of the Property, and activities incidental thereto; (b) acquire
or own any material assets other than (i) the Property, and (ii) such incidental
personal property as may be necessary for the operation of the Property; (c)
merge into or consolidate with any person or entity or dissolve, terminate or
liquidate in whole or in part, transfer or otherwise dispose of all or
substantially all of its assets or change its legal structure, without in each
case Lender's consent; (d) fail to preserve its existence as an entity duly
organized, validly existing and in good standing (if applicable) under the laws
of the jurisdiction of its organization or formation, or without the prior
written consent of Lender, amend, modify, terminate or fail to comply with the
provisions of Borrower's organizational documents, as same may be further
amended or supplemented, if such amendment, modification, termination or failure
to comply would adversely affect the ability of Borrower to perform its
obligations hereunder, under the Note or under the Other Security Documents; (e)
own any subsidiary or make any investment in, any person or entity without the
consent of Lender; (f) commingle its assets with the assets of any of its
partners, members, affiliates, principals or of any other person or entity; (g)
incur any debt, secured or unsecured, direct or contingent (including
guaranteeing any obligation), other than the Debt, except with respect to trade
payables in the ordinary course of its business of owning and operating the
Property, provided that such debt is paid within sixty (60) days of when
incurred; (h) become insolvent and fail to pay its debts and liabilities from
its assets as the same shall become due; (i) fail to maintain its records, books
of account and bank accounts separate and apart from those of the partners,
members, principals and affiliates of Borrower, the ffiliates of a partner,
member, principal or affiliate of Borrower, and any other person or entity; (j)
enter into any contract or agreement with any partner, member, principal or
affiliate of Borrower, except upon terms and conditions that are intrinsically
fair and substantially similar to those that would be available on an
arms-length basis with third parties other than any partner, member, principal
or affiliate of Borrower; (k) seek the dissolution or winding up in whole, or in
part, of Borrower; (l) maintain its assets in such a manner that it will be
costly or difficult to segregate, ascertain or identify its individual assets
from those of any partner, member, principal or affiliate of Borrower, or any
partner, member, principal or affiliate thereof or any other person; (m) hold
itself out to be responsible for the debts of another person; (n) make any loans
or advances to any third party, including any partner, member, principal or
affiliate of Borrower, or any partner, member, principal or affiliate thereof;
(o) fail to file its own tax returns; (p) agree to, enter into or consummate any
transaction which would render Borrower unable to furnish the certification or
other evidence referred to in Section 4.2(b) hereof; (q) fail either to hold
itself out to the public as a legal entity separate and distinct from any other
entity or person or to conduct its business solely in its own name in order not
(i) to mislead others as to the identity with which such other
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party is transacting business, or (ii) to suggest that Borrower is responsible
for the debts of any third party (including any partner, member, principal or
affiliate of Borrower, or any partner, member, principal or affiliate thereof);
(r) fail to maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations; or (s) file or consent to the filing of any
petition, either voluntary or involuntary, to take advantage of any applicable
insolvency,bankruptcy, liquidation or reorganization statute, or make an
assignment for the benefit of creditors. This Section 4.3 shall not be
construed to prohibit distributions in accordance with Section 4.1 of Borrower's
operating agreement.
Section 4.4. RESTORATION AFTER CASUALTY/CONDEMNATION. In the event of a
casualty or a taking by eminent domain, the following provisions shall apply in
connection with the Restoration of the Property:
(a) If the Net Proceeds (defined below) shall be less than Three
Hundred Seventy-Seven Thousand Five Hundred ($377,500) and the costs of
completing the Restoration shall be less than Three Hundred Seventy-Seven
Thousand Five Hundred ($377,500), the Net Proceeds shall be disbursed by Lender
to Borrower upon receipt, provided only that all of the conditions set forth in
Subsection 4.4(b)(i) are met and Borrower delivers to Lender a written
undertaking to expeditiously commence and to satisfactorily complete with due
diligence the Restoration in accordance with the terms of this Security
Instrument.
(b) If the Net Proceeds are equal to or greater than Three Hundred
Seventy-Seven Thousand Five Hundred ($377,500) or the costs of completing the
Restoration is equal to or greater than Three Hundred Seventy-Seven Thousand
Five Hundred ($377,500), Lender shall make the Net Proceeds available for the
Restoration in accordance with the provisions of this Subsection 4.4(b). The
term "Net Proceeds" for purposes of this Section 4.4 shall mean: (i) the net
amount of all insurance proceeds received by Lender pursuant to Subsections
3.3(a) and 3.3(b)(i), (iv) and (vi) of this Security Instrument as a result of
such damage or destruction, after deduction of its reasonable costs and expenses
(including, but not limited to, reasonable counsel fees), if any, in collecting
the same or (ii) the net amount of all awards and payments received by Lender
with respect to a taking referenced in Section 3.6 of this Security Instrument,
after deduction of its reasonable costs and expenses (including, but not limited
to, reasonable counsel fees), if any, in collecting the same, whichever the case
may be.
(i) The Net Proceeds shall be made available to Borrower for the
Restoration provided that each of the following conditions are met: (A) no
Event of Default shall have occurred and be continuing under the Note, this
Security Instrument or any of the Other Security Documents or an event
which after the passage of time or the giving of notice would constitute an
Event of Default unless such event is capable of being cured and Lender
determines, in its sole discretion, that Borrower is diligently
effectuating such a cure; (B) Borrower shall deliver or cause to be
delivered to Lender a signed detailed budget approved in writing by
Borrower's architect or engineer stating the entire cost of completing the
Restoration, satisfactory to Lender; (C) the Net Proceeds together with any
cash or cash equivalent deposited by Borrower with Lender are sufficient in
Lender's discretion to cover the cost of the Restoration; (D) Borrower
shall deliver to Lender, at its expense, the insurance set forth in
Subsection 3.3(b) (vi) hereof; (E) less than fifty percent (50%) of the
total floor area of the Improvements has been damaged, destroyed, taken, or
rendered unusable as a result of such fire or other casualty or taking,
whichever the case may be or, if fifty percent (50%) or more of such floor
area has been so affected, Lender has determined, in its reasonable
judgement, that Restoration is economically feasible; (F) Leases demising
in the aggregate at least 50% of the total rentable space in the Property
which has been demised under executed and delivered Leases in effect as of
the date of the occurrence of such fire or other casualty or taking,
whichever the case may be, shall remain in full force and effect during and
after the completion of the Restoration; (G) Borrower shall commence the
Restoration as soon as reasonably
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<PAGE>
practicable and shall diligently pursue the same to satisfactory
completion; (H) Lender shall be satisfied that any operating deficits,
including all scheduled payments of principal and interest under the Note
atthe Applicable Interest Rate (as defined in the Note), which will be
incurred with respect to the Property as a result of the occurrence of any
such fire or other casualty or taking, whichever the case may be, will be
covered out of (1) the Net Proceeds, (2) the insurance coverage referred to
in Subsection 3.3(b)(iii), if applicable, or (3) by other funds of Borrower
which are deposited with Lender when due; (I) Lender shall be satisfied
that, upon the completion of the Restoration, the gross cash flow and the
net cash flow of the Property will be restored to a level sufficient to
cover all carrying costs and operating expenses of the Property, including,
without limitation, debt service on the Note at a coverage ratio (after
deducting replacement reserve requirements and reserves for tenant
improvements and leasing commissions from net operating income) of at least
1.28, which coverage ratio shall be determined by Lender in its sole and
absolute discretion on the basis of the Applicable Interest Rate (as
defined in the Note), Lender acknowledging by its acceptance hereof that so
long as the Unitel Lease is in full force and effect and there is no
default thereunder, this condition will be satisfied; (J) Lender shall be
satisfied that the Restoration will be completed on or before the earliest
to occur of (1) six (6) months prior to the Maturity Date (as defined in
the Note), (2) eighteen (18) months after the occurrence of such fire or
other casualty or taking, whichever the case may be, (3) the earliest date
required for such completion under the terms of any Leases which are
required to remain in effect subsequent to the occurrence of such fire or
other casualty or taking in accordance with the provisions of this
Subsection 4.4(b), or (4) such time as may be required under applicable
zoning law, ordinance, rule or regulation in order to repair and restore
the Property to the condition it was in immediately prior to such fire or
other casualty or to as nearly as possible the condition it was in
immediately prior to such taking, as applicable; (K) the Property and the
use thereof after the Restoration will be in compliance with and permitted
under all applicable zoning laws, ordinances, rules and regulations; (L)
the Restoration shall be done and completed by Borrower in an expeditious
and diligent fashion and in compliance with all applicable governmental
laws, rules and regulations (including, without limitation, all applicable
Environmental Laws (defined below)); and (M) such fire or other casualty or
taking, as applicable, does not result in the loss of access to the
Property or the Improvements.
(ii) The Net Proceeds shall be held by Lender, and until
disbursed in accordance with the provisions of this Subsection 4.4(b),
shall constitute additional security for the Obligations. The Net Proceeds
shall be disbursed by Lender to, or as directed by, Borrower from time to
time during the course of the Restoration, upon receipt of evidence
reasonably satisfactory to Lender that (A) all materials installed and work
and labor performed (except to the extent that they are to be paid for out
of the requested disbursement) in connection with the Restoration have been
paid for in full, and (B) there exist no notices of pendency, stop orders,
mechanic's or materialmen's liens or notices of intention to file same, or
any other liens or encumbrances of any nature whatsoever on the Property
arising out of the Restoration which have not either been fully bonded to
the satisfaction of Lender and discharged of record or in the alternative
fully insured to the satisfaction of Lender by the title company insuring
the lien of this Security Instrument.
(iii) All plans and specifications required in connection with the
Restoration shall be subject to prior reasonable review and acceptance in
all respects by Lender and by an independent consulting engineer selected
by Lender (the "Casualty Consultant"). Lender shall have the use of the
plans and specifications and all permits, licenses and approvals required
or obtained in connection with the Restoration. The identity of the
contractors, subcontractors and materialmen engaged in the Restoration, as
well as the contracts under which they have been engaged, shall be subject
to prior reasonable review and acceptance by Lender and the Casualty
Consultant. All costs and expenses incurred by Lender in
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connection with making the Net Proceeds available for the Restoration
including, without limitation, reasonable counsel fees and disbursements
and the Casualty Consultant's fees, shall be paid by Borrower.
(iv) In no event shall Lender be obligated to make disbursements
of the Net Proceeds in excess of an amount equal to the costs actually
incurred from time to time for work in place as part of the Restoration, as
certified by the Casualty Consultant, minus the Casualty Retainage. The
term "Casualty Retainage" as used in this Subsection 4.4(b) shall mean an
amount equal to 10% of the costs actually incurred for work in place as
part of the Restoration, as certified by the Casualty Consultant, until
such time as the Casualty Consultant certifies to Lender that 50% of the
required Restoration has been completed. There shall be no Casualty
Retainage with respect to costs actually incurred by Borrower for work in
place in completing the last 50% of the required Restoration. The Casualty
Retainage shall in no event, and notwithstanding anything to the contrary
set forth above in this Subsection 4.4(b), be less than the amount actually
held back by Borrower from contractors, subcontractors and materialmen
engaged in the Restoration. The Casualty Retainage shall not be released
until the Casualty Consultant certifies to Lender that the Restoration has
been completed in accordance with the provisions of this Subsection 4.4(b)
and that all approvals (or temporary approvals) necessary for the
re-occupancy and use of the Property have been obtained from all
appropriate governmental and quasi-governmental authorities, and Lender
receives evidence reasonably satisfactory to Lender that the costs of the
Restoration have been paid in full or will be paid in full out of the
Casualty Retainage, provided, however, that Lender will release the portion
of the Casualty Retainage being held with respect to any contractor,
subcontractor or materialman engaged in the Restoration as of the date upon
which the Casualty Consultant certifies to Lender that the contractor,
subcontractor or materialman has satisfactorily completed all work and has
supplied all materials in accordance with the provisions of the
contractor's, subcontractor's r materialman's contract, and the contractor,
subcontractor or materialman delivers the lien waivers and evidence of
payment in full of all sums due to the contractor, subcontractor or
materialman as may be reasonably requested by Lender or by the title
company insuring the lien of this Security Instrument. If required by
Lender, the release of any such portion of the Casualty Retainage shall be
approved by the surety company, if any, which has issued a payment or
performance bond with respect to the contractor, subcontractor or
materialman.
(v) Lender shall not be obligated to make disbursements of the
Net Proceeds more frequently than twice every calendar month.
(vi) If at any time the Net Proceeds or the undisbursed balance
thereof shall not, in the reasonable opinion of Lender, be sufficient to
pay in full the balance of the costs which are estimated by the Casualty
Consultant to be incurred in connection with the completion of the
Restoration, Borrower shall deposit the deficiency (the "Net Proceeds
Deficiency") with Lender before any further disbursement of the Net
Proceeds shall be made. The Net Proceeds Deficiency deposited with Lender
shall be held by Lender and shall be disbursed for costs actually incurred
in connection with the Restoration on the same conditions applicable to the
disbursement of the Net Proceeds, and until so disbursed pursuant to this
Subsection 4.4(b) shall constitute additional security for the Obligations.
(vii) With respect to Restorations related to casualties, the
excess, if any, of the Net Proceeds, and the remaining balance, if any, of
the Net Proceeds Deficiency deposited with Lender after the Casualty
Consultant certifies to Lender that the Restoration has been completed in
accordance with the provisions of this Subsection 4.4(b), and the receipt
by Lender of evidence satisfactory to Lender that all costs incurred in
connection with the Restoration have been paid in full, shall be remitted
by Lender to
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Borrower, provided no Event of Default shall have occurred and shall be
continuing under the Note, this Security Instrument or any of the Other
Security Documents.
(c) All Net Proceeds not required (i) to be made available for
the Restoration or (ii) to be returned to Borrower as excess Net Proceeds
pursuant to Subsection 4.4(b)(vii) may, at Lender's election, be retained and
applied by Lender toward the payment of the Debt whether or not then due and
payable in such order, priority and proportions as Lender in its discretion
shall deem proper or be paid, either in whole or in part, to Borrower for such
purposes as Lender shall designate, in its discretion. If Lender shall receive
and retain Net Proceeds, the lien of this Security Instrument shall be reduced
only by the amount thereof received and retained by Lender and actually applied
by Lender in reduction of the Debt.
Article 5.- REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
Section 5.1. WARRANTY OF TITLE. Borrower has good and marketable
title to the Land and Improvements and has the right to mortgage, grant,
bargain, sell, pledge, assign, warrant, transfer and convey the Property and
that Borrower possesses an unencumbered fee simple absolute estate in the Land
and the Improvements and that it owns the Property free and clear of all liens,
encumbrances and charges whatsoever except for the lien of this Security
Instrument and the Other Security Documents and those exceptions (other than
standard printed exceptions) shown in the title insurance policy insuring the
lien of this Security Instrument (the "Permitted Exceptions"). Borrower shall
forever warrant, defend and preserve the title and the validity and priority of
the lien of this Security Instrument and shall forever warrant and defend the
same to Lender against the claims of all persons whomsoever.
Section 5.2. AUTHORITY, EXECUTION AND DELIVERY. Borrower (and the
undersigned representative of Borrower, if any) has full power, authority and
legal right to execute this Security Instrument, and to mortgage, grant,
bargain, sell, pledge, assign, warrant, transfer and convey the Property
pursuant to the terms hereof and to keep and observe all of the terms of this
Security Instrument on Borrower's part to be performed and Borrower (and the
undersigned representative of Borrower, if any,) has duly executed and delivered
this Security Instrument.
Section 5.3. LEGAL STATUS AND AUTHORITY. Borrower (a) is duly
organized, validly existing and in good standing under the laws of its state of
organization or incorporation; (b) is duly qualified to transact business and is
in good standing in the State where the Property is located; and (c) has all
necessary approvals, governmental and otherwise, and full power and authority to
own the Property and carry on its business as now conducted and proposed to be
conducted. Borrower now has and shall continue to have the full right, power
and authority to operate and lease the Property, to encumber the Property as
provided herein and to perform all of the other obligations to be performed by
Borrower under the Note, this Security Instrument and the Other Security
Documents.
Section 5.4. VALIDITY OF DOCUMENTS. (a) The execution, delivery
and performance of the Note, this Security Instrument and the Other Security
Documents and the borrowing evidenced by the Note (i) are within the
corporate/partnership/limited liability company (as the case may be) power of
Borrower; (ii) have been authorized by all requisite
corporate/partnership/limited liability company (as the case may be) action;
(iii) have received all necessary approvals and consents, corporate,
governmental or otherwise; (iv) will not violate, conflict with, result in a
breach of or constitute (with notice or lapse of time, or both) a default under
any provision of law, any order or judgment of any court or governmental
authority, the articles of incorporation, by-laws, partnership, trust or
operating agreement, or other governing instrument of Borrower, or any
indenture, agreement or other instrument to which Borrower is a party or by
which it or any of its assets or the Property is or may be bound or affected;
(v) will
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not result in the creation or imposition of any lien, charge or encumbrance
whatsoever upon any of its assets, except the lien and security interest created
hereby; and (vi) will not require any authorization or license from, or any
filing with, any governmental or other body (except for the recordation of this
instrument in appropriate land records in the State where the Property is
located and except for Uniform Commercial Code filings relating to the security
interest created hereby); and (b) the Note, this Security Instrument and the
Other Security Documents constitute the legal, valid and binding obligations of
Borrower.
Section 5.5. LITIGATION. There is no action, suit or proceeding, or any
governmental investigation or any arbitration, in each case pending or, to the
knowledge of Borrower, threatened against Borrower or the Property before any
governmental or administrative body, agency or official which (i) challenges the
validity of this Security Instrument, the Note or any of the Other Security
Documents or the authority of Borrower to enter into this Security Instrument,
the Note or any of the Other Security Documents or to perform the transactions
contemplated hereby or thereby or (ii) if adversely determined would have a
material adverse effect on the occupancy of the Property or the business,
financial condition or results of operations of Borrower or the Property.
Section 5.6. STATUS OF PROPERTY. (a) No portion of the Improvements is
located in an area identified by the Secretary of Housing and Urban Development
or any successor thereto as an area having special flood hazards pursuant to the
National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of
1973, as amended, or any successor law, or, if located within any such area,
Borrower has obtained and will maintain the insurance prescribed in Section
3.3(b)(i)hereof.
(b) Borrower has obtained all necessary certificates, licenses and
other approvals, governmental and otherwise, necessary for the operation of the
Property and the conduct of its business and all required zoning, building code,
land use, environmental and other similar permits or approvals, all of which are
in full force and effect as of the date hereof and not subject to revocation,
suspension, forfeiture or modification.
(c) The Property and the present and contemplated use and occupancy
thereof are in compliance in all material respects with all applicable zoning
ordinances, building codes, land use and environmental laws and other similar
laws.
(d) The Property is served by all utilities required for the current or
contemplated use thereof. All utility service is provided by public utilities
and the Property has accepted or is equipped to accept such utility service.
(e) All public roads and streets necessary for service of and access to
the Property for the current or contemplated use thereof have been completed,
are serviceable and all-weather and are physically and legally open for use by
the public.
(f) The Property is served by public water and sewer systems.
(g) The Property is free from damage caused by fire or other casualty.
(h) All costs and expenses of any and all labor, materials, supplies
and equipment used in the construction of the Improvements have been or will be
paid in full.
(i) Borrower has paid or will pay in full for, and is or will be the
owner of, all furnishings, fixtures and equipment (other than Excluded Property)
used in connection with the operation of the Property, free and clear of any and
all security interests, liens or encumbrances, except the lien and security
interest created hereby.
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(j) All liquid and solid waste disposal, septic and sewer systems
located on the Property are in a good and safe condition and repair and in
compliance with all Applicable Laws.
Section 5.7. NO FOREIGN PERSON. Borrower is not a "foreign person" within
the meaning of Sections 1445(f)(3) of the Code and the related Treasury
Department regulations, including temporary regulations.
Section 5.8. SEPARATE TAX LOT. The Property is assessed for real estate
tax purposes as one or more wholly independent tax lot or lots, separate from
any adjoining land or improvements not constituting a part of such lot or lots,
and no other land or improvements is assessed and taxed together with the
Property or any portion thereof.
Section 5.9. ERISA COMPLIANCE. (a) As of the date hereof and throughout
the term of this Security Instrument, (i) Borrower is not and will not be an
"employee benefit plan" as defined in Section 3(3) of ERISA, or other retirement
arrangement, which is subject to Title I of ERISA or Section 4975 of the Code,
and (ii) the assets of Borrower do not and will not constitute "plan assets" of
one or more such plans for purposes of Title I of ERISA or Section 4975 of the
Code; and
(b) As of the date hereof and throughout the term of this Security
Instrument (i) Borrower is not and will not be a "governmental plan" within the
meaning of Section 3(32) of ERISA and (ii) transactions by or with Borrower are
not and will not be subject to state statutes applicable to Borrower regulating
investments of and fiduciary obligations with respect to governmental plans.
Section 5.10. LEASES. (a) Borrower is the sole owner of the entire
lessor's interest in the Leases; (b) the Leases are valid and enforceable; (c)
the terms of all alterations, modifications and amendments to the Leases are
reflected in the certified occupancy statement delivered to and approved by
Lender; (d) none of the Rents reserved in the Leases have been assigned or
otherwise pledged or hypothecated; (e) none of the Rents have been collected for
more than one (1) month in advance; (f) the premises demised under the Leases
have been completed and the tenants under the Leases have accepted the same and
have taken possession of the same on a rent-paying basis; and (g) there exist no
offsets or defenses to the payment of any portion of the Rents.
Section 5.11. FINANCIAL CONDITION. (a) Borrower is solvent, and no
bankruptcy, reorganization, insolvency or similar proceeding under any state or
federal law with respect to Borrower has been initiated, and (b) Borrower has
received reasonably equivalent value for the granting of this Security
Instrument.
Section 5.12. BUSINESS PURPOSES. The loan evidenced by the Note is solely
for the business purpose of Borrower, and is not for personal, family,
household, or agricultural purposes.
Section 5.13. TAXES. Borrower has filed all federal, state, county,
municipal, and city income and other tax returns required to have been filed by
Borrower and has paid all taxes and related liabilities which have become due
pursuant to such returns or pursuant to any assessments received by Borrower.
Borrower does not know of any basis for any additional assessment in respect of
any such taxes and related liabilities for prior years.
Section 5.14. MAILING ADDRESSES. Borrower's mailing address, as set forth
in the opening paragraph hereof or as changed in accordance with the provisions
hereof, is true and correct.
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Section 5.15. NO CHANGE IN FACTS OR CIRCUMSTANCES. All information
submitted to Lender in connection with any request by Borrower for the loan
evidenced by the Note and/or any letter of application, preliminary commitment
letter, final commitment letter or other application or letter of intent
(including, but not limited to, all financial statements, rent rolls, reports
and certificates) are accurate, complete and correct in all material (as
determined by Lender) respects. There has been no adverse change in any
condition, fact, circumstance or event that would make any such information
inaccurate, incomplete or otherwise misleading in any material (as determined by
Lender) respect.
Section 5.16. DISCLOSURE. Borrower has disclosed to Lender all material
facts and has not failed to disclose any material fact that could cause any
representation or warranty made herein to be materially misleading.
Article 6.- OBLIGATIONS AND RELIANCES
Section 6.1. RELATIONSHIP OF BORROWER AND LENDER. The relationship
between Borrower and Lender is solely that of debtor and creditor, and Lender
has no fiduciary or other special relationship with Borrower, and no term or
condition of any of the Note, this Security Instrument and the Other Security
Documents shall be construed so as to deem the relationship between Borrower and
Lender to be other than that of debtor and creditor.
Section 6.2. NO RELIANCE ON LENDER. The general partners, shareholders,
members, principals or other beneficial owners of Borrower are experienced in
the ownership and operation of properties similar to the Property, and Borrower
and Lender are relying solely upon such expertise in connection with the
ownership and operation of the Property. Borrower is not relying on Lender's
expertise, business acumen or advice in connection with the Property.
Section 6.3. NO LENDER OBLIGATIONS. (a) Notwithstanding any of the
provisions of this Security Instrument (including, but not limited to, the
provisions of Subsections 1.1(f) and (l), Section 1.2 or Section 3.7), Lender is
not undertaking the performance of (i) any obligations under the Leases; or (ii)
any obligations with respect to such agreements, contracts, certificates,
instruments, franchises, permits, trademarks, licenses and other documents.
(b) By accepting or approving anything required to be observed,
performed or fulfilled or to be given to Lender pursuant to this Security
Instrument, the Note or the Other Security Documents, including without
limitation, any officer's certificate, balance sheet, statement of profit and
loss or other financial statement, survey, appraisal, or insurance policy,
Lender shall not be deemed to have warranted, consented to, or affirmed the
sufficiency, the legality or effectiveness of same, and such acceptance or
approval thereof shall not constitute any warranty or affirmation with respect
thereto by Lender.
Section 6.4. RELIANCE. Borrower recognizes and acknowledges that in
accepting the Note, this Security Instrument and the Other Security Documents,
Lender is expressly and primarily relying on the truth and accuracy of the
warranties and representations set forth in Article 5 without any obligation to
investigate the Property and notwithstanding any investigation of the Property
by Lender; that such reliance existed on the part of Lender prior to the date
hereof; that the warranties and representations are a material inducement to
Lender in accepting the Note, this Security Instrument and the Other Security
Documents; and that Lender would not be willing to make the loan evidenced by
the Note, this Security Instrument and the Other Security Documents and accept
this Security Instrument in the absence of the warranties and representations as
set forth in Article 5.
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Article 7.- FURTHER ASSURANCES
Section 7.1. RECORDING OF SECURITY INSTRUMENT, ETC. Borrower forthwith
upon the execution and delivery of this Security Instrument and thereafter, from
time to time, will cause this Security Instrument and any of the Other Security
Documents creating a lien or security interest or evidencing the lien hereof
upon the Property and each instrument of further assurance to be filed,
registered or recorded in such manner and in such places as may be required by
any present or future law in order to publish notice of and fully to protect and
perfect the lien or security interest hereof upon, and the interest of Lender
in, the Property. Borrower will pay all taxes, filing, registration or
recording fees, and all expenses incident to the preparation, execution,
acknowledgment and/or recording of the Note, this Security Instrument, the Other
Security Documents, any note or mortgage supplemental hereto, any security
instrument with respect to the Property and any instrument of further assurance,
and any modification or amendment of the foregoing documents, and all federal,
state, county and municipal taxes, duties, imposts, assessments and charges
arising out of or in connection with the execution and delivery of this Security
Instrument, any mortgage supplemental hereto, any security instrument with
respect to the Property or any instrument of further assurance, and any
modification or amendment of the foregoing documents, except where prohibited by
law so to do.
Section 7.2. FURTHER ACTS, ETC. Borrower will, at the cost of Borrower,
and without expense to Lender, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages, assignments, notices of
assignments, transfers and assurances as Lender shall, from time to time,
require, for the better assuring, conveying, assigning, transferring, and
confirming unto Lender the property and rights hereby mortgaged, granted,
bargained, sold, conveyed, confirmed, pledged, assigned, warranted and
transferred or intended now or hereafter so to be, or which Borrower may be or
may hereafter become bound to convey or assign to Lender, or for carrying out
the intention or facilitating the performance of the terms of this Security
Instrument or for filing, registering or recording this Security Instrument, or
for complying with all Applicable Laws. Borrower, on demand, will execute and
deliver and upon Borrower's failure to do so within ten (10) days hereby
authorizes Lender to execute in the name of Borrower or without the signature of
Borrower to the extent Lender may lawfully do so, one or more financing
statements, chattel mortgages or other instruments, to evidence more effectively
the security interest of Lender in the Property. Borrower grants to Lender an
irrevocable power of attorney coupled with an interest for the purpose of
exercising and perfecting any and all rights and remedies available to Lender at
law and in equity, including without limitation such rights and remedies
available to Lender pursuant to this Section 7.2.
Section 7.3. CHANGES IN TAX, DEBT, CREDIT AND DOCUMENTARY STAMP LAWS. (a)
If any law is enacted or adopted or amended after the date of this Security
Instrument which deducts the Debt from the value of the Property for the purpose
of taxation or which imposes a tax, either directly or indirectly, on the Debt
or Lender's interest in the Property, Borrower will pay the tax, with interest
and penalties thereon, if any. If Lender is advised by counsel chosen by it
that the payment of tax by Borrower would be unlawful or taxable to Lender or
unenforceable or provide the basis for a defense of usury, then Lender shall
have the option by written notice of not less than ninety (90) days to declare
the Debt immediately due and payable.
(b) Borrower will not claim or demand or be entitled to any credit or
credits on account of the Debt for any part of the Taxes or Other Charges
assessed against the Property, or any part thereof, and no deduction shall
otherwise be made or claimed from the assessed value of the Property, or any
part thereof, for real estate tax purposes by reason of this Security Instrument
or the Debt. If such claim, credit or deduction shall be required by law,
Lender shall have the option, by written notice of not less than ninety (90)
days, to declare the Debt immediately due and payable.
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(c) If at any time the United States of America, any State thereof or
any subdivision of any such State shall require revenue or other stamps to be
affixed to the Note, this Security Instrument, or any of the Other Security
Documents or impose any other tax or charge on the same, Borrower will pay for
the same, with interest and penalties thereon, if any.
Section 7.4. ESTOPPEL CERTIFICATES. (a) After request by Lender,
Borrower, within ten (10) days, shall furnish Lender or any proposed assignee or
Investor (as defined in Section 19.1) with a statement, duly acknowledged and
certified, setting forth (i) the amount of the original principal amount of the
Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest
of the Note, (iv) the terms of payment and maturity date of the Note, (v) the
date installments of interest and/or principal were last paid, (vi) that, except
as provided in such statement, to the best of Borrower's knowledge following
diligent inquiry there are no defaults or events which with the passage of time
or the giving of notice or both, would constitute an Event of Default under the
Note or the Security Instrument, (vii) that the Note and this Security
Instrument are valid, legal and binding obligations and have not been modified
or if modified, giving particulars of such modification, (viii) whether to the
best of Borrower's knowledge following diligent inquiry any offsets or defenses
exist against the obligations secured hereby and, if any are alleged to exist, a
detailed description thereof, (ix) that all Leases are in full force and effect
and (provided the Property is not a residential multifamily property) have not
been modified (or if modified, setting forth all modifications), (x) the date to
which the Rents thereunder have been paid pursuant to the Leases, (xi) whether
or not, to the best knowledge of Borrower, any of the lessees under the Leases
are in default under the Leases, and, if any of the lessees are in default,
setting forth the specific nature of all such defaults, (xii) the amount of
security deposits held by Borrower under each Lease and that such amounts are
consistent with the amounts required under each Lease, and (xiii) as to any
other matters reasonably requested by Lender and reasonably related to the
Leases, the obligations secured hereby, the Property or this Security
Instrument.
(b) Borrower shall use best efforts to deliver to Lender, promptly upon
request (provided such request is not made more than twice in any calendar
year), duly executed estoppel certificates from any one or more lessees as
required by Lender attesting to such facts regarding the Lease as Lender may
require, including but not limited to attestations that each Lease covered
thereby is in full force and effect with no defaults thereunder on the part of
any party, that none of the Rents have been paid more than one month in advance,
and that the lessee claims no defense or offset against the full and timely
performance of its obligations under the Lease.
(c) Lender, by its acceptance of this Security Instrument, agrees to
deliver to Borrower promptly upon Borrower's request therefor (provided such
request is not made more than twice in any calendar year) a written statement
setting forth the unpaid principal amount of the Note, the accrued and unpaid
interest thereon and the date on which an installment of interest and/or
principal were last paid thereunder.
Section 7.5. FLOOD INSURANCE. After Lender's request, Borrower shall
deliver evidence satisfactory to Lender that no portion of the Improvements is
situated in a federally designated "special flood hazard area" or that Borrower
is otherwise in compliance with Section 3.3(b)(i) hereof, as the case may be.
Section 7.6. SPLITTING OF SECURITY INSTRUMENT. This Security Instrument
and the Note shall, at any time until the same shall be fully paid and
satisfied, at the sole election of Lender, be split or divided into two or more
notes and two or more security instruments, each of which shall cover all or a
portion of the Property to be more particularly described therein. To that end,
Borrower, upon written request of Lender and at Lender's sole cost and expense,
shall execute, acknowledge and deliver to Lender and/or its designee or
designees substitute notes and security instruments in such principal amounts,
aggregating not more than the then unpaid principal amount of this Security
Instrument, and containing terms,
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provisions and clauses similar to those contained herein and in the Note, and
such other documents and instruments as may be required by Lender.
Section 7.7. REPLACEMENT DOCUMENTS. Upon receipt of an affidavit of an
officer of Lender as to the loss, theft, destruction or mutilation of the Note
or any Other Security Document which is not of public record, and, in the case
of any such mutilation, upon surrender and cancellation of such Note or Other
Security Document, Borrower will issue, in lieu thereof, a replacement Note or
Other Security Document, dated the date of such lost, stolen, destroyed or
mutilated Note or Other Security Document in the same principal amount thereof
and otherwise of like tenor.
Article 8.- DUE ON SALE/ENCUMBRANCE
Section 8.1. LENDER RELIANCE. Borrower acknowledges that Lender has
examined and relied on the experience of Borrower and its general partners,
principals and (if Borrower is a trust) beneficial owners in owning and
operating properties such as the Property in agreeing to make the loan secured
hereby, and will continue to rely on Borrower's ownership of the Property as a
means of maintaining the value of the Property as security for repayment of the
Debt and the performance of the Other Obligations. Borrower acknowledges that
Lender has a valid interest in maintaining the value of the Property so as to
ensure that, should Borrower default in the repayment of the Debt or the
performance of the Other Obligations, Lender can recover the Debt by a sale of
the Property.
Section 8.2. NO SALE/ENCUMBRANCE. Borrower agrees that Borrower shall
not, without the prior written consent of Lender, sell, convey, mortgage, grant,
bargain, encumber, pledge, assign, or otherwise transfer the Property or any
part thereof or permit the Property or any part thereof to be sold, conveyed,
mortgaged, granted, bargained, encumbered, pledged, assigned, or otherwise
transferred, except for the Permitted Exceptions.
Section 8.3. SALE/ENCUMBRANCE DEFINED. A sale, conveyance, mortgage,
grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning
of this Article 8 shall be deemed to include, but not limited to, (a) an
installment sales agreement wherein Borrower agrees to sell the Property or any
part thereof for a price to be paid in installments; (b) except for the Unitel
Lease, an agreement by Borrower leasing all or a substantial part of the
Property for other than actual occupancy by a space tenant thereunder or a sale,
assignment or other transfer of, or the grant of a security interest in,
Borrower's right, title and interest in and to any Leases or any Rents; (c) if
Borrower or any general partner of Borrower is a corporation, the voluntary or
involuntary sale, conveyance, transfer or pledge of such corporation's stock or
the creation or issuance of new stock by which an aggregate of more than 49% of
the ownership of such corporation's stock shall be vested in or pledged to a
party or parties who are not now stockholders; (d) if Borrower or any general
partner of Borrower is a limited liability company, the voluntary or involuntary
sale, conveyance, transfer or pledge of membership interests in the capital or
profits of such company or the creation or issuance of new membership interests
by which an aggregate of more than 49% of the ownership of such company's
membership interests shall be vested in or pledged to a party or parties who do
not now hold membership interests in such company; (e) if Borrower or any
general partner of Borrower is a limited or general partnership or joint
venture, (i) the change, removal or resignation of a general partner or managing
partner, (ii) the transfer or pledge of the partnership interest of any general
partner or managing partner or any profits or proceeds relating to such
partnership interest, (iii) the transfer or pledge of more than 49% of the
capital or profits of the partnership or (iv) the creation or issuance of new
partnership interests by Borrower or its general partner which an aggregate of
more than 49% of the ownership of partnership interests in such partnership
shall be vested in a party or parties who do not now hold partnership interests
in such partnership or joint venture; and (f) without limitation to the
foregoing, any voluntary or involuntary sale, transfer, conveyance or pledge by
any person or entity which directly or indirectly controls Borrower (by
operation or law or otherwise) (a "Principal") of its direct or
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indirect controlling interest in Borrower. Notwithstanding the foregoing, the
following transfers shall not be deemed to be a sale, conveyance, mortgage,
grant, bargain, encumbrance, pledge, assignment or transfer within the meaning
of this Article 8: (A) transfer by devise or descent or by operation of law
upon the death of a partner, member or stockholder of Borrower or any general
partner thereof, and (B) a sale, transfer or hypothecation of a partnership,
shareholder or membership interest in Borrower, whichever the case may be, by
the current partner(s), shareholder(s) or member(s), as applicable, to an
immediate family member (i.e., parents, spouses, siblings, children or
grandchildren) of such partner, or shareholder or member or to a Principal (or a
trust for the benefit of any such persons). Notwithstanding anything to the
contrary contained herein (including, without limitation, the terms of the
immediately preceding sentence), any sale, conveyance, mortgage, grant, bargain,
encumbrance, pledge, assignment or transfer permitted or consented to which
shall result in any party not now owning more than 49% of the ownership
interests in Borrower acquiring more than 49% of the ownership interests in
Borrower shall require the receipt by Lender of a substantive non-consolidation
opinion acceptable to Lender. Notwithstanding anything herein or in the Note to
the contrary, no assumption of the loan evidenced by the Note (the "Loan") shall
be permitted during the period commencing on the closing date of the Loan ad
ending on the one-year anniversary of such date.
Section 8.4. LENDER'S RIGHTS. Lender reserves the right to condition the
consent required for assignment hereunder upon a modification of the terms
hereof and on assumption of the Note, this Security Instrument and the Other
Security Documents as so modified by the proposed transferee, on payment of a
transfer fee of one percent (1%) of the outstanding principal balance of the
Note at the time of assumption (the "Assumption Fee") and all of Lender's
expenses incurred in connection with such transfer, the approval by each rating
agency (each, a "Rating Agency") that has rated the Securities (as defined in
Section 19.1) of the proposed transferee, the proposed transferee's continued
compliance with the covenants set forth in Section 4.2 and Section 4.3 hereof,
or such other conditions as Lender shall determine in its sole discretion to be
in the interest of Lender. Lender shall not be required to demonstrate any
actual impairment of its security or any increased risk of default hereunder in
order to declare the Debt immediately due and payable upon Borrower's sale,
conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or
transfer of the Property or any part thereof without Lender's consent. This
Article 8 shall apply to every sale, conveyance, mortgage, grant, bargain,
encumbrance, pledge, assignment, or transfer of the Property or any part thereof
after the date hereof regardless of whether voluntary or not, or whether or not
Lender has consented to any previous sale, conveyance, mortgage, grant, bargain,
encumbrance, pledge, assignment, or transfer of the Property or any part
thereof.
Article 9.- PREPAYMENT
Section 9.1. PREPAYMENT BEFORE EVENT OF DEFAULT. The Debt may be prepaid
only in strict accordance with the express terms and conditions of the Note
including the payment of any prepayment consideration or premium due under the
Note.
Section 9.2. PREPAYMENT ON CASUALTY AND CONDEMNATION. Provided no Event
of Default exists under the Note, this Security Instrument or the Other Security
Documents, in the event of any prepayment of the Debt pursuant to the terms of
Sections 4.4(c) hereof, no prepayment premium shall be due in connection
therewith, but Borrower shall be responsible for all other amounts due under the
Note, this Security Instrument and the Other Security Documents.
Section 9.3. PREPAYMENT AFTER EVENT OF DEFAULT. Following an Event of
Default and acceleration of the Debt, if Borrower or anyone on Borrower's behalf
makes a tender of payment of the amount necessary to satisfy the Debt at any
time prior to foreclosure sale (including, but not limited to, sale under power
of sale under this Security Instrument), or during any redemption period after
foreclosure, (i) the tender of payment shall constitute an evasion of the
prepayment prohibition contained in Article 5 of the Note and such payment
shall,
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therefore, to the maximum extent permitted by law, include a premium equal to
the prepayment consideration or premium that would have been payable on the date
of such tender had the Debt not been so accelerated, or (ii) if at the time of
such tender a prepayment would have been prohibited under the Note had the Debt
not been so accelerated, the tender of payment shall constitute an evasion of
such prepayment prohibition and shall, therefore, to the maximum extent
permitted by law, include an amount equal to the greater of (i) 3% of the then
principal amount of the Note and (ii) an amount equal to the excess of (A) the
sum of the present values of a series of payments payable at the times and in
the amounts equal to the payments of principal and interest (including, but not
limited to the principal and interest payable on the Maturity Date (as defined
in the Note)) which would have been scheduled to be payable after the date of
such tender under the Note had the Debt not been accelerated, with each such
payment discounted to its present value at the date of such tender at the rate
which when compounded monthly is equivalent to the Prepayment Rate (as defined
in Article 5 of the Note), over (B) the then principal amount of the Note.
Article 10.- DEFAULT
Section 10.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events after any applicable notice and/or the expiration of any
applicable cure period shall constitute an "Event of Default": (a) if any
portion of the Debt is not paid within ten (10) days following the date the same
is due or if the entire Debt is not paid on or before the Maturity Date; (b) if
any of the Taxes or Other Charges is not paid within ten (10) days following the
date the same is due and payable except to the extent sums sufficient to pay
such Taxes and Other Charges have been deposited with Lender in accordance with
the terms of this Security Instrument; (c) if the Policies are not kept in full
force and effect, or if the Policies are not delivered to Lender within ten (10)
days of Lender's request; (d) if the Property is subject to actual waste; (e) if
Borrower violates or does not comply with any of the provisions of Sections 3.7
and 4.3 and Articles 8 and 13; (f) if any representation or warranty of Borrower
or any person guaranteeing payment of the Debt or any portion thereof or
performance by Borrower of any of the terms of this Security Instrument or any
general partner, principal or beneficial owner of any of the foregoing, made
herein or any guaranty or indemnity, or in any certificate, report, financial
statement or other instrument or document furnished to Lender shall have been
false or misleading in any material respect when made; (g) if (i) Borrower or
any general partner, managing member or equivalent person of Borrower shall
commence any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, conservatorship or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to adjudicate it
a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, r (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial part
of its assets, or the Borrower, or any general partner, managing member or
equivalent person of Borrower, shall make a general assignment for the benefit
of its creditors; or (ii) there shall be commenced against Borrower, or any
general partner, managing member or equivalent person of Borrower, any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, unstayed, undischarged or unbonded for a
period of sixty (60) days; or (iii) there shall be commenced against the
Borrower, or any general partner, managing member or equivalent person of
Borrower, any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of any order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within sixty (60) days from the entry thereof; or (iv) the
Borrower, or any general partner, managing member or equivalent person of
Borrower, shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i), (ii),
or (iii) above; or (v) the Borrower, or any general partner, managing member or
equivalent person of Borrower, shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due; (h)
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if Borrower shall be in default, beyond any applicable notice or grace period,
under any other mortgage, deed of trust, deed to secure debt or other security
agreement covering any part of the Property whether it be superior or junior in
lien to this Security Instrument; (i) if the Property becomes subject to any
mechanic's, materialman's or other lien other tha a lien for local real estate
taxes and assessments not then due and payable and the lien shall remain
undischarged of record (by payment, bonding or otherwise) for a period of sixty
(60) days; (j) if any federal tax lien is filed against Borrower, any general
partner, managing member or equivalent person of Borrower, or the Property, and
same is not discharged of record within sixty (60) days after same is filed; (k)
if Borrower fails to cure any violations of Applicable Laws or of Article 12
within sixty (60) days (or such shorter period as may be specified by any
government authority having jurisdiction) of first having received notice
thereof; (l) if (i) Borrower fails to timely provide Lender with the written
certification and evidence referred to in Section 4.2 hereof, or (ii) Borrower
consummates a transaction which would cause the Security Instrument or Lender's
exercise of its rights under this Security Instrument, the Note or the Other
Security Documents to constitute a nonexempt prohibited transaction under ERISA
or result in a violation of a state statute regulating governmental plans,
subjecting Lender to liability for a violation of ERISA or a state statute; (m)
if Borrower shall fail to reimburse Lender within five (5) days of demand, with
interest calculated at the Default Rate (as defined in Section 10.3), for all
Insurance Premiums or Taxes, together with interest and penalties imposed
thereon, paid by Lender pursuant to this Security Instrument; (n) if Borrower
shall fail to timely deliver to Lender an estoppel certificate pursuant to the
terms of Subsection 7.4(a); (o) if Borrower shall fail to timely deliver to
Lender, after request by Lender, the statements referred to in Section 3.11 in
accordance with the terms thereof; (p) if any default occurs in the performance
of any guarantor's or indemnitor's obligations under any guaranty or indemnity
executed in connection herewith and such default continues after the expiration
of applicable grace periods set forth in such guaranty or indemnity, r if any
representation or warranty of any guarantor or indemnitor thereunder shall be
false or misleading in any material respect when made; (q) if for more than
thirty (30) days after notice from Lender, Borrower shall continue to be in
default under any other term, covenant or condition of the Note, this Security
Instrument or the Other Security Documents in the case of any default which can
be cured by the payment of a sum of money or for sixty (60) days after notice
from Lender in the case of any other default, provided that if such default
cannot reasonably be cured within such sixty (60) day period and Borrower shall
have commenced to cure such default within such sixty (60) day period and
thereafter diligently and expeditiously proceeds to cure the same, such sixty
(60) day period shall be extended for so long as it shall require Borrower, in
Lender's sole but reasonable judgement, in the exercise of due diligence to cure
such default; (r) a default beyond applicable notice or cure periods (if any)
shall occur under any Other Security Documents; or (s) an "Event of Default" (as
defined in the Unitel 53 Mortgage) shall occur thereunder.
Section 10.2. LATE PAYMENT CHARGE. If any sum payable to Lender under
this Security Instrument or any of the Other Security Documents is not paid
prior to the fifth (5th) day after the date on which it is due, Borrower shall
pay to Lender upon demand an amount equal to the lesser of five percent (5%) of
such unpaid sum or the maximum amount permitted by applicable law, to defray the
expense incurred by Lender in handling and processing such delinquent payment
and to compensate Lender for the loss of the use of such delinquent payment, and
such amount shall be secured by this Security Instrument and the Other Security
Documents.
Section 10.3. DEFAULT INTEREST. Borrower will pay, from the date of an
Event of Default through the earlier of the date upon which the Event of Default
is cured or the date upon which the Debt is paid in full, interest on the unpaid
principal balance of the Note at a per annum rate equal to the lesser of (a)
five percent (5%) plus the Applicable Interest Rate (as defined in the Note),
and (b) the maximum interest rate which Borrower may by law pay or Lender may
charge and collect (the "Default Rate").
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Article 11.- RIGHTS AND REMEDIES
Section 11.1. REMEDIES. Upon the occurrence of any Event of Default,
Borrower agrees that Lender may take such action, without notice or demand, as
it deems advisable to protect and enforce its rights against Borrower and in and
to the Property, including, but not limited to, the following actions, each of
which may be pursued concurrently or otherwise, at such time and in such order
as Lender may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Lender: (a) declare the entire unpaid
Debt to be immediately due and payable; (b) institute proceedings, judicial or
otherwise, for the complete foreclosure of this Security Instrument under any
applicable provision of law in which case the Property or any interest therein
may be sold for cash or upon credit in one or more parcels or in several
interests or portions and in any order or manner; (c) with or without entry, to
the extent permitted and pursuant to the procedures provided by applicable law,
institute proceedings for the partial foreclosure of this Security Instrument
for the portion of the Debt then due and payable, subject to the continuing lien
and security interest of this Security Instrument for the balance of the Debt
not then due, unimpaired and without loss of priority; (d) sell for cash or upon
credit the Property or any part thereof and all estate, claim, demand, right,
title and interest of Borrower therein and rights of redemption thereof,
pursuant to power of sale or otherwise, at one or more sales, as an entity or in
parcels, at such time and place, upon such terms and after such notice thereof
as may be required or permitted by law; (e) institute an action, suit or
proceeding in equity for the specific performance of any covenant, condition or
agreement contained herein, in the Note or in the Other Security Documents; (f)
recover judgment on the Note either before, during or after any proceedings for
the enforcement of this Security Instrument or the Other Security Documents; (g)
apply or the appointment of a receiver, trustee, liquidator or conservator of
the Property, without notice and without regard for the adequacy of the security
for the Debt and without regard for the solvency of Borrower or of any person,
firm or other entity liable for the payment of the Debt; (h) subject to any
applicable law, the license granted to Borrower under Section 1.2 shall
automatically be revoked and Lender may enter into or upon the Property, either
personally or by its agents, nominees or attorneys and dispossess Borrower and
its agents and servants therefrom, without liability for trespass, damages or
otherwise and exclude Borrower and its agents or servants wholly therefrom, and
take possession of all books, records and accounts relating thereto and Borrower
agrees to surrender possession of the Property and of such books, records and
accounts to Lender upon demand, and thereupon Lender may (i) use, operate,
manage, control, insure, maintain, repair, restore and otherwise deal with all
and every part of the Property and conduct the business thereat; (ii) complete
any construction on the Property in such manner and form as Lender deems
advisable; (iii) make alterations, additions, renewals, replacements and
improvements to or on the Property; (iv) exercise all rights and powers of
Borrower with respect to the Property, whether in the name of Borrower or
otherwise, including, without limitation, the right to make, cancel, enforce or
modify Leases, obtain and evict tenants, and demand, sue for, collect and
receive all Rents of the Property and every part thereof; (v) require Borrower
to pay monthly in advance to Lender, or any receiver appointed to collect the
Rents, the fair and reasonable rental value for the use and occupation of such
part of the Property as may be occupied by Borrower; (vi) require Borrower to
vacate and surrender possession of the Property to Lender or to such receiver
and, in default thereof, Borrower may be evicted by summary proceedings or
otherwise; and (vii) apply the receipts fro the Property to the payment of the
Debt, in such order, priority and proportions as Lender shall deem appropriate
in its sole discretion after deducting therefrom all expenses (including
reasonable attorneys' fees) incurred in connection with the aforesaid operations
and all amounts necessary to pay the Taxes, Other Charges, insurance and other
expenses in connection with the Property, as well as just and reasonable
compensation for the services of Lender, its counsel, agents and employees; (i)
exercise any and all rights and remedies granted to a secured party upon default
under the Uniform Commercial Code, including, without limiting the generality of
the foregoing: (i) the right to take possession of the Personal Property or any
part thereof, and to take such other measures as Lender may deem necessary for
the care, protection and preservation of the Personal Property, and (ii) request
Borrower at its expense to assemble
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the Personal Property and make it available to Lender at a convenient place
acceptable to Lender. Any notice of sale, disposition or other intended action
by Lender with respect to the Personal Property sent to Borrower in accordance
with the provisions hereof at least five (5) days prior to such action, shall
constitute commercially reasonable notice to Borrower; (j) apply any sums then
deposited in the Escrow Fund and any other sums held in escrow or otherwise by
Lender in accordance with the terms of this Security Instrument or any Other
Security Document to the payment of the following items in any order in its
discretion: (i) Taxes and Other Charges; (ii) Insurance Premiums; (iii) Interest
on the unpaid principal balance of the Note; (iv) Amortization of the unpaid
principal balance of the Note; (v) all other sums payable pursuant to the Note,
this Security Instrument and the Other Security Documents, including without
limitation advances made by Lender pursuant to the terms of this Security
Instrument; (k) surrender the Policies maintained pursuant to Article 3 hereof,
collect the unerned Insurance Premiums and apply such sums as a credit on the
Debt in such priority and proportion as Lender in its discretion shall deem
proper, and in connection therewith, Borrower hereby appoints Lender as agent
and attorney-in-fact (which is coupled with an interest and is therefore
irrevocable) for Borrower to collect such Insurance Premiums; (l) pursue such
other remedies as Lender may have under applicable law; or (m) apply the
undisbursed balance of any Net Proceeds Deficiency deposit, together with
interest thereon, to the payment of the Debt in such order, priority and
proportions as Lender shall deem to be appropriate in its discretion. Under the
power of sale hereby granted, Lender shall have the discretionary right to cause
some or all of the Property, including any Personal Property, to be sold or
otherwise disposed of in any combination and in any manner permitted by
applicable law.
In the event of a sale, by foreclosure, power of sale, or otherwise, of
less than all of the Property, this Security Instrument shall continue as a lien
and security interest on the remaining portion of the Property unimpaired and
without loss of priority. In the event of a sale, by foreclosure, power of
sale, or otherwise, Lender may bid for and acquire the Property and, in lieu of
paying cash therefor, may make settlement for the purchase price by crediting
against the Obligations the amount of the bid made therefor, after deducting
therefrom the expenses of the sale, the cost of any enforcement proceeding
hereunder and any other sums which Lender is authorized to deduct under the
terms hereof, to the extent necessary to satisfy such bid. Notwithstanding the
provisions of this Section 11.1 to the contrary, if any Event of Default as
described in clause (i) or (ii) of Subsection 10.1(g) shall occur, the entire
unpaid Debt shall be automatically due and payable, without any further notice,
demand or other action by Lender.
Section 11.2. APPLICATION OF PROCEEDS. The purchase money, proceeds and
avails of any disposition of the Property, or any part thereof, or any other
sums collected by Lender pursuant to the Note, this Security Instrument or the
Other Security Documents, may be applied by Lender to the payment of the Debt in
such priority and proportions as Lender in its discretion shall deem proper.
Upon any foreclosure sale or sales of all or any portion of the Property under
the power of sale herein granted (if any), Lender may bid for and purchase the
Property and shall be entitled to apply all or any part of the Debt as a credit
to the purchase price.
Section 11.3. RIGHT TO CURE DEFAULTS. Upon the occurrence of any Event of
Default or if Borrower fails to make any payment or to do any act as herein
provided, Lender may, but without any obligation to do so and without notice to
or demand on Borrower and without releasing Borrower from any obligation
hereunder, make or do the same in such manner and to such extent as Lender may
deem necessary to protect the security hereof. Lender is authorized to enter
upon the Property for such purposes, or appear in, defend, or bring any action
or proceeding to protect its interest in the Property or to foreclose this
Security Instrument or collect the Debt, and the cost and expense thereof
(including reasonable attorneys' fees to the extent permitted by law), with
interest as provided in this Section 11.3, shall constitute a portion of the
Debt and shall be due and payable to Lender upon demand. All such costs and
expenses incurred by Lender in remedying such Event of Default or such failed
payment or act or in appearing in, defending, or bringing any such action or
proceeding shall bear interest at the Default Rate, for the period after notice
from Lender that such cost or expense was incurred to
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the date of payment to Lender. All such costs and expenses incurred by Lender
together with interest thereon calculated at the Default Rate shall be deemed to
constitute a portion of the Debt and be secured by this Security Instrument and
the Other Security Documents and shall be immediately due and payable upon
demand by Lender therefor.
Section 11.4. ACTIONS AND PROCEEDINGS. Lender has the right, from and
after any Event of Default, or upon the failure of Borrower to take action when
requested by Lender, to appear in and defend any action or proceeding brought
with respect to the Property and to bring any action or proceeding, in the name
and on behalf of Borrower, which Lender, in its discretion, decides should be
brought to protect its interest in the Property.
Section 11.5. RECOVERY OF SUMS REQUIRED TO BE PAID. Lender shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Debt as the same become due, without regard to whether
or not the balance of the Debt shall be due, and without prejudice to the right
of Lender thereafter to bring an action of foreclosure, or any other action, for
a default or defaults by Borrower existing at the time such earlier action was
commenced.
Section 11.6. EXAMINATION OF BOOKS AND RECORDS. During business hours and
upon reasonable prior notice, Lender, its agents, accountants and attorneys
shall have the right to examine the records, books, management and other papers
of Borrower and its affiliates which reflect upon their financial condition, at
the Property or at any office regularly maintained by Borrower or its affiliates
or where the books and records are located. Lender and its agents shall have
the right to make copies and extracts from the foregoing records and other
papers. In addition, Lender, its agents, accountants and attorneys shall have
the right to examine and audit the books and records of Borrower and its
affiliates pertaining to the income, expenses and operation of the Property
during reasonable business hours and on reasonable prior notice at any office of
Borrower and its affiliates where the books and records are located.
Lender shall make reasonable efforts to hold all nonpublic information
obtained in connection with the transactions contemplated by this Security
Instrument in accordance with Lender's customary procedures for handling
confidential information of such nature and in accordance with safe and sound
business practices; but in any event may make disclosure required or requested
by any governmental authority or representative thereof, or pursuant to legal
process, or to its accountants, lawyers and other advisors or other persons in a
confidential relation with Lender, or to any bona fide prospective Investor (as
defined in Section 19.1), provided that Lender shall, to the extent reasonably
feasible, require any prospective Investor to comply with this paragraph and to
return all materials furnished to it by Lender in connection herewith in the
event that such prospective Investor does not make the contemplated investment.
Section 11.7. OTHER RIGHTS, ETC. (a) The failure of Lender to insist
upon strict performance of any term hereof shall not be deemed to be a waiver of
any term of this Security Instrument. Borrower shall not be relieved of
Borrower's obligations hereunder by reason of (i) the failure of Lender to
comply with any request of Borrower to take any action to foreclose this
Security Instrument or otherwise enforce any of the provisions hereof or of the
Note or the Other Security Documents, (ii) the release, regardless of
consideration, of the whole or any part of the Property, or of any person liable
for the Debt or any portion thereof, or (iii) any agreement or stipulation by
Lender extending the time of payment or otherwise modifying or supplementing the
terms of the Note, this Security Instrument or the Other Security Documents.
(b) It is agreed that the risk of loss or damage to the Property is on
Borrower, and Lender shall have no liability whatsoever for decline in value of
the Property, for failure to maintain the Policies, or for failure to determine
whether insurance in force is adequate as to the amount of risks insured.
Possession by Lender shall not be deemed an election of judicial relief, if any
such possession is requested or obtained, with respect to any Property or
collateral not in Lender's possession.
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(c) Lender may resort for the payment of the Debt to any other security
held by Lender in such order and manner as Lender, in its discretion, may elect
Lender may take action to recover the Debt, or any portion thereof, or to
enforce any covenant hereof without prejudice to the right of Lender thereafter
to foreclose this Security Instrument. The rights of Lender under this Security
Instrument shall be separate, distinct and cumulative and none shall be given
effect to the exclusion of the others. No act of Lender shall be construed as
an election to proceed under any one provision herein to the exclusion of any
other provision. Lender shall not be limited exclusively to the rights and
remedies herein stated but shall be entitled to every right and remedy now or
hereafter afforded at law or in equity.
Section 11.8. RIGHT TO RELEASE ANY PORTION OF THE PROPERTY. Lender may
release any portion of the Property for such consideration as Lender may require
without, as to the remainder of the Property, in any way impairing or affecting
the lien or priority of this Security Instrument, or improving the position of
any subordinate lienholder with respect thereto, except to the extent that the
obligations hereunder shall have been reduced by the actual monetary
consideration, if any, received by Lender for such release, and may accept by
assignment, pledge or otherwise any other property in place thereof as Lender
may require without being accountable for so doing to any other lienholder.
This Security Instrument shall continue as a lien and security interest in the
remaining portion of the Property.
Section 11.9. VIOLATION OF LAWS. If the Property is not in compliance
with Applicable Laws, Lender may impose additional requirements upon Borrower in
connection herewith including, without limitation, monetary reserves or
financial equivalents.
Section 11.10. RIGHT OF ENTRY. Lender and its agents shall have the right
to enter and inspect the Property in any emergency or at all reasonable times
upon reasonable prior notice to Borrower.
Article 12.- ENVIRONMENTAL HAZARDS
Section 12.1. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Borrower
represents and warrants, based upon an environmental assessment of the Property
and information that Borrower knows or should reasonably have known, that: (a)
there are no Hazardous Substances (defined below) or underground storage tanks
in, on, or under the Property, except those that are both (i) in compliance with
Environmental Laws (defined below) and with permits issued pursuant thereto and
(ii) fully disclosed to Lender in writing pursuant to the written reports
resulting from the environmental assessments of the Property delivered to Lender
(the "Environmental Report"); (b) there are no past, present or threatened
Releases (defined below) of Hazardous Substances in, on, under or from the
Property except as described in the Environmental Report; (c) there is no threat
of any Release of Hazardous Substances migrating to the Property except as
described in the Environmental Report; (d) there is no past or present
non-compliance with Environmental Laws, or with permits issued pursuant thereto,
in connection with the Property except as described in the Environmental Report;
(e) Borrower does not know of, and has not received, any written or oral notice
or other communication from any person or entity (including but not limited to a
governmental entity) relating to Hazardous Substances or Remediation (defined
below) thereof, of possible liability of any person or entity pursuant to any
Environmental Law, other environmental conditions in connection with the
Property, or any actual or potential administrative or judicial proceedings in
connection with any of the foregoing; and (f) Borrower has truthfully and fully
provided to Lender, in writing, any and all information relating to conditions
in, on, under or from the Property that is known to Borrower and that is
contained in Borrower's files and records, including but not limited to any
reports relating to Hazardous Substances in, on, under or from the Property
and/or to the environmental conition of the Property.
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"Environmental Law" means any present and future federal, state and local
laws, statutes, ordinances, rules, regulations and the like, as well as common
law, relating to protection of human health or the environment, relating to
Hazardous Substances, relating to liability for or costs of Remediation or
prevention of Releases of Hazardous Substances or relating to liability for or
costs of other actual or threatened danger to human health or the environment.
"Environmental Law" includes, but is not limited to, the following statutes, as
amended, any successor thereto, and any regulations promulgated pursuant
thereto, and any state or local statutes, ordinances, rules, regulations and the
like addressing similar issues: the Comprehensive Environmental Response,
Compensation and Liability Act; the Emergency Planning and Community
Right-to-Know Act; the Hazardous Substances Transportation Act; the Resource
Conservation and Recovery Act (including but not limited to Subtitle I relating
to underground storage tanks); the Solid Waste Disposal Act; the Clean Water
Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking
Water Act; the Occupational Safety and Health Act; the Federal Water Pollution
Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the
Endangered Species Act; the National Environmental Policy Act; and the River and
Harbors Appropriation Act. "Environmental Law" also includes, but is not limited
to, any present and future federal, state and local laws, statutes, ordinances,
rules, regulations and the like, as well as common law: conditioning transfer of
property upon a negative declaration or other approval of a governmental
authority of the environmental condition of the property; requiring notification
or disclosure of Releases of Hazardous Substances or other environmental
condition of the Property to any governmental authority or other person or
entity, whether or not in connection with transfer of title to or interest in
property; imposing conditions or requiremets in connection with permits or other
authorization for lawful activity; relating to nuisance, trespass or other
causes of action related to the Property; and relating to wrongful death,
personal injury, or property or other damage in connection with any physical
condition or use of the Property. "Hazardous Substances" include but are not
limited to any and all substances (whether solid, liquid or gas) defined,
listed, or otherwise classified as pollutants, hazardous wastes, hazardous
substances, hazardous materials, extremely hazardous wastes, or words of similar
meaning or regulatory effect under any present or future Environmental Laws or
that may have a negative impact on human health or the environment, including
but not limited to petroleum and petroleum products, asbestos and
asbestos-containing materials, polychlorinated biphenyls, lead, radon,
radioactive materials, flammables and explosives provided, however, that
"Hazardous Substances" shall not include cleaning materials customarily used at
properties similar to the Property, to the extent such materials are used,
stored and disposed of in accordance with Environmental Laws.
"Release" of any Hazardous Substance includes but is not limited to any
release, deposit, discharge, emission, leaking, spilling, seeping, migrating,
injecting, pumping, pouring, emptying, escaping, dumping, disposing or other
movement of Hazardous Substances.
"Remediation" includes but is not limited to any response, remedial,
removal, or corrective action, any activity to cleanup, detoxify, decontaminate,
contain or otherwise remediate any Hazardous Substance, any actions to prevent,
cure or mitigate any Release of any Hazardous Substance, any action to comply
with any Environmental Laws or with any permits issued pursuant thereto, any
inspection, investigation, study, monitoring, assessment, audit, sampling and
testing, laboratory or other analysis, or evaluation relating to any Hazardous
Substances or to anything referred to in Article 12.
Section 12.2. ENVIRONMENTAL COVENANTS. Borrower covenants and agrees that
so long as the Borrower owns, manages, is in possession of, or otherwise
controls the operation of the Property: (a) all uses and operations on or of
the Property, shall be in compliance with all Environmental Laws and permits
issued pursuant thereto; (b) there shall be no Releases of Hazardous Substances
by Borrower, its agents or employees in, on, under or from the Property; (c)
there shall be no Hazardous Substances in, on, or under the Property, except
those that are in compliance with all Environmental Laws and with permits issued
pursuant thereto, if and to the extent required; (d) the Property shall be kept
free and clear of all liens and other encumbrances imposed pursuant to any
Environmental Law, whether due to any act or
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omission of Borrower or any other person or entity (the "Environmental Liens");
(e) Borrower shall, at its sole cost and expense, fully and expeditiously
cooperate in all activities pursuant to Section 12.3 below, including but not
limited to providing all relevant information and making knowledgeable persons
available for interviews; (f) Borrower shall, at its sole cost and expense,
perform any environmental site assessment or other investigation of
environmental conditions in connection with the Property, pursuant to any
written request of Lender (including but not limited to sampling, testing and
analysis of soil, water, air, building materials and other materials and
substances whether solid, liquid or gas), and share with Lender the reports and
other results thereof, and Lender and other Indemnified Parties (as defined in
Section 13.1) shall be entitled to rely on such reports and other results
thereof provided, however, that no such request shall be made by Lender unless
Lender has reasonable grounds to believe that a Release of Hazardous Substances
or a violation of Environmental Law has occurred; (g) Borrower shall, at its
sole cost and expense, comply with all reasonable written requests of Lender to
i) reasonably effectuate Remediation of any condition (including but not limited
to a Release of a Hazardous Substance) in, on, under or from the Property; (ii)
comply with any Environmental Law; (iii) comply with any directive from any
governmental authority; and (iv) take any other reasonable action necessary or
appropriate for protection of human health or the environment; (h) Borrower
shall not do or allow any tenant or other user of the Property to do any act
that materially increases the dangers to human health or the environment, poses
an unreasonable risk of harm to any person or entity (whether on or off the
Property), impairs or may impair the value of the Property, is contrary to any
requirement of any insurer, constitutes a public or private nuisance,
constitutes waste, or violates any covenant, condition, agreement or easement
applicable to the Property; and (i) Borrower shall immediately notify Lender in
writing of (A) any presence or Releases or threatened Releases of Hazardous
Substances in, on, under, from or migrating towards the Property; (B) any
non-compliance with any Environmental Laws related in any way to the Property;
(C) any actual or potential Environmental Lien; (D) any required or proposed
Remediation of environmental conditions relating to the Property; and (E) any
written or oral notice or other communication which Borrower becomes aware from
any source whatsoever (including but not limited to a governmental entity)
relating in any way to Hazardous Substances or Remediation thereof, possible
liability of any person or entity pursuant to any Environmental Law, other
environmental conditions in connection with the Property, or any actual or
potential administrative or judicial proceedings in connection with anything
referred to in this Article 12.
Section 12.3. LENDER'S RIGHTS. Lender and any other person or entity
designated by Lender, including but not limited to any receiver, any
representative of a governmental entity, and any environmental consultant, shall
have the right, but not the obligation, to enter upon the Property at all
reasonable times, with reasonable prior notice except in an emergency, to assess
any and all aspects of the environmental condition of the Property and its use,
including but not limited to conducting any environmental assessment or audit
(the scope of which shall be determined in Lender's sole and absolute
discretion) and taking samples of soil, groundwater or other water, air, or
building materials, and conducting other invasive testing. Borrower shall
cooperate with and provide access to Lender and any such person or entity
designated by Lender. The costs and expenses of such assessments shall be borne
by Lender except in instances where such report or assessment is performed due
to Borrower's failure to comply with its obligations under Section 12.2(f) or
following an Event of Default, in which cases the costs and expenses of such
assessments shall be paid for by Borrower.
Section 12.4. RIGHT TO CONTEST. Notwithstanding anything to the contrary
contained in this Security Instrument, Borrower shall have the right to contest
any Environmental Law by appropriate legal proceedings and the Borrower shall be
entitled to postpone compliance with such Environmental Law so long as (a) an
Event of Default shall not have occurred and be continuing hereunder, (b)
Borrower shall give the Lender prior written notice of the commencement of such
contest, (c) noncompliance shall not subject the Borrower or the Lender to
criminal penalty or to any penalty in excess of $25,000 or to prosecution for a
crime, (d) no portion of the Property shall be in danger of being sold,
forfeited or lost, the certificate of occupancy for the Property shall not be in
danger of being suspended and the lien and
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conveyance of the this Security Instrument shall not in any way be impaired, by
reason of such contest, and (e) if requested by the Lender, the Borrower shall
have furnished to the Lender a bond or other security in all respects acceptable
to the Lender in an amount equal 150% of the cost of compliance (including
penalties and interest thereon) plus an amount sufficient to indemnify and hold
the Lender harmless from and against all liability, loss, cost and expense
(including attorneys' fees) attributable to such postponement or failure of
compliance, both such amounts as estimated by the Lender.
Article 13.- INDEMNIFICATION
Section 13.1. GENERAL INDEMNIFICATION. Borrower shall, at its sole cost
and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all claims, suits, liabilities
(including, without limitation, strict liabilities), actions, proceedings,
obligations, debts, damages, losses, costs, expenses, diminutions in value,
fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in
settlement, punitive damages, foreseeable and unforeseeable consequential
damages, of whatever kind or nature (including but not limited to reasonable
attorneys' fees and other costs of defense) (the "Losses") imposed upon or
incurred by or asserted against any Indemnified Parties and directly or
indirectly arising out of or in any way relating to any one or more of the
following, except to the extent any of the following are attributable to the
gross negligence or wilful misconduct of an Indemnified Party: (a) ownership of
this Security Instrument, the Property or any interest therein or receipt of any
Rents; (b) any amendment to, or restructuring of, the Debt, and the Note, this
Security Instrument, or any Other Security Documents; (c) any and all lawful
action that may be taken by Lender in connection with the enforcement of the
provisions of this Security Instrument or the Note or any of the Other Security
Documents, whether or not suit is filed in connection with same, or in
connection with Borrower and/or any partner, joint venturer or shareholder
thereof becoming a party to a voluntary or involuntary federal or state
bankruptcy, insolvency or similar proceeding; (d) any accident, injury to or
death of persons or loss of or damage to property occurring in, on or about the
Property or any part thereof or on the adjoining sidewalks, curbs, adjacent
property or adjacent parking areas, streets or ways; (e) any use, nonuse or
condition in, on or about the Property or any part thereof or on the adjoining
sidewalks, curbs, adjacent property or adjacent parking areas, strets or ways;
(f) any failure on the part of Borrower to perform or be in compliance with any
of the terms of this Security Instrument; (g) performance of any labor or
services or the furnishing of any materials or other property in respect of the
Property or any part thereof; (h) the failure of any person to file timely with
the Internal Revenue Service an accurate Form 1099-B, Statement for Recipients
of Proceeds from Real Estate, Broker and Barter Exchange Transactions, which may
be required in connection with this Security Instrument, or to supply a copy
thereof in a timely fashion to the recipient of the proceeds of the transaction
in connection with which this Security Instrument is made; (i) any failure of
the Property to be in compliance with any Applicable Laws; (j) the enforcement
by any Indemnified Party of the provisions of this Article 13; (k) any and all
claims and demands whatsoever which may be asserted against Lender by reason of
any alleged obligations or undertakings on its part to perform or discharge any
of the terms, covenants, or agreements contained in any Lease; (l) the payment
of any commission, charge or brokerage fee to anyone which may be payable in
connection with the funding of the loan evidenced by the Note and secured by
this Security Instrument except the fee payable to Cronheim, Westport Commercial
Realty, Ltd., and Atlas Capital; or (m) any misrepresentation made by Borrower
in this Security Instrument or any Other Security Document. Any amounts payable
to Lender by reason of the application of this Section 13.1 shall be paid within
five (5) days of demand therefor and shall bear interest at the Default Rate
from the date loss or damage is sustained by Lender until paid. For purposes of
this Article 13, the term "Indemnified Parties" means Lender and any person or
entity who is or will have been involved in the origination of the loan
evidenced by the Note, any person or entity who is or will have been involved in
the servicing of the loan evidenced by the Note, any person or etity in whose
name the encumbrance created by this Security Instrument is or will have been
recorded, persons and entities who may hold or acquire or will have held a full
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or partial interest in the loan evidenced by the Note (including, but not
limited to, Investors (as defined herein) or prospective Investors in the
Securities (as defined herein), as well as custodians, trustees and other
fiduciaries who hold or have held a full or partial interest in the loan
evidenced by the Note loan for the benefit of third parties) as well as the
respective directors, officers, shareholders, partners, employees, agents,
servants, representatives, contractors, subcontractors, affiliates,
subsidiaries, participants, successors and assigns of any and all of the
foregoing (including but not limited to any other person or entity who holds or
acquires or will have held a participation or other full or partial interest in
the loan evidenced by the Note or the Property, whether during the term of the
loan evidenced by the Note or as a part of or following a foreclosure of the
loan evidenced by the Note and including, but not limited to, any successors by
merger, consolidation or acquisition of all or a substantial portion of Lender's
assets and business).
Section 13.2. MORTGAGE AND/OR INTANGIBLE TAX. Borrower shall, at its sole
cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all Losses imposed upon or incurred
by or asserted against any Indemnified Parties and directly or indirectly
arising out of or in any way relating to any tax on the making and/or recording
of this Security Instrument, the Note or any of the Other Security Document,
except for net income taxes and franchise taxes (imposed in lieu of net income
taxes) imposed on an Indemnified Party as a result of a present or former
connection between the jurisdiction of the government or taxing authority
imposing such tax and the Indemnified Party (excluding a connection arising
solely from the Indemnified Party having executed, delivered, or performed its
obligations or received a payment under, or enforced, this Security Instrument,
the Note and the Other Security Documents) or any political subdivision or
taxing authority thereof or therein.
Section 13.3. ERISA INDEMNIFICATION. Borrower shall, at its sole cost and
expense, protect, defend, indemnify, release and hold harmless the Indemnified
Parties from and against any and all Losses (including, without limitation,
attorneys' fees and costs incurred in the investigation, defense, and settlement
of Losses incurred in correcting any prohibited transaction or in the sale of a
prohibited loan, and in obtaining any individual prohibited transaction
exemption under ERISA that may be required, in Lender's sole discretion) that
Lender may incur, directly or indirectly, as a result of a default under
Sections 4.2 or 5.9 or Subsection 4.3(p).
Section 13.4. ENVIRONMENTAL INDEMNIFICATION. Borrower shall, at its sole
cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all Losses and costs of Remediation
(whether or not performed voluntarily), engineers' fees, environmental
consultants' fees, and costs of investigation (including but not limited to
sampling, testing, and analysis of soil, water, air, building materials and
other materials and substances whether solid, liquid or gas) imposed upon or
incurred by or asserted against any Indemnified Parties, and directly or
indirectly arising out of or in any way relating to any one or more of the
following (except to the extent the same relate solely to Hazardous Substances
first introduced to the Property by anyone other than Borrower, its agents or
employees following the foreclosure of this Security Instrument (or the delivery
and acceptance of a deed in lieu of such foreclosure), the expiration of any
right of redemption with respect thereto and the obtaining by the purchaser at
such foreclosure sale or grantee under such deed of possession of the Property):
(a) any presence of any Hazardous Substances in, on, above, or under the
Property; (b) any past, present or threatened Release of Hazardous Substances
in, on, above, under or from the Property; (c) any activity by Borrower, any
person or entity affiliated with Borrower or any tenant or other user of the
Property in connection with any actual, proposed or threatened use, treatment,
storage, holding, existence, disposition or other Release, generation,
production, manufacturing, processing, refining, control, management, abatement,
removal, handling, transfer or transportation to or from the Property of any
Hazardous Substances at any time located in, under, on or above the Property;
(d) any activity by Borrower, any person or entity affiliated with Borrower or
any tenant or other user of the Property in connection with any actual or
proposed Remediation of any Hazardous Substancesat any time
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located in, under, on or above the Property, whether or not such Remediation is
voluntary or pursuant to court or administrative order, including but not
limited to any removal, remedial or corrective action; (e) any past, present or
threatened non-compliance or violations of any Environmental Laws (or permits
issued pursuant to any Environmental Law) in connection with the Property or
operations thereon, including but not limited to any failure by Borrower, any
person or entity affiliated with Borrower or any tenant or other user of the
Property to comply with any order of any governmental authority in connection
with any Environmental Laws; (f) the imposition, recording or filing or the
threatened imposition, recording or filing of any Environmental Lien encumbering
the Property; (g) any administrative processes or proceedings or judicial
proceedings in any way connected with any matter addressed in Article 12 and
this Section 13.4; (h) any past, present or threatened injury to, destruction of
or loss of natural resources in any way connected with the Property, including
but not limited to costs to investigate and assess such injury, destruction or
loss; (i) any acts of Borrower or other users of the Property in arranging for
disposal or treatment, or arranging with a transporter for transport for
disposal or treatment, of Hazardous Substances owned or possessed by such
Borrower or other users, at any facility or incineration vessel owned or
operated by another person or entity and containing such or similar Hazardous
Materials; (j) any acts of Borrower or other users of the Property, in accepting
any Hazardous Substances for transport to disposal or treatment facilities,
incineration vessels or sites selected by Borrower or such other users, from
which there is a Release, or a threatened Release of any Hazardous Substance
which causes the incurrence of costs for Remediation; (k) any personal injury,
wrongful death, or property damage arising under any statutory or common law or
tort law theory, incuding but not limited to damages assessed for the
maintenance of a private or public nuisance or for the conducting of an
abnormally dangerous activity on or near the Property; and (l) any
misrepresentation or inaccuracy in any representation or warranty or material
breach or failure to perform any covenants or other obligations pursuant to
Article 12.
Section 13.5. DUTY TO DEFEND; ATTORNEYS' FEES AND OTHER FEES AND EXPENSES.
In the event that any Indemnified Party is entitled to be indemnified by
Borrower in accordance with this Security Instrument, then upon written request
by such Indemnified Party, Borrower shall defend such Indemnified Party (if
requested by any Indemnified Party, in the name of the Indemnified Party) by
attorneys and other professionals approved by the Indemnified Parties.
Notwithstanding the foregoing, any Indemnified Parties may, in their sole and
absolute discretion, engage their own attorneys and other professionals to
defend or assist them, and, at the option of Indemnified Parties, their
attorneys shall control the resolution of claim or proceeding. Upon demand,
Borrower shall pay or, in the sole and absolute discretion of the Indemnified
Parties, reimburse, the Indemnified Parties for the payment of reasonable fees
and disbursements of attorneys, engineers, environmental consultants,
laboratories and other professionals in connection therewith.
Article 14.- WAIVERS
Section 14.1. WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to
assert a counterclaim, other than a mandatory or compulsory counterclaim, in any
action or proceeding brought against it by Lender arising out of or in any way
connected with this Security Instrument, the Note, any of the Other Security
Documents, or the Obligations.
Section 14.2. MARSHALLING AND OTHER MATTERS. Borrower hereby waives, to
the extent permitted by law, the benefit of all appraisement, valuation, stay,
extension, reinstatement and redemption laws now or hereafter in force and all
rights of marshalling in the event of any sale hereunder of the Property or any
part thereof or any interest therein. Further, Borrower hereby expressly waives
any and all rights of redemption from sale under any order or decree of
foreclosure of this Security Instrument on behalf of Borrower, and on behalf of
each and every person acquiring any interest in or title to the Property
subsequent to the date of this Security Instrument and on behalf of all persons
to the extent permitted by applicable law.
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Section 14.3. WAIVER OF NOTICE. Borrower shall not be entitled to any
notices of any nature whatsoever from Lender except with respect to matters for
which this Security Instrument specifically and expressly provides for the
giving of notice by Lender to Borrower and except with respect to matters for
which Lender is required by applicable law to give notice, and Borrower hereby
expressly waives the right to receive any notice from Lender with respect to any
matter for which this Security Instrument does not specifically and expressly
provide for the giving of notice by Lender to Borrower.
Section 14.4. SOLE DISCRETION OF LENDER. Wherever pursuant to this
Security Instrument (a) Lender exercises any right given to it to approve or
disapprove, (b) any arrangement or term is to be satisfactory to Lender, or (c)
any other decision or determination is to be made by Lender, the decision of
Lender to approve or disapprove, all decisions that arrangements or terms are
satisfactory or not satisfactory and all other decisions and determinations made
by Lender, shall except as specifically set forth herein be in the sole and
absolute discretion of Lender and shall be final and conclusive, except as may
be otherwise expressly and specifically provided herein.
Section 14.5. SURVIVAL. The indemnifications made pursuant to Article 13
and the representations and warranties, covenants, and other obligations arising
under Article 12, shall continue indefinitely in full force and effect and shall
survive and shall in no way be impaired by: any satisfaction or other
termination of this Security Instrument, any assignment or other transfer of all
or any portion of this Security Instrument or Lender's interest in the Property
(but, in such case, shall benefit both Indemnified Parties and any assignee or
transferee), any exercise of Lender's rights and remedies pursuant hereto
including but not limited to foreclosure or acceptance of a deed in lieu of
foreclosure, any exercise of any rights and remedies pursuant to the Note or any
of the Other Security Documents, any transfer of all or any portion of the
Property (whether by Borrower or by Lender following foreclosure or acceptance
of a deed in lieu of foreclosure or at any other time), any amendment to this
Security Instrument, the Note or the Other Security Documents, and any act or
omission that might otherwise be construed as a release or discharge of Borrower
from the obligations pursuant hereto.
Section 14.6. WAIVER OF TRIAL BY JURY. BORROWER HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING
DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THE NOTE, THE APPLICATION FOR
THE LOAN EVIDENCED BY THE NOTE, THE NOTE, THIS SECURITY INSTRUMENT OR THE OTHER
SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES,
DIRECTORS OR AGENTS IN CONNECTION THEREWITH.
Article 15.- EXCULPATION
Section 15.1. EXCULPATION. Lender shall not enforce the liability and
obligation of Borrower, to perform and observe the obligations contained in this
Security Instrument, the Note, or the Other Security Documents by any action or
proceeding wherein a money judgment shall be sought against Borrower or any
partner, member or equivalent person of Borrower, except that Lender may bring a
foreclosure action, an action for specific performance or any other appropriate
action or proceeding to enable Lender to enforce and realize upon this Security
Instrument, the Note, the Other Security Documents, and the interests in the
Property; and any other collateral given to Lender pursuant to this Security
Instrument and the Other Security Documents; provided, however, that, except as
specifically provided herein, any judgment in any such action or proceeding
shall be enforceable against Borrower or any partner, member or equivalent
person of Borrower only to the extent of Borrower's or such partner's, members
or equivalent person's interest in the Property and in any other collateral
given to Lender, and Lender, by accepting this Security Instrument, the Note and
the Other
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Security Documents, agrees that it shall not sue for, seek or demand any
deficiency judgment against Borrower or any partner, member or equivalent person
of Borrower, in any such action or proceeding, under or by reason of or in
connection with this Security Instrument, the Note, or the Other Security
Documents. The provisions of this paragraph shall not, however, (i) constitute
a waiver, release or impairment of any obligation evidenced or secured by this
Security Instrument or the Other Security Documents, (ii) impair the right of
Lender to name Borrower as a party defendant in any action or suit for
foreclosure and sale under this Security Instrument, (iii) affect the validity
or enforceability of any guaranty made in connection with this Security
Instrument or the Other Security Documents, (iv) impair the right of Lender to
obtain the appointment of receiver, (v) impair the enforcement of any
assignment, or, (vi) constitute a waiver of the right of Lender to enforce the
liability and obligation of Borrower or any partner, member or equivalent person
of Borrower, by money judgment or otherwise, to the extent of any loss, damage,
cost, expense, liability, claim or other obligation incurred by Lender
(including attorneys' fees and costs reasonably incurred) arising out of or in
connection with the following: (a) fraud or misrepresentation by Borrower or any
partner, member or equivalent person in connection with this Security
Instrument, the Note or the Other Security Documents; (b) the gross negligence
or willful misconduct of Borrower or any partner, member or equivalent person of
Borrower; (c) material physical waste of the Property; (d) the breach of
provisions in this Security Instrument or the Other Security Documents
concerning Environmental Laws and Hazardous Substances and any indemnification
of Lender with respect thereto in any document; (e) the removal or disposal of
any portion of the Property after an Event of Default under this Security
Instrument, the Note or the Other Security Documents; (f) the misapplication or
conversion by Borrower or any partner, member or equivalent person of Borrower
of (i) any insurance proceeds paid by reason of any loss, damage or destruction
to the Property, (ii) any awards or other amounts received in connection with
the condemnation of all or a portion of the Property, or (iii) any Rents
following an Event of Default under this Security Instrument, the Note or the
Other Security Documents; (g) failure to pay Taxes (provided that the liability
of Borrower shall be only for amounts in excess of the amount held by Lender in
escrow for the payment of Taxes), assessments, charges for labor or materials or
other charges that can create liens on any portion of the Property which are
prior to the lien of this Security Instrument; and (h) any security deposits
collected with respect to the Property which are not delivered o Lender upon a
foreclosure of the Property or action in lieu thereof, except to the extent any
such security deposits were applied in accordance with the terms and conditions
of any of the Leases prior to the occurrence of the Event of Default that gave
rise to such foreclosure or action in lieu thereof.
Notwithstanding anything to the contrary in this Security Instrument, the
Note or the Other Security Documents (i) the Debt shall be fully recourse to
Borrower; and (ii) Lender shall not be deemed to have waived any right which
Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of
the U.S. Bankruptcy Code to file a claim for the full amount of the Debt or to
require that all collateral shall continue to secure all of the Debt owing to
Lender in accordance with this Security Instrument, the Note or the Other
Security Documents, in the event that: (A) the first full monthly payment of
principal and interest under the Note is not paid when due; (B) Borrower fails
to permit on-site inspections of the Property, fails to provide financial
information, or fails to maintain its status as a single purpose entity, as
required by this Security Instrument; (C) Borrower fails to obtain Lender's
prior written consent to any subordinate financing or other voluntary lien
encumbering the Property other than a Permitted Exception; (D) Borrower fails to
obtain Lender's prior written consent to any assignment, transfer, or conveyance
of the Property or any interest therein as required by this Security Instrument.
Article 16.- NOTICES
Section 16.1. NOTICES. All notices or other written communications
hereunder shall be deemed to have been properly given (i) upon delivery, if
delivered in person with receipt acknowledged by the recipient thereof, (ii) one
(l) Business Day (defined below) after having been deposited for overnight
delivery with any reputable overnight courier service, or (iii) five
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(5) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to Borrower: Unitel 57 LLC
c/o Unitel Video, Inc.
555 West 57th Street, Suite 1240
New York, New York 10019
Attention: President
With a copy to: Unitel Video, Inc.
555 West 57th Street
Suite 1240
New York, New York 10019
Attention: General Counsel
If to Lender: Bear, Stearns Funding, Inc.
245 Park Avenue
New York, New York 10167
Attention: Christopher Hoeffel
or addressed as such party may from time to time designate by written notice to
the other parties.
Either party by notice to the other may designate additional or different
addresses for subsequent notices or communications.
For purposes of this Security Instrument, "Business Day" shall mean any day
other than Saturday, Sunday or any other day on which banks are authorized or
required to close in New York, New York.
Article 17.- SERVICE OF PROCESS
Section 17.1. CONSENT TO SERVICE. (a) Borrower will maintain a place of
business or an agent for service of process New York and give prompt notice to
Lender of the address of such place of business and of the name and address of
any new agent appointed by it, as appropriate. Borrower further agrees that the
failure of its agent for service of process to give it notice of any service of
process will not impair or affect the validity of such service or of any
judgment based thereon. If, despite the foregoing, there is for any reason no
agent for service of process of Borrower available to be served, and if it at
that time has no place of business in New York, then Borrower irrevocably
consents to service of process by registered or certified mail, postage prepaid,
to it at its address given in or pursuant to the first paragraph hereof.
(b) Borrower initially and irrevocably designates Unitel Video, Inc.
with offices on the date hereof at 555 West 57th Street, Suite 1240, New York,
New York 10019, Attention: General Counsel, to receive for and on behalf of
Borrower service of process in New York with respect to this Security
Instrument.
Article 18.- APPLICABLE LAW
Section 18.1. CHOICE OF LAW. THIS SECURITY INSTRUMENT SHALL BE DEEMED TO
BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE OF NEW YORK AND
SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, PROVIDED HOWEVER, THAT WITH RESPECT TO
THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT
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OF THE LIEN OF THIS SECURITY INSTRUMENT, AND THE DETERMINATION OF DEFICIENCY
JUDGMENTS, THE LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED SHALL APPLY.
Section 18.2. USURY LAWS. This Security Instrument and the Note are
subject to the express condition that at no time shall Borrower be obligated or
required to pay interest on the Debt at a rate which could subject the holder of
the Note to either civil or criminal liability as a result of being in excess of
the maximum interest rate which Borrower is permitted by applicable law to
contract or agree to pay. If by the terms of this Security Instrument or the
Note, Borrower is at any time required or obligated to pay interest on the Debt
at a rate in excess of such maximum rate, the rate of interest under the
Security Instrument and the Note shall be deemed to be immediately reduced to
such maximum rate and the interest payable shall be computed at such maximum
rate and all prior interest payments in excess of such maximum rate shall be
applied and shall be deemed to have been payments in reduction of the principal
balance of the Note. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Note until payment in full so that the rate or amount of
interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding.
Section 18.3. PROVISIONS SUBJECT TO APPLICABLE LAW. All rights, powers
and remedies provided in this Security Instrument may be exercised only to the
extent that the exercise thereof does not violate any applicable provisions of
law and are intended to be limited to the extent necessary so that they will not
render this Security Instrument invalid, unenforceable or not entitled to be
recorded, registered or filed under the provisions of any applicable law. If
any term of this Security Instrument or any application thereof shall be invalid
or unenforceable, the remainder of this Security Instrument and any other
application of the term shall not be affected thereby.
Article 19.- SECONDARY MARKET
Section 19.1. TRANSFER OF LOAN. Lender may, at any time, sell, transfer
or assign the Note, this Security Instrument and the Other Security Documents,
and any or all servicing rights with respect thereto, or grant participations
therein or issue mortgage pass-through certificates or other securities
evidencing a beneficial interest in a rated or unrated public offering or
private placement (the "Securities"). Lender may forward to each purchaser,
transferee, assignee, servicer, participant or investor in such Securities or
any Rating Agency rating such Securities (collectively, the "Investor") and each
prospective Investor, all documents and information which Lender now has or may
hereafter acquire relating to the Debt and to Borrower, and the Property,
whether furnished by Borrower, or otherwise, as Lender determines necessary or
desirable. Borrower agrees to cooperate with Lender in connection with any
transfer made or any Securities created pursuant to this Security Instrument,
including, without limitation, the delivery of an estoppel certificate in
accordance therewith, and such other documents as may be reasonably requested by
Lender. Borrower shall also furnish and Borrower consents to Lender furnishing
to such Investors or such prospective Investors or Rating Agency any and all
information concerning the Property, the Leases, the financial condition of
Borrower as may be requested by Lender, any Investor or any prospective Investor
or Rating Agency in connection with any sale, transfer or participation
interest, subject to the confidentiality provisions contained herein. Lender
may retain or assign responsibility for servicing the Note, this Security
Instrument, and the Other Security Documents, or may delegate some or all of
such responsibility and/or obligations to a servicer including, but not limited
to, any subservicer or master servicer. Lender may make such assignment or
delegation on behalf of the Investors if the Note is sold or this Security
Instrument or the Other Security Documents are assigned. All references to
Lender herein shall refer to and include any such servicer to the extent
applicable.
40
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Section 19.2. CONVERSION TO REGISTERED FORM. At the request and the
expense of Lender, Borrower shall appoint, as its agent, a registrar and
transfer agent (the "Registrar") acceptable to Lender which shall maintain,
subject to such reasonable regulations as it shall provide, such books and
records as are necessary for the registration and transfer of the Note in a
manner that shall cause the Note to be considered to be in registered form for
purposes of Section 163(f) of the Code. The option to convert the Note into
registered form once exercised may not be revoked. Any agreement setting out
the rights and obligation of the Registrar shall be subject to the reasonable
approval of Lender. Borrower may revoke the appointment of any particular
person as Registrar, effective upon the effectiveness of the appointment of a
replacement Registrar. The Registrar shall not be entitled to any fee from
Lender or any other lender in respect of transfers of the Note and Security
Instrument (other than Taxes and governmental charges and fees).
Article 20.- COSTS
Section 20.1. PERFORMANCE AT BORROWER'S EXPENSE. Borrower acknowledges and
confirms that Lender shall impose certain administrative processing and/or
commitment fees in connection with (a) the extension, renewal, modification,
amendment and termination of the debt evidenced by the Note, (b) the release or
substitution of collateral therefor, (c) obtaining certain consents, waivers and
approvals with respect to the Property, or (d) the review of any Lease or
proposed Lease or the preparation or review of any subordination,
non-disturbance agreement (the occurrence of any of the above shall be called an
"Event"). Borrower further acknowledges and confirms that it shall be
responsible for the payment of all costs of reappraisal of the Property or any
part thereof required by law, regulation, any governmental or quasi-governmental
authority or, following an Event of Default, Lender. Borrower hereby
acknowledges and agrees to pay, immediately, with or without demand, all such
fees (as the same may be increased or decreased from time to time), and any
additional fees of a similar type or nature which may be imposed by Lender from
time to time, upon the occurrence of any Event or otherwise. Wherever it is
provided for herein that Borrower pay any costs and expenses, such costs and
expenses shall include, but not be limited to, all reasonable legal fees and
disbursements of Lender, whether retained firms, the reimbursement for the
expenses of in-house staff or otherwise.
Section 20.2. ATTORNEY'S FEES FOR ENFORCEMENT. (a) Borrower shall pay
all reasonable legal fees incurred by Lender in connection with (i) the
preparation of the Note, this Security Instrument and the Other Security
Documents and (ii) the items set forth in Section 20.1 above, and (b) Borrower
shall pay to Lender within five (5) days of demand any and all expenses,
including legal expenses and attorneys' fees, incurred or paid by Lender in
protecting its interest in the Property or Personal Property or in collecting
any amount payable hereunder or in enforcing its rights hereunder with respect
to the Property or Personal Property, whether or not any legal proceeding is
commenced hereunder or thereunder and whether or not any default or Event of
Default shall have occurred and is continuing, together with interest thereon at
the Default Rate from the date paid or incurred by Lender until such expenses
are paid by Borrower.
Article 21.- DEFINITIONS
Section 21.1. GENERAL DEFINITIONS. Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, words used in
this Security Instrument may be used interchangeably in singular or plural form
and the word "Borrower" shall mean "each Borrower, each party comprising
Borrower (if Borrower consists of more than one person or entity) and any
subsequent owner or owners of the Property or any part thereof or any interest
therein"; the word "Lender" shall mean "Lender and any subsequent holder of the
Note"; the word "Note" shall mean "the Note and any other evidence of
indebtedness secured by this Security Instrument"; the word "person" shall
include an individual, corporation, limited liability company, partnership,
trust, unincorporated association, government, governmental
41
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authority, and any other entity, the word "Property" shall include any portion
of the Property and any interest therein, and the phrases "attorneys' fees" and
"counsel fees" shall include any and all reasonable attorneys', paralegal and
law clerk fees and disbursements, including, but not limited to, fees and
disbursements at the pre-trial, trial and appellate levels incurred or paid by
Lender in protecting its interest in the Property, the Leases and the Rents and
enforcing its rights hereunder.
Article 22.- MISCELLANEOUS PROVISIONS
Section 22.1. NO ORAL CHANGE. This Security Instrument, and any
provisions hereof, may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
Section 22.2. LIABILITY. If Borrower consists of more than one person,
the obligations and liabilities of each such person hereunder shall be joint and
several. This Security Instrument shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns
forever.
Section 22.3. INAPPLICABLE PROVISIONS. If any term, covenant or condition
of the Note or this Security Instrument is held to be invalid, illegal or
unenforceable in any respect, the Note and this Security Instrument shall be
construed without such provision.
Section 22.4. HEADINGS, ETC. The headings and captions of various Sections
of this Security Instrument are for convenience of reference only and are not to
be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
Section 22.5. DUPLICATE ORIGINALS; COUNTERPARTS. This Security Instrument
may be executed in any number of duplicate originals and each duplicate original
shall be deemed to be an original. This Security Instrument may be executed in
several counterparts, each of which counterparts shall be deemed an original
instrument and all of which together shall constitute a single Security
Instrument. The failure of any party hereto to execute this Security
Instrument, or any counterpart hereof, shall not relieve the other signatories
from their obligations hereunder.
Section 22.6. NUMBER AND GENDER. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
Section 22.7. SUBROGATION. If any or all of the proceeds of the Note have
been used to extinguish, extend or renew any indebtedness heretofore existing
against the Property, then, to the extent of the funds so used, Lender shall be
subrogated to all of the rights, claims, liens, titles, and interests existing
against the Property heretofore held by, or in favor of, the holder of such
indebtedness and such former rights, claims, liens, titles, and interests, if
any, are not waived but rather are continued in full force and effect in favor
of Lender and are merged with the lien and security interest created herein as
cumulative security for the repayment of the Debt, the performance and discharge
of Borrower's obligations hereunder, under the Note and the Other Security
Documents and the performance and discharge of the Other Obligations.
Article 23.- SPECIAL NEW YORK PROVISIONS
Section 23.1. TRUST FUND. Pursuant to Section 13 of the New York Lien
Law, Borrower shall receive the advances secured hereby and shall hold the right
to receive the advances as a trust fund to be applied first for the purpose of
paying the cost of any improvement and shall apply the advances first to the
payment of the cost of any such improvement on the Property before using any
part of the total of the same for any other purpose.
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<PAGE>
Section 23.2. COMMERCIAL PROPERTY. Borrower represents that this Security
Instrument does not encumber real property principally improved or to be
improved by one or more structures containing in the aggregate not more than six
residential dwelling units, each having its own separate cooking facilities.
Section 23.3. INSURANCE. The provisions of subsection 4 of Section 254 of
the New York Real Property Law covering the insurance of buildings against loss
by fire shall not apply to this Security Instrument. In the event of any
conflict, inconsistency or ambiguity between the provisions of Section 3.3
hereof and the provisions of subsection 4 of Section 254 of the New York Real
Property Law covering the insurance of buildings against loss by fire, the
provisions of Section 3.3 shall control.
Section 23.4. LEASES. Lender shall have all of the rights against lessees
of the Property set forth in Section 291-f of the Real Property Law of New York.
Section 23.5. STATUTORY CONSTRUCTION. The clauses and covenants contained
in this Security Instrument that are construed by Section 254 of the New York
Real Property Law shall be construed as provided in those sections (except as
provided in Section 23.3). The additional clauses and covenants contained in
this Security Instrument shall afford rights supplemental to and not exclusive
of the rights conferred by the clauses and covenants construed by Section 254
and shall not impair, modify, alter or defeat such rights (except as provided in
Section 23.3), notwithstanding that such additional clauses and covenants may
relate to the same subject matter or provide for different or additional rights
in the same or similar contingencies as the clauses and covenants construed by
Section 254. The rights of Lender arising under the clauses and covenants
contained in this Security Instrument shall be separate, distinct and cumulative
and none of them shall be in exclusion of the others. No act of Lender shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision, anything herein or otherwise to the contrary
notwithstanding. In the event of any inconsistencies between the provisions of
Section 254 and the provisions of this Security Instrument, the provisions of
this Security Instrument shall prevail.
Section 23.6. MAXIMUM PRINCIPAL AMOUNT SECURED. Notwithstanding anything
to the contrary contained in this Security Instrument, the maximum amount of
principal indebtedness secured by this Security Instrument or which under any
contingency may be secured by this Security Instrument is the amount of Seven
Million Five Hundred Fifty Thousand Dollars ($7,550,000).
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<PAGE>
IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Borrower
and Lender the day and year first above written.
UNITEL 57 LLC
By: Unitel Video, Inc.,
its member
By: /s/ Neil Marcus
------------------------------
Name:
Title: Chief Financial Officer
BEAR, STEARNS FUNDING, INC.,
a Delaware corporation
By: /s/ J. Christopher Hoeffel
------------------------------
Name:
Title: Vice President
44
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ACKNOWLEDGEMENTS
(to be attached)
45
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EXHIBIT A
(Description of Land)
ALL of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being
ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County and State of New York, bounded and described
as follows:
BEGINNING at a point on the northerly side of 57th Street, distant 125 feet
westerly from the corner formed by the intersection of the northerly side of
57th Street with the westerly side of 10th Avenue;
RUNNING THENCE westerly along the northerly side of 57th Street, 100 feet;
THENCE northerly 200 feet 10 inches to the southerly side of 58th Street at a
point therein distant 224 feet 10 inches westerly from the westerly side of 10th
Avenue;
THENCE easterly along the southerly side of 58th Street, 124 feet 10 inches;
THENCE southerly parallel with 10th Avenue, 39 feet 9 inches;
THENCE northwesterly 25 feet 7 inches to a point distant 125 feet west of 10th
Avenue and 166 feet 6 inches north of 57th Street; and
THENCE southerly parallel with 10th Avenue, 166 feet 6 inches to the point or
place of BEGINNING.
46
<PAGE>
Exhibit 4(U)
NINTH AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AND LIMITED WAIVER
This Ninth Amendment to that certain Amended and Restated Loan and Security
Agreement ("AMENDMENT") is dated as of July 8, 1998, by and among Unitel Video,
Inc. ("BORROWER"), R Squared, Inc. ("CORPORATE GUARANTOR"), and Heller
Financial, Inc., as a Lender and as Agent for Lenders ("AGENT").
WHEREAS, Agent, Lenders, Corporate Guarantor and Borrower are parties to a
certain Amended and Restated Loan and Security Agreement dated December 12, 1995
and all amendments thereto (the "AGREEMENT"); and
WHEREAS, an Event of Default is in existence under 8.1(C) of the Agreement
as a result of Borrower's breach of the Tangible Net Worth covenant contained in
subsection 6.1 for the month ended March 31, 1998 (the "Existing Event of
Default"); and
WHEREAS, the parties desire to amend the Agreement as hereinafter set
forth.
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 hereto hereby agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such term in the
Agreement.
2. AMENDMENTS. Subject to the conditions set forth below, the Agreement
is amended as follows:
(A) Subsection 5 is amended by adding the following subsections
immediately after subsection 5.17:
5.18 PROJECTIONS. On or before July 15, 1998, Borrower shall have
delivered to Agent Projections for Fiscal Year 1999.
5.19 PROPOSAL FOR NEW CAPITAL. On or before June 30, 1998, Borrower
shall have delivered to Agent a proposal or letter of intent, in form and
substance satisfactory to Agent and Lenders, from a third party source of
new capital in the amount of at least $5,000,000 resulting from (i) the
sale and leaseback of Borrower's real estate, (ii) a conventional mortgage
on Borrower's real estate or (iii) Borrower's obtaining additional
subordinated debt with subordination provisions acceptable to Agent and
Lenders (the "New Capital"). If Agent has not received such proposal or
letter of intent, as more full described above, by June 30, 1998, then, in
addition to any other rights or remedies set forth in this Agreement,
Borrower shall pay to Agent a fee in the amount of $30,000.
<PAGE>
5.20 COMMITMENT LETTER FOR NEW CAPITAL. On or before July 31, 1998,
Borrower shall have delivered to Agent a commitment letter, in form and
substance satisfactory to Agent and Lenders, from the source of the New
Capital. If Agent does not receive such commitment letter, as more fully
described above, by July 31, 1998, then, in addition to any other rights or
remedies set forth in this Agreement, Borrower shall pay to Agent a fee,
which shall be fully earned and payable on such date, in the amount of
$30,000.
5.21 NEW CAPITAL. On or before August 31, 1998, the third party
source of the New Capital shall have paid the New Capital to Agent to repay
Term Loan D in full and to reduce the outstanding balance of the Revolving
Loan. If such New Capital is not paid to Agent by August 31, 1998 then, in
addition to any other rights or remedies set forth in this Agreement: (i) a
complete orderly liquidation value appraisal of Borrower's Equipment at
Borrower's expense and in form and substance acceptable to Agent shall be
completed and delivered to Agent by October 15, 1998, and (ii) effective
September 1, 1998, the Interest Rate for all Base Rate Loans and all LIBOR
Loans shall be increased by 100 basis points above the existing rate.
(b) Subsection 6.1 is amended by deleting said subsection in its
entirety and replacing it with the following:
6.1 TANGIBLE NET WORTH. Borrower shall at all times during the
periods set forth below maintain Tangible Net Worth plus Subordinated Debt
of not less than the amounts set forth opposite such periods:
Period Amount
------ ------
April 1, 1998 - June 30, 1998 $11,000,000
July 1, 1998 - July 31, 1998 $13,000,000
August 1, 1998 - August 31, 1998 $13,000,000
September 1, 1998 - November 30, 1998 $19,500,000
December 1, 1998 and at all times $20,000,000
thereafter
(c) Subsection 6.2 is amended by deleting said subsection in its
entirety and replacing it with the following:
6.2 CAPITAL EXPENDITURE LIMITS. The aggregate amount of all Capital
Expenditures of Borrower and its Subsidiaries (excluding trade-ins,
excluding Capital Expenditures in respect of replacement assets to the
extent funded with casualty insurance proceeds and excluding Capital
Expenditures that consist of commitments or contracts to make Capital
Expenditures which have not created a cash obligation so long as such
amount does not exceed $500,000 in the aggregate at any time outstanding)
will not exceed the amounts set forth below during the periods set forth
below.
2
<PAGE>
Period Amount
------ ------
For 12 month period ended $5,764,000.00
August 31, 1998
For the 12 month period commencing $2,000,000.00
September 1, 1998 and ending August
31, 1999 and all 12 month periods thereafter
In the event that Borrower or any of its Subsidiaries enters into a Capital
Lease or other contract with respect to fixed assets, for purposes of
calculating Capital Expenditures under this subsection only, the amount of the
Capital Lease or contract initially capitalized on Borrower's or any
Subsidiary's balance sheet prepared in accordance with GAAP shall be considered
expended in full on the date that Borrower or any of its Subsidiaries enters
into such Capital Lease or contract.
(d) Subsection 6.3 is amended by deleting said subsection in its
entirety and replacing it with the following:
6.3 FIXED CHARGE COVERAGE. Borrower shall not permit its Fixed
Charge Coverage to be less than (a) .75 to 1.00 for the three fiscal
quarters ending May 31, 1998, (b) 1.00 to 1.00 for the four fiscal quarters
ending August 31, 1998 and (c) 1.00 to 1.00 for each fiscal quarter
thereafter, calculated on a rolling four quarter basis.
For purposes of the covenant calculations under this subsection 6.3,
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.
(e) Subsection 6.4 is amended by deleting said subsection in its
entirety and replacing it with the following:
6.4 LEVERAGE RATIO. Borrower shall not permit its Leverage Ratio at
all times during each period set forth below to be greater than the ratio set
forth below for such period:
Period Ratio
------ -----
From September 1, 1997
through and including May 31, 1998 5.30:1.0
From September 1, 1997
through and including June 31, 1998 5.30:1.0
From September 1, 1997
through and including July 31, 1998 3.75:1.0
3
<PAGE>
From September 1, 1997
through and including August 31, 1998 3.75:1.0
On the last day of each fiscal quarter thereafter
(calculated on a rolling four fiscal quarter basis) 2.75:1.0
(f) Subsection 6.5 is amended by deleting said subsection in its
entirety and replacing it 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 (i) 1.50 to 1.00 for the three fiscal quarters ending May 31, 1998,
(ii) 1.80 to 1.00 for the four fiscal quarters ending August 31, 1998, and
(iii) 1.30 to 1.00 for each fiscal quarter thereafter, calculated on a
rolling four quarter basis.
For purposes of the covenant calculations under this subsection 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.
(g) Subsection 8.1(C) is amended by deleting said subsection in its
entirety and replacing it with the following:
(C) BREACH OF CERTAIN PROVISIONS. Failure of any Loan Party to
perform or comply with any term or condition contained in subsections
5.1(A), (B) or (C), 5.3, 5.5, 5.6, 5.18, 5.19, 5.20 or 5.21 or contained in
Section 6 or section 7; or
3. WAIVER. Agent and Lenders hereby waive the Existing Event of
Default. This is a limited waiver and shall not be deemed to constitute a waiver
of any other Event of Default or any future breach of the Agreement or any of
the other Loan Documents.
4. CONDITIONS. The effectiveness of this Amendment is subject to the
following conditions precedent (unless specifically waived in writing by Agent
and Lenders):
(a) Borrower shall have executed and delivered such other documents
and instruments as Agent may require;
(b) All 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;
(c) No Default or Event of Default other than the Existing Events of
Default shall have occurred and be continuing; and
4
<PAGE>
(d) Borrower shall have paid Agent an amendment fee in the amount of
$35,000, which shall be fully earned, due and payable and which Agent may charge
to the Revolving Loan on the date hereof.
5. CORPORATE ACTION. The execution, delivery, and performance of this
Amendment has been duly authorized by all requisite corporate action on the part
of Borrower and Corporate Guarantor and this Amendment has been duly executed
and delivered by Borrower and Corporate Guarantor.
6. 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.
7. REFERENCES. Any reference to the Agreement contained in any document,
instrument or agreement executed in connection with the Agreement, shall be
deemed to be a reference to the Agreement as modified by this Amendment.
8. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which taken
together shall be one and the same instrument.
9. RATIFICATION. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions of the
Agreement, and shall not be deemed to be a consent to the modification or waiver
of any other term or condition of the Agreement. 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.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
HELLER FINANCIAL, INC.,
as Lender and Agent
By: /s/ Venkat R. Venkatesan
-------------------------------
Venkat R. Venkatesan
Title: Vice President
UNITEL VIDEO, INC.,
as Borrower
By: /s/ Barry Knepper
-------------------------------
Title: President
R SQUARED, INC., as Corporate Guarantor
By: /s/ Barry Knepper
-------------------------------
Title: President
6
<PAGE>
Exhibit 10(cc)
UNITEL VIDEO, INC.
555 WEST 57TH STREET
NEW YORK, NEW YORK 10019
December 8, 1997
Mr. Edwin Levine
78 Kuhn Drive
Saddlebrook, NJ 07663
Dear Mr. Levine:
In recognition of the value of your services to Unitel Video, Inc.
(the "COMPANY"), the Board of Directors of the Company has determined that,
subject to the terms and conditions of this agreement (the "AGREEMENT"), you
shall be entitled to receive the severance benefits set forth below in this
Agreement in the event your employment terminates under certain circumstances in
connection with a "Change in Control" (as defined below) of the Company.
This Agreement shall commence on the date hereof and, subject to the
next succeeding sentence of this paragraph, shall continue through December 31,
1998; PROVIDED, HOWEVER, that commencing on January 1, 1999 and on each January
1 thereafter, the term of this Agreement shall automatically be extended for one
additional year unless, not later than the October 1 immediately preceding any
such January 1, the Company shall have given notice to you that it does not wish
to extend this Agreement; and FURTHER, PROVIDED, that if a Change of Control
shall have occurred during the original or extended term of this Agreement, this
Agreement shall continue in effect for a period through the day immediately
preceding the one-year anniversary date of the occurrence of such Change of
Control, but shall not thereafter be further extended. Notwithstanding the
foregoing, in the event that at any time either (i) you shall terminate your
employment with the Company for any reason whatsoever, or (ii) the Company shall
terminate your employment for any reason whatsoever, in each case other than in
the circumstances set forth in the next succeeding paragraph, this Agreement
shall terminate and shall be of no further force or effect (other than with
respect to those provisions that, by their terms, expressly survive the
termination of this Agreement).
If, during the period beginning upon the occurrence of a Change in
Control and ending on the day immediately preceding the one-year anniversary
date thereof, your employment is terminated (i) by the Company without "Cause"
(as defined below), or (ii) by you as a result of a substantial diminution of
your duties or responsibilities in effect prior to such Change of Control, or a
reduction in the base salary compensation theretofore provided to you by the
Company, then the Company shall pay to you, without regard to any applicable
principles of mitigation of damages or set off (except as expressly hereinafter
provided), an amount equal to one-half of your annual base salary as in effect
immediately prior to your termination (or, if greater, immediately prior to the
Change in Control). Such amount shall be paid to you in six monthly
installments, each as nearly equal in amount as possible, commencing on the
first day of the month immediately subsequent to the date on which your
employment shall be so terminated and ending on the first day of the sixth month
thereafter (the "LAST PAYMENT DATE") (the period commencing on the date of such
termination of employment and ending on the Last Payment Date is hereinafter
referred to as the "SEVERANCE PERIOD").
You acknowledge that, as a result of your employment, you are in a
-1-
<PAGE>
confidential relationship with the Company and have access to confidential
information and trade secrets of the Company, its subsidiaries and affiliates
(collectively, the "CONFIDENTIAL INFORMATION"). Accordingly, during your
employment and thereafter, you agree to maintain in the strictest confidence all
Confidential Information and shall not use or permit the use of, or disclose,
discuss, communicate or transmit or permit the disclosure, discussion,
communication or transmission of, any Confidential Information. This paragraph
shall not apply to (i) information that, by means other than your deliberate or
inadvertent disclosure, becomes generally known to the public, or (ii)
information the disclosure of which is compelled by law (including judicial or
administrative proceedings and legal process). In that connection, if you are
requested or required (by oral question, interrogatories, requests for
information or documents, subpoenas, civil investigative demand or other legal
process) to disclose any Confidential Information, you agree to provide the
Company with prompt written notice of such request or requirement so that the
Company may seek an appropriate protective order or relief therefrom or may
waive the requirements of this paragraph. If, failing the entry of a protective
order or the receipt of a waiver hereunder, you are compelled to disclose
Confidential Information under penalty of liability for contempt or other
censure or penalty, you may disclose such Confidential Information to the extent
so required. For purposes hereof, "Confidential Information" includes, but is
not limited to, customer and client lists, financial information, price lists,
marketing and sales strategies and procedures, computer programs, databases and
software, supplier, vendor and service information, personnel information,
operating procedures and techniques, business plans and systems, and all other
records, files, and information in respect of the Company. The provisions of
this paragraph shall survive the termination of this Agreement.
In addition, during the Severance Period you will not directly or
indirectly (i) solicit, induce or entice for employment, retention or
affiliation, or recommend to any corporation, entity or other person the
solicitation, inducement or enticement for employment, retention or affiliation
of, any employee of the Company, or any of its subsidiaries or affiliates, or
(ii) engage in any activity intended to terminate, disrupt or interfere with the
Company's or any of its subsidiaries' relationship with any customer, supplier,
lessor or other person.
In the event of the breach or a threatened breach by you of any of two
immediately preceding paragraphs, the Company's obligation to make the payments
described in this Agreement shall automatically terminate. In addition, the
Company shall be entitled to an injunction to be issued by any court or tribunal
of competent jurisdiction to restrain you from committing or continuing any such
violation without posting a bond or other security. In any proceeding for an
injunction, you agree that your ability to answer in damages shall not be a bar
or be interposed as a defense to the granting of a temporary or permanent
injunction against you. You acknowledge that the Company will not have an
adequate remedy at law in the event of any breach by you as aforesaid and that
the Company may suffer irreparable damage and injury in the event of such a
breach by you. Nothing contained herein shall be construed as prohibiting the
Company from pursuing any other remedy or remedies available to the Company in
respect of such breach or threatened breach. The provisions of this paragraph
shall survive the termination of this Agreement.
If any term or provision of this Agreement shall be held invalid or
unenforceable because of its duration, geographic scope, or for any other
reason, the Company and you agree that the court making such determination shall
have the power to modify such provision, whether by limiting the geographic
scope, reducing the duration, or otherwise, to the minimum extent necessary to
make such term or provision valid and enforceable, and such term or provision
shall be enforceable in such modified form. The provisions of
-2-
<PAGE>
this paragraph shall survive the termination of this Agreement.
For purposes of this Agreement:
(a) "Change in Control" shall mean the occurrence of any of the
following: (i) the direct or indirect sale, lease, exchange or other transfer of
all or substantially all of the assets of the Company to any "person" or "group"
(as such terms are used in Sections 13(d)(3) and 14(d)(2) of the Securities and
Exchange Act of 1934, as amended (the "EXCHANGE ACT")); (ii) the merger or
consolidation of the Company with or into another corporation with the effect
that the then existing stockholders of the Company hold less than 80% of the
combined voting power of the then outstanding securities of the surviving
corporation of such merger or the corporation resulting from such consolidation
having the right to vote in the election of directors; (iii) the replacement of
a majority of the Board of Directors of the Company (the "BOARD OF DIRECTORS")
over a two-year period from the directors who constituted the Board of Directors
at the beginning of such period, and such replacement shall not have been
approved by the Board of Directors as constituted at the beginning of such
period; (iv) a "person" or "group" (as defined above), other than an employee
stock ownership plan of the Company, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or otherwise, shall have
become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act) of securities of the Company representing 30% or more of the combined
voting power of the then outstanding securities of the Company having the right
to vote in the election of directors; or (v) the adoption by the Board of
Directors and approval by the Company's shareholders of a plan of liquidation or
dissolution of the Company.
(b) "Cause" shall mean (i) your conviction of a felony involving
moral turpitude or your conviction of any crime involving dishonesty, theft,
fraud or unethical business conduct with respect to the Company or any of its
subsidiaries; (ii) substantial and repeated failure, which is not cured within
15 days after written notice thereof to you, to perform duties and
responsibilities as reasonably and lawfully directed in good faith by the Board
of Directors; PROVIDED, that such duties and responsibilities are consistent
with your duties and responsibilities with the Company immediately prior to such
Change of Control; or (iii) any breach of the provisions of any employment
agreement, non-competition or confidentiality agreement applicable to you which
is not remedied within any cure period that may be set forth in any such
agreement (or, if no such cure period shall be set forth in any such agreement,
within 15 days after written notice thereof to you), in each case as determined
in the good faith judgment of the Board of Directors.
This Agreement is not, and shall not be construed, as an employment
agreement or arrangement between the Company, or any other entity or person, and
you, and nothing herein shall confer on you any right to continue in the employ
of the Company, or any other entity or person, or interfere in any way with the
right of the Company, or any other entity or person, to terminate your
employment for any reason whatsoever without liability therefor except as
expressly provided in this Agreement.
This Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns (including, without limitation, any
entity or person who shall acquire all or substantially all of the businesses or
assets of the Company and its subsidiaries, whether by purchase, merger,
consolidation or otherwise) and you and your heirs, legal representatives,
executors and assigns; PROVIDED, that you may not assign this Agreement without
the prior written consent of the Company.
This Agreement sets forth the entire agreement and understanding of
-3-
<PAGE>
the parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, relating to the
subject matter hereof.
This Agreement may be amended, modified, superseded, canceled, renewed
or extended, and the terms or covenants hereof may be waived, only by a written
instrument executed by both parties hereto. The failure of either party at any
time or times to require performance of any provision hereof shall in no manner
affect such party's right at a later time to enforce the same. No waiver by
either party of the breach of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as a further or continuing waiver of any such breach or
waiver of the breach of any term or covenant contained in this Agreement.
This Agreement will be governed by, and construed and enforced in
accordance with, the laws of the State of New York applicable to agreements made
and to be performed entirely within such State.
-4-
<PAGE>
Please signify your agreement to the foregoing by signing this
Agreement below and returning it to the Company.
Very truly yours,
UNITEL VIDEO, INC.
By: /s/ Barry Knepper
----------------------------------
Name: Barry Knepper
Title: Chief Executive Officer
AGREED:
/s/ Edwin Levine
- --------------------------------
Edwin Levine
-5-
<PAGE>
Exhibit 10(ee)
UNITEL VIDEO, INC.
555 WEST 57TH STREET
NEW YORK, NEW YORK 10019
December 8, 1997
Mr. Albert Walton
1040 S. Longwood Avenue
Los Angeles, CA 90019
Dear Mr. Walton:
In recognition of the value of your services to Unitel Video, Inc.
(the "COMPANY"), the Board of Directors of the Company has determined that,
subject to the terms and conditions of this agreement (the "AGREEMENT"), you
shall be entitled to receive the severance benefits set forth below in this
Agreement in the event your employment terminates under certain circumstances in
connection with a "Change in Control" (as defined below) of the Company.
This Agreement shall commence on the date hereof and, subject to the
next succeeding sentence of this paragraph, shall continue through December 31,
1998; PROVIDED, HOWEVER, that commencing on January 1, 1999 and on each January
1 thereafter, the term of this Agreement shall automatically be extended for one
additional year unless, not later than the October 1 immediately preceding any
such January 1, the Company shall have given notice to you that it does not wish
to extend this Agreement; and FURTHER, PROVIDED, that if a Change of Control
shall have occurred during the original or extended term of this Agreement, this
Agreement shall continue in effect for a period through the day immediately
preceding the one-year anniversary date of the occurrence of such Change of
Control, but shall not thereafter be further extended. Notwithstanding the
foregoing, in the event that at any time either (i) you shall terminate your
employment with the Company for any reason whatsoever, or (ii) the Company shall
terminate your employment for any reason whatsoever, in each case other than in
the circumstances set forth in the next succeeding paragraph, this Agreement
shall terminate and shall be of no further force or effect (other than with
respect to those provisions that, by their terms, expressly survive the
termination of this Agreement).
If, during the period beginning upon the occurrence of a Change in
Control and ending on the day immediately preceding the one-year anniversary
date thereof, your employment is terminated (i) by the Company without "Cause"
(as defined below), or (ii) by you as a result of a substantial diminution of
your duties or responsibilities in effect prior to such Change of Control, or a
reduction in the base salary compensation theretofore provided to you by the
Company, then the Company shall pay to you, without regard to any applicable
principles of mitigation of damages or set off (except as expressly hereinafter
provided), an amount equal to one-half of your annual base salary as in effect
immediately prior to your termination (or, if greater, immediately prior to the
Change in Control). Such amount shall be paid to you in six monthly
installments, each as nearly equal in amount as possible, commencing on the
first day of the month immediately subsequent to the date on which your
employment shall be so terminated and ending on the first day of the sixth month
thereafter (the "LAST PAYMENT DATE") (the period commencing on the date of such
termination of employment and ending on the Last Payment Date is
-1-
<PAGE>
hereinafter referred to as the "SEVERANCE PERIOD").
You acknowledge that, as a result of your employment, you are in a
confidential relationship with the Company and have access to confidential
information and trade secrets of the Company, its subsidiaries and affiliates
(collectively, the "CONFIDENTIAL INFORMATION"). Accordingly, during your
employment and thereafter, you agree to maintain in the strictest confidence all
Confidential Information and shall not use or permit the use of, or disclose,
discuss, communicate or transmit or permit the disclosure, discussion,
communication or transmission of, any Confidential Information. This paragraph
shall not apply to (i) information that, by means other than your deliberate or
inadvertent disclosure, becomes generally known to the public, or (ii)
information the disclosure of which is compelled by law (including judicial or
administrative proceedings and legal process). In that connection, if you are
requested or required (by oral question, interrogatories, requests for
information or documents, subpoenas, civil investigative demand or other legal
process) to disclose any Confidential Information, you agree to provide the
Company with prompt written notice of such request or requirement so that the
Company may seek an appropriate protective order or relief therefrom or may
waive the requirements of this paragraph. If, failing the entry of a protective
order or the receipt of a waiver hereunder, you are compelled to disclose
Confidential Information under penalty of liability for contempt or other
censure or penalty, you may disclose such Confidential Information to the extent
so required. For purposes hereof, "Confidential Information" includes, but is
not limited to, customer and client lists, financial information, price lists,
marketing and sales strategies and procedures, computer programs, databases and
software, supplier, vendor and service information, personnel information,
operating procedures and techniques, business plans and systems, and all other
records, files, and information in respect of the Company. The provisions of
this paragraph shall survive the termination of this Agreement.
In addition, during the Severance Period you will not directly or
indirectly (i) solicit, induce or entice for employment, retention or
affiliation, or recommend to any corporation, entity or other person the
solicitation, inducement or enticement for employment, retention or affiliation
of, any employee of the Company, or any of its subsidiaries or affiliates, or
(ii) engage in any activity intended to terminate, disrupt or interfere with the
Company's or any of its subsidiaries' relationship with any customer, supplier,
lessor or other person.
In the event of the breach or a threatened breach by you of any of two
immediately preceding paragraphs, the Company's obligation to make the payments
described in this Agreement shall automatically terminate. In addition, the
Company shall be entitled to an injunction to be issued by any court or tribunal
of competent jurisdiction to restrain you from committing or continuing any such
violation without posting a bond or other security. In any proceeding for an
injunction, you agree that your ability to answer in damages shall not be a bar
or be interposed as a defense to the granting of a temporary or permanent
injunction against you. You acknowledge that the Company will not have an
adequate remedy at law in the event of any breach by you as aforesaid and that
the Company may suffer irreparable damage and injury in the event of such a
breach by you. Nothing contained herein shall be construed as prohibiting the
Company from pursuing any other remedy or remedies available to the Company in
respect of such breach or threatened breach. The provisions of this paragraph
shall survive the termination of this Agreement.
If any term or provision of this Agreement shall be held invalid or
-2-
<PAGE>
unenforceable because of its duration, geographic scope, or for any other
reason, the Company and you agree that the court making such determination shall
have the power to modify such provision, whether by limiting the geographic
scope, reducing the duration, or otherwise, to the minimum extent necessary to
make such term or provision valid and enforceable, and such term or provision
shall be enforceable in such modified form. The provisions of this paragraph
shall survive the termination of this Agreement.
For purposes of this Agreement:
(a) "Change in Control" shall mean the occurrence of any of the
following: (i) the direct or indirect sale, lease, exchange or other transfer of
all or substantially all of the assets of the Company to any "person" or "group"
(as such terms are used in Sections 13(d)(3) and 14(d)(2) of the Securities and
Exchange Act of 1934, as amended (the "EXCHANGE ACT")); (ii) the merger or
consolidation of the Company with or into another corporation with the effect
that the then existing stockholders of the Company hold less than 80% of the
combined voting power of the then outstanding securities of the surviving
corporation of such merger or the corporation resulting from such consolidation
having the right to vote in the election of directors; (iii) the replacement of
a majority of the Board of Directors of the Company (the "BOARD OF DIRECTORS")
over a two-year period from the directors who constituted the Board of Directors
at the beginning of such period, and such replacement shall not have been
approved by the Board of Directors as constituted at the beginning of such
period; (iv) a "person" or "group" (as defined above), other than an employee
stock ownership plan of the Company, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or otherwise, shall have
become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act) of securities of the Company representing 30% or more of the combined
voting power of the then outstanding securities of the Company having the right
to vote in the election of directors; or (v) the adoption by the Board of
Directors and approval by the Company's shareholders of a plan of liquidation or
dissolution of the Company.
(b) "Cause" shall mean (i) your conviction of a felony involving
moral turpitude or your conviction of any crime involving dishonesty, theft,
fraud or unethical business conduct with respect to the Company or any of its
subsidiaries; (ii) substantial and repeated failure, which is not cured within
15 days after written notice thereof to you, to perform duties and
responsibilities as reasonably and lawfully directed in good faith by the Board
of Directors; PROVIDED, that such duties and responsibilities are consistent
with your duties and responsibilities with the Company immediately prior to such
Change of Control; or (iii) any breach of the provisions of any employment
agreement, non-competition or confidentiality agreement applicable to you which
is not remedied within any cure period that may be set forth in any such
agreement (or, if no such cure period shall be set forth in any such agreement,
within 15 days after written notice thereof to you), in each case as determined
in the good faith judgment of the Board of Directors.
This Agreement is not, and shall not be construed, as an employment
agreement or arrangement between the Company, or any other entity or person, and
you, and nothing herein shall confer on you any right to continue in the employ
of the Company, or any other entity or person, or interfere in any way with the
right of the Company, or any other entity or person, to terminate your
employment for any reason whatsoever without liability therefor except as
expressly provided in this Agreement.
-3-
<PAGE>
This Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns (including, without limitation, any
entity or person who shall acquire all or substantially all of the businesses or
assets of the Company and its subsidiaries, whether by purchase, merger,
consolidation or otherwise) and you and your heirs, legal representatives,
executors and assigns; PROVIDED, that you may not assign this Agreement without
the prior written consent of the Company.
This Agreement sets forth the entire agreement and understanding of
the parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, relating to the
subject matter hereof. Nothing in this Agreement shall limit your rights under
that certain Amended and Restated Agreement dated as of March 20, 1997 between
the Company and you.
This Agreement may be amended, modified, superseded, canceled, renewed
or extended, and the terms or covenants hereof may be waived, only by a written
instrument executed by both parties hereto. The failure of either party at any
time or times to require performance of any provision hereof shall in no manner
affect such party's right at a later time to enforce the same. No waiver by
either party of the breach of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as a further or continuing waiver of any such breach or
waiver of the breach of any term or covenant contained in this Agreement.
This Agreement will be governed by, and construed and enforced in
accordance with, the laws of the State of New York applicable to agreements made
and to be performed entirely within such State.
-4-
<PAGE>
Please signify your agreement to the foregoing by signing this
Agreement below and returning it to the Company.
Very truly yours,
UNITEL VIDEO, INC.
By: /s/ Barry Knepper
----------------------------------
Name: Barry Knepper
Title: Chief Executive Officer
AGREED:
/s/ Albert Walton
- --------------------------------
Albert Walton
-5-
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS
We have issued our report dated November 25, 1998, accompanying the
consolidated financial statements and schedule included in the Annual Report
of Unitel Video, Inc. on Form 10-K for the year ended August 31, 1998. We
hereby consent to the incorporation by reference of said report in the
Registration Statement of Unitel Video, Inc. on Form S-8, filed on July 15,
1986 (File No. 33-7306), the Registrant's Registration Statement on Form S-8
filed on April 20, 1987 (File No. 33-13660), the Registrant's Registration
Statement on Form S-8 filed on May 28, 1987 (File No. 33-14654) the
Registrant's Registration Statement on Form S-8 filed on February 1, 1996
(File No. 333-00613) and the Registrant's Registration Statement on Form S-3
(File No. 33-38839).
GRANT THORNTON LLP
/s/ Grant Thornton LLP
New York, New York
November 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITEL
VIDEO, INC. FORM 10-K FOR THE YEAR ENDED AUGUST 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 1,190
<SECURITIES> 0
<RECEIVABLES> 5,184
<ALLOWANCES> 400
<INVENTORY> 0
<CURRENT-ASSETS> 6,939
<PP&E> 103,361
<DEPRECIATION> 52,420
<TOTAL-ASSETS> 63,732
<CURRENT-LIABILITIES> 15,052
<BONDS> 45,598
0
0
<COMMON> 27
<OTHER-SE> 8,176
<TOTAL-LIABILITY-AND-EQUITY> 63,732
<SALES> 51,699
<TOTAL-REVENUES> 51,699
<CGS> 44,707
<TOTAL-COSTS> 44,707
<OTHER-EXPENSES> 12,709
<LOSS-PROVISION> (12)
<INTEREST-EXPENSE> 4,127
<INCOME-PRETAX> (5,372)
<INCOME-TAX> 37
<INCOME-CONTINUING> (5,409)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,409)
<EPS-PRIMARY> (2.01)
<EPS-DILUTED> (2.01)
</TABLE>
