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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[Mark one]
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) of the SECURITIES
EXCHANGE ACT OF 1934 [FEE
REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________
Commission File Number 0-19407
LASER-PACIFIC MEDIA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3824617
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
809 N. Cahuenga Blvd., Hollywood, California 90038
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (213) 462-6266
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock ($.0001 par value)
Preferred Stock ($.0001 par value)
Series A Preferred Stock
(Title of Class)
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 the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 31, 1997,(based upon the closing price on the NASDQ Small-
Cap Market System on that date was $4,455,108).
Number of shares of Common Stock, $.0001 par value, outstanding as of
March 31, 1997: 7,128,172.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Table of Contents
Page
Item 1 Business 1
Item 2 Properties 4
Item 3 Legal Proceedings 4
Item 4 Submission of Matters to a Vote of Security Holders 4
Item 5 Market for Registrant's Common Stock and Related
Security Holder Matters 5
Item 6 Selected Financial Data 6
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8 Financial Statements and Supplementary Data 10
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 10
Item 10 Directors and Executive Officers of the Registrant 32
Item 11 Executive Compensation 36
Item 12 Security Ownership of Certain Beneficial Owner
and Management 41
Item 13 Certain Transactions 43
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. 44
PART I
ITEM 1. BUSINESS
A. General
Laser-Pacific Media Corporation (LASER-PACIFIC or the COMPANY)
primarily provides post-production services to producers of prime-time
network television series and television movies made in North America.
The Company believes it is a leading provider of these services. Through its
Electronic LaboratoryTM , and other related operations the Company provides
all technical aspects of processing picture and sound after principal
photography has been completed, known as post-production. The Electronic
LaboratoryTM , for which the Company received an Emmy award in 1989 for
Outstanding Achievement in Engineering Development was the first facility
specifically designed to apply electronic post-production technology to
filmed television programs and its use has led to significant savings of time
and money for producers. The Company believes that the
Electronic LaboratoryTM , and the systems approach utilized in its
development, differentiates the Company from other film and videotape
post-production companies and has resulted in an industry model for merging
video and film technologies.
The Company offers a full range of post-production services to
television producers at its facilities in Hollywood and Burbank, California
and Vancouver, Canada. These services, which begin immediately after
completion of photography and end with the delivery of a videotape master
ready for television broadcasting, include film processing, film to
videotape transfer, electronic editing of the videotape (including the
addition of special effects and titles), color correction, sound editing and
mixing, and duplication.
The Company also developed and leases a transportable computerized
editing systems called Spectra System, which uses proprietary laser disc
technology for editing filmed or videotaped programs. In 1988, the Company
received an Emmy Award for Outstanding Achievement in Engineering Development
for the D220 dual-headed laser disc player, which is part of the Spectra System.
In addition to its primary business activities, the Company (i)
provides traditional post-production services to producers of videotaped
shows, (ii) leases mobile studio units for videotaped productions, (iii)
offers film processing and sound editing, mixing services to the producers of
theatrical motion pictures, and provides digital video compression.
Both Laser-Pacific Media Corporation (formerly Spectra Image) and
Pacific Video (which merged with the Company in September 1990) were organized
in 1983. Spectra Image began by building its post-production service
capability and facilities primarily focused on the post-production of
filmed situation comedies (sitcoms) produced for prime-time network television.
In addition, it began developing the Spectra System electronic editing
system in 1985 and introduced it in late 1986. Pacific Video, targeting
the post-production market for filmed dramatic television series,
introduced the Electronic LaboratoryTM in 1985. Both Pacific Video and Spectra
Image focused on the post-production of filmed television programs, as
approximately 80% of prime-time network television series are shot on film as
opposed to videotape. In addition, it was believed, and management still
believes, that film will remain the medium of choice for these television
programs because of viewer preference for the look of television
programming shot on film and numerous other film advantages such as lower
equipment cost, greater availability of skilled camera operators working on
film and greater portability of film cameras. Beginning in the mid-1980s,
management recognized that the Company could obtain a significant customer
base and become the leader in the post-production of filmed prime-time
network television programs by offering producers the speed and cost
advantages of electronic post-production at a fully-integrated
facility.
In January 1988, Pacific Video acquired a 75% equity interest in
Pacific Video Canada, Ltd., (PVC), formerly known as Tegra Industries,
Inc., whose film processing and post-production facilities are located in
Vancouver, Canada. Pacific Video sought a presence in the Vancouver market
because an increasing number of television producers shooting programs in
Canada intended for United States network television were having their
post-production work performed in Canada. The Company's Vancouver
presence has generated additional business for its Hollywood facilities.
At the present time, the Company owns approximately 72% of the outstanding
capital stock of PVC.
It is anticipated the future growth of the Company's business will be
the result of the expansion of its services offered to theatrical motion
picture producers, digital compression and digital video services, electronic
graphics and effects, and the continued development and enhancement of
proprietary post-production systems by its engineering staff.
B. Post-Production Services
Industry Background. Post-production services comprise all of the
technical functions and operations necessary to complete a television program
or commercial advertisement after the principal photography has been
completed. The photography is completed on film or videotape depending upon
the desired characteristics of the visual images needed for the program or
commercial. In general, movies, mini-series and dramatic shows produced
for television are shot on film. During the last 20 years, many
producers of television programming have chosen to contract for many
post-production services rather than doing the work themselves because of
the high fixed overhead cost, high level of capital investment and the
expertise required to provide quality post-production services.
Post-production services include film processing, film-to-videotape
transfer, film or videotape editing, addition of special effects, titles
and credits, addition of music and sound effects, sound mixing, color
correction and duplication of completed master videotapes. The Company
provides a full range of these post-production services to its clients.
Videotape Editing. The editing process at the Company begins with
the developed negative with respect to filmed programs and with the delivered
videotape as to shows shot on videotape, since videotape can be played back
and viewed immediately after recording without any processing.
Post production services with respect to filmed programming continue
in the Company's Electronic LaboratoryTM where the Company performs all of
the post-production services required after negative development of the
film up to the delivery of high-quality duplicates of the final
color-corrected videotape master for television broadcasting. The first
step in the Electronic LaboratoryTM process is to transfer the developed
negative images to videotape, a process called telecine, for subsequent
electronic editing and processing. In addition, the magnetic tape
containing the sound, which is recorded as the camera is capturing the
images, is converted to digital information and transferred to digital audio
cassette for synchronization to the negative. The digital audio tape is
subsequently transferred onto a computer for sound editing and mixing. See
'SOUND EDITING AND MIXING' below.
After completion of the film-to-tape transfer, the initial editing of
the videotape is usually performed at the customers premises by their
employees on electronic editing machines rented from the Company or
another manufacturer. This editing is typically called
OFFLINE EDITING and the process is performed on lower-cost recordings
which are made from the high-quality videotapes created in the film-to-tape
transfer. The offline editing uses a time-code based computer control system
to record all of the basic editing decisions.
The Spectra Systems competes with other electronic editing systems
such as Avid, Montage and Lightworks, which are in extensive use and which
are also leased by the Company's customers. The Company was awarded an Emmy
by the Academy of Television Arts and Sciences in 1987 for Outstanding
Achievement in Engineering Development for The D220 dual-headed laser disc
player, which is part of the Spectra System. This proprietary system
incorporates an edit controller, a video switcher, single and dual-headed
laser disc players, video monitors, videotape recorders, terminal equipment and
associated software.
After the completion of the offline editing process, the
resultant edit decision list is returned to the Company's facilities where
the final ONLINE EDITING is completed. The goal of online editing is to
produce a finished broadcast-quality videotape master, including all special
optical effects, titles and credits. The online editing rooms are equipped
with all of the broadcast-quality equipment needed to complete the visual
elements of a television program, and as such these rooms are expensive to
build and equip and result in a high hourly rental rate. The Company has four
online editing rooms at its Hollywood facility, four in Burbank, and two in
Canada.
In November of 1993 the Company introduced its SuperComputer
Assembly system. Installed in its Hollywood facility, the SuperComputer
Assembly system enables the Company to online assemble television
programs three to four times faster than conventional techniques. The
proprietary system has been used on dozens of series and movies for
television, reducing the Company's labor costs and providing its clients
with faster service at highest quality.
Digital Graphics and Effects. Utilizing digital workstation
technology, the Company creates and designs graphical elements, special
effects, titles and other specialized work on television and motion
pictures. The tools used have the capability of very high quality film
resolution for combining and manipulation of images digitally.
Digital Compression Services. Using SuperComputer and other
digital media technology, the Company provides digital compression and
other services which results in the creation of recordings that can be used
in CD-ROM, digital file servers and Video-on Demand applications.
Color Timing. Color timing is a post-production step which is
generally required on dramatic programs whether the program editing is done on
film or videotape. The Company has designed and assembled a customized
color timing system for final balance of color contrast and brightness
which produces cost-effective color corrections on a basis significantly
faster than the traditional film laboratory equivalent. At the present
time, the Company has three rooms equipped with electronic color
correction capabilities.
Sound Editing and Mixing. Sound editing and mixing is one of the
last steps in the post-production process. To be in a position to offer
complete post-production services and facilities to its customers, the
Company established Pacific Sound Services in September, 1989, which
provides sound editing and mixing services for both television and theatrical
motion picture producers. This is a unique all-digital, tapeless sound
editing and mixing facility includes sound studios for the original
recording of sound effects and dialogue and, for the final mixing of
complex programs shot on film and for mixing videotaped programs, plus
digital sound editing systems
Release Services. After the videotape master is in its final form
for delivery, including color correction, finished soundtrack and title
and credits, videotape copies are made in any format required for broadcast
or archival storage in limited quantities by the Company.
C. Film Production Services
Film Processing. After film photography is completed, the film
negative must be developed in a processing laboratory before it can be
exposed to light. Then, either the negative is electronically transferred
to videotape or positive film prints are struck from the developed negative
for subsequent viewing daily. Dailies are processed for delivery by early
the following day for viewing by the production staff. The acquisition of
certain assets of United Color Laboratories in 1988 enabled the Company to
expand its services and increase its operating hours and efficiency.
Pacific Film Laboratories has four negative film developing machines
with a capacity of approximately 210,000 feet of film per day. The filming of
an average one hour dramatic television show results in the exposure of
approximately 5,000 to 6,000 feet of film daily. In addition, the facility has
two positive developing machines, several negative-to-positive printers,
preparation and color value machines and other support equipment necessary to
perform the tasks required for high-quality film processing.
Alpha Cine Service, PVC's processing laboratory division, has two
negative film developing machines with a capacity of approximately 100,000
feet of film per day, In addition, the facility has one positive
developing machine, several negative-to-positive printers, preparation and
color value machines and other support equipment.
D. Production Services
A subsidiary of the Company, PDS Video Productions, Inc., leases
complete videotape production equipment to producers of television shows.
The Company's three mobile studios are typically used to record
multiple-camera sitcom shows and can be used in a studio or on location.
The Company currently provides production service to shows such as
LIVING SINGLE and HANGING WITH MR. COOPER.
E. Employees
At December 31, 1996, the Company had approximately 231 employees
(including employees of PVC). Many of the Company's employees are skilled
technicians and the Company's future success will depend, in large part,
on its ability to continue to attract, retain and motivate highly qualified
persons.
Approximately 34 employees are represented by the International
Alliance of Theatrical and Stage Employees pursuant to a collective
bargaining agreement which expires in the year 2000 (which includes a
supplemental memorandum expiring in December 1997). The Company has never
experienced a work stoppage, and considers its relations with its employees to
be excellent.
F. Competition
The Company experiences competition in all phases of its business.
Some of the Company's competitors have been in one or more of the same lines of
business for a longer period of time, have established reputations and
offer have greater financial resources than the Company.
Moreover, the Company does have a few competitors which are also fully
integrated and offer a complete range of post-production services. The
Company believes it is distinguished from its competition through the
Electronic Laboratory, which combines proprietary technology and software
with the Company's marketing and organizational approach to post-production.
There can be no assurance that the Company will be able to maintain its
competitive advantage as rapid technological change takes place.
ITEM 2. PROPERTIES
The Company owns a 29,000 square foot building located on a 39,000
square foot lot in Hollywood, California where its film processing and sound
editing and mixing services are provided. In addition, the Company leases
approximately 24,700 square feet in six buildings in Hollywood, California,
which contains its executive offices and the balance of its Hollywood
post-production facilities. Lease terms expire from 1996 through 1999,
with renewal options in most instances. The Company also leases
approximately 23,000 square feet at two locations in Burbank, California on a
month-to-month basis. The Company believes that its facilities are adequate
for its operations as now conducted and for the foreseeable future. Pacific
Video Canada owns an 11,000 square foot building in Vancouver where its
processing services are located. In addition, PVC leases approximately
12,000 square feet which contains its post-production facilities.
The Company believes that its facilities, some of which include the use
of chemical products, substantially comply with all applicable environmental
and other laws and regulations.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal matters which arise out of the
ordinary course of the Business: The Company is not involved in any legal
proceedings of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's Common Stock trades on The Nasdaq SmallCap Marketsm
tier of the Nasdaq Stock Marketsm under the symbol LPAC.
High Low
1995
First Quarter $1.5625 $0.375
Second Quarter $1.875 $1.00
Third Quarter $1.5625 $1.0625
Fourth Quarter $1.25 $0.75
1996
First Quarter $1.125 $0.625
Second Quarter $2.50 $0.6875
Third Quarter $1.625 $0.5625
Fourth Quarter $1.4375 $0.625
1997
January 1 - February 28 $0.90265 $0.53125
The Company had 262 stockholders of record on April 1, 1997. This number does
not include the several hundred stockholders holding their stock in street
name, on April 1, 1997, 3,401,000 shares were held by CEDE & Company.
The Company has never paid a cash dividend on its shares of Common
Stock and currently intends to retain its earnings, if any, for use in its
operations and the expansion of its business. Consequently, it does not
anticipate paying any cash dividends in the foreseeable future. In
addition, the Company's Credit Agreement with the CIT Group prohibit the
payment of cash dividends on its Common Stock without bank approval. The
Company does not anticipate that the restriction on the payment of cash
dividends will be eliminated in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data of the Company and its
consolidated subsidiaries for each of the last five fiscal years:
(in thousands except for per share data.)
1992 1993(1) 1994(1) 1995 1996
Statement of Operations Data:
Revenues $37,034 $30,064 $30,244 $28,693 $28,878
Operating expenses:
Direct 24,093 20,862 17,545 18,022 18,847
Depreciation and
amortization 6,842 6,464 5,295 4,983 5,318
Loss on restructuring
charge --- 2,550 --- --- ---
------ ------ ------ ------ ------
30,935 29,876 22,840 23,005 24,165
------ ------ ------ ------ ------
Gross profit 6,099 188 7,404 5,688 4,713
Selling, general and
administrative expense 6,549 6,210 4,874 4,978 4,678
Severance costs --- 1,770 --- --- ---
Write off property and
equipment --- 2,168 --- --- 148
------ ------ ------- ------- ------
Income (loss) from operations (450) (9,960) 2,530 710 (113)
Interest expense (1,702) (1,949) (1,891) (1,813) (1,563)
Other income --- 105 103 404 42
Minority interest income (loss) 92 51 (119) (59) (53)
Income tax expense --- 55 142 291 165
------ ------ ------ ------ ------
Net income (loss) before
litigation settlement (2,060) (11,808) 481 (1,049) (1,852)
Litigation settlement --- --- --- 3,209 ---
====== ====== ====== ====== ======
Net income (loss) (2,060) (11,808) 481 2,160 (1,852)
====== ====== ====== ====== ======
Net income (loss) before
litigation settlement per
common and common
equivalent share ($0.32) ($1.84) $0.07 ($0.16) ($0.26)
Net income (loss) per
common and common
equivalent share ($0.32) ($1.84) $0.07 $0.33 ($0.26)
Weighted average common and
common equivalent shares
outstanding 6,418 6,418 6,493 6,568 7,061
Balance Sheet Data:
Working capital (deficiency) ($909) ($13,951) ($6,720) ($2,099) (2,498)
Total assets 36,972 28,776 26,009 28,172 23,162
Current installments of notes
payable and long-term debt 5,258 13,235 7,746 6,521 5,278
Convertible notes payable 600 --- --- --- ---
Long-term debt, excluding
current installments 10,577 2,284 5,794 7,893 7,959
Net stockholders equity 16,597 4,789 5,298 7,458 6,101
(1) Certain prior year balances have been reclassified to conform with the
current year's presentation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
1996 Compared to 1995
Company revenues during 1996 were $28.9 million compared with $28.7
million in 1995, an increase of $185,000 or 0.6%. The increase in revenue is
comprised of an increase in Film Production Services of $355,000 an increase
of $42,000 in Post Production Service, and a decrease of $212,000 in
Production Services. The increase in revenues is a consequence of
higher levels of activity at our United States facilities where revenues
were up $420,000, an increase of 1.8%. The revenues from International
operations decreased $235,000 or 4.8%. The continued decline in Spectra
Edit System rentals was offset by increases in Film Productions Services,
Sound Services and revenues from Special Effects and Graphics.
Direct operating expenses excluding depreciation and amortization
were $18.8 million in 1996 as compared with $18.0 million in 1995, an increase
of $825,000 or 4.6%. The Company's direct operating expenses for U.S.
operations increased by $533,000 while the direct operating expenses
increased $292,000 in our international operations. The increase for both
U.S. and International operations is the result of increased labor costs. In
the U.S. the increase in labor costs was partially offset by a reduction in
health insurance costs.
Depreciation and amortization expense was $5.3 million for the year
ended December 31, 1996, compared to $5.0 million for 1995. The increase is
primarily the consequence of accelerated depreciation due to the obsolescence
of the Spectra Systems.
Consolidated gross profit was $4.7 million in 1996 as compared with
$5.7 million in 1995, a $1.0 million decrease. The Company's consolidated
total operating expenses for 1996 were $24.2 million, as compared with $23.0
million in 1995, an increase of $1.2 million or 5.2%. As a percentage of
total revenues, total operating expenses were 83.7% in 1996 versus 80.2%
in 1995. The increase is due to the combined effects of increased labor costs
and accelerated depreciation explained above.
The Company's selling, general and administrative (S,G &A) expenses
were $4.7 million during 1996 as compared to $5.0 million in 1995, a decrease
of $300,000 or 6.0%.
Other income was $42,000 in 1996 versus $404,000 in 1995. The
decrease is the result of the settlement of obligations with an equipment
supplier during 1995 where the supplier provided the Company with equipment
valued at $300,0000.
There was income resulting from a litigation settlement in 1995
of approximately $3.2. There was no revenue from litigation settlement in
1996.
In 1996, there was no provision for U.S. Federal Income Tax as a
result of the net operating loss incurred. The Income Tax expense of $165,000
in 1996 was comprised of foreign income tax expense in the amount of $160,000
relating to Canadian income tax imposed on the pre-tax income of the Canadian
subsidiary in the amount of $369,000 and State income tax expense in the amount
of $5,000 entirely composed of the minimum Franchise tax.
The Company's interest expense in 1996 was $1.6 million versus
$1.8 million in 1995.
As a consequence of the above factors, the Company reported a net
loss of $1,852,550 or a loss of $0.26 per share in 1996 versus a net loss
before litigation settlement of $1,049,000 or a loss of $0.16 per share in
1995. The net profit for 1995 after taking into consideration income resulting
from litigation settlements was $2.16 million or $.33 per share in 1995.
As of December 31, 1996, the Company has recorded net deferred tax
assets of $5.6 million and a related valuation allowance of $5.6 million (see
note 7 to the consolidated financial statements). In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
the projected future taxable income and tax planning strategies in making
this assessment. Based upon the level of historical taxable income
(losses) and projections for future taxable income over the periods in which
the deferred tax assets are deductible, management believes it is more
likely than not the Company may not realize all of the benefits of these
deductible differences.
1995 Compared to 1994
Company revenues during 1995 were $28.7 million compared with $30.2
million in 1994, a decrease of $1.5 million or 5.0%. The decrease in revenue
was comprised of an increase of $235,000 in Production Services, an increase
in Film Production Services of $434,000 and a decrease of $2,311,000 in Post
Production Service. The decline in revenues was a consequence of lower levels
of activity at our United States facilities where revenues went down $2.7
million a drop of 10.8% . This lower level of U.S. revenue was primarily
caused by increased competition. The revenues from International operations
increased $1.2 million or 27.5%. This increase in International Sales was the
result of a combination of increased motion picture and television activity
in Western Canada, partially due to the strong U.S. dollar, Pacific Video
Canada's diversification into commercial work and improvement in Pacific Video
Canada's technical facilities.
Direct operating expenses were $18.0 million in 1995 as
compared with $17.5 million in 1994, a increase of 478,000 or 2.7%. The
Company's direct operating expenses for U.S. operations remained constant
while the direct operating expenses climbed $500,000 in our international
operations. The increase in international expenses was the result of a
higher level of sales activity. U.S. operations continue to benefit from
savings brought about by the Company's 1993 restructuring.
Depreciation and amortization expense was $5.0 million for the year
ended December 31, 1995, compared $5.3 million for 1994. This reduction
was a consequence of the Company purchasing less property and equipment
during 1995 than the amount of property and equipment which became fully
depreciated during 1994.
Consolidated gross profit was $5.7 million in 1995 as compared with
$7.4 million in 1994, a $1.7 million decrease. The Company's consolidated
total operating expenses for 1995 were $23.0 million, as compared with $22.8
million in 1994, an increase of $0.2 million or 0.9%. As a percentage of total
revenues, total operating expenses were 80.2% in 1995 versus 75.5% in 1994.
The Company's selling, general and administrative (S,G &A)
expenses were $5.0 million during 1995 as compared to $4.9 million in 1994,
an increase of $.1 million or 2.0%. The increase in S,G &A in International
operations resulted from a higher level of sales activity. The increase in
S,G & A from US operations resulted from increase in salaries and a
decreases in rent, insurance and professional services.
Other income was $404,258 in 1995 versus $103,455 in 1994. The
increase was the result of the settlement of obligations with an equipment
supplier where the supplier provided the company with equipment valued at
$300,0000.
There was a litigation settlement in 1995 of approximately $3.2
million. There was no revenue from litigation settlement in the prior year.
The 1995 provision for U.S. and State income tax expense in the amount
of $48,000 was entirely composed of the alternative minimum tax. This
occurred because net operating loss carryforwards (deferred tax assets)
were utilized against U.S. pre-tax income in the amount of $1.9 million,
while full benefit of the net tax operating loss carryforwards is limited
for alternative minimum tax purposes. The foreign provision for income
tax expense in the amount of $243,000 related to Canadian income tax
imposed on the pre-tax income of the Canadian subsidiary in the amount of
$587,000.
As of December 31, 1995, the Company has recorded net deferred tax
assets of $5.0 million and a related valuation allowance of $5.0 million
(see note 7 to the consolidated financial statements). In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers the
projected future taxable income and tax planning strategies in making this
assessment. Based upon the level of historical taxable income (losses) and
projections for future taxable income over the periods in which the deferred
tax assets are deductible, management believes it is more likely than not
the Company may not realize all of the benefits of these deductible differences.
The Company's interest expense in 1995 was $1.8 million versus $1.9
million in 1994. The decrease in interest expense resulted from negotiation
of lower variable rates from the Company's principal lender and a decreases in
the prime interest rate.
As a consequence of the above factors, the Company produced a net loss
before litigation settlement of $1,049,000 or a loss of $0.16 per share in
1995 versus net income of $481,000 or $0.07 per share in 1994. The net
profit for 1995 after taking into consideration income resulting from
litigation settlements was $2.16 million or $.33 per share in 1995 compared to
a net profit of $481,000 or $.07 per share in 1994.
At December 31,1995 $1,392,000 remained of the Company's restructuring
reserve established in 1993. This amount was reserved for settlement of the
remaining lease obligations associated with the closing of the New York
facility. The obligations associated with the termination of the New York
lease were settled on January 12, 1996 at an amount approximating the reserve.
Seasonality and Variation of Quarterly Results
The Company's business is subject to substantial quarterly
variations as a result of seasonality, which the Company believes is typical
of the television post-production industry. Historically, revenues and net
income have been highest during the first and fourth quarters, when the
production of television programs and consequently the demand for the
Company's services is at its highest. Revenues have been substantially
lower during the second and third quarters, when the Company historically
has incurred operating losses.
Liquidity and Capital Resources
The Company and its subsidiaries are operating under a loan
agreement with The CIT Group/Credit Finance with a maturity date of August
3, 2000. The maximum credit under the agreement is $9 million. The
amended loan agreement provides for borrowings up to $5.4 million under
the term loan (limited to 85% of eligible equipment appraisal value) and
$3.6 million under the revolving loan (limited to 85% of eligible
accounts receivable) and at March 31, 1997, $450,000 was available. The
outstanding balance of the term loan was $4,321,000 at December 31, 1996. It
is payable in monthly installments of $106,000 plus interest at prime plus 2%
through August 3, 2000. Principal payments are not required in June, July
or August. The revolving loan had an outstanding balance of $1,673,000
million at December 31, 1996). It bears interest at prime plus 2% which is
payable monthly. The loan contains automatic renewal provisions for
successive terms of two years thereafter unless terminated as of August 3,
2000 or as of the end of any renewal term by either party by giving the other
party at least 60 day written notice.
The Company has an outstanding real estate loan with Bank of America
which was amended February 29, 1996. The loan is secured by the building where
the Company provides film processing and sound services. The loan agreement
matures December 31, 1998 with an option to extend the maturity an additional
year upon payment to the Bank of America of a $25,000 loan extension fee
prior to December 31, 1998. The outstanding balance as of December 31, 1996
was $1,507,490.
The Company's principal source of funds is cash generated by
operations. On an annual basis, the Company anticipates that existing cash
balances and availability under existing loan agreements and cash generated
from operations will be sufficient to service existing debt. Due to seasonal
variations the Company anticipates a cash shortfall in the second quarter of
1997.
As of December 31, 1996, the Company had a working capital deficiency
of approximately $2,500,000 and an accumulated deficit of approximately
$13,600,000, respectively. In addition the Company sustained a net loss of
approximately $1,850,000 for the year ended December 31, 1996. These factors,
among others indicate that the Company may be unable to continue as a going
concern. The financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern The
Company's continuation as a going concern is dependent on upon its ability to
obtain additional financing, generate sufficient cash flow to meet its
obligations on a timely basis and ultimately to attain profitable operations.
The Company is currently in negotiations with its principal lender
to restructure its term loan to provide additional financing for the next
fiscal year. Additionally, the Company is attempting to secure other
sources of financing. Management is of the opinion that the Company will be
able to meet its obligations on a timely basis and sustain operations by
obtaining such additional financing and eventually achieving profitable
operations. There is no assurance that these uncertainties will be
settled or that management's plan will be achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Page 12 for an index to all the consolidated financial statements
and supplementary financial information which are attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements and
Financial Statement Schedules
December 31, 1995 and 1996
(With Independent Auditors' Report Thereon)
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Index to Consolidated Financial Statements and
Financial Statement Schedule
Page
Consolidated Financial Statements:
Independent Auditors' Report 13
Consolidated Balance Sheets - December 31, 1995 and 1996 14
Consolidated Statements of Operations - Years Ended
December 31, 1994, 1995 and 1996 16
Consolidated Statements of Stockholders' Equity - Years
Ended December 31, 1994, 1995 and 1996 17
Consolidated Statements of Cash Flows - Years Ended
December 31, 1994, 1995 and 1996 18
Notes to Consolidated Financial Statements 20
Consolidated Financial Statement Schedule - Valuation and Qualifying
Accounts - Years Ended December 31, 1994, 1995 and 1996 31
All other schedules are omitted because they are not applicable or the required
information is shown in the Company's consolidated financial statements or the
related notes thereto.
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles CA 90017
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Laser-Pacific Media Corporation:
We have audited the accompanying consolidated financial statements of
Laser-Pacific Media Corporation and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and schedule
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 financial position of Laser-Pacific Media
Corporation and subsidiaries as of December 31, 1995 and 1996 and the results
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles. Also in our opinion, the related schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that Laser-Pacific Media Corporation will continue as a going concern. As
discussed in note 1 to the consolidated financial statements, the Company has a
working capital deficiency, an accumulated deficit and has sustained a net loss
in current year. These matters raise substantial doubt about the entity's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 1. The consolidated financial statements do
not include any adjustments that might result for the outcome of this
uncertainty.
/s/KPMG Peat Marwick LLP
Los Angeles, California
March 14, 1997
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1996
Assets 1995 1996
------------------ -----------------
------------------ -----------------
Current assets:
Cash $ 812,989 283,082
Receivables (note 6):
Trade 5,651,308 4,854,214
Other 3,027,617 289,384
------------------ -----------------
------------------ -----------------
8,678,925 5,143,598
Less allowance for doubtful receivables 853,000 810,130
------------------ -----------------
7,825,925 4,333,468
Inventory (note 6) 340,078 325,073
Prepaid expenses and other current assets 333,220 337,163
------------------ -----------------
------------------ -----------------\
Total current assets 9,312,212 5,278,786
------------------ -----------------
------------------ -----------------
Property and equipment, at
cost (note 3, 4 and 6) 41,397,806 41,941,277
Less accumulated depreciation
and amortization 23,136,835 24,708,192
------------------ -----------------
------------------ -----------------
Net property and equipment 18,260,971 17,233,085
------------------ -----------------
------------------ -----------------
Other assets, net 599,036 650,580
$ 28,172,219 23,162,451
================== =================
(Continued)
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1996
(Continued)
Liabilities and Stockholders' Equity 1995 1996
------------------ -----------------
------------------ -----------------
Current liabilities:
Current installments of notes payable
to bank and long-term debt $ 6,200,819 5,278,339
Notes payable to related parties (note 6) 320,000 ---
Accounts payable 1,059,765 1,150,661
Accrued expenses 3,058,011 1,195,766
Accrued severance (note 5) 391,451 ---
Income taxes payable 381,258 152,460
------------------ -----------------
Total current liabilities 11,411,304 7,777,226
------------------ -----------------
------------------ -----------------
Notes payable to bank and long-term
debt, less current installments (note 6) 7,892,905 7,958,554
Deferred revenue 160,123 ---
Minority interest (note 11) 1,249,559 1,325,893
Commitments and contingencies (notes 4, 6 and 10)
Stockholders' equity (notes 8 and 9):
Preferred stock, $.0001 par value. Authorized
3,500,000 shares; none issued --- ---
Common stock, $.0001 par value.
Authorized 25,000,000 shares; issued and
outstanding 6,568,172 and 7,128,172 shares
at December 31, 1995 and 1996 respectively 657 713
Additional paid-in capital 19,258,746 19,753,690
Accumulated deficit (11,801,075) (13,653,625)
------------------ -----------------
Net stockholders' equity 7,458,328 6,100,778
------------------ -----------------
$ 28,172,219 23,162,451
================== =================
See accompanying notes to consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1994, 1995 and 1996
1994 1995 1996
----------- ------------ -----------
Revenues $30,243,630 28,693,047 28,878,422
------------ ---------- ----------
------------ ---------- ----------
Operating expenses:
Direct 17,544,357 18,022,097 18,847,361
Depreciation and amortization 5,295,427 4,983,001 5,317,862
----------- ---------- ----------
22,839,784 23,005,098 24,165,223
----------- ---------- ----------
----------- ---------- ----------
Gross profit 7,403,846 5,687,949 4,713,199
Selling, general and
administrative expenses 4,874,088 4,977,824 4,677,586
Write-off of property and
equipment --- --- 148,569
------------ ----------- ----------
------------ ----------- ----------
Income from operations 2,529,758 710,125 (112,956)
Interest expense (1,890,723) (1,813,428) (1,563,559)
Litigation settlement (note 12) --- 3,208,830 ---
Other income 103,455 404,258 41,952
Minority interest in net income of
consolidated subsidiary (note 11) (119,473) (58,850) (52,987)
----------- ----------- -----------
----------- ----------- -----------
Income (loss) before income taxes 623,017 2,450,935 (1,687,550)
Income tax expense 142,000 291,000 165,000
----------- ---------- -----------
Net income (loss) $481,017 2,159,935 (1,852,550)
============ ========== ===========
Net income (loss) per common and common
equivalent shares $.07 .33 (.26)
============= ============ ==========
============= ============ ==========
Weighted average common and
common equivalent shares
outstanding 6,493,172 6,568,172 7,061,061
============= ============ =========
============= ============ =========
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1994, 1995, and 1996
Common Stock
---------------------------------------
Number of
shares Amount
------------------ ---------------
Balance at December 31, 1993 6,418,172 $642
Stock issuance in connection
with settlement of certain lease 150,000 15
Net income --- ---
------------------ ---------------
Balance at December 31, 1994 6,568,172 657
Net income
------------------ ---------------
Balance at December 31, 1995 6,568,172 657
Stock issuances and warrants 560,000 56
Net loss --- ---
------------------ ---------------
Balance at December 31, 1996 7,128,172 $ 713
================== ===============
================== ===============
Additional
paid-in Accumulated
capital deficit
------------------ --------------
Balance at December 31, 1993 19,230,636 (14,442,027)
Stock issuance in connection
with settlement of certain lease 28,110 ---
commitments
Net income --- 481,017
------------------ ---------------
Balance at December 31, 1994 19,258,746 (13,961,010)
Net income
------------------ ---------------
Balance at December 31, 1995 19,258,746 (11,801,075)
Stock issuances and warrants 494,944 ---
Net loss --- (1,852,550)
------------------ ---------------
Balance at December 31, 1996 (13,653,625) 6,100,778
================== ===============
================== ===============
Net
Stockholders'
equity
------------------
Balance at December 31, 1993 4,789,251
Stock issuance in connection
with settlement of certain lease 28,125
commitments
Net income 481,017
------------------
Balance at December 31, 1994 5,298,393
Net income 2,159,935
------------------
Balance at December 31, 1995 7,458,328
Stock issuances and warrants 495,000
Net loss (1,852,550)
------------------
Balance at December 31, 1996 6,100,778
==================
==================
See accompanying notes to consolidated financial statements.
================================================================================
================================================================================
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1995 and 1996
1994 1995 1996
---- ---- ----
Cash flows from operating activities:
Net income (loss) $481,017 2,159,935 (1,852,550)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and amortization of
property and equipment 5,295,427 4,983,001 5,317,862
Provision for doubtful accounts receivable 351,000 539,000 447,354
Write-off of property and equipment --- --- 148,569
Other (45,485) 71,751 76,334
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,009,814) (3,076,993) 3,045,103
Inventory 9,834 15,023 15,005
Prepaid expenses and other current assets 86,795 2,864 (3,943)
Other assets (91,568) 719,818 38,456
Increase (decrease) in:
Accounts payable 288,020 (2,257,842) 90,896
Accrued expenses (1,127,380) 1,662,804 (1,862,245)
Accrued severance (791,746) (461,803) (391,451)
Deferred revenue 29,994 2,000 (160,123)
Income taxes payable 62,642 318,616 (228,798)
----------- ----------- -----------
Net cash provided by operating activities 3,538,736 4,678,174 4,680,469
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (785,838) (2,114,185) (4,470,045)
Proceeds from disposal of property
and equipment 1,099,402 44,000 31,500
Purchase of subsidiary common stock --- (114,495) ---
--------- ---------- ---------
Net cash provided (used) by investing
activities 313,564 (2,184,680) (4,438,545)
--------- ---------- ----------
(Continued)
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
1994 1995 1996
------------- ----------- ----------
Cash flows from financing activities:
Repayment of notes payable to bank
and long-term debt $(3,844,047) (1,908,985) (856,831)
(Repayments) borrowings of notes
payable to related parties 100,000 (55,000) (320,000)
Proceeds from stock issuance --- --- 405,000
------------- ----------- ------------
Net cash used by financing activities (3,744,047) (1,963,985) (771,831)
------------- ----------- ------------
Net increase (decrease) in cash 108,253 529,509 (529,907)
Cash at beginning of year 175,227 283,480 812,989
------------- ---------- ------------
Cash at end of year $283,480 812,989 283,082
============= ========== ============
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Interest $1,900,000 1,800,000 1,600,000
State income taxes 1,200 1,200 1,200
========== ========== =========
Supplemental disclosure of noncash investing and financing activities.
The Company purchased property and equipment of $1,722,000 and $2,112,535
during 1995 and 1996, financed through capital lease obligations. In 1995, the
Company received equipment valued at $300,000 as settlement from an equipment
supplier.
In May , 1996 the Company converted a promissory note receivable and related
accrued interest due from PVC totaling approximately $579,000 in exchange for
526,000 shares of common stock. This transaction increased the Company's
ownership of PVC from 72% to 77%.
In 1996 the Company issued 75,000 warrants in connection with the renewal of
its credit facility. Accordingly, such warrants were accounted for as debt
issuance costs of $90,000 and will be amortized to interest expense over the
term of the related credit facility.
See accompanying notes to consolidated financial statements.
================================================================================
================================================================================
1
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995 and 1996
(1) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Laser-Pacific Media Corporation and subsidiaries(altogether, the
Company). All significant inter-company accounts and transactions have been
eliminated in consolidation.
Liquidity
The accompanying financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As shown in the
accompanying financial statements, as of December 31, 1996, the Company had a
working capital deficiency of approximately $2,500,000 and an accumulated
deficit of approximately $ 13,650,000, respectively. In addition the Company
sustained a net loss of approximately $1,850,000 for the year ended December
31, 1996. Theses factors, among others indicates that the Company may be
unable to continue as a going concern. The financial statements do not
include any adjustments that might be necessary should the Company be unable
to continue as a going concern The Company's continuation as a going
concern is dependent on upon its ability to obtain additional financing,
generate sufficient cash flow to meet its obligations on a timely basis and
ultimately to attain profitable operations.
The Company is currently in negotiations with its principal lender
to restructure its term loan to provide additional financing and is also
seeking other sources of financing for the next fiscal year. Management is
of the opinion that the Company will be able to meet its obligations on a
timely basis and sustain operations by obtaining such additional financing
and eventually achieving profitable operations. There is no assurance that
these uncertainties will be settled or that management's plan will be
achieved.
(2) Summary of Significant Accounting Policies
Depreciation and Amortization
Depreciation and amortization of property and equipment is provided by
use of the straight-line method over the estimated useful lives of the related
assets as follows:
Buildings 30 years
Building improvements 10 years
Technical equipment 4 to 7 years
Furniture and fixtures 5 to 6 years
Automobiles 3 to 5 years
Leasehold improvements Remaining life of the lease or
the estimated useful
life, whichever is the shorter
Inventory
Inventory consisting primarily of tape stock is valued at the lower of
cost (determined on the first-in, first-out basis) or market (net realizable
value).
Income (Loss) per Share
Net income (loss) per common and common equivalent shares is based
on the weighted average number of common and common equivalent shares
outstanding. The outstanding stock options and warrants are included in the
calculations when considered material and not antidilutive. Fully diluted net
loss per common and common equivalent share is not presented since the
amounts are immaterial.
Revenue Recognition
Revenues are recognized as services are performed. The Company had one
significant customer in 1994, 1995 and 1996 which accounted for approximately
16%, 11% and 16% of revenues, respectively.
Foreign Currency Translation
Assets and liabilities of the foreign operations are translated at the
rate of exchange at the balance sheet date. Expenses have been translated at
the weighted average rate of exchange during the period. Foreign currency
translation adjustments were immaterial to the accompanying consolidated
financial statements.
Credit Risk
The Company sells services to customers in the entertainment
industry, principally located in Southern California. Management performs
regular evaluations concerning the ability of its customers to satisfy their
obligations and records a provision for doubtful accounts based upon these
evaluations.
Long-Lived Assets
The Company adopted the provisions SFAS No. 121, 'Accounting for
the Implement of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of,' during 1995. This Statement requires that Long-Lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Adoption of this Statement did not have a
material impact on the Company's financial position, results of operations or
liquidity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications
Certain prior year balances have been reclassified to conform with the
current year's presentation.
Accounting for Stock Options
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board ('APB')
Opinion No. 25, 'Accounting for Stock Issued to Employees', and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted
SFAS No.123, 'Accounting for Stock-Based Compensation', which permits
entities to recognize as expense over the vesting period the fair value of
all stock-based awards on the date of grant. Alternatively, SFAS No. 123
also allows entities to continue to apply the provision of APB Opinion No.
25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995, and 1996 and
future years as if the fair-value-based method defined in SFAS No. 123 had
been applied.
The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(3) Property and Equipment
Property and equipment is comprised of the following:
1995 1996
----------------- ---------------
----------------- ---------------
Land $1,439,077 1,437,486
Buildings and improvements 4,157,341 4,226,630
Technical equipment 33,852,456 33,875,483
Furniture and fixtures 800,403 1,101,532
Automobiles 39,283 39,283
Leasehold improvements 1,109,246 1,260,863
----------------- ---------------
$41,397,806 41,941,277
================= ===============
During 1995, the Company accelerated depreciation and removed fully
depreciated property and equipment from the accounting records. This policy
resulted in a reduction of property and equipment and related
accumulated depreciation of approximately $27,600,000 as of December 31, 1995.
The Company leases technical equipment under capital leases
expiring through 2001. Equipment under capital leases aggregated
$7,377,239 and $7,950,354 and related accumulated amortization
aggregated $2,073,507 and $2,024,833 at December 31, 1995 and 1996,
respectively.
(4) Restructuring Charge
The Company recognizes restructuring charges during the period in
which liabilities are incurred or assets are impaired resulting from the
implementation of a formal restructuring plan. The amount of liabilities
incurred is estimated by management based on estimated costs to settle
such liabilities. The amount of asset impairment is measured based on
projected discounted future results using a discount rate reflecting the
Company's average cost of funds or management's estimate of recoverability
through anticipated disposal of such assets.
The Company implemented a formal plan (Plan) to close certain of its
operating facilities during 1993. In connection with these closures, the
Company recognized a restructuring charge of $2,550,000 in the 1993
consolidated financial statements. The restructuring charge primarily
included estimated losses on anticipated sale of property and equipment,
a provision for the settlement of future lease commitments and other related
closure costs.
During 1994, the Company sold certain of the related property and
equipment at auction and received net proceeds of $903,000 which were applied
to various debt obligations. In addition, the Company settled certain lease
commitments for aggregate consideration of $472,000 including the issuance
of 150,000 shares of stock plus warrants to purchase 25,000 shares of
common stock at $.50 per share. The excess of the net proceeds over the net
carrying value of the property and equipment sold as well as the excess of
the amounts provided to settle the lease commitments over the settlement
amounts was applied to the Company's restructuring reserve.
In January 1996, the Company settled lease agreements related to the
closure of its facilities for aggregate consideration of $1,375,000, which
included the issuance of 500,000 shares of the Company's common stock valued
at $.75 per share and cash consideration of $1,000,000. The Company had made
adequate provisions for these settlement costs in the 1993 restructuring charge.
Under terms of the lease settlement, the Company was required to sign a
confession of judgment in the approximate amount of $4,200,000. The
confession of judgment was held in escrow and expired January 13, 1997.
(5) Nonrecurring Costs
During 1993, the Company's former chief executive officer and
certain other employees entered into severance arrangements requiring
payments aggregating $1,770,000 through October 1996, which have been
provided in the accompanying consolidated financial statements. At December
31, 1996 the accrued severance obligation was paid in full.
(6) Notes Payable to Bank and Long-Term Debt
Notes payable to bank and long-term debt are summarized as follows:
1995 1996
------- ------
------- ------
Advances under a $9,000,000 credit agreement,
secured by eligible accounts receivable,
inventory and property and equipment, as
defined, bearing interest at the bank's prime
rate (8.25% at December 31, 1996) plus 2.0%,
expiring August 3, 2000, (1)
$2,421,100 1,672,926
Term notes payable to bank of up to $5,400,000
under the $9,000,000 credit agreement, secured
by eligible accounts receivable, inventory, and
property and equipment, as defined, and guarantees
of certain stockholders, payable in nine monthly
installments per year of $106,000 plus interest
at prime (8.25% at December 31, 1996) plus 2%
through August 3, 2000 (1)
3,842,734 4,320,894
Term note payable to bank, as amended,
secured by certain real property, payable in
monthly installments of up to $50,000 plus
interest at prime (8.25% at December31, 1996)
plus 3% through August 1996 399,904 -
Note payable to bank, secured by a first
deed on land and buildings, bearing interest
at 11.71%, interest and principal payable in
nine monthly installments per year of
$26,667 through December 31, 1998.
$2,040,826 1,507,490
Term notes payable to bank, secured by
certain property and equipment as defined,
bearing interest at 8%, payable monthly,
in arrears, with installments of $8,700
through March 31, 2004
618,645 508,941
Notes payable to related parties and
others, unsecured, bearing interest at
14%, due November 30, 1996 320,000 -
Capital lease obligations (note 10) 4,636,814 5,140,129
Other 133,701 86,513
--------- ----------
--------- ----------
14,413,724 13,236,893
Less current installments,
including loans in default of
$399,904 at December 31, 1995
and $0 at December 31, 1996 6,200,819 5,278,339
Less notes payable to related parties 320,000 -
--------- ---------
$7,892,905 7,958,554
========== =========
(1) This agreement provides for a facility fee to be paid by the
Company of $90,000 per year on each anniversary of the closing.
The aggregate future maturities of notes payable to bank and long-term
debt are summarized as follows:
December 31:
1997 $ 5,278,339
1998 3,328,672
1999 1,829,663
2000 1,723,224
2001 916,282
Thereafter 160,713
------------------
$ 13,236,893
==================
(7) Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards Board No. 109, 'Accounting for Income Taxes,' which
requires the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
A summary of taxes on income (loss) is as follows:
1994 1995 1996
---- ---- ----
Current:
Federal $ --- 35,000 ---
State --- 13,000 5,000
Foreign 64,000 348,000 166,000
------------ ------------ -----------
64,000 396,000 171,000
------------ ------------ -----------
Deferred: --- --- ---
Federal
State --- --- ---
Foreign 78,000 (105,000) (6,000)
------------ ----------- -----------
78,000 (105,000) (6,000)
------------ ----------- -----------
$142,000 291,000 165,000
============ =========== ===========
The provision for income taxes at the Company's effective tax rate
differed from the provision for income taxes at the U.S. Federal tax rate as
follows:
1994 1995 1996
---- ---- ----
Federal income tax expense (benefit) at
'expected rate' $212,000 833,000 (574,000)
Utilization of net operating loss
carryforward (116,000) (618,000) ---
Nondeductible expenses 13,000 580,000 58,000
Other (109,000) (88,000) (21,000)
State taxes, net of Federal effect --- 13,000 2,000
Impact of foreign taxation at
different rates 5,000 43,000 35,000
Minority interest 41,000 20,000 24,000
Valuation allowance for deferred
tax assets 96,000 (492,000) 641,000
------- ------- -------
$142,000 291,000 165,000
======== ======= =======
The tax effect of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 1995 and 1996 is
presented below:
1995 1996
---------- ----------
Deferred tax assets and liabilities:
Net operating loss carryforwards $4,338,000 5,378,000
Income tax credit carryforwards 783,000 773,000
Allowance for restructuring and
severance costs 687,000 ---
Reserve for bad debts 282,000 231,000
Property and equipment (1,135,000) (786,000)
Less valuation allowance (4,955,000) (5,596,000)
----------- -----------
----------- -----------
Net deferred tax assets $ --- ---
=========== ===========
At December 31, 1996, the Company had net operating loss carryforwards
for Federal and state income tax purposes of approximately $14,800,000 and
$5,400,000, respectively, which expire principally from 2003 through 2011.
The Company also has approximately $240,000 and $500,000 of unused research
and development tax credits and investment tax credit carryforwards,
respectively, expiring through 2004.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the projected future
taxable income and tax planning strategies in making this assessment. Based
upon the level of historical taxable income (losses) and projections for future
taxable income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not the Company will not
realize the benefits of these deductible differences.
(8) Stockholders' Equity
The Company has authorized 3,500,000 shares of $.0001 par value
preferred stock, and designated 1,400,000 shares as Series A preferred stock.
As of December 31, 1995 and 1996, no preferred stock was outstanding.
During 1992, the Company granted common stock warrants to purchase
64,182 shares of common stock at $2.50 per share. During 1994, the warrants
were canceled and replaced with warrants to purchase 100,000 shares of common
stock at amounts approximating the closing bid price for the Company's common
stock on the replacement date of $.563 per share. The warrants are exercisable
anytime between the third and eighth year after the closing of the agreement.
In connection with the 14% notes issued in 1993, the Company issued
warrants to purchase 257,500 shares of common stock at amounts approximating
the closing bid prices for the Company's common stock on the effective dates
of the notes. During 1994 and 1995, the Company extended the maturity dates of
these notes to August 31, 1995 and November 30, 1996, respectively. In
connection with the extensions of these notes, the Company issued warrants to
purchase an additional 160,000 shares of common stock at amounts approximating
the closing bid prices for the Company's common stock on the extension dates.
The warrants are exercisable for three years from the effective dates of
issuance at prices ranging from $.50 to $2.13 per share.
During 1994, in connection with the settlement of certain lease
commitments (note 4), the Company issued 150,000 shares of common stock and
warrants to purchase 25,000 shares of common stock at an amount approximating
the closing bid price for the Company's common stock on the date of issuance of
$.50 per share.
Proceeds from the sale of common stock issued under outstanding warrant
arrangements will be credited to common stock at the time the warrant is
exercised. The Company recorded no charges to operations with respect to these
warrants since the warrants were issued at amounts approximating fair market
value.
In January 1996 in connection with the settlement of additional lease
commitments (note 4) related to the closure of its facilities the Company
issued 500,000 shares of common stock valued at $.75 per share. In November
1996, the Company issued 60,000 shares of common stock to related parties in
exchange for $30,000.
Additionally, in June 1996 the Company issued to purchase 75,000 shares
of common stock to its principal lender in connection with a loan renewal. The
fair value of the warrants was determined in accordance with SFAS No. 123 and
was recorded as debt issuance costs.
(9) Stock Options Plans and Other Option Grants
The Company has three stock option plans which provide for 615,029 of
incentive or nonqualified stock options to officers, directors and key
employees at prices equal to or greater than the fair market value at the date
of grant.
Activity under three plans for the years ended December 31, 1995 and
1996 follows:
1994 1995 1996
---- ---- ----
Balance at beginning of year 368,658 373,908 239,650
Options granted 30,000 --- ---
Options canceled (24,750) (134,258) (40,914)
-------- --------- --------
-------- --------- --------
Balance at end of year 373,908 239,650 198,736
======= ======== ========
======= ======== ========
Price range of options outstanding at
end of year $.50 -6.00 .50 - 6.00 .50 - 6.25
========== ========== ===========
========== ========== ===========
Price of options granted
during the year $.50 --- ---
========== ========== ===========
Under all plans, all options are exercisable and 140,000 shares remained
available for future grant, at December 31, 1996.
In 1996, two new directors were granted fully vested options to purchase
10,000 shares each of common stock at a price of $0.50 per share.
(10) Commitments and Contingencies
Leases
The Company leases certain technical equipment under capital leases
that expire through 2001.
The Company also leases corporate offices, certain operating facilities
and equipment under noncancelable operating leases that expire through 1999.
The present value of future minimum capital lease payments and future
minimum lease payments under noncancelable operating leases, principally
facility leases, are as follows:
Capital leases Operating leases
------------------ ------------------
------------------ ------------------
Year ending December 31:
1997 $ 2,398,988 633,021
1998 1,651,830 550,395
1999 927,169 113,823
2000 739,233 -
2001 385,309 -
------------------ -----------------
Total minimum lease payments 6,102,529 $ 1,297,239
==================
==================
Less amount representing interest 962,400
------------------
Present value of minimum lease payments $ 5,140,129
==================
Rent expense amounted to $1,144,000, $1,127,162 and $ 924,747 for the
years ended December 31, 1994, 1995 and 1996, respectively.
Legal Matters
The Company is involved in legal matters arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of all
pending claims and legal proceedings will not have a material adverse effect on
the Company's business or financial condition.
Employment Agreements
The Company has employment agreements with certain officers that require
written notices of termination ranging from one to five years.
(11) Minority Interest in Subsidiary
In December 1995, the Company purchased 350,000 additional shares of
common stock of Pacific Video Canada Ltd. (PVC), in exchange for approximately
$114,000, thereby increasing the Company's ownership of PVC from 58% to 77%.
In May 1996, the Company converted a promissory note receivable and related
accrued interest due from PVC totaling approximately $579,000 in exchange for
526,000 shares of common stock. This transaction increased the Company's
ownership of PVC from 72% to 77% The amounts in minority interest at December
31, 1996 represent the 23% ownership of PVC's outstanding capital stock held by
the minority stockholders of PVC.
(12) Litigation Settlement
The Company was involved in a lawsuit against its former patent lawyer
and insurance carrier in connection with prior settlements of lawsuits relating
to the Company's patent for high-resolution transfer of images. This matter
was settled during the year ended December 31, 1995 resulting in a net recovery
of $3,208,830.
(13) Business Segment Data
The following table shows revenues, operating earnings (loss) and
identifiable assets by geographic segment for the years 1994, 1995 and 1996:
1994 1995 1996
------------------ ------------------ ------------------
------------------ ------------------
Revenues:
U.S. $ 26,021,487 23,309,444 23,729,024
International 4,222,143 5,383,603 5,149,398
------------------ ------------------ ------------------
$ 30,243,630 28,693,047 28,878,422
================== ================== ==================
Operating earnings (loss):
U.S. $ 1,883,336 (640,750) (569,068)
International 646,422 1,350,875 456,112
------------------ ------------------ ------------------
$ 2,529,758 710,125 (112,956)
================== ================== ==================
Identifiable assets
U.S. $ 19,671,297 21,954,986 17,188,781
International 6,337,336 6,217,233 5,973,670
------------------ ------------------ ------------------
$ 26,008,633 28,172,219 23,162,451
================== ================== ==================
(14) Accounting for Stock Based Compensation
The per share fair value of stock options granting during 1995 and 1996
ranged from $.43 to $1.20 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions:
1996 and 1995 - expected dividend yield 0%, expected volatility of 50%,
risk-free interest rate ranging from 5.2% to 6.3%, and an expected life of 4
years.
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost was recognized to the extent the exercise
price of the stock options equaled the fair value. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income (loss) and earnings
(loss) per share would have been reduced as indicated below:
- -------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1995 1996
Net Income (Loss)
- ----------------- ------- -------------------- --------------------------------
As Reported $2,159,935 $(1,858,550)
Pro forma $1,977,095 $(1,858,550)
- ----------------- ------- -------------------- ----------------------
- ----------------- ------- -------------------- ----------------------
Net Income (Loss)per share
As Reported $.33 $(.26)
Pro forma $.30 $(.26)
- ----------------- ------- -------------------- ----------------------
- ----------------- ------- -------------------- ----------------------
Weighted average common
stock and common stock
equivalents outstanding (note 1) 6,568,172 7,061,061
- ---------------------- ------- -------------------- ----------------------
Pro forma net income reflects only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income (loss) amounts
presented above because compensation cost is reflected over the options vesting
period of up to four years and compensation cost for options granted prior to
January 1, 1995 is not considered.
Further, the effects of applying SFAS No. 123, for disclosing
compensation costs may not be representative of the effects on reported net
income for future years.
(15) Pension Plan
The Company has a defined contribution Profit Sharing 401(k) Savings
Plan which covers substantially all of its employees. The plan became effective
on March 1, 1996. Under the terms of the plan, employees can elect to defer up
to 15% of their wages, subject to certain Internal Revenue Service (IRS)
limitations, by making voluntary contributions to the plan. Additionally, the
Company, at the discretion of management, can elect to match up to 100% of the
voluntary contributions made by its employees.
For the year ended December 31, 1996 the Company did not contribute to
the plan on behalf of its employees.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Schedule II
LASER-PACIFIC MEDIA CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1994, 1995 and 1996
Column A Column B Column C Column D Column E
- ----------------- -------- -------- -------- --------
Balance at Charged to Balance at
beginning costs and end of
of period expenses Deductions period
Description write-offs (1)
- ----------------- --------- -------- -------- --------
Allowance for bad debts:
1994 $441,000 351,000 (105,000) 687,000
======== ======== ======== =======
1995 $687,000 539,000 (373,000) 853,000
======== ======== ========= =======
1996 $853,000 448,000 (491,000) 810,000
======== ======== ========= =======
(1) Uncollectible accounts written off, net of recoveries.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of April 1, 1997
with respect to the members of the Board of Directors:
Director
Name Age Since Position with Company
James R. Parks (1) (3) 46 1984 Chairman of the Board and Chief
Executive Officer
Emory M. Cohen (1) (3) 54 1983 President, Chief Operating
Officer and Director
Ronald Zimmerman (2) 57 1996 Director
Cornelius P. McCarthy III(2) 37 1996 Director
(1) Includes service as a director of a predecessor corporation.
(2) Member of the Audit Committee.
(3) Member of the Stock Option Plan Committee.
Biographical Information
The following biographical information is furnished with respect to the
Company's directors:
James R. Parks was a director of Spectra Image Inc. ('Spectra Image')
from July 1984 until its merger (the 'Combination') with Pacific Video,
Inc. ('Pacific Video') to form the Company in 1990, and since then has been
a director of the Company. Mr. Parks has been Chairman of the Board and
Chief Executive Officer of the Company since March of 1994. Since 1978, Mr.
Parks has been a member of Parks, Palmer, Turner & Yemenidjian, certified
public accountants. During the last six years Mr. Parks has been actively
involved in performing financial turnarounds on various real estate
projects. As part of that activity, Mr. Parks was an officer of a corporation
that was co-general partner of several limited partnerships owning real
estate which filed for reorganization under Chapter 11 of the Federal
Bankruptcy Law. All of the partnerships filing pre-1995 Chapter petitions have
been reorganized and emerged from Chapter 11. In 1995, a partnership in
which Mr. Parks was an officer of the corporate general partner and which
held real property, filed for reorganization under Chapter 11. In 1996,
the reorganization was dismissed and the Property was sold. Mr. Parks was
a director of Olympic National Bank ('ONB'), which went into receivership
with the FDIC. The assets of ONB were subsequently sold to Western Bank, a
Los Angeles based financial institution.
Emory M. Cohen is the Company's President and Chief Operating
Officer and a director and has held such positions since the Combination.
Previously, he was President and Chief Operating Officer of Pacific Video
from May 1983 until the Combination. From 1963 until February 1978, Mr.
Cohen was employed by Glen Glenn Sound, a leading motion picture and
television sound recording company. He served in many different
capacities at Glen Glenn Sound. From 1974 to 1978, he held the position of
Vice President-Operations. In 1978, he joined Compact Video, where he
became Group Vice President-Service Companies, as well as President of
Compact Video Services, Inc. and of Image Transform, Inc., both Compact Video
subsidiaries. Mr. Cohen received a motion picture Academy Award in 1978
for inventing a system that applies electronic and videotape technology to
motion picture post-production sound recording and an Emmy Award in 1989 in
connection with the Company's Electronic Laboratory.
Ronald Zimmerman has served as a director of the Company since
October 1996. Mr. Zimmerman is a self-employed financial advisor and
businessman. From 1986 to 1994 he served as Director, Senior Vice President
and Chief Financial Officer of the Todd-AO Corporation.
Cornelius P. McCarthy III has served as a director of the Company
since October 1996. Since December, 1996, Mr. McCarthy has been employed
as an investment banker with Pennsylvania Merchant Group, Ltd. as Senior
Vice President. Mr. McCarthy has served in similar capacities with Laidlaw
and Company, November, 1993 to December, 1996, McCarthy and Company
(January 1993 to November 1993) and Kemper Securities (1988-1992). Mr.
McCarthy currently serves on the Boards of Directors of Bonded Motors, Inc. and
Phoenix International Life Sciences, Inc.
No family relationships exist between any of the officers or directors
of the Company.
EXECUTIVE OFFICERS
Officers are appointed by the Board of Directors of the Company.
Information with respect to Messrs.. James R. Parks (chairman of the Board
and Chief Executive Officer) and Emory M. Cohen (President and Chief
Operating Officer) is set forth above. Information with respect to Leon D.
Silverman, Robert McClain and Randolph D. Blim is set forth below:
Name Age Position with Company
Leon D. Silverman 42 Executive Vice President
Randolph D. Blim 50 Senior Vice President
Robert McClain 49 Chief Financial Officer
Vice President and Secretary
Leon D. Silverman has served as Executive Vice President since the
Combination. He was Pacific Video's Vice President of Marketing and Sales
from 1982 until the Combination. Previous to joining Pacific Video, he was
Director of Marketing and Sales at Compact Video Services, Inc., a
subsidiary of Compact Video. Mr. Silverman is a Founding Member of the
Technology Council of the Television and Motion Picture Industry and currently
serves as Secretary of its Executive Committee. In addition, he currently
serves on the Board of Directors of the International Teleproduction
Society.
Randolph D. Blim has been the Senior Vice President of Engineering
since the Combination. He was Vice President of Engineering for Pacific
Video and Pacific Video Industries, Inc. (a predecessor company of Pacific
Video) from 1972 until the Combination. During the period 1982-1984 Mr.
Blim served as a consultant to the American Broadcasting Company providing
design services for the 1984 Los Angeles Summer Olympic Games. From 1969
to 1972 he was employed by ABC, working on special camera and engineering
projects for ABC's Wide World of Sports. From 1966 to 1969 he was Director
of Engineering for TelWest Productions, and Seros Mobile Videotape
Productions, both television facilities companies. Mr. Blim was awarded an
Emmy in 1989 for Outstanding Achievment in Engineering Development in
connection with the Company's Electronic Laboratory.
Robert McClain became Chief Financial Officer in November 1994. He
was employed by Arthur Andersen and Co. from 1975 through 1978. He was a
Senior Accountant and a Certified Public Accountant when he left. He was
employed at TRE Corporation, a diversified manufacturing company, from 1978
through 1987 where he served in various capacities ranging from Director of
Taxation and Insurance to Assistant to the CEO, leaving when TRE was
acquired by ALCOA Aluminum Corp. He was employed by Memtech Technology Corp.,
a manufacturer of computer memory, as General Manager and CFO from 1987
through 1991 and by Betson Pacific, a video game developer and distributor,
as CFO and Director of Operations from 1992 through November 1994 when he
left to join Laser-Pacific. Mr. McClain is a Director of the Orange County
Chapter of the American Red Cross.
BOARD OF DIRECTORS
Committees
The Company has two standing committees of the Board of Directors, the
Audit Committee and the Stock Option Plan Committee. The Audit Committee
met once during 1994 and once in March 1996. The principal duties of the
Audit Committee are to approve selection and engagement of independent
auditors and review with them the plan and scope of their audit for each year,
the results of such audit when completed and their fees for services
performed. Mr. Zimmerman and Mr. McCarthy became members of the Audit
Committee in November of 1996, and are currently the sole members of the Audit
Committee.
The principal duty of the Stock Option Plan Committee is to administer
the Company's stock option plan. James R. Parks and Emory M. Cohen are
the sole appointed members of this committee. The Stock Option Plan Committee
did not meet in 1996.
Attendance and Compensation
During the year ended December 31, 1996, the Board of Directors of
the Company met ten times. Each of the directors attended at least 90% of
all of the meetings of the Board of Directors. Directors who are not officers
or employees of the Company receive $1,000 per month.
Delinquent Filings
Based solely on a review of forms 3 and 4 and any amendments thereto
furnished to the Company pursuant to Rule 16a-3 (e) under the Securities
Exchange Act of 1934, or representations that no Forms 5 were required, the
Company believes that with respect to fiscal 1995, its officers, directors
and beneficial owners of more than 10% of its equity timely complied with
all applicable Section 16 (a) filing requirements, with the following
exceptions:
Mr. McCarthy and Mr. Zimmerman did not timely file Form 3 upon being
appointed to the Board of Directors in October of 1996, and did not timely
file Form 4 upon the issuance of options in November of 1996. The delinquent
reports were filed on April 3, 1997.
Item 11. EXECUTIVE COMPENSATION
Under rules adopted by the Securities and Exchange Commission
(the 'SEC') in October 1992, the Company is required to provide certain data
and information relating to the compensation and benefits provided to the
Company's chief executive officer and the four other most highly compensated
executive officers of the Company at the end of 1996, a report furnished by
the Company's Board of Directors regarding executive compensation, and
certain information regarding the performance of the Company's Common Stock.
Report of the Board of Directors on Executive Compensation
The Board of Directors is responsible for reviewing benefits and
compensation for all of the Company's officers. The Board's executive
compensation policies are designed to enhance the financial performance of
the Company, and thus stockholder value, by significantly aligning the
financial interest of the key executives with those of stockholders
The executive compensation program is viewed in total
considering all of the component parts: base salary and long-term
incentive
compensation in the form of restricted stock awards and stock options.
In evaluating the performance and setting the base salary and incentive
compensation of the executive officers, the Board considers, in the
aggregate, the following factors: industry factors, taking into account
compensation paid by competitors and the amount required to be paid by the
Company to retain key employees, the progress made by the Company in the
growth of business, performance of the Company's stock and the Company's
overall financial performance
The Board of Directors did not award any performance bonuses for the
fiscal year ended December 31, 1996.
Following is a summary of the current compensation of the Chief
Executive Officer of the Company and the four other most highly compensated
executive officers of the Company.
James R. Parks is currently employed by the Company at an annual
salary of $208,000. Mr. Parks is not employed pursuant to a written
agreement, but serves at the discretion of and on terms determined by the Board
of Directors.
Emory M. Cohen has a five-year employment agreement with the Company,
entered into as of May 15, 1990, which has no termination date but is
terminable upon five years' written notice or upon 30 days notice for cause,
as defined. Under the terms of the agreement, Mr. Cohen is entitled to a
minimum annual salary of $350,000, subject to adjustment if the cost of living
increases more than 10 percent in any year, with a bonus in an amount
to be determined by the Board of Directors, and he is entitled to other
specified benefits such as an automobile, reimbursement of expenses, and
health, life and disability insurance. In the event of a change in control of
the Company, Mr. Cohen shall be entitled to a lump sum payment of three
times his annual compensation or if he is terminated other than for
specified reasons or if he terminates his contract within nine months of
such event.
Leon D. Silverman is employed by the Company at a current annual
salary of $215,000, and is entitled to other specified benefits such as an
automobile allowance, reimbursement of expenses, health, life and
disability benefits. Mr. Silverman currently has no written agreement
with the Company and serves at the discretion of the Board of Directors.
Randolph D. Blim is employed by the Company pursuant to the terms of a
three-year employment agreement entered into as of July 24, 1995. The
agreement expires on July 23, 1998 if the executive is given written notice
120 dates prior to date of termination. If the 120 day written notice is
not given by either party at the end of the current three year term and in all
subsequent years the agreement will be renewed for one additional
year. The agreement is terminable upon 30 days notice for cause as defined.
Mr. Blim is entitled to a minimum annual salary of $189,000 with
required minimum yearly increases of 3% over the term of the agreement, with
an annual bonus in an amount to be determined by the Board of Directors.
He is also entitled to other specified benefits such as an automobile
allowance, reimbursement of expenses, health, life and disability benefits.
Robert McClain is employed by the Company at a current annual salary
of $145,000 and is entitled to specified benefits such as an automobile
allowance, reimbursement of expenses, health, life and disability benefits.
Mr. McClain is employed under a letter of agreement with the Company and
serves at the discretion of the Board of Directors
The SEC requires public companies to state their
compensation policies with respect to recently enacted federal income tax
laws that limit to $1,000,000 the deductibility of compensation paid to
executive officers named in the proxy statement of such companies. In light
of the current level of compensation of the Company's named executive
officers, the Board of Directors of the Company has not adopted a policy with
respect to the deductibility limit, but will adopt such a policy should it
become relevant.
SUBMITTED BY THE BOARD OF DIRECTORS
OF LASER-PACIFIC MEDIA CORPORATION
James R. Parks, Chairman Emory M. Cohen
Ronald Zimmerman Cornelius P. McCarthy III
================================================================================
SUMMARY COMPENSATION TABLE
================================================================================
Annual Compensation
-------------------------------------------
(a) (b) (c) (d) (e)
Other
Name Annual
and Compen-
Principal sation
Position Year Salary ($) Bonus ($) ($)
James R. Parks 1994 168,000 -0- -0-
CEO 1995 208,000 -0- -0-
1996 208,000 -0- -0-
Emory M. Cohen 1994 292,100 -0- 7,338
President 1995 317,577 -0- 21,965
1996 * 410,002 -0- 17,394
Gregory L. Biller 1994 195,000 -0- 2,134
Vice Chairman of the 1995 180,000 -0- 19,738
Board (Retired 3/31/96) 1996 * 39,067 -0- * 107,000
Leon D. Silverman 1994 175,223 -0- 11,227
Vice President 1995 215,000 -0- 72,427
1996 * 244,372 -0- 9,868
Randolph D. Blim 1994 157,937 -0- 6,192
Vice President 1995 178,519 -0- 3,562
1996 * 244,462 -0- 4,753
Robert McClain 1994 13,781 -0- -0-
Vice President, CFO 1995 134,483 -0- 8,919
1996 153,464 -0- 13,349
* Includes repayment in 1996 of voluntary payroll deferrals in 1993,
1994, and 1995.
Awards Payouts
----------------------------------------
(f) (g) (h) (i)
Name Restricted Securities All Other
and Stock Underlying LTIP Compen-
Principal Award(s) Options Payouts sation
Position ($) ($) ($)
James R. Parks 1994 -0- -0- -0- -0-
CEO 1995 -0- -0- -0- -0-
1996 -0- -0- -0- -0-
Emory M. Cohen 1994 -0- -0- -0- -0-
President 1995 -0- -0- -0- -0-
1996 -0- -0- -0- -0-
Gregory L. Biller 1994 -0- -0- -0- -0-
Vice Chairman of the 1995 -0- -0- -0- -0-
Board (Retired 3/31/96) 1996 -0- -0- -0- -0-
Leon D. Silverman 1994 -0- -0- -0- -0-
Vice President 1995 -0- -0- -0- -0-
1996 -0- -0- -0- -0-
Randolph D. Blim 1994 -0- -0- -0- -0-
Vice President 1995 -0- -0- -0- -0-
1996 -0- -0- -0- -0-
Robert McClain 1994 -0- -0- -0- -0-
Vice President, CFO 1995 -0- -0- -0- -0-
1996 -0- -0- -0- -0-
* Includes repayment in 1996 of voluntary payroll deferrals in 1993,
1994, and 1995.
- -----------------------------------------------------------------------------
The following Performance Graph compares
the Company's cumulative total shareholder return on its Common Stock for
the period starting January 1, 1992 to December 31, 1996, with the cumulative
return of the Standard and Poor's Stock Index and a peer group of companies,
the Standard andPoor's Entertainment Index, neither of which include the
Company. The Performance Graph assumes $100 invested on January 1, 1992 in the
Company's Common Stock, the S&P 500 Index and the S&P Entertainment Index.
- ------------------------------------------------------------------------------
Company/Index Dec92 Dec93 Dec94 Dec95 Dec96
- -------------------------- --------- ---------- --------- ---------- ----------
Laser-Pacific Media Corp. -10.71 -82.02 33.45 0.00 -16.67
S&P Entertainment-500 43.00 15.58 -4.62 20.14 1.53
S&P 500 Index 7.62 10.08 1.32 37.58 22.96
Base
Period
Company/Index Dec91 Dec92 Dec93 Dec94 Dec95 Dec96
- --------------------------- ------- ------- -------- -------- ------- --------
Laser-Pacific Media Corp. 100 89.29 16.06 21.43 21.43 17.86
S&P Entertainment-500 100 143.00 165.28 157.64 189.40 196.30
S&P 500 Index 100 107.62 118.46 120.03 165.13 203.05
Stock Options
In April 1985, Spectra Image adopted a ten-year employee stock
option plan which provided for the grant to executive officers and key
employees of options qualified under the Internal Revenue Code of 1986, as
amended ('incentive stock options') to purchase up to 300,000 shares of
common stock at an exercise price not less than the fair market value of the
common stock on the date of grant. In connection with the Combination,
outstanding options under the plan became exercisable into shares of Common
Stock of the Company. This plan terminated April, 1995, 89,531 options to
purchase common stock remain outstanding as of December 31, 1996.
In June 1987, Pacific Video adopted a nine-year stock option plan
providing for the issuance of options to officers, directors and key employees
to acquire up to an aggregate of 165,029 shares of Common Stock pursuant to
incentive or non-qualified stock options. The exercise price of all options
granted under the plan was required to be not less than the fair market
value on the date of grant. In connection with the Combination,
outstanding options under the plan became exercisable into shares of Common
Stock of the Company. This plan terminated April, 1996, 69,206 options to
purchase common stock remain outstanding as of December 31, 1996.
In September 1990 in connection with the Combination, the Board of
Directors of the Company adopted the 1990 Stock Option Plan which provides for
the issuance of incentive or non-qualified stock options. An aggregate of
150,000 shares of Common Stock were initially reserved for grant under the Plan
to officers, directors and key employees of the Company. The exercise price
of a stock option granted under the plan may not be less than the fair market
value of the underlying shares on the date of the grant; options may be
granted for a term of up to 10 years. Under the terms of the Plan,
participants may receive options to purchase Common Stock in such amounts
and for such prices as may be established by the stock option plan committee
(the 'Plan Committee'); provided, however, that the exercise price of a
stock option granted under the Plan may not be less than the fair market value
of the underlying shares on the date of grant. The options may be granted
for a term of up to 10 years.
The Plan provides that the aggregate fair market value (determined at the
time the option is granted) of the Common Stock with respect to which
incentive stock options are exercisable for the first time by an optionee
during any calendar year shall not exceed $100,000. All options
granted under the Plan are nontransferable during the optionee's lifetime,
but are transferable at death unless otherwise determined by the Plan Committee.
Options granted terminate within a specified period of time following
termination of an optionee's employment with the Company, not to exceed 30
days. The Board of Directors may amend the Plan and, with the consent of each
affected optionee, the option agreements; provided, however, that certain
changes may only be made with the approval of the Company's stockholders.
Item 12. Security Ownership of Certain Beneficial Owners
The following table sets forth information with respect to those
persons known by the Company to own beneficially more than 5% of the Company's
common stock as of April 1, 1997. Except as otherwise noted, and subject to
applicable community property and similar laws, each person listed has sole
voting power (if applicable) and investment discretion with respect to the
securities shown as beneficially owned.
Name and Address Amount and Nature of Percent of
Of Beneficial Owner Beneficial Ownership(1) Class(1)
John Paul De Joria 606,000 7.6%
2745 S. Buffalo
Las Vegas, Nevada 89117
Robert E. Seidenglanz (2) (3) (5) 983,563 12.3%
9831 Civic Center Drive, Suite 103
Beverly Hills, California 90210
James R. Parks (3) (4) (5) 458,403 5.7%
1990 South Bundy Drive
Los Angeles, California 90025
304 E. 45th Associates 500,000 6.3%
C/O Williams Real Estate Company, Inc.
530 5th Avenue
New York, New York 10036
McCrae Holdings Inc. 512,993 6.4%
C/O Chemical Bank
270 Park Avenue
New York, New York 10017
(1) For the purposes of calculating each person's percentage and that of
all officers and directors as a group, shares which may be acquired within
60 days upon the exercise of warrants, stock options have been treated as
outstanding.
(2) Includes 111,111 shares issuable upon the exercise of outstanding
stock options and 55,000 shares beneficially held by Mrs. Seidenglanz for
which Mr. Seidenglanz disclaims control.
(3) With respect to Mr. Parks, the number of shares in the table does not
include 502,960 shares held as pledgee by 35 Lake Avenue (a limited
partnership which is affiliated with Mr. Parks) which is the assignee of
Olympic National Bank, under a pledge given by Mr. Seidenglanz to secure
obligations under a note in favor of the bank in which the current amount due
is approximately $150,000. Mr. Seidenglanz is presently in default under
the note. The pledge agreement permits pledgee to register the shares in its
name and exercise voting rights prior to foreclosure. Mr. Parks disclaims
beneficial ownership with respect to the 502,960 excluded shares.
Accordingly, the 502,960 shares remain included in the amount of shares
reported as beneficially owned by Mr. Seidenglanz.
(4) Includes 344,590 shares of Common Stock held by partnerships in which
Mr. Parks is a partner and 37,500 shares issuable upon the exercise of
outstanding warrants held by partnerships in which Mr. Parks is a partner.
(5) Includes 91,351 shares transferred to Mr. Parks by Mr. Seidenglanz
under a letter of agreement in settlement of professional fees. The shares
have been removed from Mr. Seidenglanz' total and added to Mr. Parks' total.
At April 1, 1997, the shares had not been transferred. Mr. Seidenglanz has
stated that he also transferred 100,000 shares to his attorney. The
100,000 shares have been removed from Mr. Seidenglanz's total even though
the shares had not been transferred at April 1, 1997.
Security Ownership of Management
The following table sets forth information with respect to the
beneficial ownership of the Company's common stock as of April 1, 1997 by all
the Company's directors and the Company's chief executive officer and the
four other most highly compensated executive officers of the Company at the
end of 1996. Except as otherwise noted, and subject to applicable community
property and similar laws, each person listed has sole voting power (if
applicable) and investment discretion with respect to the securities shown as
beneficially owned. An asterisk (*) denotes beneficial ownership of less than
1%.
Name and Address Amount and Nature of Percent of
Of Beneficial Owner Beneficial Ownership(1) Class(1)
Randolph D. Blim (2) 40,387 *
Emory M. Cohen (3) 203,900 2.6%
James R. Parks (4) (5) (6) 458,403 5.7%
Leon D. Silverman (7) 59,425 *
Cornelius McCarthy (8) 10,000 *
Robert McClain (9) 30,000 *
Ronald Zimmerman (10) 10,000 *
All Directors and Officers
as a Group 812,115 10.18%
(7 persons) (11)
(1) For purposes of calculating each person's percentage, shares which may
be acquired within 60 days upon exercise of warrants or stock options have
been treated as outstanding.
(2) Includes 29,527 shares issuable upon exercise of stock options
(3) Includes 58,249 shares issuable upon exercise of stock options
(4) Includes 344,590 shares of Common Stock held by partnerships
in which Mr. Parks is a partner and 37,500 shares issuable upon the
exercise of outstanding warrants held by partnerships in which Mr. Parks is a
partner.
(5) With respect to Mr. Parks, the number of shares in the table does not
include 502,960 shares held as pledgee by 35 Lake Avenue (a limited
partnership which is affiliated with Mr. Parks) which is the assignee of
Olympic National Bank, under a pledge given by Mr. Seidenglanz to secure
obligations under a note in favor of the bank in which the current amount due
is approximately $150,000. Mr. Seidenglanz is presently in default under
the note. The pledge agreement permits pledgee to register the shares in its
name and exercise voting rights prior to foreclosure. Mr. Parks disclaims
beneficial ownership with respect to the 502,960 excluded shares.
Accordingly, the 502,960 shares remain included in the amount of shares
reported as beneficially owned by Mr. Seidenglanz.
(6) Includes 91,351 shares transferred to Mr. Parks by Mr. Seidenglanz
under a letter of agreement in settlement of professional fees. The shares
have been removed from Mr. Seidenglanz' total and added to Mr. Parks' total.
At April 1, 1997, the shares had not been transferred.
(7) Includes 48,565 shares issuable upon exercise of stock options
(8) Includes 10,000 shares issuable upon exercise of stock options.
(9) Includes 30,000 shares issuable upon exercise of stock options.
(10)Includes 10,000 shares issuable upon exercise of stock options.
(11) Includes 186,341 shares issuable on exercise of stock options and
37,500 shares issuable upon exercise of warrants.
Item 13. CERTAIN TRANSACTIONS
James R. Parks, Chairman of the Board and Chief Executive Officer of
the Company, is a member of Parks, Palmer, Turner & Yemenidjian (PPTY), an
accounting firm, which provides tax accounting and management consulting
services to the Company. PPTY's billings for the year ended December 31, 1996
were approximately $39,000. Mr. Parks purchased 60,000 shares of
Laser-Pacific Common Stock from the company in November 1996 at $.50 per
share. The shares purchased are subject to 144 Trade Restrictions. On the
date of the transaction, the last trade on NASDAQ was at $.75.
In 1993, the Company borrowed amounts ranging from $100,000 to $225,000
from Delores C. Biller, wife of Gregory R. Biller and from Partnerships in
which Mr. Parks was a partner. Each of the borrowings was evidenced by a
promissory note which provided that the borrowings were to be fully repaid
on or before March 31, 1994, and until fully repaid, each of the borrowings
would accrue interest at the rate of 14% per annum payable quarterly. During
1994, and 1995, the loans were partially repaid and to the extent not repaid
were extended to August 31, 1995, and again to November 30, 1996. All notes
were fully repaid in 1996. As additional consideration for making and then
extending the loans, the Company granted warrants to purchase the Company's
Stock at prices ranging from $.50 to $1.6888 per share. In total, the
participants were issued 352,500 warrants. None of the warrants have
been exercised. As of April 1, 1997, 282,500 warrants had expired only
70,000 are exersiable.
In connection with Gregory L. Biller's retirement on March 31, 1996 the
Company entered into a settlement agreement with Mr. Biller for any and all
claims he may have had against the Company. Mr. Biller was paid $75,000
as of the date of the agreement and an additional $100,000 in October
1996. The Company had previously accrued $150,000 for past due wages. These
amounts included any and all payments made for past due wages, reimbursement
of interest charges for the delayed sale of real estate caused by his
guarantee to the Bank of California and any emotional distress and suffering.
Due to the nature of the payments they are not included as compensation on the
summary compensation table.
In April 1993 the Company retired debentures payable to Gregory L.
Biller and PPTY in the principal amounts of $500,000 and $100,000 respectively.
Bank of California, a lender to the Company, brought suit against Mr. Biller
and PPTY alleging that Mr. Biller and PPTY had executed agreements
subordinating their respective right to the repayment of principal amount
of the debentures to repayment to the Bank of California's loan to the
Company. In 1994 the Bank of California obtained a summary judgment against
Mr. Biller in the amount of $500,000. PPTY believed that they were not parties
to the subordination agreement andthat they had a valid cause of action
against Bank of California. In March 1995, after extensive negotiations
the Company amended its loan agreement with Bank of California. As part of the
renegotiation of the loan agreement with the Bank of California, Bank of
California agreed to drop its suit against PPTY and not to enforce its
judgment against Mr. Biller on the condition that PPTY waive any cause of
action against the Bank of California and that the Company continue to timely
perform its obligations under the renegotiated loan agreement. In the event
Bank of California were ever to enforce its judgment against Mr. Biller, it
is likely that Mr. Biller would have a right of subrogation against the
company. The Company had outstanding borrowings aggregating $400,000 at
December 31, 1995 with the Bank of California under an amended loan agreement.
The loan is secured by certain real property, payable in monthly installments
of up to $65,000 plus interest at prime plus 3%. The loan was paid in full as
of August, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1 and 2. Financial Statements and Financial Statement Schedules:
These documents are listed in the Index to the Consolidated Financial Statements
and
Financial Statement Schedules.
3. Exhibits:
3.1 Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment to Certificate of Incorporation of
the Company filed August 29, 1990. (2)
3.3 Certificate of Amendment to Certificate of Incorporation of
the Company filed August 14, 1991. (4)
3.4 By-Laws of the Company. (1)
4.1 Form of Common Stock Certificate. (2)
10.1 1990 Stock Option Plan. (1)
10.5 Employment Agreement dated as of May 15, 1990 between the
Company and Emory Cohen. (1).
10.7 Credit Agreement dated as of September 28, 1990 between the
Company and The Bank of California, N.A., as amended by the First Amendment to
Credit Agreement dated as of October 12, 1990 and as further amended by the
Second Amendment to Credit Agreement dated as of June 3, 1991. (1)
10.7A Letter of Agreement dated August 7, 1991 between the Company
and The Bank of California, N.A., further amending the Credit Agreement
filed as Exhibit 10.7. (3)
10.7B Commitment Letter dated April 8, 1992 from The Bank of
California, N.A. (4)
10.7C Fourth Amendment to Credit Agreement Signed on June 18,
1992. (5)
10.7D Fifth Amendment to Credit Agreement Signed July 31,
1992. (5)
10.7E Amended and Restated Credit Agreement between the Company and
The Bank of California dated March 1, 1995. (Filed herewith)
10.8 CIT Credit Agreement signed on August 3, 1992. (5)
10.8A Amended Loan Agreement between CIT and the Company dated
April 12, 1995. (7)
10.8B Amended Loan Agreement between CIT and the Company dated
June 6, 1996. (Filed herewith)
10.9 Opinions of Cooper & Dunham, patent counsel to the Company,
dated June 4, 1991 and June 6, 1991. (2)
10.10 Lease Agreement dated as of May 14, 1987 by and between the
Company and Morton La Kretz, Trustee, Cross Roads Trust, UTD April 28, 1982.(2)
10.11 Lease Agreement dated as of July 18, 1983 by and between the
Company and Title House. (2)
10.12 Lease Agreement dated as of February 13, 1984 by and between
the Company and Morton La Kretz, Trustee, Cross Roads Trust, UTD April 28,
1982. (2)
10.13 Robert E. Seidenglanz Employment Severance Agreement signed
October 20, 1993. (6)
10.14 Bank of America Amended Loan Agreement dated February 29,
1996. (7)
10.15 Employment Agreement dated as of July 24, 1995 between the
Company and Randolph Blim. (7)
10.16 Settlement Agreement between 305 E. 45th Associates and the
Company dated January 12, 1996. (7)
10.17 Settlement Agreement between the Company and Gregory L.
Biller dated March 31, 1996. (Filed Herewith)
22.1 List of Subsidiaries. (4)
24.4 Consent of Cooper & Dunham, patent counsel (4).
(1) Previously filed on June 7, 1991, with the Company's
Registration Statement on Form S-1 (File No. 33-41085)
(2) Previously filed on July 23, 1991, with the Company's
Registration Statement on Form S-1 (File No. 33-41085)
(3) Previously filed on August 8, 1991, with the Company's
Registration Statement on Form S-1 (File No. 33-41085)
(4) Previously filed on April 10, 1992 with the Company's
Form 10-K.
(5) Previously filed on August 12, 1992 with the Company's
Form 10-Q.
(6) Previously filed May 13, 1994 with the Company's Form 10-Q.
(7) Previously filed April 14, 1996 with the Company's Form 10K.
(b Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the
last quarter of the period covered by this report.
SIGNATURES
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, in the City of
Los Angeles, State of California, on April 2, 1996.
LASER-PACIFIC MEDIA CORPORATION
By: /s/ James R. Parks
James R. Parks
__________________
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
Title Date
/s/ James R. Parks
James R. Parks Chairman of the Board and April 2, 1996
Chief Executive Officer (Principal
Executive Officer)
/s/ Emory M. Cohen
Emory M. Cohen President, Chief Operating
Officer and Director April 2, 1996
/s/ Robert McClain
Robert McClain Vice President and Chief
Financial Officer April 2, 1996
/s/ Cornelius P. McCarthy III
Cornelius P. McCarthy III Director April 2, 1996
April 10, 1997
Laser-Pacific Media Corporation
Laser Edit Inc.
Laser Edit East, Inc.
PDS Video Productions, Inc.
Spectra Film Laboratories, Inc.
Pacific Video, Inc.
809 North Cahuenga Blvd.
Los Angeles, California 90038
RE: Loan and Security Agreements with The CIT Group/Credit Finance, Inc.
Gentlemen:
Reference is made to your respective Loan and Security Agreements wherein each
of you is a 'Borrower' and the CIT Group/Credit Finance, Inc. Is the 'Lender',
all of which Loan and Security Agreements are dated August 3, 1992 (the
'Agreements'). Lender and each Borrower have agreed to amend the Agreements as
follows:
1. The last sentence of Section 5.2 or each Agreement is hereby amended
to read as follows:
'In computing interest charges, the loan account of Borrower
maintained by Lender will be credited with remittances and other payments three
(3) business days after Lender's receipt of advice from its Bank that such
remittances and other payments have been credited to Lender's account at
Lender's Bank.'
2. Section 6.11 of each Agreement is hereby amended in its entirety to
read as follows:
'If the net worth (in accordance with GAAP and as otherwise
determined by CIT) of Borrower and its Affiliates, as reported monthly to CIT,
falls below $4,000,000.00, interest on all unpaid Obligations including,
without limitation, any and all Term Loans, shall accrue at the rate equal to
0.5% per annum in excess of the interest rate otherwise payable by Borrower.
If the net worth equals or exceeds $4,000,000.00 in any month, interest on all
unpaid Obligations shall accrue at the contractual interest rate.'
3. Section 6.12 (c) is hereby amended to add the following to the
parenthetical:
'and provided Borrower is not in default to Lender, other than
scheduled interest payments pursuant to a promissory note executed by Borrower
in favor of James Parks and/or Parks, Palmer, Turner and Yeminidjian;'
Page 2 of 4
4. Section 7.1 (b) is hereby amended to delete Robert Seidenglanz,
Gregory Biller and Ralph Walters and add James Parks and Robert McClain.
5. Section 9.1 of each Agreement is hereby amended to read as follows:
'This Agreement shall continue in full force and effect through
August 1997 and shall be deemed automatically renewed for successive terms of
two (2) years thereafter unless terminated as of August 3, 1997 or as of the
end of any renewal term (each a 'term') by either party giving the other
written notice at least sixty (60) days prior to the end of the then-current
Term.'
6. Section 9.2 of each Agreement is hereby amended to read as follows:
'(a) one percent (1%) of the Maximum Credit if termination occurs
during the current Term or any renewal term of the Agreement.'
7. Section 10.1 (a) of each Agreement is hereby amended to decrease the
Maximum Credit from $13,000,000.00 to $9,000,000.00.
8. Section 10.1 (e) of each Agreement is hereby amended to decrease the
Minimum Borrowing from $5,000,000.00 to $4,000,000.00
9. Section 10.4 (a) of each Agreement is hereby amended to read as
follows:
'(a)(1) Interest Rate for Revolving Loans:
Prime Rate plus 2.0% over a 360-day year
(a)(2) Interest Rate for Term Loan:
Prime Rate plus 3% (to be reduced to 2% on May 1,
1995) over a 360-day year'
10. Section 10.4(b) of each Agreement is hereby amended to read as follows:
'(b) Facility Fee:$90,000.00
11. Section 10.5 (a), (b) and (c) are hereby deleted in their entirety.
This shall also conform that since Laser Edit East, Inc.; has disposed of all
its assets and is now a 'shell' corporation, Lender has no further obligation
to advance to Laser Edit East, Inc.
Page 3 of 4
If there shall be any conflict between the terms and provisions of the
Agreements and this letter agreement, the terms and provisions of this letter
agreement shall govern. In all other respects, the terms and provisions of the
Agreements remain in full force and effect.
If all of the foregoing correctly sets forth our understanding, will each of
you please sign a copy of this letter where indicated below and return the
original of this document to the undersigned.
Very truly yours,
The CIT Group/
Credit Finance, Inc.
Gregory Badura
Vice President
All of the foregoing is hereby agreed to.
Laser-Pacific Media Corporation Laser Edit, Inc.
By By
Title Title
PDS Video Productions, Inc. Spectra Systems, Inc.
By By
Title Title
Pacific Film Laboratories, Inc. Pacific Video, Inc.
By By
Title Title
Page 4 of 4
Laser Edit East, Inc.
Now known as American Food Distribution Company
PDS Video Productions, Inc. Spectra Systems, Inc.
By
Title
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
The Settlement Agreement and Mutual Release (hereinafter 'the Agreement') is
entered into as of March 31, 1996 between Laser-Pacific Media Corporation
('Laser-Pacific'), on the one hand, and Greg Biller ('Biller') on the other
hand (both of whom are collectively referred to herein as 'the Parties').
WHEREAS, Biller asserts, among other things, that he suffered
emotional distress as a result of the wrongful termination and unauthorized
reduction of pay as a result of his employment from Laser-Pacific;
WHEREAS, Laser-Pacific disagrees with Biller's assertions;
WHEREAS, Laser-Pacific and Biller in the interests of compromising the
foregoing dispute and avoiding the expense of litigating such dispute, desire
to settle their dispute before any lawsuit is filed;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
agreements, and conditions contained herein, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the Parties agree as
follows:
1. Mutual Release
(a) Subject to the rights and obligations created by this
Agreement, Biller, on behalf of himself and his successors, assigns, agents,
partners, attorneys, officers, directors, employees, representatives, and
affiliated entities, whether now existing or hereafter created, release and
discharge Laser-Pacific and its respective successors, assigns, agents,
partners, attorneys, officers, directors, employees, representatives, and
affiliated entities, whether now existing or hereafter created, from
any and all claims, demands, liability, obligations, expenses (including,
without limitation, attorneys' fees), causes of action, and rights, whether now
known unknown, suspected or unsuspected, which exists, existed, or may exist or
have existed at any time through the date of execution of this Agreement.
(b) Subject to the rights and obligations created by this
Agreement, Laser-Pacific, on behalf of itself of its respective successors,
assigns, agents, partners, attorneys, officers, directors, employees,
representatives, and affiliated entities, whether now existing or hereafter
created, release and discharge Biller, and his respective successors, assigns,
agents, partners, attorneys, officers, directors, employees, representatives,
and affiliated entities, whether now existing or hereafter created, from any
and all claims, demands, liability, obligations, expenses (including, without
limitation, attorneys' fees), causes of action, and rights, whether now known
or unknown, suspected or unsuspected, which exist, existed or may exist or have
existed at any time through the date of execution of this Agreement.
(c) The foregoing mutual releases extend to all rights or
the releasor under Section 1542 of the California Civil Code and any similar
law or rules of any state, jurisdiction, or territory, which are hereby
expressly waived and shall not be raised by each of the Parties.
California Civil Code Section 142 provides:
'A general release does not extend to claims which the creditor does
not known or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his settlement
with the debtor.'
Each of the Parties represents that he or it understands the meaning
and effect of California Civil Code Section 1542, and that he or it has had the
opportunity to consult with legal counsel, or has actually consulted legal
counsel, regarding such meaning and effect.
2. Payment to Biller
Without any admission of liability, Laser-Pacific shall, upon full
execution and this Agreement and approval by Laser-Pacific's Board of
Directors, pay Biller One Hundred Seventy-Five Thousand Dollars ($175,000) for
the emotional distress he allegedly suffered. Seventy-Five Thousand Dollars
($75,000) is acknowledged as received by Biller on signing this agreement and
the balance of One Hundred Thousand Dollars ($100,000) shall be payable
on October 1, 1996.
3. Covenant Not to Sue and Dismissal
The Parties represent and warrant to each other that they are aware of
no other party having any interest, nor have they assigned, hypothecated, or
otherwise transferred any interest, in the claim or claims which are the
subject of this Agreement, and each party hereby agrees to indemnify and hold
harmless the other party or parties from any and all liabilities, claims,
demands, obligations, damages, costs, expenses and attorneys' fees as a result
of anyone asserting such interest, assignment, hypothecation or transfer.
4. Representations and Warranties
(a) The Parties represent and warrant to each other that
they are aware of no other party having any interest, nor have they assigned,
hypothecated, or otherwise transferred any interest, in the claim or claims
which are the subject of this Agreement, and each party hereby agrees to
indemnify and hold harmless the other party or parties from any and all
liabilities, claims, demands, obligations, damages, costs, expenses and
attorneys' fees as a result of anyone asserting such interest, assignment,
hypothecation or transfer.
(b) Biller warrants and represents that he believes that the
allocation of the payment set forth in paragraph 2 is accurate, fair, and
warranted by the facts known to the Parties of the date of this Agreement.
Based thereon, Laser-Pacific represents that it is not necessary to issue a
'Form 1099' with respect to said payment. Biller agrees to be responsible for
the payment of any taxes, interest, fees, costs, or penalties which may be
assessed as a direct result of any determination by the Internal Revenue
Service that all or a portion of the payment under paragraph 2 is taxable, and
agrees to indemnify and hold harmless Laser-Pacific against any such taxes,
interest, fees, costs or penalties.
5. Costs and Attorney's Fees
(a) Except as set forth in paragraph 5(b), each party hereto
will bear his or its own attorneys' fees and costs arising out of or related to
the claims released and associations herein and no further claim shall be made
therefor.
(b) If any legal action is brought to enforce or for the
breach of this Agreement, the prevailing party in such legal action shall be
entitled to his or its reasonable attorneys' fees in addition to any of relief
to which he or it is legally entitled.
6. Confidentiality
The Parties shall not disclose the contents of this
Agreement, its existence, or the fact of settlement of the Action, except as
may be necessary for tax purposes or as otherwise required by law. Nor shall
the Parties issue or cause to be issued publicly any of the terms of this
Agreement, its existence, or the fact of settlement of this Action.
7. General Provisions
(a) This Agreement is a compromise of the dispute between
the parties and should not be treated as an admission of liability by any party
for any purpose.
(b) No supplementation, modification, waiver or termination
of this Agreement shall be binding unless executed in writing by the party to
be bound thereby. No waiver of any other provisions hereof, whether or not
similar, not shall such waiver constitute a continuing waiver. The parties
hereto may amend or modify this Agreement in such a manner that may be agreed
upon by written instruments executed by such Parties.
(c) Each of the Parties hereto agrees to execute and deliver
all such other documents and instruments as may be necessary and appropriate to
effectuate, and memorialize the terms and understandings hereof.
(d) this Agreement may be executed in counterparts and, as
so executed, shall constitute one agreement binding on all Parties.
(e) This Agreement shall inure to the benefit of and shall
be binding upon the respective successors and assigns of each of the Parties
hereto.
(f) This agreement shall be deemed to be made under, and
shall be interpreted in accordance with, the laws of the State of California.
(g) The Parties to this Agreement have read and understand
this Agreement. The Parties to this Agreement mutually warrant and represent
that they have received independent advice of their attorneys with respect
hereto, and that this Agreement is executed voluntarily and without duress or
undue influence on the part of or on behalf of any party hereto.
(h) Biller is informed and consents to the multiple representation by
Parks, Palmer, Turner & Yemenidjian of himself and Laser-Pacific Media
Corporation.
Dated: ___________________________ GREG BILLER
Dated: ___________________________ LASER-PACIFIC MEDIA CORPORATION
_______________________
James R. Parks, CEO
