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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-23388
VIDEO SERVICES CORPORATION
(formerly, International Post Limited)
(Exact name of registrant as
specified in its charter)
DELAWARE 13-3735647
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 Pegasus Avenue
Northvale, New Jersey 07647
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (201) 767-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
(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 disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405) 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 [X].
The aggregate market value of the registrant's common stock, par value
$.01 per share, held by persons other than affiliates of the registrant, as of
September 30, 1997, was approximately $13,443,829.
The number of outstanding shares of the registrant's common stock, par
value $.01 per share, as of September 30, 1997, was: 13,238,307.
DOCUMENTS INCORPORATED BY REFERENCE:
None
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PART I
Certain statements contained in this Annual Report on Form 10-K are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are thus prospective. These statements are
generally (but not necessarily) preceded or followed by, or include, such words
as "believes," "expects," "anticipates" or similar expressions. Such statements
reflect management's current views, are based on many assumptions, including,
but not limited to, that no significant changes will occur in the operating
environment of the Company, and are subject to risks, uncertainties and other
factors which could cause these statements to differ materially from what
actually occurs. The Company may execute new agreements, terminate existing
agreements or enter into new financing arrangements that may affect the accuracy
of these statements. Other important factors that could cause results to differ
materially from current views include, but are not limited to, the general
performance of the economy, specifically as it affects the advertising,
entertainment and television and video industries; the international economic
and political climate which could impact the sale of domestic programming
overseas; significant changes in video technology in the post-production, video
and communications industries; the loss of key personnel; and the loss of key
customers. None of these events can be predicted with certainty and,
accordingly, are not taken into consideration in the making of the
forward-looking statements contained herein. Readers are cautioned to carefully
consider such factors. There is no assurance that the assumptions used are
necessarily the most likely to occur. The Company does not assume any obligation
to update any forward-looking statement to reflect actual results, changes in
assumptions or changes in other factors affecting such statement.
ITEM 1. BUSINESS.
BACKGROUND
International Post Limited, a Delaware corporation ("IPL"), was formed in
October 1993 to own and operate, through its subsidiaries, the businesses
previously conducted by Manhattan Transfer/Edit Company ("MTE Co.") and Audio
Plus Video International, Inc. ("Audio Plus Video"). IPL acquired the business
of MTE Co. immediately prior to, and in connection with, the consummation of its
initial public offering in February 1994 pursuant to a transaction in which (i)
the general partners of MTE Co. received additional shares of common stock, $.01
par value per share (the "Common Stock"), of IPL in exchange for their
partnership interests in MTE Co. and (ii) the assets and liabilities of MTE Co.
were contributed to Manhattan Transfer/Edit, Inc., a newly-formed subsidiary of
IPL ("Manhattan Transfer"). IPL used a portion of the proceeds from the offering
to acquire, simultaneously with the consummation of the offering, all of the
outstanding capital stock of Audio Plus Video from subsidiaries of Video
Services Corporation, a privately-held New Jersey corporation ("Video").
Video was incorporated in 1979 to service select segments of the video
industry which its founders, Louis H. Siracusano, Arnold P. Ferolito and Martin
Irwin, had identified as being under-serviced. Originally, Video focused its
efforts on building advanced video systems and providing professional video
equipment to particular segments of the television and professional video
services industries. Over the years, Video identified additional market segments
which it believed presented opportunities for significant revenue growth and its
lines of business gradually expanded to include post-production and standards
conversion, as well as satellite and fiber optic transmission services. In 1992,
Video divested itself of its post-production business, which divestiture
resulted in the formation of IPL in 1993. In February 1994, Video sold its
standards conversion business to IPL in connection with IPL's initial public
offering and used the sale proceeds to repay indebtedness and to expand certain
business segments, particularly satellite and fiber optic transmission services.
After such sale, Video owned approximately 3% of IPL's outstanding Common Stock.
In May 1995, IPL acquired (the "PE Acquisition") all of the outstanding
shares of common stock of The Post Edge, Inc., a Florida corporation ("Post
Edge"). In connection with such acquisition, the Company also acquired (i) all
of the outstanding shares of common stock of Interactive Edge, Inc., a Florida
corporation, and (ii) approximately 67% of the outstanding shares of common
stock of Edge Communications, Inc., a Florida corporation, from certain of the
shareholders of Post Edge.
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In addition, in May 1995, IPL acquired (the "BP/ET Acquisition") all of the
outstanding shares of common stock of Even Time Ltd., a New York corporation
("ET"), and 85% of the outstanding shares of common stock of The Big Picture
Editorial, Inc., a New York corporation ("BP"). In July 1995, IPL acquired the
remaining 15% of the outstanding shares of common stock of BP pursuant to its
rights under a certain Put/Call Agreement entered into in connection with the
BP/ET Acquisition.
On January 22, 1997, Cognitive Communications, LLC, a Delaware limited
liability company ("CCL") and a majority-owned subsidiary of IPL, purchased
substantially all of the operating assets of Cognitive Communications, Inc.
("CCI"), a corporation principally engaged in providing strategic consulting
services in the area of communications and content strategy for, and research
relating to the implementation of, and the design and production of, intranets
and internets, for an aggregate purchase price of $600,000. IPL (and now the
Company) owns 97.4% of CCL and the remaining interests are owned by two former
stockholders of CCI. The two former stockholders of CCI and a former employee of
Manhattan Transfer, each now a current employee of CCL, have options to
purchase, in the aggregate, an additional 23% membership interest in CCL in the
event of IPL's transfer of its membership interest in CCL. Such persons also
hold options to purchase additional membership interests in CCL which are
exercisable if CCL meets certain financial targets.
On August 27, 1997, Video merged with and into IPL, with IPL being the
surviving corporation, and the separate corporate existence of Video ceased (the
"Merger"). The Merger was accounted for as a reverse acquisition whereby the
pre-Merger financial statements of Video became the historical financial
statements of the Company after the Merger. At the effective time of the Merger,
IPL's name was changed to Video Services Corporation and The Nasdaq National
Market symbol for the Common Stock was changed to "VSCX." An aggregate of
7,223,445 shares of Common Stock, representing approximately 54.6% of the
outstanding shares of Common Stock immediately after the Merger, were issued to
Video's stockholders in the Merger (such amount included 212,096 shares of
Common Stock which were issued to replace an equal number of shares of Common
Stock owned by Video which were canceled upon the Merger). At the effective time
of the Merger, Mr. Siracusano, Video's Chairman, President and Chief Executive
Officer became the Company's President and Chief Executive Officer.
The following describes the business of the Company after consummation of
the Merger. Unless the context indicates otherwise, all references herein to the
"Company" refer to IPL and its subsidiaries and Video and its subsidiaries as
combined as a result of the Merger.
OVERVIEW
The Company is a leading provider of value-added video services to a diverse
base of customers within the television network, cable and syndicated
programming markets. These services include (i) the commercial integration and
distribution of broadcast quality video content via a satellite and fiber optic
transmission network routed through its digital/analog switching center and (ii)
the design, engineering and production of advanced digital and analog video
systems for the television, cable, post-production and corporate markets as well
as the rental of professional video equipment to the sports, entertainment and
other segments of the broadcast and cable television and professional markets.
The Company is a leading single source provider of satellite and fiber optic
video transmission services in the New York metropolitan area and one of the
largest independent (i.e., not affiliated with, or related to, an equipment
manufacturer) providers of technical services and equipment to its target
markets. The Company believes that it will continue to experience increasing
demand for its engineering services as a result of the anticipated conversion of
existing television and cable facilities due to emerging compression
technologies and an increasing demand for programming content worldwide.
In addition the Company is a leading international provider of technical and
creative services to owners, producers and distributors of television
programming, television advertising and other programming content. The Company
provides (i) producers of original programming with technical and creative
services necessary to transform original film or video to final product for
airing on network, syndicated, cable or foreign television; (ii) users of
special video effects with services required to digitally create or manipulate
images in high resolution formats for integration into television commercials
and programming; (iii) international programmers with studio facilities and
multi-standard post-production services necessary to assemble programming; and
(iv) international programmers and owners of television and film libraries with
standards conversion, network playback, and duplication and audio services, all
in multiple standards and formats. The Company's
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services also include the design and production of intranets and internet sites,
as well as consulting and support services related to those technologies. The
Company believes that its principal strengths in these areas include the depth
and breadth of its client relationships, the depth and continuity of its
creative talent, and its technologically advanced equipment and facilities.
Demand for the Company's post-production services and facilities is
principally derived from the production of new television commercials and the
distribution of previously released motion pictures and television programming
through international syndicators and programmers. Historically, the Company's
post-production clients have outsourced their post-production services
requirements, and the Company expects that such clients will continue to
outsource many of the services required for production, post-production and
distribution of film and television programming. The Company believes that
demand will also be created by the continuing trend toward globalization in the
entertainment and media industries. The worldwide market penetration of
distribution channels such as home video and digital satellite broadcast is also
anticipated to contribute to a growing demand for original and reissued
programming.
BUSINESS STRATEGY
The Company intends to continue Video's business strategy of capitalizing on
opportunities created by changes in technology and markets, as well as to become
the leading supplier of services to the market segments in which it currently
competes. Video developed good customer relationships with all of the major
television networks and many of the established and developing cable networks by
maintaining high levels of technical capabilities and customer service. For
example, AT&T's SKYNET Satellite Services acknowledged Video's satellite uplink
performance in 1996 by presenting Video with the prestigious SKYNET Uplinker
Award, which is awarded to companies that have accessed AT&T satellites without
any interferences, incidents or procedure violations over a period of one year.
The Company believes that it will be able to continue to grow the businesses
previously operated by Video by selling additional services to existing
customers and by acquiring new customers as a result of its technological
capabilities, strong reputation and aggressive sales force.
The Company is also focused on capitalizing on opportunities created by
emerging industry trends such as the emergence of digital television and its
more advanced variant, high-definition television; the proliferation of
alternative transmission/distribution methods such as direct-to-home satellite
services, multipoint microwave systems and the internet; and the conversion of
existing television facilities from analog to digital and from videotape-based
to digital server-based technologies. The Company believes that the continued
proliferation of new distribution technologies, as well as the industry wide
conversion of equipment and systems from analog to digital, will create an
increasing demand for technical expertise and resources which can be outsourced
by the end-user. The Company believes that the aggressive timetable associated
with such conversion, which has resulted both from recent mandates by the
Federal Communications Commission (the "FCC") for digital television and
high-definition television as well as competitive forces in the marketplace, is
likely to accelerate the rate of increase in the demand for these services. As a
result, the Company believes that significant opportunities exist for it to
provide services for the upgrading and conversion of the industry's technical
infrastructure.
Prior to the Merger, Video had implemented several strategies for
capitalizing on these growth opportunities, including the expansion of its
engineering staff to meet market demand, the introduction of additional
services, such as repair and maintenance contracts, and, most important, the
negotiation and implementation of strategic partnerships to position itself as a
leader in the conversion to digital television and high-definition television.
In April 1997, Video executed a memorandum of understanding with one of the
nation's largest manufacturers of television transmitters, Comark
Communications, Inc. ("Comark"), relating to the proposed formation of a
strategic alliance to create a turnkey system for the broadcasting industry's
conversion to digital television and high definition television. In June 1997,
A.F. Associates, Inc., one of Video's subsidiaries, signed a contract with
Comark Digital Systems pursuant to which it is engineering and building new
digital master control and studio facilities for two analog television stations
owned by Sinclair Communications, Inc. in Birmingham, Alabama and Milwaukee,
Wisconsin. The Company believes that this alliance will provide technological
leadership for broadcasters in the conversion process.
In addition, the Company intends to continue IPL's strategy of seeking to
become the leading full-service post-production house for the United States and
international markets and to continue to seek new ways to enhance its ability to
provide one-
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stop post-production services while maintaining the high quality of such
services. Through a series of strategic acquisitions, IPL grew from a single
post-production house in New York City into an all inclusive operation comprised
of four divisions with facilities in three states. The Company plans for further
growth and the expansion of its range of post-production and other services
through strategic acquisitions and internal growth. Historically, IPL invested
significant sums in its infrastructure to ensure that each of its divisions
remained at the technological forefront of the post-production industry.
The Company's success will depend in part upon whether the integration of
IPL's and Video's businesses is accomplished in an efficient and effective
manner, and there can be no assurance that this will occur. There can be no
assurance that such integration will be accomplished smoothly or successfully.
The integration of certain operations following the Merger will require the
dedication of management resources which may temporarily distract attention from
the day-to-day business of the combined company. The inability of management to
integrate the operations of IPL and Video successfully could have a material
adverse effect on the Company.
PRINCIPAL SERVICES
Satellite and Fiber Optic Transmission Services
Through two of its operating subsidiaries, Atlantic Satellite
Communications, Inc. ("Atlantic Satellite") and Waterfront Communications
Corporation ("Waterfront"), the Company provides integrated satellite and fiber
optic video and data transmission services to a wide range of customers with
whom it had enjoyed long-term relationships, including the major television
broadcast networks and certain cable television networks, independent national
and international television stations and producers of syndicated television
shows. Satellite and fiber optic transmission services are used by these
customers independently and in combination to integrate editing and transmission
of video content as quickly as possible. The Company's use of fiber optic and
satellite technologies enables it to provide its customers with rapid and
reliable transmission of broadcast quality video content with a high level of
flexibility. The Company believes that, in the New York metropolitan area,
Atlantic Satellite is a leading single source provider of satellite and related
transmission services and that Waterfront is the leading provider of "first
mile" and "last mile" fiber optic video and data transmission services. "First
mile" transmission services are services whereby content is transmitted from an
origination point, via local transmission means, to a long distance video
network carrier (such as VYVX or AT&T) or satellite earth station (such as
Atlantic Satellite) and "last mile" transmission services are services whereby
content is received into, via local transmission means, the final destination
point for the content (such as a television network, local broadcaster or cable
channel). Atlantic Satellite's teleport facilities provide customers with access
to the full complement of satellite and fiber optic transmission services
provided by Atlantic Satellite and Waterfront.
Atlantic Satellite's teleport facility is located on contiguous properties
in Northvale, New Jersey and Tappan, New York. This facility contains broadcast
quality satellite dishes, which transmit and receive domestic feeds in both
C-Band and KU Band frequencies, and provides international transmission to both
PanAmSat and Orion satellites. At this facility, Atlantic Satellite provides
primary up-link and down-link services, as well as ancillary services such as
tape playback and recording, tape duplication, syndication services (including
spot insertion and editing), and digitally compressed satellite transmission
expertise. Atlantic Satellite provides over 3,000 hours per year of playback and
uplink services for pre-taped, syndicated television programs produced by
Universal Pictures, Warner Brothers, Hearst and 20th Century Fox. It also
downlinks and records numerous live sporting events for clients such as the
National Hockey League (NHL) and provides satellite transmission services for
clients such as Fox Sports, NHK, NFL Films and Phoenix Communications Group Inc.
("Phoenix"), which is the communications/production provider for Major League
Baseball.
Waterfront's services are provided through a video switching facility
located in New York City which is connected to all major news organizations and
all New York area teleports including Atlantic Satellite's. Waterfront's
extensive network of both analog and digital video fiber optic connections and
multiple paths to Atlantic Satellite enable domestic and international
broadcasters to take advantage of the Company's single source transmission
services at competitive rates. The Company believes that Waterfront's
fully-manned facility provides it with a competitive advantage over its major
competitor, "The Switch" (operated by Keystone), which does not provide the same
level of service. Waterfront's fiber optic connections are located in local
venues such as the New York Stock Exchange and the United Nations in New York
City, as well as
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Giants Stadium, the Continental Airlines Arena and the Meadowlands Racetrack in
New Jersey. These fiber optic connections enable Waterfront's customers to
transmit video content directly from those venues to their studios or,
alteratively, to Atlantic Satellite for national and international distribution.
In addition to local fiber optic transmission and connections to Atlantic
Satellite's transmission facility, Waterfront provides its customers with access
to several long-distance fiber optic carriers through its remote facility
located in downtown Manhattan. Waterfront also provides transportable services,
including point-to-point microwave transmission, transportable up-link and
down-link transmission, and broadcast quality teleconference services, as well
as access to other teleport facilities. The Company believes that Waterfront's
switching facility is the largest such facility in the New York metropolitan
area and that Waterfront's connections to major events and sports venues within
the New York metropolitan area provide clients with extensive and essential
coverage.
The Company believes that its ability to combine "first mile" and "last
mile" fiber optic transmission and satellite transmission services provides it
with a competitive advantage over providers of satellite-only transmission
services. These integrated capabilities offer broadcasters, cable television
networks and others the ability to edit news, sports and other video content in
their Manhattan studios (which are linked to Waterfront) and, after alteration,
to transmit that content anywhere in the world almost instantaneously through
the Waterfront/Atlantic Satellite fiber optic link. The Company believes that
the combined services provided by Atlantic Satellite and Waterfront have
achieved a reputation for quality and reliability in the industry, which has
resulted in contracts with Fox News, Fox Sports, Court TV, PanAmSat, CNBC,
MS/NBC, the NHL and Worldwide Television Network.
However, the success of Atlantic Satellite's business depends in part upon
the price and availability of satellite transponders. A shortage of transponders
can be caused by several factors, including the malfunctioning or expiration of
the useful lives of existing satellites or the unsuccessful launch of additional
or replacement satellites, all of which are beyond the control of Atlantic
Satellite or its customers. A shortage of satellite transponders would be likely
to increase the price of available transponders which would have an adverse
impact upon Atlantic Satellite's, and thus the Company's, ability to operate
profitably.
Production of Video Systems and Equipment Rental
Through A.F. Associates, Inc. ("AFA"), the Company designs, builds, installs
and services advanced video systems for the broadcast and cable television
industries, and for professional and corporate markets. AFA's services include
project management; design and engineering; consultation with architects and
building contractors; drafting and technical documentation; equipment and
materials specification and procurement; pre-wiring and assembly; site
installation; system testing and commissioning; and training. The Company
believes that AFA is one of the leading independent providers of such services.
Systems are designed by AFA's in-house engineers utilizing computerized
design programs and are assembled in AFA's facility in Northvale, New Jersey.
Assembly includes custom fabrication of all audio, video and control
interconnect wiring, mounting of equipment into rack enclosures and custom
operating consoles, pre-wiring of all interconnecting cabling and subsystem
testing. The entire system is then shipped to the customer's location, where it
is installed and tested by AFA's technicians and engineers. The end product is a
professionally designed and built system, utilizing advanced design and
construction concepts and incorporating state-of-the-art broadcast equipment.
Through the use of AFA's systems integration services, the client need only set
overall system and operational requirements. AFA engineers and constructs the
entire system and manages all aspects of technical construction.
AFA's clients include the four (4) major networks, numerous cable channel
networks (e.g, Cable News Network, Inc., CNBC, Fox News Channel, Lifetime
Television, USA Networks, Inc. and Home and Garden Cable Network), satellite
broadcasters (e.g, Direct TV, AlphaStar Television Networks and SKY Latin
America), corporate television networks (e.g, Merrill Lynch & Co., Inc.,
International Business Machines Corp. and Toys R Us), and numerous production
and post-production facilities. Over 50% of AFA's business is repeat business
from clients who seek AFA's technical and engineering expertise. The Company
believes that increases in cable, direct satellite and independent broadcasting
made possible by
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emerging compression technologies, as well as the migration of broadcasting
standards from analog to digital, will provide significant opportunities for AFA
to expand its customer base.
Projects recently completed by AFA include: the entire production and on-air
facilities for the start-up of the Fox Cable News channel; ABC-TV's first
digital studio control room; newsroom technical facilities for WNBC-TV in New
York; technical facilities for the Museum of Television and Radio in Beverly
Hills, CA; direct-to-house satellite broadcast centers for News Corp.'s SKY
Latin America service in Rio de Janeiro, Mexico City and Miami; a 147 channel
satellite broadcast facility for AlphaStar Digital Television; and a new 50 foot
mobile broadcast unit for ABC Sports' Monday Night Football. Current projects
include a television studio complex for Martha Stewart Living TV; an operations
center for SKY Latin America; and the conversion of two existing television
facilities from analog to digital pursuant to a subcontract with Comark.
Alpha Star and InTouch Ministries contributed 20% and 10% of Video's
consolidated gross revenues, respectively, in Video's fiscal year ended June 30,
1996. Revenues from such customers were derived from one-time contracts for
services provided by AFA and do not necessarily represent a recurring source of
revenues.
Through Video Rentals, Inc. ("VRI"), the Company supplies broadcast and
industrial video equipment for rental to the broadcast and professional video
industries and provides support and maintenance services for such equipment. VRI
rents cameras, super slo-mo systems, interformat portable editing systems,
character generators, graphic equipment and specialized equipment for sports
production. Equipment rentals may range from a period of one (l) day to as long
as six (6) months to a year. Specialized equipment packages, such as editing
systems, are also rented for longer periods by certain customers, including MTV,
Phoenix and others. VRI's purchases of equipment to be held for rental are made
both on the basis of anticipated rental demand and in response to specific
customer orders and commitments from such customers for minimum rental terms (in
the case of more specialized equipment).
VRI specializes in network sports production. As the exclusive field shop
for Fox Sports, VRI is responsible for storing, shipping and maintaining
equipment owned by the network and used for its football, hockey and baseball
broadcasts. VRI also serves as a rental agent for the rental of this equipment
to third parties. Major customers of VRI include ABC, CBS, NBC, Fox and MTV, as
well as major mobile truck operators.
The Company believes that VRI is one of the largest independent video
equipment rental suppliers on the East Coast and that it provides complementary
outsourcing solutions for clients of its other subsidiaries. For example, VRI
provides editing systems for NHL Productions, which are used in conjunction with
Atlantic Satellite's provision of satellite transmission services.
Communications Consulting and Production Services
Through CCL, the Company also provides communications consulting and
production services for the planning, design, development and implementation of
intranets and internet sites. Intranets are office network information systems
that use internet technology to enhance communications. These services are
provided by experienced communications consultants with expertise in corporate
communications, strategic planning, research, organizational development, human
resources and emerging communications technologies. Management believes that the
favorable cost/benefit features of intranets will result in increased demand for
Cognitive's services. Cognitive has worked on projects for several Fortune 500
companies, including Apple Computer, Inc., The McGraw-Hill Companies, Inc.,
Corning Incorporated, BellSouth Corporation and Xerox Corp., as well as other
smaller public and private companies.
Video Post-Production Services
The Company provides the following video post-production services to the
television advertising industry and to program originators, including
corporations and educational institutions:
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Creative Editorial Services (Design): The creative editing process, or
the first stage of post production, for a television commercial generally
involves the selection of the best footage from several thousand feet of
film and the combination of that footage through editing along with special
video effects to create a cohesive message with audience appeal. The
creative editor typically is involved with all facets of the post-production
process and usually selects the post-production facilities in which the
remaining and final stages of the television commercial's post-production
takes place.
Film-to-Videotape Transfer: The Company has film to videotape transfer
suites for the transferring of images and sound from film to videotape. This
process can be used for either positive or negative, 16 or 35 millimeter
film and for both composite and multi-track systems. The Company's skilled
colorists operate state-of-the-art electronic equipment which provides color
correction and expansion or repositioning of film images. In addition, the
Company can correct and enhance the color of projects originated on
videotape. The videotape element masters resulting from the transfer process
can be edited to create the final product which can then be duplicated for a
variety of markets including television advertising, corporate video
cassettes, home video cassettes, pay cable television, television program
syndication, airline in-flight entertainment, foreign distribution and
ancillary application. Transfers are made in both the PAL (Europe and South
America) and NTSC (North America and Japan) standards.
Electronic Video Editing: The Company operates a combination of analog
and digital edit suites. The editing process ranges from simple cuts and
assembly with dissolves, wipes and titles, to complicated layering of images
and special effects. Videotape is edited in many tape formats (sizes) for
use in commercials, shows, corporate and educational videos and other
presentations.
Computer-Generated Graphics: Company artists create computer-generated
television imagery working with sophisticated computer software for
applications such as main titles for television shows, credits and various
electronic special visual effects including computer animation and
electronic graphics in both two and three dimensions.
Videotape Duplication: The Company offers videotape duplication in all
professional broadcast formats, including D1, D2, BetaCam SP, 1" and 3/4",
to meet the needs of the commercial advertising, corporate video, motion
picture, television production and syndicated television program
distribution industries. The Company also creates duplication masters with
closed captioning for the hearing impaired.
The Company provides the following post-production services to international
television program originators and distributors:
Standards Conversion: Throughout the world, video signals are recorded
in four principal standards: NTSC--used in several countries, including the
U.S., Canada, Mexico and Japan; PAL--used in numerous countries, including
England, Italy, Australia and China; PAL-Modified--used exclusively in
Brazil; and SECAM--used in France, Russia and the Middle East. A program
recorded in one-standard cannot be broadcast or played back through
equipment employing another standard unless the program is first "converted"
to the other standard. If, for example, RTL, a German television
broadcaster, wants to air "Sesame Street" (a program produced in the U.S.
and, therefore, in the NTSC standard), the video signal must first be
converted to PAL to make it compatible with the German standard. The Company
provides conversion services to and from all of the standards currently
available.
International Duplication: Duplication services are required to
accommodate multiple broadcast locations receiving the same product in the
same standard, but utilizing a variety of videotape formats. Using the same
analogy as above, the German broadcaster received a PAL tape for his 1 "
equipment, but a Scandinavian broadcaster needs to receive a PAL tape of
that same "Sesame Street" episode for his D2 equipment. Accordingly, the
Company would "duplicate" the tape to the different format in the same
standard.
Specialized Video Services: The Company is meeting an increasing demand
for specialized services using state-of-the art, multistandard film-to-tape,
editing and audio suites. Audio capabilities include restoration, layback,
ADR (automatic dialogue replacement), audio-for-video editing, and the
recreation, or enhancement of music and sound
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effects tracks. Additional services include scene-by-scene color correction
of film or tape, video restoration and I3 (International Image
Interpretation), an innovative standards conversion technology which
achieves extremely high quality for film-originated material.
Additional Services: In addition, in the Company's South Florida
facilities, the Company provides studio facilities and technical personnel
for MTV Latino and network playback operations for the Locomotion Channel.
The Company's major post-production clients include advertising agencies,
film editors, video production companies and international distributors of
television programming. Among the advertising agencies to which the Company
provides services are BBDO New York, Saatchi & Saatchi, Grey Advertising,
Uniworld Group, N.W. Ayer, Ogilvy & Mather, J. Walter Thompson, Jordan McGrath
Case, McCann Erickson and Young and Rubicam. International television program
distributors to which the Company provides post-production services include the
major television networks (CBS, NBC and ABC), networks such as MTV Latino and
the Locomotion Channel and syndicators such as Sony Pictures, Turner
Entertainment and Worldvision. The Company also provides post-production and
other services to a variety of program originators including the NBA, Children's
Television Workshop and Discovery Channel. No customer accounted for more than
10% of the total revenues of IPL during fiscal year 1997.
The Company's post-production business is dependent on the success of the
television programming and advertising industries, which success in turn is
highly dependent upon a number of factors, including the quality of content
produced, the availability of alternative forms of entertainment and leisure
activities, general economic conditions and international demand for content
originated in the United States. The Company's business also is subject to
downturns in the television, programming and advertising industries. Although
the Company generally does not have long-term or exclusive agreements with its
post-production clients; the Company had long-term relationships with many of
such clients. Because post-production clients generally do not make arrangements
with the Company until shortly before its services are required, the Company
usually does not have any significant backlog of service orders.
SALES AND MARKETING
Historically, Video marketed its services through its management's efforts
to exploit its industry contacts and attendance at industry trade shows, as well
as advertisements in trade journals and referrals from existing customers and
suppliers. Atlantic Satellite and Waterfront jointly market their services
through the efforts of management and a full-time sales force which emphasizes
quality and the range of their offered services. In addition, AFA maintains a
full-time sales force which emphasizes to potential customers the extensive
experience of its professional engineers, AFA's leadership role in systems
technology and its comprehensive project management services. VRI focuses on its
market leadership position, round-the-clock customer service, diversity and
reliability of its inventory and its competitive pricing structure, as well as
the value-added services it provides to its larger customers, such as logistics
and inventory management.
A full-time sales force, together with editors, graphic artists and senior
management, actively market the Company's post-production services through
industry contacts and through advertising in the major industry trade magazines
such as Shoot, Ad Week and Post. The focus of this advertising is to promote the
Company's image for quality services, its technical capabilities and its
state-of-the art facilities.
The Company's marketing strategy, with respect to the services it provides
for television program distributors to the international market, is to focus on
the needs of the end-users as well as on the needs of the clients. The Company
actively develops relationships with overseas facilities and broadcasters
through visits and multi-lingual communication, to learn and respond to their
individual technical and operational requirements. This strategy has resulted in
end-users requesting that their international television program distributors
utilize the Company's services and has alleviated many problems between the
distributors and the broadcasters. Sales and marketing efforts emphasize the
needs of the client and the end-user, technical proficiency, and the Company's
global perspective.
8
<PAGE> 10
SUPPLY OF SERVICES AND EQUIPMENT
In most situations where Atlantic Satellite is providing satellite up-link
services, the customer has secured the transponder time and instructs Atlantic
Satellite as to which satellite and transponder to transmit the signal. In those
situations where Atlantic Satellite is providing transponder time as part of a
service package to a customer, Atlantic Satellite obtains transponder time from
third-party re-sellers of transponder time. Satellite owners do not sell
occasional transponder time directly to end-users or service providers. Rather,
they sell or lease transponders on a full-time basis for a minimum of one (1)
year. Waterfront may either order fiber optic lines from third party providers
to be installed between Waterfront's facility and the customer or the customer
may order these lines directly from a third party provider, with Waterfront
providing only the connection with its switch. AFA and VRI obtain their
equipment from a variety of sources, including the major equipment manufacturers
such as Sony Corporation of America, BTS Broadcast Television Systems and
Tektronix. AFA orders equipment used in the production of its video systems
based upon customer purchase orders after receipt of deposits. Larger systems
are funded through periodic customer payments which relate closely to the
capital needs of the project. Although Video did not experience any significant
difficulty in obtaining equipment, there can be no assurance that shortages will
not arise in the future. The loss of any one or more manufacturing sources would
have an adverse effect on the Company until alternative arrangements could be
secured. The Company believes that there are alternative adequate sources of
components of sufficient quality and quantity.
COMPETITION
The competitive video services industry is both specialized and fragmented.
Major competitors for Atlantic Satellite's transmission services include
Micronet (a subsidiary of Lenfest Communications, Inc.), Group W (a subsidiary
of Westinghouse Electric Corporation), Keystone (a subsidiary of French Telecom)
and Gateway (a subsidiary of VYVX, Inc.). Some of these competitors have
significantly greater resources than the Company. Atlantic Satellite competes
primarily based upon customer service and its large and valued subscriber base,
which permits a high degree of inter-subscriber connections. Although the
Company believes that Waterfront's video switching facility is the largest in
the New York metropolitan area, "The Switch" (operated by Keystone) has "first
mile" and "last mile" capabilities and competes with Waterfront. AT&T also
competes in the switching business to some extent. However, the Company believes
that its fully-manned facility provides it with an advantage over its
competitors which do not provide the same level of service. AFA's primary
competitors are Sony Corporation, Communications Engineering Inc. and National
TeleConsultants, as well as small, regionally based integrators and dealers.
Competition is based upon technical expertise, experience and price. VRI's major
competitors are Bexel Corporation, which has locations in several metropolitan
areas, as well as smaller companies which do not offer the variety of services
provided by VRI. Competition is based upon price, diversity and availability of
inventory and customer service. The Company believes that the ability of its
operating subsidiaries to cross-market to existing customers using other
services offered by the Company's other subsidiaries provides the Company with a
competitive advantage over many competitors who lack the full complement of
services provided by the Company.
Certain post-production services businesses (both independent companies and
divisions of diversified companies) provide most of the same services provided
the Company, while others specialize in one or several of these services.
Certain film production companies also provide post-production services. Many of
the Company's competitors for post-production services are located in New York
City, one of the principal domestic markets for such services. Certain of these,
as well as other competitors of the Company, have greater financial resources
than the Company.
With regard to its post-production services, the Company competes on the
basis of customer satisfaction with the range, quality and pricing of its
offered services. The Company also competes in this area on the basis of its
ability to attract and retain qualified, highly skilled personnel. The Company
believes that prices for its post-production services are competitive within its
industry, although some competitors may offer certain of their services at lower
rates than the Company. The post-production services industry has been and is
likely to continue to be subject to technological change to which the Company
must respond in order to remain competitive. The Company has no long-term or
exclusive agreements with customers for which it provides post-production
services (other than with MTV Latin America, Inc. with respect to providing
services to MTV Latino); however, the Company has had long-term relationships
with many of such customers.
9
<PAGE> 11
Major competitors of the Company in providing standards conversion services
include Devlin Video Services, Magno Sound & Video, Intercontinental Televideo
and International Image based in Toronto, Canada. Major competitors of the
Company in providing creative editorial services include Crew Cuts Film & Tape,
Red Car, Progressive Image Group and Dennis Hayes & Associates. Major
competitors of the Company in providing film-to-videotape transfer, electronic
video editing and computer-generated graphic services include Post Perfect (a
subsidiary of The New York Media Group), The Tape House Editorial Co., PrinczCo
Productions, Nice Shoes, L.L.C., Click 3X and Broadcast Video, Inc.
GOVERNMENT REGULATION
The Communications Act of 1934, as amended by the Telecommunications Act of
1996, prohibits the operation of satellite earth station facilities such as
those operated by Atlantic Satellite, except under licenses issued by the FCC.
Atlantic Satellite holds the following five satellite earth station FCC
licenses:
Call Sign License Expiration Date
--------- -----------------------
E960405 September 6, 2006
E910152 March 22, 2001
E881160 February 17, 1999
E4626 September 10, 2002
E970418 October 10, 2007
No FCC authorization is required for reception of transmission from domestic
satellites to points within the United States. When applicable, the Company will
continue to rely on third party FCC licenses or authorizations when it transmits
certain domestic satellite traffic through earth stations operated by such third
parties.
The FCC establishes technical standards for satellite transmission equipment
which change from time to time, and it also requires coordination of earth
stations with land-based microwave systems at certain frequencies to assure
noninterference. Transmission equipment must also be installed and operated in a
manner that avoids exposing humans to harmful levels of radio-frequency
radiation. The placement of earth stations or other antennae is typically
subject to regulation under local zoning ordinances. The Company believes that
Atlantic Satellite's equipment meets and is operated in material compliance with
all applicable laws, regulations and industry standards.
Waterfront holds two point-to-point microwave licenses from the FCC for the
transmission of signals from a single point to temporary fixed locations within
25 miles of the license coordinates. There are two microwave licenses:
Call Sign License Expiration Date
--------- -----------------------
WNEI382 June 23, 1999
WMQ-537 February 1, 2001
While the FCC generally renews satellite earth station and point-to-point
microwave licenses on a routine basis, there can be no assurance that Atlantic
Satellite's and Waterfront's licenses will be renewed at their expiration dates.
Failure to obtain renewal of such licenses would have a material adverse effect
on the Company.
10
<PAGE> 12
EMPLOYEES
The Company and its subsidiaries have approximately 535 full-time employees.
None of the Company's employees is represented by a labor union or is subject to
a collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are satisfactory.
The Company's post-Merger success depends in large part on the continued
service of its executive officers, key creative artists and skilled technicians,
and other key personnel. The Company has employment agreements containing
non-compete provisions with all of its current key executive officers, including
Messrs. Siracusano and Buck. However, the Company does not have any long-term
employment agreements and/or any covenants not to compete with most of its key
artists and technicians. A significant percentage of the Company's revenues can
be attributed to services requiring highly compensated creative technicians.
Competition for highly qualified employees is intense and the process of
acquiring key technical, creative and management personnel with the requisite
combination of skills and attributes is often lengthy. There can be no assurance
that the Company will continue to attract, motivate and retain key personnel.
Failure by the Company to attract and retain qualified key personnel could have
a material adverse effect on the Company.
ITEM 2. PROPERTIES.
The Company's corporate headquarters (which are owned by the Company) are
located at 240 Pegasus Avenue, Northvale, New Jersey ("240 Pegasus") where
Atlantic Satellite also occupies an aggregate of approximately 15,000 square
feet plus outdoor antenna pads. The Company owns another facility at 183 Oak
Tree Road in Tappan, New York ("183 Oak Tree"), which is adjacent to the 240
Pegasus property in which Atlantic Satellite and VRI also occupy approximately
13,000 and 7,000 square feet, respectively. Atlantic Satellite has leased 10,000
square feet at 183 Oak Tree Road to the NHL. Atlantic Satellite's teleport
facility is located at 240 Pegasus and 183 Oak Tree. In addition, the Company
subleases approximately 50,000 square feet at 235 Pegasus Avenue, Northvale, New
Jersey from an entity owned by Messrs. Siracusano and Ferolito, which in turn
leases such property from an unaffiliated third party. The terms of the lease
and the sublease are substantially identical. Approximately 38,000 square feet
of such facility is used by Audio Plus Video for production purposes and
approximately 12,000 square feet is used for general and warehouse purposes. In
addition, the Company also owns approximately 8 acres of vacant land in
Northvale, New Jersey.
Waterfront leases approximately 7,200 square feet in midtown Manhattan which
houses Waterfront's Technical Operation Center and executive offices and
approximately 2,600 square feet in downtown Manhattan which is used for
Waterfront's remote switching hub. AFA leases from an entity owned by Messrs.
Siracusano and Ferolito approximately 30,000 square feet at another facility
located in Northvale, New Jersey, which facility serves as its executive offices
and its engineering and fabrication facility.
The Company leases six principal production facilities, three located in New
York City, and three located in South Florida. The Company's three New York City
production facilities consist of approximately 68,000 square feet. The Company
consolidated two 8,000 square foot facilities in New York City to one 18,000
square foot facility in the second quarter of fiscal year 1997. The three South
Florida production facilities consist of approximately 42,000 square feet.
The Company's facilities include nine film-to-tape transfer and color
correction suites, sixteen on-line editing suites, seventeen off-line editing
suites, sixteen graphic suites (several of which can operate as edit suites),
seven audio suites, ten special project booths and two production rooms
dedicated to standards conversion and duplication services. In addition, the
Company's South Florida facilities include two network playback operations and
one studio facility.
ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries are involved in various claims and legal
proceedings of a nature considered normal to its business. While it is not
possible to predict or determine the outcome of these claims and proceedings, it
is the opinion of management that their outcomes will not have a material
adverse effect on the Company.
11
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders of IPL during the
fourth quarter of fiscal year 1996. However, on August 26, 1997, a special
meeting of the stockholders of IPL was held to (i) consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of June 27, 1997,
among IPL, Video and all of Video's stockholders (the "Merger Agreement") and
(ii) consider and vote upon a proposal to approve and adopt IPL's 1997 Long Term
Incentive Plan (the "1997 Plan"). Each of the Merger Agreement and 1997 Plan
were approved by the stockholders at such meeting with, in respect of the Merger
Agreement, 5,454,199 votes cast for, 3,900 votes cast against and no votes
withheld and, in respect of the 1997 Plan, 5,349,586 votes cast for, 106,413
votes cast against and 2,100 votes withheld representing abstentions and broker
non-votes.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Prior to the Merger, the Common Stock was included on The Nasdaq National
Market under the symbol "POST". The Common Stock began trading on February 8,
1994 at the effective time of the Company's initial public offering. Prior to
such time, there was no public market for the Common Stock. Following the
Merger, the Common Stock trades on The Nasdaq National Market under the symbol
"VSCX."
As of September 30, 1997, there were approximately 53 holders of record of
the Common Stock.
The following table sets forth the high and low bid prices of the Common
Stock on The Nasdaq National Market for each full quarterly period within the
two most recent fiscal years.
Fiscal Year 1996 High Low
---------------- ---- ---
First Quarter..................... $5 $4
(August 1 to October 31)
Second Quarter.................... 4 1/4 3 1/8
(November 1 to January 31)
Third Quarter..................... 4 3/64 3
(February 1 to April 30)
Fourth Quarter.................... 4 1/8 3 3/4
(May 1 to July 31)
Fiscal Year 1997 High Low
---------------- ---- ---
First Quarter..................... 4 1/8 3 5/8
(August 1 to October 31)
Second Quarter.................... 4 3/4 3 1/2
(November 1 to January 31)
Third Quarter..................... 4 1/8 3 3/8
(February 1 to April 30)
Fourth Quarter.................... 3 1/2 2 7/8
(May 1 to July 31)
No cash dividends have ever been declared by the Company on the Common
Stock. The Company intends to retain earnings to finance the development and
growth of its business. Accordingly, the Company does not anticipate that any
dividends will be declared on the Common Stock for the foreseeable future.
Future payment of cash dividends, if any, will depend on the Company's financial
condition, results of operations, business conditions, capital requirements,
restrictions contained in agreements, future prospects and other factors deemed
relevant by the Company's Board of Directors.
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<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected historical financial data are derived from the
consolidated financial statements of IPL and do not include any financial data
in respect of Video and its subsidiaries because the Merger was consummated
after July 31, 1997.
<TABLE>
<CAPTION>
MTE Co. IPL
---------- --------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
July 31, July 31, July 31, July 31, July 31,
1993(1) 1994(1) 1995(2) 1996(2) 1997(5)
---------- ---------- ---------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ............................... $20,871 $27,827 $38,349 $49,352 $ 52,387
Depreciation and amortization .......... 3,343 3,905 5,749 8,369 8,437
Income from operations ................. 2,347 3,709(3) 3,475 3,842 2,553
Income before income taxes ............. 1,262 3,243 2,680 1,676 268
Net income (loss)
(Pro forma for MTE Co.(4)) ........... 466 3,320 1,606 814 (748)
Net income (loss) per share
(Pro forma for MTE Co.(1)) ........... $ 0.13 $ 0.70 $ 0.26 $ 0.13 $ (.12)
Weighted average number of shares
outstanding (Pro forma for MTE Co.(1)) 3,471 4,714 6,214 6,220 6,227
</TABLE>
<TABLE>
<CAPTION>
MTE Co. IPL
------- -------------------------------------------------
As of As of As of As of As of
July 31, July 31, July 31, July 31, July 31,
1993(1) 1994(2) 1995(2) 1996(2) 1997(5)
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets ............................ $23,447 $35,893 $66,673 $67,861 $66,548
Long-term debt, net of current portion .. 4,500 415 20,257 19,797 21,010
Subordinated debt, net of current portion -- -- 4,927 5,096 5,268
Stockholders' equity .................... $14,177 $27,930 $29,461 $29,835 $29,087
</TABLE>
- -----------------------------------------
(1) Reflects the acquisition of the business of VSC Post as of August 1,
1992. The pro forma weighted average number of shares outstanding for
IPL gives effect to following acquisitions of IPL: (i) the
acquisition of the business of MTE Co., (ii) the acquisition of Audio
Plus Video and (iii) the sale by IPL of 2,300 shares of Common Stock
in IPL's initial public offering, as if each of such transactions had
been consummated as of August 1, 1992.
(2) Reflects the acquisition of Audio Plus Video as of February 15, 1994,
and the acquisition of Big Picture, Even Time and Post Edge as of May
4, 1995. Each acquisition was accounted for under the purchase method
and, consequently, the financial results include these acquisitions
as of the acquisition date.
(3) IPL recorded $1,202 of non-cash compensation expense related to the
granting of options to certain directors and an officer.
(4) Reflects a pro forma income tax expense that would have been provided
had MTE Co. been a corporate taxable entity.
(5) Reflects the acquisition of CCI as of January 22, 1997. The
acquisition was accounted for under the purchase method and,
consequently, the financial results include this acquisition as of
the acquisition date.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial Statements
included elsewhere herein. IPL acquired BP and ET (now known collectively as
CABANA corp. ("CABANA")) and Post Edge on May 4, 1995 and acquired CCL in
January 1997. The following discussion of IPL's results of operations includes
the operations of those companies from the dates of acquisition. Since the
Merger between Video and IPL occurred on August 27, 1997, and thus after the end
of IPL's 1997 fiscal year, the following discussion and analysis does not
include information about Video and its subsidiaries, their results of
operations or financial condition and does not take into account the Merger or
any of the transactions contemplated thereby, except as otherwise indicated. See
Item 1. "BUSINESS - Background."
RESULTS OF OPERATIONS
Fiscal Year Ended July 31, 1997 compared to Fiscal Year Ended July 31, 1996
Revenues increased 6.2% to $52,387,000 in 1997 from $49,352,000 in 1996,
primarily as a result of revenue increases at Post Edge and Audio Plus Video and
the acquisition of CCL. The increase at Post Edge, approximately $2,772,000, was
due primarily to the expansion of operations associated with the completion of
an additional facility located in Hollywood, Florida in the fourth quarter of
1996 and the performance of additional network services at its original South
Beach, Florida facility. These increases were partially offset by a decrease of
approximately $1,042,000 at CABANA, which resulted mainly from a general slow
down of the commercial market, the interruption of business associated with the
consolidation of CABANA's operations into one facility, and the construction of
that facility during the first nine months of 1997. Manhattan Transfer's and
Audio Plus Video's revenues remained relatively stable.
Direct salaries and costs (consisting primarily of salaries and benefits
paid to artists, technicians and engineers, outside labor, occupancy costs,
direct costs (including tape stock and equipment rental, and client costs) as a
percentage of revenues increased to 52.8% in 1997 from 48.7% in 1996, due to
reduced revenues contributed by CABANA without a corresponding reduction in
costs, costs associated with CCL which was acquired in January 1997 and
additional salaries of artists and technicians at Manhattan Transfer. In
addition, Post Edge required increased equipment rentals in 1997 to support
ongoing projects.
Selling, general and administrative expenses as a percentage of revenues in
1997 was approximately unchanged from 1996.
Interest expense increased to $2,273,000 in 1997 from $2,262,000 in 1996 due
to an increase in borrowings under IPL's revolving credit facility as a result
of ongoing transaction expenses incurred in connection with the Merger and
additional capitalized lease obligations. These increases were partially offset
by lower interest rates during the fist six months of 1997.
The income tax rate applied against pre-tax income was 379% and 51% in 1997
and 1996, respectively. Lower pre-tax income in 1997 compared to 1996 on
relatively constant amortization of non-deductible intangibles and the recording
of a valuation allowance for state net operating losses were the primary reasons
for the increase in the effective tax rate. The Company reviewed its ability to
utilize state net operating losses for certain subsidiaries in certain states
and has revised its estimate of net operating loss utilization. As a result, the
Company has recorded a valuation allowance of $600,000 in the fourth quarter of
1997.
IPL recorded a loss of $748,000 in 1997 as compared to income of $814,000 in
1996 as a result of the factors discussed above.
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<PAGE> 17
Fiscal Year Ended July 31, 1996 compared to Year Ended July 31, 1995
Revenues increased 28.7% to $49,352,000 in 1996 from $38,349,000 in 1995.
The growth in revenues was primarily attributable to the acquisitions of Post
Edge, BP and ET in the fourth quarter of 1995 and thus 1996 included a full year
of operations for these companies. Revenues of Post Edge were $7,399,000 and
$1,385,000, in 1996 and 1995, respectively and aggregate revenues of BP and ET
were $8,906,000 and $1,673,000 in 1996 and 1995, respectively. These increases
were partially offset by a decrease in revenues at Manhattan Transfer and the
loss of revenues from specialized services (consisting of the design of images
for broadcast and print, the production of art work, graphics and all forms of
test commercials and non-linear editing) discontinued in the first and fourth
quarters of 1995.
Direct salaries and costs as a percentage of revenues decreased to 48.7% in
1996 from 49.1% in 1995. The decrease was primarily attributable to fewer
equipment rentals and lower client-related costs, offset by increased equipment
maintenance costs. In the fourth quarter of 1995, IPL discontinued its test
commercial and print design divisions, reorganized certain portions of the
operations of Manhattan Transfer and closed Audio Plus Video's New York City
facility. IPL incurred losses from operations of approximately $1,100,000 in
connection with the items described in the previous sentence.
Selling, general and administrative expenses as a percentage of revenues
decreased to 26.0% in 1996 from 26.8% in 1995 primarily as a result of lower
sales commissions accrued during 1996. In addition, the costs of the
reorganization described above that related to selling, general and
administrative expenses did not reoccur in 1996.
Depreciation expense and amortization of intangibles increased to $7,229,000
and $1,140,000, respectively, in 1996 from $5,168,000 and $581,000,
respectively, in 1995. These increases were primarily attributable to a full
year of operations of Post Edge, BP and ET in 1996.
As part of the consolidation of the two New York City facilities of BP and
ET into one facility, IPL recorded a non-cash lease related obligation in the
fourth quarter of 1996 of $255,000. This represents net future lease obligations
from the fourth quarter of 1997 through their respective termination dates.
Interest expense increased to $2,262,000 in 1996 from $810,000 in 1995 as a
result of the incurrence of indebtedness used for the acquisitions of Post Edge,
BP and ET.
The income tax rate applied against pre-tax income was 51% and 40% in 1996
and 1995, respectively. The applicable tax rates include 13% and 7% in 1996 and
1995, respectively, as a result of the amortization of non-deductible
intangibles. Lower pre-tax income in 1996 compared to 1995 increased the impact
of the non-deductibility of such amortization. The impact of state and local
taxes (net of federal benefit) increased in 1996 compared to 1995 as a
percentage of pre-tax income. The primary reason for the increase was higher
state taxable income for certain IPL subsidiaries.
Net income decreased to $814,000 in 1996 from $1,606,000 in 1995 as a result
of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, IPL met its liquidity needs and capital expenditures
requirements with internally generated funds, borrowings under its revolving
bank credit facility and capital leases. Acquisitions were financed primarily by
borrowings under its bank term loan facility. At July 31, 1997, IPL's
outstanding long-term indebtedness (excluding current portion) was approximately
$26,278,000, consisting principally of a $10,960,000 term loan, $8,800,000 of
drawings under its $10,000,000 working capital revolving credit facility,
subordinated debt of $5,268,000 and obligations under capital leases of
$1,250,000. The term loan and working capital revolving credit facility, which
would have expired in May 2001, were secured by all of the assets of IPL and
contained covenants limiting future debt, dividends, and capital expenditures
and required IPL to maintain certain cash flow levels and leverage ratios. In
September 1996, the credit agreement for this facility was amended to change the
Fixed Charge Coverage Ratio (as defined therein) from 1.50:1.00 to (a) 1.10:1.00
for the twelve month period ending July 31, 1996, (b) 1.15:1.00 for the twelve
month periods ending October 31, 1996 and
16
<PAGE> 18
January 31, 1997, (c) 1.25:1.00 for the twelve month periods ending April 30,
1997 and July 31, 1997 and (d) 1.50:1.00 for the twelve month period ending
October 31, 1997 and thereafter.
At the effective time of the Merger, a substantial portion of IPL's
(including the term loan and working capital revolving credit facility) and
Video's existing indebtedness was refinanced with a $50 million five-year
revolving credit and term loan facility provided by KeyBank and Summit Bank
composed of a $33 million term loan and a $17 million revolving line of credit.
The revolving credit and term loan facility bears interest, at the Company's
option, at either (i) KeyBank's prime rate less 1% or (ii) LIBOR plus 1.75%.
After the 1998 fiscal year, LIBOR-based loans will bear interest at a margin
above LIBOR based upon the Company's leverage ratio. Quarterly principal
payments of $1 million in respect of the term loan portion of the facility will
be due beginning December 31, 1997 and will increase to $1.25 million per
quarter on December 31, 1998, $1.75 million per quarter on December 31, 1999,
$2.0 million per quarter on September 30, 2001. A balloon payment of $3.75
million in respect of the term loan portion of the facility will be due on
September 30, 2002. The facility is secured by all of the assets of the Company.
No significant gain or loss has resulted from the refinancing. The facility
contains covenants which require the Company to maintain certain financial
ratios, prohibit dividends and similar payments and restrict the incurrence of
other indebtedness. The facility is guaranteed by all of the Company's
subsidiaries.
The 4% convertible subordinated notes due May 4, 2003 in the principal
amount of $6,350,000 issued by IPL in connection with the BP/ET Acquisition in
May 1995 still remain outstanding after the refinancing described above. These
notes are convertible into Common Stock at a conversion price of $14.00 per
share after May 2000 and are redeemable after May 2001.
The Company's level of indebtedness will continue to have important
consequences after the Merger, including without limitation, the following: (i)
interest expense and principal repayment resulting in annual fixed charges and
repayment obligations in the future; (ii) limitations on the Company's ability
to obtain additional financing, make capital expenditures and acquisitions and
take advantage of other significant business opportunities that may arise; and
(iii) vulnerability to adverse general economic and industry conditions.
The ability of the Company to make interest and principal payments on its
debt following the Merger will depend on its ability to generate sufficient cash
flow from operations. Future operating results are subject to business,
economic, regulatory and competitive uncertainties and contingencies, many of
which are beyond the control of the Company. There can be no assurance that the
Company will be able to generate the cash flow necessary to permit the Company
to meet its debt service obligations. If the Company is unable to generate
sufficient cash flow from operations in the future, it may be required to
further refinance all or a portion of its existing debt or to obtain additional
financing. There can be no assurance that any such refinancing would be possible
or that any additional financing could be obtained on terms that are favorable
or acceptable to the Company. Any inability of the Company to service its
indebtedness would have a significant adverse effect on the Company and the
market value and marketability of Common Stock.
Cash Flow From Operating Activities. IPL generated net cash from operations
of $5,628,000, $5,386,000 and $5,079,000 in 1997, 1996 and 1995, respectively,
primarily resulting from earnings before interest, taxes, depreciation and
amortization of $10,990,000, $12,211,000 and $9,224,000, respectively, which
were partially offset by increases in working capital requirements.
Cash Flows From Investing Activities. In 1997, net cash of $4,855,000 was
used in investing activities, including $4,665,000 of net capital expenditures
for the purchase of new digital technology and software, upgrade and replacement
of existing equipment and completion of the consolidations at Post Edge and
CABANA and $190,000 of net cash used for the CCL acquisition. In 1996, net cash
of $5,324,000 was used to complete Post Edge's new South Beach and Hollywood,
Florida post production facilities, complete the consolidation of Audio Plus
Video's facilities, and make technological upgrades to existing equipment. In
1995, net cash was used for $10,822,000 of capital expenditures to increase
computer-generated graphics capabilities, upgrade and expand equipment, complete
a 25,000 square foot digital post-production facility to consolidate New York
City operations into one facility and consolidate IPL's New Jersey facilities
into one 34,000 square foot facility and $11,661,000 of net cash was used to
acquire Post Edge and CABANA. Finally, approximately $1,500,000 was spent in the
fourth quarter of 1995 to expand IPL's newly-acquired facilities in Florida.
17
<PAGE> 19
Cash Flow From Financing Activities. In 1997, net cash used in financing
activities was $723,000, primarily as a result of borrowings under IPL's
revolving credit facility which was offset by scheduled repayments of term debt.
In connection with the 1997 acquisition of Cognitive Communications, Inc., IPL
issued $550,000 of notes payable. In 1996, $276,000 of net cash was used in
financing activities primarily as a result of borrowings under IPL's revolving
credit facility which were offset by scheduled repayments of long-term debt. Net
cash of $17,433,000 provided by financing activities in 1995 included
$27,565,000 in proceeds from long-term debt, notes payable, and the net proceeds
from the revolving credit facility, which was used in part to repay $5,730,000
in notes payable and $4,402,000 of long-term debt, including amounts paid to
related parties.
The foregoing activities resulted in a net increase in cash of $50,000 in
1997, a net decrease in cash of $264,000 in fiscal year 1996, and a net increase
in cash of $29,000 in 1995.
ITEM 7A. QUANTATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item appears in Item 14(a) of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As of August 27, 1997, the Company retained the services of Ernst & Young
LLP (Video's previous principal accountant) as their principal accountant to
audit the Company's financial statements. The Company dismissed Arthur Andersen
LLP (IPL's previous principal accountant) as their principal accountant. The
decision to change accountants was recommended by the Board of Directors of the
Company.
Arthur Andersen LLP's report on the financial statements for either of the
past two years has not contained an adverse opinion or a disclaimer of opinion,
nor was it qualified or modified as to uncertainty, audit scope or accounting
principles.
Since August 1, 1995, there have been no disagreements between IPL and
Arthur Andersen LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would
have caused it to make reference to the subject matter of the disagreements in
connection with its report.
18
<PAGE> 20
PART III
ITEMS 10, 11, 12, AND 13
The information called for by Items 10, 11, 12 and 13 of this Form 10-K will
be included in an amendment to this Form 10-K which will be filed not later than
November 28, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) The consolidated financial statements, related notes thereto and
report of independent public accountants required by Item 8 begin at
page F-1 herein.
(2) The financial statement schedule appears on page F-29 herein.
(3) Exhibits:
EXHIBIT NUMBER EXHIBITS
2.1* Acquisition Agreement dated as of December 23, 1993 among the
Company, VSC Video Corporation, Waterfront Communications
Corporation, Martin Audio-Video Corporation, Atlantic Satellite
Communications, Inc., A.F. Associates, Inc. and Video Services
Corporation.
2.2 Stock Purchase Agreement, dated as of May 4, 1995, by and among
the Company, The Post Edge, Inc. and all of the stockholders of
The Post Edge, Inc., including the exhibits thereto but excluding
the schedules thereto (incorporated by reference to exhibit
number 2.1 contained in the Company's Current Report on Form 8-K,
dated May 18, 1995).
2.3 Stock Purchase Agreement, dated as of April 25, 1995, by and
among the Company, The Big Picture Editorial, Inc., Even Time
Ltd., BP Partnership, ET Partnership, BPET Partnership, Barbara
D'Ambrogio, David D'Ambrogio, Gregory Letson, Michael Schenkein,
Leonard Smalheiser, Jane Stuart and Big Picture/Even Time
Limited, including the exhibits thereto but excluding the
schedules thereto (incorporated by reference to exhibit number
2.2 contained in the Company's Current Report on Form 8-K, dated
May 18, 1995).
2.4 Agreement and Plan of Merger, dated as of June 27, 1997, by and
among International Post Limited, Video Services Corporation and
Louis H. Siracusano, Arnold P. Ferolito and Donald H. Buck
(incorporated by reference to exhibit number 10.57 contained in
the Company's Current Report on Form 8-K, dated July 7, 1997).
3.1 Certificate of Incorporation of the Company, as amended.
3.2+ By-Laws of the Company.
4.1 Form of 4% Convertible Subordinated Note of the Company
(incorporated by reference to the exhibit of the same number
contained in the Company's Current Report on Form 8-K, dated May
18, 1995).
10.1*(M) Form of Employment Agreement between Martin Irwin and the
Company.
10.2*(M) Form of Employment Agreement between Jeffrey J. Kaplan and the
Company.
10.3*(M) Form of Employment Agreement between Adrien Macaluso and the
Company.
10.4*(M) Form of International Post Group Inc. Long-term Incentive Plan,
together with form of International Post Group Inc. Stock Option
Agreement.
10.5*(M) Form of International Post Group Inc. Restricted Share Plan for
Directors, together with form of Restricted Share Agreement.
10.6* Form of Registration Rights Agreement among the Company,
Holdings, VSC, Martin Irwin, Jeffrey J. Kaplan, Adrien Macaluso,
Terrence A. Elkes and Kenneth F. Gorman.
19
<PAGE> 21
10.7** Form of Lease Agreements between Audio Plus Video and L.I.M.A.
Partners.
10.8* Purchase Agreement, dated September 10, 1993, between A.F.
Associates, Inc. and MTE Co.
10.9+ Lease Agreements, dated as of June 30, 1993, between MTE Co. and
Nineteen New York Properties Limited Partnership.
10.10+ Agreement of Lease, dated as of March 7, 1990, between 225 Realty
Associates and VSC Post, together with First Supplemental
Agreement.
10.11+ Contribution Agreement, dated as of July 30, 1992, between
Holdings and VSC Post.
10.12* Forms of Promissory Notes made by Manhattan Transfer in favor of
Martin Irwin.
10.13+ Letter Agreement, dated February 22, 1993, between Apollo and
Holdings.
10.14+ Promissory Note, dated January 1, 1993, made by MTE Co. in favor
of Terrence A. Elkes and Kenneth F. Gorman.
10.15+ Security Agreement, dated as of January 1, 1993 among MTE Co.,
Terrence A. Elkes and Kenneth F. Gorman.
10.16+ Agreement, dated as of July 1, 1993, among MTE Co., Terrence A.
Elkes and Kenneth F. Gorman.
10.17+ Security Agreement, dated as of July 1, 1993, among MTE Co.,
Terrence A. Elkes and Kenneth F. Gorman.
10.18** Promissory Note, dated July 31, 1992, made by MTE Co. in favor of
P.C. Leasing, a division of Phoenixcor, Inc.
10.19* Form of Services Agreement between VSC and Manhattan Transfer.
10.20* Form of Services Agreement between VSC and Audio Plus Video.
10.21* Form of Roll-Up and Exchange Agreement among Holdings, VSC Video,
Inc., Video Services Corporation, the Company and Manhattan
Transfer.
10.22**(M) Form of Stock Option Agreement among VSC, Holdings and Martin
Irwin.
10.23**(M) Form of Stock Option Agreement between the Company and Jeffrey J.
Kaplan.
10.24** Form of Settlement Agreement between Apollo and Holdings.
10.25** Form of Services and Option Agreement between Holdings and
Kenneth F. Gorman.
10.26** Form of Services and Option Agreement between Holdings and
Terrence A. Elkes.
10.27** Form of Stock Option Agreement between VSC and Kenneth F. Gorman.
10.28** Form of Stock Option Agreement between VSC and Terrence A. Elkes.
10.29**(M) Form of Stock Option Agreement between the Company and Kenneth F.
Gorman.
10.30**(M) Form of Stock Option Agreement between the Company and Terrence
A. Elkes.
10.31** Consent and Authorization, dated December 23, 1993, by Martin
Irwin, Jeffrey J. Kaplan, Adrien Macaluso, Terrence A. Elkes,
Kenneth F. Gorman, VSC, the Company, Holdings and Apollo.
10.32++(M) Employment Agreement, dated as of April 21, 1994, between the
Company and Daniel Rosen.
10.33++(M) Stock Option Agreement, dated as of April 21, 1994, between the
Company and Daniel Rosen.
10.34(M) Consulting Agreement, dated as of May 4, 1995, between The Post
Edge, Inc. and Michael Orsburn (incorporated by reference to
exhibit number 10.1 contained in the Company's Current Report on
Form 8-K, dated May 18, 1995).
10.35(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and Barbara D'Ambrogio
(incorporated by reference to exhibit number 10.2 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.36(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and David D'Ambrogio
(incorporated by reference to exhibit number 10.3 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.37(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and Gregory Letson
(incorporated by reference to exhibit number 10.4 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.38(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and Michael Schenkein
(incorporated by reference to exhibit number 10.5 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
20
<PAGE> 22
10.39(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and Leonard Smalheiser
(incorporated by reference to exhibit number 10.6 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.40(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and Jane Stuart
(incorporated by reference to exhibit number 10.7 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.41 Put/Call Agreement, dated as of May 4, 1995, between Gregory
Letson and the Company (incorporated by reference to exhibit
number 10.8 contained in the Company's Current Report on Form
8-K, dated May 18, 1995).
10.42 Pledge Agreement, dated as of May 4, 1995, by and among BP
Partnership, ET Partnership, Barbara D'Ambrogio, David
D'Ambrogio, Michael Schenkein, Leonard Smalheiser, Jane Stuart
and the Company (incorporated by reference to exhibit number 10.9
contained in the Company's Current Report on Form 8-K, dated May
18, 1995).
10.43 Pledge Agreement, dated as of May 4, 1995, by and between Gregory
Letson and the Company (incorporated by reference to exhibit
number 10.10 contained in the Company's Current Report on Form
8-K, dated May 18, 1995).
10.44 Escrow Agreement, dated as of May 4, 1995, by and among ET
Partnership, David D'Ambrogio, Barbara D'Ambrogio, the Company
and Cowan, Gold, DeBaets, Abrahams & Sheppard, as Escrow Agent
(incorporated by reference to exhibit number 10.11 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.45 Escrow Agreement, dated as of May 4, 1995, by and among BP
Partnership, Michael Schenkein, Leonard Smalheiser, Jane Stuart,
Gregory Letson, the Company and Cowan, Gold, DeBaets, Abrahams &
Sheppard, as Escrow Agent (incorporated by reference to exhibit
number 10.12 contained in the Company's Current Report on Form
8-K, dated May 18, 1995).
10.46 Credit Agreement, dated as of May 4, 1995, by and among the
Company, The Bank of New York, in its capacity as a Lender, as
the Issuer and as the Agent, and Fleet Bank, as a Lender
(incorporated by reference to exhibit number 10.13 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.47 Security Agreement, dated as of May 4, 1995, by and between the
Company and The Bank of New York, as Agent (incorporated by
reference to exhibit number 10.14 contained in the Company's
Current Report on Form 8-K, dated May 18, 1995).
10.48 Guaranty, dated as of May 4, 1995, by and among the Persons party
thereto and The Bank of New York, as Agent (incorporated by
reference to exhibit number 10.15 contained in the Company's
Current Report on Form 8-K, dated May 18, 1995).
10.49*** Amendment No. 1 and Reallocation Agreement, dated as of June 12,
1995, by and among The Bank of New York, Fleet Bank, NatWest Bank
N.A. and the Company, to the Credit Agreement, dated as of May 4,
1995, by and among International Post Limited, the Lenders party
thereto, and The Bank of New York, as the Issuer and as Agent.
10.50*** Form of Amendment No. 2, dated as of October 30, 1995, to the
Credit Agreement, dated as of May 4, 1995, by and among the
Company, the Lenders party thereto, and The Bank of New York, as
the Issuer and as Agent.
10.51*** Agreement, dated as of June 7, 1993, by and between MTV Latin
America, Inc. and The Post Edge, Inc.
10.52*** Agreement, dated as of December 9, 1993, by and between Discovery
Communications, Inc. and The Post Edge, Inc., and Amendment No. 1
thereto.
10.53+++ Amendment No. 3, dated as of November 30, 1995, to the Credit
Agreement, dated as of May 4, 1995, by and among the Company, the
Lenders party thereto and The Bank of New York, as the Issuer and
as Agent.
10.54+++ Amendment No. 4, dated as of October 3, 1996, to the Credit
Agreement, dated as of May 4, 1995, by and among the Company, the
Lenders party thereto and The Bank of New York, as the Issuer and
as Agent.
10.55+++ Amendment No. 1, dated as of September 15, 1995, to the
Agreement, dated as of June 7, 1993, by and between MTV Latin
America, Inc. and The Post Edge, Inc.
21
<PAGE> 23
10.56+++ Assignment and Acceptance Agreement, dated as of August 22, 1996,
by and between Fleet Bank, N.A. (formerly known as NatWest Bank,
N.A.) and KeyBank of New York.
10.57 Voting Agreement, dated as of June 27, 1997, by and among
International Post Limited, Video Services Corporation, Terrence
A. Elkes, The Equitable Life Assurance Society of the United
States, Equitable Deal Flow Fund, L.P., Louis H. Siracusano,
Arnold P. Ferolito and Donald H. Buck (incorporated by reference
to exhibit number 10.58 contained in the Company's Current Report
on Form 8-K, dated July 7, 1997).
10.58 Asset Purchase Agreement, dated as of January 22, 1997, by and
among Cognitive Communications, Inc., Susan Wiener, Michael
Rudnick and Cognitive Communications, LLC (incorporated by
reference to exhibit number 10.1 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.59 Agreement, dated as of January 22, 1997, by and among the
Company, Susan Wiener, Michael Rudnick, Cognitive Communications,
Inc. and David Leveen (incorporated by reference to exhibit
number 10.2 contained in the Company's Quarterly Report on Form
10-Q for the quarterly period ended January 31, 1997).
10.60(M) Employment Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and Susan Wiener (incorporated by
reference to exhibit number 10.3 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.61(M) Employment Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and Michael Rudnick (incorporated
by reference to exhibit number 10.4 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.62(M) Employment Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and David Leveen (incorporated by
reference to exhibit number 10.5 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.63 Put Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC, the Company, Susan Wiener, Michael
Rudnick and David Leveen (incorporated by reference to exhibit
number 10.6 contained in the Company's Quarterly Report on Form
10-Q for the quarterly period ended January 31, 1997).
10.64 Sale Option Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and Susan Wiener (incorporated by
reference to exhibit number 10.7 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.65 Sale Option Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and Michael Rudnick (incorporated
by reference to exhibit number 10.8 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.66 Sale Option Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and David Leveen (incorporated by
reference to exhibit number 10.9 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.67(M) Incentive Compensation Agreement, dated as of January 22, 1997,
by and among Cognitive Communications, LLC, Susan Wiener, Michael
Rudnick and David Leveen (incorporated by reference to exhibit
number 10.10 contained in the Company's Quarterly Report on Form
10-Q for the quarterly period ended January 31, 1997).
10.68(M) Form of Incentive Option Agreement, undated, by and between
Cognitive Communications, LLC and Optionee (incorporated by
reference to exhibit number 10.11 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.69(M) Consulting Agreement, dated February 15, 1997, by and among the
Company and Jeffrey J. Kaplan (incorporated by reference to
exhibit number 10.12 contained in the Company's Quarterly Report
on Form 10-Q for the quarterly period ended January 31, 1997).
10.70 Stock Resale Agreement, dated as of August 26, 1997, by and among
the Company, Louis H. Siracusano, Donald H. Buck and Arnold P.
Ferolito.
10.71 Registration Rights Agreement, dated as of August 26, 1997, by
and among the Company, Louis H. Siracusano, Donald H. Buck and
Arnold P. Ferolito.
22
<PAGE> 24
10.72(M) Employment Agreement, dated as of August 26, 1997, by and between
the Company and Louis H. Siracusano.
10.73(M) Employment Agreement, dated as of August 26, 1997, by and between
the Company and Donald H. Buck.
10.74 Losses Escrow Agreement, dated as of August 26, 1997, by and
among the Company, Louis H. Siracusano, Donald H. Buck, Arnold P.
Ferolito and IBJ Schroder Bank & Trust Company.
10.75(M) Agreement, dated as of August 26, 1997, by and between the
Company and Martin Irwin.
10.76(M) Agreement, dated as of August 26, 1997, by and between the
Company and Arnold P. Ferolito.
16.1 Arthur Andersen LLP letter re change in certifying accountant
(incorporated by reference to the exhibit of the same number
contained in the Company's Current Report on Form 8-K, dated
September 4, 1997).
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information purposes only
and not filed.
- ---------------------
* Incorporated by reference to the exhibit of the same number contained in
Amendment No. 4 to IPL's Registration Statement on Form S-1 (the
"Registration Statement"), filed with the Securities and Exchange Commission
(the "SEC") on February 4, 1994.
+ Incorporated by reference to the exhibit of the same number contained in
Amendment No. 1 to IPL's Registration Statement filed with the SEC on
October 21, 1993.
** Incorporated by reference to the exhibit of the same number contained in
Amendment No. 3 to IPL's Registration Statement filed with the SEC on
January 10, 1994.
++ Incorporated by reference to the exhibit of the same number contained in
IPL's Annual Report on Form 10-K for the fiscal year ended July 31, 1994.
*** Incorporated by reference to the exhibit of the same number contained in
IPL's Annual Report on Form 10-K for the fiscal year ended July 31, 1995.
+++ Incorporated by reference to the exhibit of the same number contained in
IPL's Annual Report on Form 10-K for the fiscal year ended July 31, 1996.
(M) Management contract or compensatory plan or arrangement.
- ----------
(b) On July 8, 1997, IPL filed a Current Report on Form 8-K in respect of the
execution on June 27, 1997 of the Agreement and Plan of Merger, dated as of
June 27, 1997, by and among IPL, Video and Louis H. Siracusano, Arnold P.
Ferolito and Donald H. Buck, and the Voting Agreement, dated as of June 27,
1997, by and among IPL, Video, Terrence A. Elkes, The Equitable Life
Assurance Society of the United States, Equitable Deal Flow Fund, L.P.,
Louis H. Siracusano, Arnold P. Ferolito and Donald H. Buck.
(c) See Item 14(a)(3) above.
(d) Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts.
23
<PAGE> 25
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.
Date: October 29, 1997 VIDEO SERVICES CORPORATION,
formerly known as International Post Limited
By: /s/ Louis H. Siracusano
--------------------------------------
Name: Louis H. Siracusano
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacities and on the dates indicated.
NAME AND SIGNATURE TITLE DATE
- ------------------ ----- ----
/s/ Louis H. Siracusano President, Chief Executive Officer 10/29/97
- ----------------------------- and Director (Principal Executive
Louis H. Siracusano Officer)
/s/ Michael E. Fairbourne Vice President-Administration 10/29/97
- ----------------------------- (Principal Financial and
Michael E. Fairbourne Accounting Officer)
/s/ Terrence A. Elkes Chairman of the Board of Directors 10/29/97
- -----------------------------
Terrence A. Elkes
/s/ Robert H. Alter Director 10/29/97
- -----------------------------
Robert H. Alter
/s/ Julius Barnathan Director 10/29/97
- -----------------------------
Julius Barnathan
/s/ Martin Irwin Director 10/29/97
- -----------------------------
Martin Irwin
/s/ Frank Stillo Director 10/29/97
- -----------------------------
Frank Stillo
Director 10/29/97
- -----------------------------
Raymond L. Steele
24
<PAGE> 26
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page Number
-----------
REPORTS OF INDEPENDENT AUDITORS F-2, F-3
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
July 31, 1996 and 1997. F-4
Consolidated Statements of Operations for the
years ended July 31, 1995, 1996 and 1997. F-5
Consolidated Statements of Stockholders'
Equity for the years ended July 31, 1995,
1996 and 1997. F-6
Consolidated Statements of Cash Flows for the
years ended July 31, 1995, 1996 and 1997. F-7
Notes to Consolidated Financial
Statements. F-8 to F-28
SUPPLEMENTAL SCHEDULE:
II. Valuation and Qualifying Accounts F-29
NOTE:
Schedules other than those referred to above have been omitted as
inapplicable or not required under the instructions contained in
Regulation S-X or the information is included elsewhere in the financial
statements or the notes thereto.
F-1
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Video Services Corporation (formerly International Post Limited):
We have audited the accompanying consolidated balance sheet of
International Post Limited and subsidiaries as of July 31, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. Our audit also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present
fairly, in all material respects, the financial position of International Post
Limited and subsidiaries as of July 31, 1997 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
White Plains, New York
October 17, 1997
F-2
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of International Post Limited:
We have audited the accompanying consolidated balance sheet of
International Post Limited and subsidiaries as of July 31, 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended July 31, 1995 and 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of International Post
Limited and subsidiaries as of July 31, 1996 and the results of their operations
and their cash flows for the years ended July 31, 1995 and 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
September 25, 1996
F-3
<PAGE> 29
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1996 AND JULY 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS 1996 1997
- ------ ------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 104 $ 154
Accounts receivable, net ................................ 10,308 9,699
Deferred income taxes ................................... 597 479
Prepaid expenses and other current assets ............... 1,654 1,285
------- -------
Total current assets ........................ 12,663 11,617
Fixed assets, net .................................................. 29,533 28,479
Excess of cost over fair value of net assets acquired, net ......... 22,397 22,240
Deferred income taxes .............................................. 1,770 1,759
Other assets ....................................................... 1,498 2,453
------- -------
Total assets ................................ $67,861 $66,548
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................... $ 5,070 $ 4,964
Due to related parties .................................. 408 --
Current portion of long-term debt ....................... 3,856 4,245
Income taxes payable .................................... 2,283 335
------- -------
Total current liabilities ................... 11,617 9,544
Long-term debt ..................................................... 19,797 21,010
Subordinated debt .................................................. 5,096 5,268
Other liabilities .................................................. 1,516 1,639
------- -------
Total liabilities ........................... 38,026 37,461
------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock: $.01 par value - 3,000 shares
authorized; no shares outstanding at
July 31, 1996 and July 31, 1997 .................. -- --
Common stock: $.01 par value - 15,000 shares
authorized; 6,227 shares issued and outstanding at
July 31, 1996 and July 31, 1997 .................. 62 62
Additional paid-in-capital .............................. 24,979 24,979
Retained earnings ....................................... 4,794 4,046
------- -------
Total stockholders' equity .................. 29,835 29,087
------- -------
Total liabilities and stockholders' equity .. $67,861 $66,548
======= =======
</TABLE>
See accompanying notes
F-4
<PAGE> 30
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1995, 1996, AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues ........................................... $ 38,349 $ 49,352 $ 52,387
Direct salaries and costs .......................... 18,840 24,049 27,682
Selling, general and administrative expenses ....... 10,285 12,837 13,658
Depreciation ....................................... 5,168 7,229 7,239
Amortization ....................................... 581 1,140 1,198
Non-cash lease related obligation .................. -- 255 57
-------- -------- --------
Income from operations ............... 3,475 3,842 2,553
Other expense (income):
Interest expense ..................... 810 2,262 2,273
Interest income and other expense, net (15) (96) 12
-------- -------- --------
Income before taxes ...... 2,680 1,676 268
Provision for income taxes ......................... 1,074 862 1,016
-------- -------- --------
Net income (loss) .................................. $ 1,606 $ 814 $ (748)
======== ======== ========
Net income (loss) per share ........................ $ 0.26 $ 0.13 $ (0.12)
======== ======== ========
Weighted average number of shares outstanding ...... 6,214 6,220 6,227
======== ======== ========
</TABLE>
See accompanying notes
F-5
<PAGE> 31
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1995, 1996, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Common Capital in
Stock Stock Excess of Retained
Shares Amount Par Value Earnings
------ ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at August 1, 1994 .......... 6,214 $62 $ 25,494 $ 2,374
Stock and stock option related
compensation ............... -- -- (75) --
Net income ................... -- -- -- 1,606
----- --- -------- -------
Balance at July 31, 1995 ........... 6,214 62 25,419 3,980
Stock and stock option related
compensation ............... 13 -- (440) --
Net income ................... -- -- -- 814
----- --- -------- -------
Balance at July 31, 1996 ........... 6,227 62 24,979 4,794
Net loss ..................... -- -- -- (748)
----- --- -------- -------
Balance at July 31, 1997 ........... 6,227 $62 $ 24,979 $ 4,046
===== === ======== =======
</TABLE>
See accompanying notes
F-6
<PAGE> 32
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1995, 1996, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) ........................................... $ 1,606 $ 814 $ (748)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation ........................................... 5,168 7,229 7,239
Amortization ........................................... 581 1,140 1,198
Provision for bad debts ................................ 185 232 114
Loss (gain) on disposal of fixed assets ............... 55 (136) 19
Deferred taxes ......................................... 37 (1,508) 130
(Increase) decrease in operating assets:
Accounts receivable .................................... (577) (1,915) 653
Prepaid expenses and other current assets .............. 278 (916) 369
Other assets ........................................... (749) (644) (1,111)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses .................. (827) (1,261) (410)
Income taxes payable ................................... (484) 1,462 (1,948)
Other liabilities ...................................... (194) 889 123
-------- ------- -------
Net cash provided by operating activities ......... 5,079 5,386 5,628
-------- ------- -------
Investing Activities:
Additions to fixed assets .............................. (11,078) (5,573) (4,850)
Proceeds from sale of fixed assets ..................... 256 249 135
Deposits on fixed assets ............................... -- (50) 50
Purchase of companies, net of cash acquired ............ (11,661) -- (190)
-------- ------- -------
Net cash used in investing activities ............. (22,483) (5,374) (4,855)
-------- ------- -------
Financing Activities:
Proceeds from notes payable ............................ 3,500 -- --
Repayment of notes payable ............................. (5,730) -- --
Proceeds from revolving credit facility, net ........... 1,700 3,300 3,800
Proceeds from subordinated debt ........................ -- 169 172
Proceeds from long-term debt borrowing ................. 22,337 -- --
Proceeds from related parties .......................... 28 25 --
Repayment to related parties ........................... (267) -- (408)
Repayment of long-term debt ............................ (4,135) (3,770) (4,287)
-------- ------- -------
Net cash provided by (used in) financing activities 17,433 (276) (723)
-------- ------- -------
Net increase (decrease) in cash .... 29 (264) 50
Cash and cash equivalents, beginning of year ........................ 339 368 104
-------- ------- -------
Cash and cash equivalents, end of year .............................. $ 368 $ 104 $ 154
======== ======= =======
</TABLE>
See accompanying notes
F-7
<PAGE> 33
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of July 31, 1996 and 1997
and for the years ended July 31, 1995, 1996 and 1997
NOTE 1 - ORGANIZATION AND PRESENTATION
International Post Limited, a Delaware corporation, and subsidiaries
("IPL" or the "Company") was organized by the partners of Manhattan
Transfer/Edit Company ("MTE Co.") for the purpose of acquiring the business of
MTE Co. The partners in MTE Co. were MTE Holdings, Inc. ("Holdings" or
"Predecessor") and Video Services Corporation ("VSC"). This partnership was
established for the purpose of enabling Holdings to effect the acquisition of
specified assets and liabilities of VSC Post Production, Inc. ("VSC Post"), a
wholly-owned subsidiary of VSC. IPL was formed on October 12, 1993 and began
operations on February 8, 1994.
The Company was established with an initial capitalization of $1,000,
represented by 1,000 shares of common stock having a par value of $.01 per
share. Pursuant to a transaction which occurred immediately prior to, and in
connection with, the consummation of the public offering of shares of the
Company's common stock (the "Offering") on February 8, 1994, the assets and
liabilities of MTE Co. were contributed to Manhattan Transfer/Edit, Inc.
("Manhattan Transfer"), a newly-formed subsidiary of IPL, and an additional
3,469,833 shares were issued to IPL's shareholders. The Company accounted for
the contribution of these assets and liabilities at the historical amounts
reflected in MTE Co.'s financial statements.
In connection with the Offering, the Company registered 2,961,250 of
its shares under the Securities Act of 1933. Of the total shares registered, the
Company sold 2,493,125 shares, VSC sold 377,125 shares and Holdings sold 91,000
shares. The Company received net proceeds of $25,504,669, after deducting
underwriters' discounts applicable to the shares sold by the Company and all
costs of the Offering.
The Company recorded a pretax restructuring charge of $1,702,000 in
fiscal year 1993 in connection with the consolidation of the VSC Post facility
into MTE Co.'s facilities. The balance of the liability at July 31, 1996 was
$491,353 relating to a lease obligation for a vacated facility. During January
1997, the Company paid the remaining liability.
Manhattan Transfer provides a wide range of post-production services
primarily to the television advertising industry, including film-to-tape
transfers, electronic video editing, computer-generated graphics and
duplication.
Audio Plus Video International, Inc. ("APV") provides a broad range of
services to distributors of television programming to the international market
and, to a lesser extent, a variety of program originators, including standards
conversion, duplication, electronic video editing, film-to-tape transfers and
audio services in multi-standards and formats.
The Post Edge, Inc. ("Post Edge") provides post-production services to
the television advertising industry and corporate clients as well as network
playback and studio services.
F-8
<PAGE> 34
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 1 - ORGANIZATION AND PRESENTATION (CONTINUED)
CABANA corp. ("CABANA"), formerly known as Big Picture/Even Time
Limited, provides a variety of creative editorial services to the television
advertising industry.
Cognitive Communications, LLC ("CCL") provides communications
consulting and production services for the planning, design, development and
implementation of intranets and internet sites.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of IPL and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION - Revenue from services (except editorial) is recorded at
completion of services for the customer. Revenue for editorial services is
recorded as services are provided to customers on a percentage of completion
method.
INVENTORY - Inventory consists of blank video tape stock and is valued at the
lower of cost or market on a FIFO basis.
FIXED ASSETS - Property and equipment are carried at cost and depreciated by the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized over the shorter of their estimated useful lives or the term of
the underlying lease. Estimated useful lives by class of assets are as follows:
Machinery and equipment............ 3-10 years
Furniture and fixtures............. 3-10 years
Leasehold improvements............. 3-15 years
Repairs and maintenance are charged to expense as incurred.
Expenditures that result in the enhancement of the value of the facilities
involved are treated as additions to property and equipment. The cost of
property and equipment disposed of and accumulated depreciation thereon are
removed from the related accounts, and gain or loss, if any, is recognized.
GOODWILL - The excess of cost over net assets acquired is amortized on a
straight-line basis over a 25 year period. Amortization expense for the years
ended July 31, 1995, 1996 and 1997 was $517,311, $1,002,892 and $1,041,979,
respectively. Accumulated amortization at July 31, 1996 and 1997 was $3,180,403
and $4,222,382, respectively. The Company continually evaluates the carrying
value and the remaining economic useful life of all goodwill, and will adjust
the carrying value and related amortization period if appropriate.
ADVERTISING - The Company expenses advertising costs as incurred. Advertising
expense was $290,000, $327,000, and $285,000 for the years ended July 31, 1995,
1996 and 1997, respectively.
F-9
<PAGE> 35
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ASSET IMPAIRMENT - In March 1995, the Financial Accounting Standards Board
issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," which addresses the accounting and
reporting for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. The
Company adopted the provisions of this new standard effective August 1, 1996.
The effect of adoption was not material to the Company's financial condition,
results of operation or cash flow.
LONG-LIVED ASSETS - Long-lived assets, including intangibles, are reviewed for
impairment whenever events or circumstances indicate that the asset's
undiscounted expected cash flows are not sufficient to recover its carrying
amount. The Company measures an impairment loss by comparing the fair value of
the asset to its carrying amount. Fair value of an asset is calculated based
upon the present value of expected future cash flows.
CASH EQUIVALENTS - The Company classifies as cash equivalents all short-term,
highly liquid instruments having original maturities of three months or less.
The fair market value of these instruments approximate their carrying value.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of the Company's
accounts receivable, accounts payable and accrued liabilities approximate fair
market value based upon the relatively short-term nature of these financial
instruments. The carrying amounts of long-term debt approximates fair value
based on prevailing interest rates.
CONCENTRATION OF CREDIT - Financial instruments which potentially subject the
Company to concentration of credit risk consist principally of trade accounts
receivable. The Company conducts most of its operations in the television
programming and advertising industries. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral from its customers. Management believes it has reasonably estimated
losses from uncollectible receivables. Concentration of credit risk with respect
to trade receivables is limited due to the large number of customers included in
the Company's customer base.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NET INCOME PER SHARE - Net income per share has been computed using the weighted
average number of shares outstanding during each period.
INCOME TAXES - The Company accounts for income taxes pursuant to the provisions
of the Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting
for Income Taxes."
F-10
<PAGE> 36
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION -
(in thousands)
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Amounts paid for:
Interest ....................... $ 731 $1,797 $2,365
------ ------ ------
Income taxes ................... $1,520 $ 904 $2,835
------ ------ ------
Non-cash transactions:
Investing-
Acquisition of the business of
Cognitive Communications, Inc.
Assets acquired ................ $ 158
------
Liabilities assumed ............ $ 304
------
Financing-
Acquisition of Big Picture
Editorial Inc. and Even
Time Limited:
Subordinated debt issued ....... $4,890
------
Equipment acquired under capital
lease obligations .............. $1,539
------
Acquisition of the business of
Cognitive Communications, Inc.
Note payable issued ............ $ 550
------
</TABLE>
NEW ACCOUNTING STANDARDS - In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings Per Share" ("SFAS 128"), which is
effective for financial statements for periods ending after December 15, 1997,
and requires retroactive restatement of all earnings per share data. SFAS 128
requires replacement of primary and fully diluted earnings per share with basic
and diluted earnings per share. For the current and comparative prior periods,
SFAS 128 would have had no impact on the Company's earnings per share.
F-11
<PAGE> 37
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 3 - ACQUISITIONS
On May 4, 1995, the Company used a portion of its Term Loan (see Note
7) to purchase Post Edge, The Big Picture Editorial, Inc. ("BP") and Even Time
Ltd. ("ET"). The assets and operations of BP and ET were merged into the
Company's wholly-owned subsidiary Big Picture/Even Time Limited ("BP/ET") in
December 1995. In December 1996, BP/ET changed its name to "CABANA corp."
("CABANA") and during 1997 consolidated its operations into one facility in New
York City.
The purchase price for Post Edge was $8,000,000 in cash. The purchase
price for BP and ET was $12,070,000, including $6,350,000 principal amount of
convertible subordinated debt of the Company with a 4.0% interest coupon
convertible at $14 per share after five years and redeemable after six years
(valued at $4,890,000 at the date of acquisition). The purchase agreement
provides for contingent payments depending upon future revenues and increases in
profitability of CABANA. These acquisitions have been accounted for under the
purchase method and the excess purchase price paid over the historical cost of
the net assets acquired is accounted for as goodwill. During fiscal year 1996
the Company was required to pay $342,000 of contingent purchase price which was
added to the excess of cost over fair value of net assets acquired.
The following presents the unaudited combined pro forma results of
operations for the year ended July 31, 1995, as if the acquisition of Post Edge,
BP and ET had been completed by the Company as of the beginning of the year
ended July 31, 1995. The unaudited combined pro forma results of operations are
not necessarily indicative of the results of operations that would have occurred
had the companies actually combined during the periods presented or of future
results of operations of the combined operations.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995
----
<S> <C>
Revenues....................... $47,775
Net income..................... $ 141
Net income per share (a)....... $ .02
</TABLE>
(a) The pro forma net income per share is based on the weighted average
number of shares outstanding for 1995 of 6,213,958.
As part of the consolidation of the BP and ET facilities to one
facility in New York City, the Company recorded a non-cash lease related
obligation in the fourth quarter of fiscal 1996 of $255,000. This represents net
future lease payments the Company will be obligated to make for leases from the
vacancy date in July 1997 through their respective termination dates.
F-12
<PAGE> 38
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 3 - ACQUISITIONS (CONTINUED)
On January 22, 1997, Cognitive Communications, LLC, a Delaware limited
liability company, which is a majority-owned subsidiary of the Company,
purchased substantially all of the operating assets of Cognitive Communications,
Inc.("CCI"), a corporation principally engaged in providing strategic consulting
services in the area of communications and content strategy for, and research
relating to the implementation of, and the design and production of, intranets
and internets, for an aggregate purchase price of $600,000. CCL is approximately
98% owned by the Company and approximately 2% owned by two former stockholders
of CCI. The two former stockholders of CCI and a former employee of Manhattan
Transfer, defined herein, now a current employee of CCL, also have options to
purchase 23% aggregate additional membership interest in CCL in the event of the
Company's transfer of its membership interest in CCL. This acquisition was
accounted for under the purchase method and the excess purchase price paid over
the fair value of the net liabilities acquired is accounted for as goodwill.
NOTE 4 - ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
July 31, July 31,
1996 1997
----------- -----------
<S> <C> <C>
Accounts receivable,
trade ................................ $11,032,078 $10,442,039
Less: Allowance for doubtful accounts
and volume discounts ................. 724,565 743,269
----------- -----------
$10,307,513 $ 9,698,770
=========== ===========
</TABLE>
NOTE 5 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
<TABLE>
<CAPTION>
July 31, July 31,
1996 1997
---------- ----------
<S> <C> <C>
Prepaid expenses ...................... $ 807,895 $ 700,797
Inventory ............................. 457,890 420,804
Other ................................. 332,725 95,021
Notes receivables ..................... 55,096 68,096
---------- ----------
$1,653,606 $1,284,718
========== ==========
</TABLE>
F-13
<PAGE> 39
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 6 - FIXED ASSETS
Fixed assets, at cost, including capitalized leases (see Note 7), summarized by
major categories consisted of the following:
<TABLE>
<CAPTION>
July 31, July 31,
1996 1997
----------- -----------
<S> <C> <C>
Machinery and equipment ........................... $34,727,448 $37,495,867
Leasehold improvements ............................ 12,147,475 13,804,421
Furniture and fixtures ............................ 1,918,573 2,071,230
Equipment under capital leases .................... 365,340 1,904,149
----------- -----------
49,158,836 55,275,667
Less: Accumulated depreciation .................. 19,625,422 26,796,864
----------- -----------
$29,533,414 $28,478,803
=========== ===========
</TABLE>
NOTE 7 - LONG-TERM DEBT
<TABLE>
<CAPTION>
July 31, July 31,
1996 1997
----------- -----------
<S> <C> <C>
Senior secured term loan (see Note 18) ........... $18,320,000 $14,640,000
Senior, secured revolving credit loan (see Note 18) 5,000,000 8,800,000
Cognitive Communications, Inc. note payable ....... -- 244,729
8.0% Notes payable ................................ 4,815 --
Capital lease obligations ......................... 328,665 1,570,551
----------- -----------
23,653,480 25,255,280
Less: Current maturities ......................... 3,856,292 4,244,916
----------- -----------
$19,797,188 $21,010,364
=========== ===========
</TABLE>
F-14
<PAGE> 40
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 7 - LONG-TERM DEBT (CONTINUED)
SENIOR SECURED LONG-TERM DEBT (SEE NOTE 18) - During fiscal year 1995, the
Company established a $22,000,000 senior secured term loan (the "Term Loan") and
the Revolving Loan (as defined herein), pursuant to a Credit Agreement with a
syndicate of financial institutions secured by 1) all assets of the Company and
its existing and future directly and indirectly owned subsidiaries and 2) the
capital stock of all such subsidiaries. The Term Loan and the Revolving Loan
bore interest at the Bank of New York's Prime rate or LIBOR plus 1.375% through
July 31, 1996 and, thereafter, floats at such Prime rate plus .375% or LIBOR
plus 1.75%, and contained various covenants limiting future debt, dividends and
capital expenditures. The bank's Prime rate was 8.25% and 8.50% at July 31, 1996
and 1997, respectively. In addition, the Company had to maintain certain cash
flow and leverage ratios. In September 1996, the Company amended the Credit
Agreement, pursuant to which certain covenants were changed for fiscal year 1996
and prospective periods. In August 1996, Fleet Bank, N.A. and Key Bank, N.A.
("Key Bank") entered into an Assignment and Acceptance Agreement, pursuant to
which Fleet Bank , N.A. assigned to Key Bank a percentage of its rights and
obligations under the Loan Documents (as defined in the Credit Agreement).
In February 1996, the Company entered into an interest rate swap
agreement with a member of its bank syndicate. Under the agreement, the Company
effectively fixed the LIBOR rate and thereby the interest rate of the Term Loan
until maturity (January 2001) at 6.695%. In March 1996, the Company sold the
fixed rate position for $313,000, which is being amortized over the life of the
Term Loan. The Company's Term Loan rate was fixed at 6.695% through June 11,
1996, and floated at the BNY's Prime rate or LIBOR plus 1.375% through July 31,
1996 and, thereafter, floats at such prime rate plus .375% or LIBOR plus 1.75%.
The unamortized balance of the interest rate swap was approximately $258,000 and
$165,000 as of July 31, 1996 and 1997, respectively.
LINE OF CREDIT AND REVOLVING CREDIT FACILITY (SEE NOTE 18) - During fiscal year
1995, the Company established a $10,000,000 senior secured revolving credit
facility (the "Revolving Loan") with a syndicate of financial institutions
pursuant to the Credit Agreement. The Company had outstanding direct borrowings
of $5,000,000 and $8,800,000 under the Revolving Loan at July 31, 1996, and July
31, 1997, respectively. The Company was charged a commitment fee equal to 0.375%
on the unused amount of the Revolving Loan. In addition, the Company also had
issued letters of credit in the amount of $1,196,482 at both July 31, 1996 and
1997. The Company's weighted average interest rates were 7.09% and 7.43% during
1996 and 1997, respectively.
SUBORDINATED DEBT - The Company, in connection with the acquisition of BP and ET
in May 1995, issued $6,350,000 principal amount of eight year convertible
subordinated notes, due May 4, 2003, with an interest rate of 4.0% convertible
at $14 per share after five years and redeemable after six years. The debt was
valued at $4,890,000 at the date of acquisition using an effective rate of
8.34%. The valuation discount is being accreted over the life of the notes.
F-15
<PAGE> 41
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 7 - LONG-TERM DEBT(continued)
Required payments of principal on senior and subordinated debt,
exclusive of capitalized leases, outstanding at July 31, 1997, are summarized as
follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1998................................. $ 3,925,000
1999................................. 3,680,000
2000................................. 3,680,000
2001................................. 14,517,000
2002................................. 2,117,000
Thereafter.............................. 2,116,000
-------------
$ 30,035,000
=============
</TABLE>
Such amounts include accreted interest of approximately $1,083,000.
The Company leases certain equipment from unaffiliated entities. Future
minimum lease payments under capital leases as of July 31, 1997 are:
<TABLE>
<CAPTION>
Fiscal Year Amount
- ----------- ------
<S> <C>
1998................................. $ 451,741
1999................................. 451,741
2000................................. 368,888
2001................................. 368,804
2002................................. 215,135
--------------
Total minimum lease payments 1,856,309
Less: Amount representing interest 285,758
--------------
Present value of minimum lease payments $ 1,570,551
==============
</TABLE>
Leased property under capital leases are classified in fixed assets as follows:
<TABLE>
<CAPTION>
July 31, July 31,
1996 1997
---- ----
<S> <C> <C>
Equipment under capital leases $ 365,340 $1,904,149
Less: Accumulated amortization 138,166 435,940
---------- ----------
$ 227,174 $1,468,209
========== ==========
</TABLE>
F-16
<PAGE> 42
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 8 - RELATED PARTIES
In connection with the acquisition of specified assets and liabilities
from VSC Post, MTE Co. agreed to assume responsibility for all payments due by
VSC Post under a lease for a facility which was utilized by VSC Post. Annual
rent under such lease was approximately $400,000 per year (plus additional
amounts for real estate taxes and operating expenses) and the lease expired in
June 1996.
Beginning August 1993, the Company paid VSC $3,500 per month with
respect to the rental and maintenance of computer hardware and software. These
arrangements were terminated by the Company in March 1995.
In connection with the acquisition of specified operating assets and
liabilities from VSC Post, MTE Co. was required to make payments on notes
payable to an officer of MTE Co., the chief executive officer of the Company at
fiscal year end (see Note 17). These notes bore interest at rates ranging from
8.0% to 9.2%. The balance of the notes at July 31, 1996 as reflected in the
Company's consolidated balance sheet was $408,000 and is classified as due to
related parties. The balance at July 31, 1996 was paid in August 1996.
As part of the consolidation of its post-production facilities, the
Company entered into an agreement with A.F. Associates, Inc. ("A.F.
Associates"), a subsidiary of VSC, to purchase video equipment and design,
engineer, fabricate and install turnkey video systems. Payment in the amount of
$931,000 was made during the year ended July 31, 1995. During fiscal 1996, the
Company purchased certain machinery and equipment from A.F. Associates for
$103,000. The Company believes that the terms of these agreements were
comparable to terms it could have obtained in an arms-length transaction.
During fiscal 1995, the Company purchased certain computer hardware and
software from VSC for $135,000. The Company believes that the terms of this
agreement were comparable to terms it could have obtained in an arms-length
transaction.
During the years ended July 31, 1995, 1996 and 1997, the Company
provided services totaling $165,000, $184,000 and $157,000 to, and purchased
materials and services totaling $313,000, $241,000 and $213,000 from, VSC and
its affiliated companies, respectively. Revenues included post-production work
and courier services, and direct costs included duplication services, repairs
and maintenance, equipment rentals and tape stock purchases. In addition, the
Company purchased certain machinery and equipment from VSC and its affiliated
companies during the years ended July 31, 1996 and 1997 for $192,000 and
$331,000, respectively.
The Company leased a New York City facility from VSC, under a lease
accounted for as an operating lease. The lease was terminated on July 31, 1995.
Such rental expense of the Company amounted to $176,004, for the year ended July
31, 1995.
The Company sublets its New York City corporate office from a VSC
affiliate, under a lease accounted for as an operating lease. Such rental
expense of the Company for the years ended July 31, 1995, 1996 and 1997 amounted
to $5,675, $24,500 and $27,434, respectively.
F-17
<PAGE> 43
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 8 - RELATED PARTIES (CONTINUED)
The Company consolidated its New Jersey operations during the year
ended July 31, 1996 into a single facility that it leased from a partnership,
whose partners then owned a majority interest in VSC, under a lease accounted
for as an operating lease. The lease was renegotiated and extended during the
year ended July 31, 1996, with such rental expense of the Company amounting to
$376,000, $444,000 and $422,000, for the years ended July 31, 1995, 1996 and
1997, respectively.
At July 31, 1997, future minimum rental payments under non-cancelable
leases with VSC and its affiliated entities are as follows (see Note 9):
<TABLE>
<CAPTION>
Fiscal Year Amount
- ----------- ------------
<S> <C>
1998.................................... $ 414,600
1999.................................... 414,600
2000.................................... 407,937
2001.................................... 387,948
2002.................................... 387,948
Thereafter.............................. 3,653,177
------------
$ 5,666,210
============
</TABLE>
The Company had net accounts payable of $138,000 and $108,000 to VSC
and affiliated entities as of July 31, 1996 and 1997, respectively, which are
included in accounts payable and accrued expenses.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - The Company leases property under leases accounted for as
operating leases. Certain leases include escalation clauses. At July 31, 1997,
future minimum rental payments, including related party leases (see Note 8),
under non-cancelable leases for buildings and equipment are as follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
- ----------- ------
<S> <C>
1998.................................... $ 4,058,321
1999.................................... 4,975,403
2000.................................... 3,725,376
2001.................................... 4,488,823
2002.................................... 2,969,471
Thereafter.............................. 19,291,808
-------------
$ 39,509,202
=============
</TABLE>
F-18
<PAGE> 44
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense for the years ended July 31, 1995, 1996 and 1997 amounted
to $2,047,762, $2,781,750 and $3,518,750, respectively. The Company also has
non-cancelable subleases of approximately $530,000 of which approximately
$215,000 and $315,000 expire within approximately 2 years and 4 1/2 years,
respectively. The Company has recorded losses on subleases of approximately
$255,000 and $57,000 during the year ended July 31, 1996 and 1997, respectively,
which is included in other liabilities.
EMPLOYMENT AGREEMENTS - At July 31, 1997, the Company is obligated under
employment contracts with certain key employees providing for base salary and
incentive bonuses based upon the results of operations. Minimum amounts due
under these contracts are as follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1998.................................... $ 2,237,238
1999.................................... 1,071,875
2000.................................... 900,000
2001.................................... 450,000
2002.................................... 450,000
------------
$ 5,109,113
============
</TABLE>
LITIGATION - The Company is involved in various claims and legal proceedings of
a nature considered normal to its business. While it is not possible to predict
or determine the outcome of these proceedings, it is the opinion of management
that their outcome will have no material adverse effect on the financial
position, liquidity or results of operations of the Company.
NOTE 10 - INCOME TAXES
The reconciliation between the statutory tax rate and those reflected
in the Company's income tax provision is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--- --- ---
<S> <C> <C> <C>
Statutory tax rate ........................ 34% 34% 34%
Change in valuation allowance ............. -- -- 148
Non-deductible intangible amortization .... 7 13 135
State & local taxes, net of Federal benefit (1) -- 30
Non-deductible meals and entertainment .... -- 4 32
--- --- ---
40% 51% 379%
=== === ===
</TABLE>
F-19
<PAGE> 45
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 10 - INCOME TAXES (CONTINUED)
The provision for income taxes for the Company is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal ......................... $ 480,063 $ 1,263,647 $ 479,000
State and local ................. 159,691 300,362 407,000
Deferred
Federal ......................... 605,702 (408,378) (183,000)
State and local ................. (171,782) (293,781) (287,000)
Adjustment to valuation allowance -- -- 600,000
----------- ----------- -----------
$ 1,073,674 $ 861,850 $ 1,016,000
=========== =========== ===========
</TABLE>
The components of net deferred tax assets arising from temporary
differences as of July 31, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
July 31, July 31,
1996 1997
----------- -----------
<S> <C> <C>
Restructuring reserves ........ $ 238,000 $ -
Depreciation .................. 583,000 946,000
Allowance for doubtful accounts 309,000 317,000
State net operating loss ...... 702,000 967,000
Valuation allowance ........... -- (600,000)
Interest rate swap ............ 124,000 56,000
Straight line rent ............ 141,000 264,000
Other ......................... 270,000 288,000
----------- -----------
$ 2,367,000 $ 2,238,000
=========== ===========
</TABLE>
At July 31, 1997, the Company has tax benefits for operating loss
carryforwards for state income tax purposes of $967,000 of which approximately
$116,000, $377,000, $215,000 and $259,000 expire in years 2009, 2010, 2011 and
2012, respectively.
During the fourth quarter of 1997, a valuation allowance of $600,000
was provided as a result of changing estimates regarding future operations for
certain subsidiaries in certain states.
F-20
<PAGE> 46
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 11 - RETIREMENT PLANS
The Company adopted a qualified salary reduction plan for eligible
employees under Section 401(k) of the Internal Revenue Code (the "Retirement
Plan"). The Retirement Plan is funded by salary reduction contributions by the
participants thereof. The Company's contributions to the Retirement Plan are
based on participant contributions (which are limited to a fixed percentage of
participant compensation) and matching employer contributions with a five year
vesting provision in Company stock. Additionally, the Company may contribute a
discretionary amount. For the years ended July 31, 1995, 1996 and 1997, the
Company contributed cash of $44,654, $116,575 and $130,430, respectively.
The Company does not offer any post-retirement health or welfare
benefits.
NOTE 12 - STOCK BASED COMPENSATION PLANS (SEE NOTE 18)
The stockholders and directors of the Company have approved a long-term
incentive plan (the "Stock Plan") under which eligible employees may receive
grants of options, stock appreciation rights and restricted stock awards. An
aggregate of 600,000 shares of common stock were reserved for issuance under the
Stock Plan and options or other grants with respect thereto may be made over a
ten-year term. Options may be either incentive options, within the meaning of
the Internal Revenue Code, or non-qualified options. The Stock Plan is
administered by the compensation committee of the board of directors of the
Company who determine the employees entitled to grants, the exercise price,
which may not be less than the fair market value of the Company's common stock
on the date of grant, and the other terms of options or grants. The Company
accounts for this plan under APB Opinion No. 25, under which no compensation
cost has been recognized.
Had compensation cost for this plan been determined consistent with
FASB Statement No. 123, the Company's net income and earnings per share would
have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net Income (Loss): As Reported $1,606,000 $814,000 $(748,000)
Pro Forma $1,589,000 $810,000 $(813,000)
Net Income (Loss) Per Share: As Reported $.26 $.13 $(.12)
Pro Forma $.26 $.13 $(.13)
</TABLE>
Because the Statement 123 method of accounting has not been applied to
options granted prior to August 1, 1994, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
F-21
<PAGE> 47
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 12 - STOCK BASED COMPENSATION PLANS (CONTINUED)
During fiscal year 1995, 60,000 shares of common stock options were
granted. During fiscal year 1996, all prior options granted from inception of
the Stock Plan were replaced. The replacement options were granted with revised
terms, including without limitation, three year vesting commencing in fiscal
year 1996 and a range in price from $4.00 to $6.00 per share. In addition,
65,600 shares were forfeited by employees that were terminated during fiscal
year 1996. During fiscal year 1997, 90,200 shares of common stock options were
granted with 12,300 shares forfeited by employees that were terminated during
fiscal year 1997.
A summary of the status of the Stock Plan at July 31, 1995, 1996 and
1997 and changes during the years then ended is presented in the table and
narrative below:
<TABLE>
<CAPTION>
1995 1996 1997
---------------------- -------------------------- --------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
------- ---------- ---------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 436,500 $11.00 496,500 $10.60 430,900 $5.00
Granted 60,000 7.65 430,900 5.00 90,200 5.00
Exercised - - - - - -
Forfeited - - (65,600) 11.00 (12,300) 5.00
Canceled or Expired - - (430,900) 10.53 - -
------- ---------- ---------
Outstanding at end of year 496,500 10.60 430,900 5.00 508,800 5.00
------- ---------- ---------
Exercisable at end of year 87,300 11.00 - - 169,600 4.00
Weighted average fair value
of options granted $3.98 $5.10 $1.25
</TABLE>
Of the 508,800 options outstanding at July 31, 1997, 169,600 have
exercise prices of $4.00 with a remaining contractual life of 8.7 years. All of
these options are exercisable. An additional 169,600 options have exercise
prices of $5.00 with a remaining contractual life of 8.7 years. The remaining
169,600 options have exercise prices of $6.00 with a remaining contractual life
of 8.7 years. The Black-Scholes option pricing model used the following
weighted-average assumptions for grants in 1995, 1996 and 1997, respectively:
risk-free interest rates of 7, 6.6 and 5.52 percent; expected dividend yields of
0 percent for all years; expected lives of 6.6, 6.7 and 6 years; and expected
volatility of 37.2 percent for all years. As a result of the Change of Control
described in Notes 17 and 18, all options outstanding as of August 27, 1997
become vested and are immediately exercisable.
F-22
<PAGE> 48
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 12 - STOCK BASED COMPENSATION PLANS (CONTINUED)
The stockholders and directors of the Company have also approved a
restricted share plan for directors who are not employees of the Company. A
total of 50,000 shares of common stock are available for issuance under such
plan. Upon grant these options will vest upon the earliest to occur of two
consecutive years of board service, the death or disability of the recipient or
a "change of control date" (as defined in the Company's restricted share
plan)(see Note 18). During fiscal year 1994, 13,000 shares of common stock were
awarded to the directors of the Company. All such shares are currently vested.
At the date of grant, the share price was $11.375. Compensation expense charged
to operations in fiscal year 1995 was $148,000. During fiscal 1996, the
directors received the 13,000 shares previously awarded. Accordingly, the
Company utilized a portion of the deferred tax asset in relation to compensation
expense recognized by the directors. The Company recorded a reduction of $70,918
to net deferred tax assets with corresponding decreases in current income taxes
payable of $23,338 and additional paid in capital of $47,580 in 1996.
In February 1994, in connection with the acquisition of Audio Plus
Video, the then chief financial officer of the Company was granted ten-year,
non-qualified stock options to purchase 181,818 shares of the Company's common
stock at an exercise price of $9.35 per share. Such options are fully vested and
are presently exercisable.
In February 1994, the Company and VSC each granted five-year
non-qualified options to purchase an aggregate of 60,000 shares of the Company's
common stock to the two principals of the trustee through the trust referred to
below. The exercise price of such options is equal to the initial public
offering price of $11 per share. Such options vested three months after the
consummation of the Offering.
The principals of the trustee have been granted by Holdings six-year,
non-qualified options to purchase 299,024 shares of common stock from Holdings
at an exercise price of $2.06 per share. Such options are non-transferable and
vested on January 1, 1995. Such principals covenanted under the related option
agreements to serve as directors of the Company and to not compete with the
Company for a term of two years commencing on the date of the Offering.
F-23
<PAGE> 49
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 12 - STOCK BASED COMPENSATION PLANS (CONTINUED)
The principal shareholders of Holdings, through a trust, and VSC
granted options to the Company's then chief executive officer, which were
exercisable immediately, to acquire 138,833 outstanding shares of IPL common
stock held by such shareholders at amounts which ranged between $1.80 and $5.98
per share. These shareholders also granted to the Company's then chief executive
officer options to acquire a further 69,417 outstanding shares of IPL common
stock, at $7.78 per share, which became exercisable if certain performance
targets were met. These options expired on December 31, 1995. Given that these
options contained exercise prices which were below the initial public offering
price, the Company recorded in the period of the initial public offering a
non-cash compensation charge to pre-tax income of $1,202,000 and a corresponding
increase in additional paid-in capital of $637,000, net of taxes. At July 31,
1995, the value of the 69,417 stock options with an exercise price of $7.78 was
adjusted based upon the quoted market price of the Company's common stock on
that date of $4.75, which required an adjustment to compensation expense
increasing pre-tax income for fiscal year 1995 by $223,000. During fiscal year
1996, the Company's then chief executive officer exercised 69,417 stock options
at $1.80, at which time the quoted market price of the Company's common stock
was $4.125. In connection with this transaction, the Company recorded a
reduction of $77,000 to net deferred tax assets and current income taxes payable
in 1996. The remaining 69,416 stock options at $5.98 expired. In connection with
the expiration of these options, the Company recorded a reduction of $392,000 to
net deferred tax assets and additional paid-in capital.
NOTE 13 - REGISTRATION RIGHTS
The Company had agreed to register for sale shares of common stock held
by The Equitable Life Assurance Society of the United States, Equitable Deal
Flow Fund, L.P. and Equitable Capital Management Corporation ("Equitable"), upon
its request. The Company had also agreed to register shares, on a pro-rata
basis, held by VSC and its transferees, certain officers of the Company and
principals of the trustee at such time as Equitable demands registration of its
shares of common stock. In addition, the Company filed on February 14, 1997 a
registration statement on Form S-3 to register 441,441 shares of common stock
underlying options granted to certain officers of the Company and principals of
the trustee. On February 25, 1997 the Form S-3 was amended to register an
additional 152,094 shares held by VSC.
F-24
<PAGE> 50
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 14 - PREFERRED STOCK
The Company's certificate of incorporation authorizes the board of
directors to issue from time to time, in one or more series, shares of preferred
stock with such designations and preferences, relative voting rights (except
that voting rights, if any, in respect of the election of directors shall be
limited to voting with the holders of common stock, with no more than one vote
per share of preferred stock), redemption, conversion, participation and other
rights and qualifications, limitations and restrictions as permitted by law. The
board of directors by its approval of certain series of preferred stock could
adversely affect the voting power of the holders of common stock, and, by
issuing shares of preferred stock with certain voting, conversion, redemption
rights or other terms, could delay, discourage or make more difficult changes of
control or management of the Company.
NOTE 15 - DIVIDEND POLICY
The board of directors of the Company does not intend to declare any
dividends in the foreseeable future and intends to retain all earnings in the
Company to finance the growth of operations, including acquisitions. Future
dividend policy will be based upon the Company's results of operations,
financial condition, capital requirements and other circumstances.
F-25
<PAGE> 51
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 16 - UNAUDITED QUARTERLY RESULTS
Unaudited quarterly financial information for fiscal year 1996 and 1997
is set forth below. All dollar amounts are in thousands except per share data.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
Company
-----------------------------------------------------
October 31, January 31, April 30, July 31,
1995 1996 1996 1996
-------- -------- -------- --------
Fiscal 1996
<S> <C> <C> <C> <C>
Revenues ...................... $ 12,202 $ 12,099 $ 12,666 $ 12,385
Income (loss) from operations . $ 1,813 $ 1,347 $ 1,283 $ (601)
Net income (loss) ............ $ 673 $ 405 $ 307 $ (571)
Net income (loss) per share ... $ 0.11 $ 0.07 $ 0.05 $ (0.09)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------
Company
------------------------------------------------------
October 31, January 31, April 30, July 31,
1996 1997 1997 1997
-------- -------- -------- --------
Fiscal 1997
<S> <C> <C> <C> <C>
Revenues ...................... $ 13,776 $ 12,965 $ 14,142 $ 11,504
Income (loss) from operations . $ 1,739 $ 458 $ 1,223 $ (867)
Net income (loss) ............. $ 595 $ (139) $ 285 $ (1,489)
Net income (loss) per share ... $ 0.10 $ (0.02) $ 0.05 $ (0.25)
</TABLE>
NOTE 17 - MERGER
On August 27, 1997, VSC merged with and into IPL with IPL as the
surviving corporation for legal purposes. At the effective time of the merger,
IPL changed its name to Video Services Corporation (herein referred to as "New
Video Services Corporation"). The merger was accounted for as a reverse
acquisition whereby the pre-merger financial statements of VSC became the
historical financial statements of New Video Services Corporation. The acquired
assets and liabilities of IPL will be recorded at their respective fair market
values at the date of the merger. An aggregate of 7,011,349 shares of IPL common
stock were issued to VSC's stockholders in the merger (plus an additional
212,096 shares of common stock which were issued to replace an equal number of
shares of IPL common stock owned by VSC which were canceled upon the merger).
Such shares in the aggregate represented approximately 54.6% of the outstanding
shares of common stock immediately after the merger. In connection with the
merger, the IPL's chief executive officer and chief financial officer were
replaced by the corresponding executives of VSC.
F-26
<PAGE> 52
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 17 - MERGER (CONTINUED)
The following presents the unaudited combined pro forma results of
operations for the year ended July 31, 1997, as if the merger had occurred as of
July 1, 1996 (beginning of VSC's fiscal year). The unaudited combined pro forma
results of operations are not necessarily indicative of the results of
operations that would have occurred had IPL and VSC actually combined during the
periods presented or of future results of operations of the combined operations.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997
----
<S> <C>
Revenues $79,390
Income from continuous operations $ 1,663
Income from continuous operations per share(a) $ .13
</TABLE>
(a) The pro forma income from continuous operations per share is
based on the weighted average number of shares outstanding after the merger of
13,238,000. The Company's pro forma net loss is approximately $25,000 which
includes approximately $1,688,000 of losses from discontinued operations
relating to certain subsidiaries of Video which have been discontinued in
connection with the merger.
NOTE 18 - SUBSEQUENT EVENT
In connection with the merger between IPL and VSC (see Note 17), New
Video Services Corporation refinanced substantially all of IPL's and VSC's
long-term indebtedness (excluding convertible subordinated debt, note payable to
CCL and obligations under capital leases), line of credit, with a $33 million
term loan and a $17 million revolving line of credit. The new facility bears
interest at: (i) the lenders' prime rate minus 1.00% or (ii) LIBOR plus a number
of basis points based upon New Video Services Corporation's leverage ratio
(funded debt divided by EBITDA), which is initially LIBOR plus 1.75% (New Video
Services Corporation has the option to choose the applicable interest rate).
Principal payments of $1 million per quarter in respect of the term loan portion
of the facility are due beginning December 31, 1997. Such quarterly principal
payments increase to $1.25 million per quarter on December 31, 1998 and then
increase to $1.75 million per quarter on December 31, 1999 and then further
increase to $2.0 million per quarter on September 30, 2001 with a balloon
payment of $3.75 million in respect of the term loan portion of the facility due
on September 30, 2002. The facility is secured by all of the assets of New Video
Services Corporation and its subsidiaries (after giving effect to the merger).
No significant gain or loss resulted from the refinancing. The facility contains
covenants which require New Video Services Corporation to maintain certain
financial ratios, prohibit dividends and similar payments and restrict the
incurrence of other indebtedness. The facility is guaranteed by all of New Video
Services Corporation's subsidiaries (after giving effect to the merger).
F-27
<PAGE> 53
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 18 - SUBSEQUENT EVENT (CONTINUED)
The proceeds of the new facility were used as follows: approximately
$23.4 million to refinance IPL's outstanding long-term indebtedness,
approximately $3.6 million to refinance VSC's outstanding long-term indebtedness
and approximately $1.8 million to refinance VSC's outstanding short-term line of
credit. Approximately $3.5 million was used to pay the fees and expenses
incurred in connection with the merger. The remainder of the facility
(approximately $17.7 million) will be used for future working capital
requirements and general corporate purposes.
Also in connection with the merger, the IPL's long term incentive plan
was replaced by New Video Services Corporation's 1997 Long Term Incentive Plan
(the "1997 Plan"). The plans are similar in their terms except, among other
things, that under the 1997 Plan, the aggregate number of shares of IPL common
stock issuable has been increased to 735,000, stock options (other than
incentive stock options) may be issued under the 1997 Plan below the fair market
value of the underlying IPL common stock on the date of grant, awards may be
granted under the 1997 Plan to consultants and independent contractors
performing services for New Video Services Corporation. Certain other revisions
were made in the 1997 plan as a result of recent changes in federal securities
laws relating to equity compensation plans and to conform the 1997 plan to the
requirements of Internal Revenue Code Section 162(m). The merger was deemed a
Change in Control under IPL's former long term incentive plan, and, as a result
of the merger, all stock options outstanding at the time of the merger become
vested and are immediately exercisable.
F-28
<PAGE> 54
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning of Costs and Deductions End of
Year Expenses Write-Offs Year
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
For the year ended July 31, 1995:
Allowance for doubtful
accounts and volume discounts ....... $569,877 $184,771 $138,894 $615,754
======== ======== ======== ========
July 31, 1996:
Allowance for doubtful
accounts and volume discounts ........ $615,754 $231,983 $123,172 $724,565
======== ======== ======== ========
July 31, 1997:
Allowance for doubtful
accounts and volume discounts ........ $724,565 $114,235 $ 95,531 $743,269
======== ======== ======== ========
</TABLE>
F-29
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NUMBER EXHIBITS PAGE
<S> <C> <C>
2.1* Acquisition Agreement dated as of December 23, 1993 among the
Company, VSC Video Corporation, Waterfront Communications
Corporation, Martin Audio-Video Corporation, Atlantic Satellite
Communications, Inc., A.F. Associates, Inc. and Video Services
Corporation.
2.2 Stock Purchase Agreement, dated as of May 4, 1995, by and among
the Company, The Post Edge, Inc. and all of the stockholders of
The Post Edge, Inc., including the exhibits thereto but excluding
the schedules thereto (incorporated by reference to exhibit
number 2.1 contained in the Company's Current Report on Form 8-K,
dated May 18, 1995).
2.3 Stock Purchase Agreement, dated as of April 25, 1995, by and
among the Company, The Big Picture Editorial, Inc., Even Time
Ltd., BP Partnership, ET Partnership, BPET Partnership, Barbara
D'Ambrogio, David D'Ambrogio, Gregory Letson, Michael Schenkein,
Leonard Smalheiser, Jane Stuart and Big Picture/Even Time
Limited, including the exhibits thereto but excluding the
schedules thereto (incorporated by reference to exhibit number
2.2 contained in the Company's Current Report on Form 8-K, dated
May 18, 1995).
2.4 Agreement and Plan of Merger, dated as of June 27, 1997, by and
among International Post Limited, Video Services Corporation and
Louis H. Siracusano, Arnold P. Ferolito and Donald H. Buck
(incorporated by reference to exhibit number 10.57 contained in
the Company's Current Report on Form 8-K, dated July 7, 1997).
3.1 Certificate of Incorporation of the Company, as amended.
3.2+ By-Laws of the Company.
4.1 Form of 4% Convertible Subordinated Note of the Company
(incorporated by reference to the exhibit of the same number
contained in the Company's Current Report on Form 8-K, dated May
18, 1995).
10.1*(M) Form of Employment Agreement between Martin Irwin and the
Company.
10.2*(M) Form of Employment Agreement between Jeffrey J. Kaplan and the
Company.
10.3*(M) Form of Employment Agreement between Adrien Macaluso and the
Company.
10.4*(M) Form of International Post Group Inc. Long-term Incentive Plan,
together with form of International Post Group Inc. Stock Option
Agreement.
10.5*(M) Form of International Post Group Inc. Restricted Share Plan for
Directors, together with form of Restricted Share Agreement.
10.6* Form of Registration Rights Agreement among the Company,
Holdings, VSC, Martin Irwin, Jeffrey J. Kaplan, Adrien Macaluso,
Terrence A. Elkes and Kenneth F. Gorman.
10.7** Form of Lease Agreements between Audio Plus Video and L.I.M.A.
Partners.
10.8* Purchase Agreement, dated September 10, 1993, between A.F.
Associates, Inc. and MTE Co.
10.9+ Lease Agreements, dated as of June 30, 1993, between MTE Co. and
Nineteen New York Properties Limited Partnership.
10.10+ Agreement of Lease, dated as of March 7, 1990, between 225 Realty
Associates and VSC Post, together with First Supplemental
Agreement.
10.11+ Contribution Agreement, dated as of July 30, 1992, between
Holdings and VSC Post.
10.12* Forms of Promissory Notes made by Manhattan Transfer in favor of
Martin Irwin.
10.13+ Letter Agreement, dated February 22, 1993, between Apollo and
Holdings.
10.14+ Promissory Note, dated January 1, 1993, made by MTE Co. in favor
of Terrence A. Elkes and Kenneth F. Gorman.
10.15+ Security Agreement, dated as of January 1, 1993 among MTE Co.,
Terrence A. Elkes and Kenneth F. Gorman.
10.16+ Agreement, dated as of July 1, 1993, among MTE Co., Terrence A.
Elkes and Kenneth F. Gorman.
</TABLE>
<PAGE> 56
<TABLE>
<S> <C> <C>
10.17+ Security Agreement, dated as of July 1, 1993, among MTE Co.,
Terrence A. Elkes and Kenneth F. Gorman.
10.18** Promissory Note, dated July 31, 1992, made by MTE Co. in favor of
P.C. Leasing, a division of Phoenixcor, Inc.
10.19* Form of Services Agreement between VSC and Manhattan Transfer.
10.20* Form of Services Agreement between VSC and Audio Plus Video.
10.21* Form of Roll-Up and Exchange Agreement among Holdings, VSC Video,
Inc., Video Services Corporation, the Company and Manhattan
Transfer.
10.22**(M) Form of Stock Option Agreement among VSC, Holdings and Martin
Irwin.
10.23**(M) Form of Stock Option Agreement between the Company and Jeffrey J.
Kaplan.
10.24** Form of Settlement Agreement between Apollo and Holdings.
10.25** Form of Services and Option Agreement between Holdings and
Kenneth F. Gorman.
10.26** Form of Services and Option Agreement between Holdings and
Terrence A. Elkes.
10.27** Form of Stock Option Agreement between VSC and Kenneth F. Gorman.
10.28** Form of Stock Option Agreement between VSC and Terrence A. Elkes.
10.29**(M) Form of Stock Option Agreement between the Company and Kenneth F.
Gorman.
10.30**(M) Form of Stock Option Agreement between the Company and Terrence
A. Elkes.
10.31** Consent and Authorization, dated December 23, 1993, by Martin
Irwin, Jeffrey J. Kaplan, Adrien Macaluso, Terrence A. Elkes,
Kenneth F. Gorman, VSC, the Company, Holdings and Apollo.
10.32++(M) Employment Agreement, dated as of April 21, 1994, between the
Company and Daniel Rosen.
10.33++(M) Stock Option Agreement, dated as of April 21, 1994, between the
Company and Daniel Rosen.
10.34(M) Consulting Agreement, dated as of May 4, 1995, between The Post
Edge, Inc. and Michael Orsburn (incorporated by reference to
exhibit number 10.1 contained in the Company's Current Report on
Form 8-K, dated May 18, 1995).
10.35(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and Barbara D'Ambrogio
(incorporated by reference to exhibit number 10.2 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.36(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and David D'Ambrogio
(incorporated by reference to exhibit number 10.3 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.37(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and Gregory Letson
(incorporated by reference to exhibit number 10.4 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.38(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and Michael Schenkein
(incorporated by reference to exhibit number 10.5 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.39(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and Leonard Smalheiser
(incorporated by reference to exhibit number 10.6 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.40(M) Employment Agreement, dated as of May 4, 1995, among Big
Picture/Even Time Limited, the Company and Jane Stuart
(incorporated by reference to exhibit number 10.7 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.41 Put/Call Agreement, dated as of May 4, 1995, between Gregory
Letson and the Company (incorporated by reference to exhibit
number 10.8 contained in the Company's Current Report on Form
8-K, dated May 18, 1995).
10.42 Pledge Agreement, dated as of May 4, 1995, by and among BP
Partnership, ET Partnership, Barbara D'Ambrogio, David
D'Ambrogio, Michael Schenkein, Leonard Smalheiser, Jane Stuart
and the Company (incorporated by reference to exhibit
</TABLE>
<PAGE> 57
<TABLE>
<S> <C> <C>
number 10.9 contained in the Company's Current Report on Form
8-K, dated May 18, 1995).
10.43 Pledge Agreement, dated as of May 4, 1995, by and between Gregory
Letson and the Company (incorporated by reference to exhibit
number 10.10 contained in the Company's Current Report on Form
8-K, dated May 18, 1995).
10.44 Escrow Agreement, dated as of May 4, 1995, by and among ET
Partnership, David D'Ambrogio, Barbara D'Ambrogio, the Company
and Cowan, Gold, DeBaets, Abrahams & Sheppard, as Escrow Agent
(incorporated by reference to exhibit number 10.11 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.45 Escrow Agreement, dated as of May 4, 1995, by and among BP
Partnership, Michael Schenkein, Leonard Smalheiser, Jane Stuart,
Gregory Letson, the Company and Cowan, Gold, DeBaets, Abrahams &
Sheppard, as Escrow Agent (incorporated by reference to exhibit
number 10.12 contained in the Company's Current Report on Form
8-K, dated May 18, 1995).
10.46 Credit Agreement, dated as of May 4, 1995, by and among the
Company, The Bank of New York, in its capacity as a Lender, as
the Issuer and as the Agent, and Fleet Bank, as a Lender
(incorporated by reference to exhibit number 10.13 contained in
the Company's Current Report on Form 8-K, dated May 18, 1995).
10.47 Security Agreement, dated as of May 4, 1995, by and between the
Company and The Bank of New York, as Agent (incorporated by
reference to exhibit number 10.14 contained in the Company's
Current Report on Form 8-K, dated May 18, 1995).
10.48 Guaranty, dated as of May 4, 1995, by and among the Persons party
thereto and The Bank of New York, as Agent (incorporated by
reference to exhibit number 10.15 contained in the Company's
Current Report on Form 8-K, dated May 18, 1995).
10.49*** Amendment No. 1 and Reallocation Agreement, dated as of June 12,
1995, by and among The Bank of New York, Fleet Bank, NatWest Bank
N.A. and the Company, to the Credit Agreement, dated as of May 4,
1995, by and among International Post Limited, the Lenders party
thereto, and The Bank of New York, as the Issuer and as Agent.
10.50*** Form of Amendment No. 2, dated as of October 30, 1995, to the
Credit Agreement, dated as of May 4, 1995, by and among the
Company, the Lenders party thereto, and The Bank of New York, as
the Issuer and as Agent.
10.51*** Agreement, dated as of June 7, 1993, by and between MTV Latin
America, Inc. and The Post Edge, Inc.
10.52*** Agreement, dated as of December 9, 1993, by and between Discovery
Communications, Inc. and The Post Edge, Inc., and Amendment No. 1
thereto.
10.53+++ Amendment No. 3, dated as of November 30, 1995, to the Credit
Agreement, dated as of May 4, 1995, by and among the Company, the
Lenders party thereto and The Bank of New York, as the Issuer and
as Agent.
10.54+++ Amendment No. 4, dated as of October 3, 1996, to the Credit
Agreement, dated as of May 4, 1995, by and among the Company, the
Lenders party thereto and The Bank of New York, as the Issuer and
as Agent.
10.55+++ Amendment No. 1, dated as of September 15, 1995, to the
Agreement, dated as of June 7, 1993, by and between MTV Latin
America, Inc. and The Post Edge, Inc.
10.56+++ Assignment and Acceptance Agreement, dated as of August 22, 1996,
by and between Fleet Bank, N.A. (formerly known as NatWest Bank,
N.A.) and KeyBank of New York.
10.57 Voting Agreement, dated as of June 27, 1997, by and among
International Post Limited, Video Services Corporation, Terrence
A. Elkes, The Equitable Life Assurance Society of the United
States, Equitable Deal Flow Fund, L.P., Louis H. Siracusano,
Arnold P. Ferolito and Donald H. Buck (incorporated by reference
to exhibit number 10.58 contained in the Company's Current Report
on Form 8-K, dated July 7, 1997).
10.58 Asset Purchase Agreement, dated as of January 22, 1997, by and
among Cognitive Communications, Inc., Susan Wiener, Michael
Rudnick and Cognitive Communications, LLC (incorporated by
reference to exhibit number 10.1 contained
</TABLE>
<PAGE> 58
<TABLE>
<S> <C> <C>
in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended January 31, 1997).
10.59 Agreement, dated as of January 22, 1997, by and among the
Company, Susan Wiener, Michael Rudnick, Cognitive Communications,
Inc. and David Leveen (incorporated by reference to exhibit
number 10.2 contained in the Company's Quarterly Report on Form
10-Q for the quarterly period ended January 31, 1997).
10.60(M) Employment Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and Susan Wiener (incorporated by
reference to exhibit number 10.3 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.61(M) Employment Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and Michael Rudnick (incorporated
by reference to exhibit number 10.4 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.62(M) Employment Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and David Leveen (incorporated by
reference to exhibit number 10.5 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.63 Put Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC, the Company, Susan Wiener, Michael
Rudnick and David Leveen (incorporated by reference to exhibit
number 10.6 contained in the Company's Quarterly Report on Form
10-Q for the quarterly period ended January 31, 1997).
10.64 Sale Option Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and Susan Wiener (incorporated by
reference to exhibit number 10.7 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.65 Sale Option Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and Michael Rudnick (incorporated
by reference to exhibit number 10.8 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.66 Sale Option Agreement, dated as of January 22, 1997, by and among
Cognitive Communications, LLC and David Leveen (incorporated by
reference to exhibit number 10.9 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.67(M) Incentive Compensation Agreement, dated as of January 22, 1997,
by and among Cognitive Communications, LLC, Susan Wiener, Michael
Rudnick and David Leveen (incorporated by reference to exhibit
number 10.10 contained in the Company's Quarterly Report on Form
10-Q for the quarterly period ended January 31, 1997).
10.68(M) Form of Incentive Option Agreement, undated, by and between
Cognitive Communications, LLC and Optionee (incorporated by
reference to exhibit number 10.11 contained in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 1997).
10.69(M) Consulting Agreement, dated February 15, 1997, by and among the
Company and Jeffrey J. Kaplan (incorporated by reference to
exhibit number 10.12 contained in the Company's Quarterly Report
on Form 10-Q for the quarterly period ended January 31, 1997).
10.70 Stock Resale Agreement, dated as of August 26, 1997, by and among
the Company, Louis H. Siracusano, Donald H. Buck and Arnold P.
Ferolito.
10.71 Registration Rights Agreement, dated as of August 26, 1997, by
and among the Company, Louis H. Siracusano, Donald H. Buck and
Arnold P. Ferolito.
10.72(M) Employment Agreement, dated as of August 26, 1997, by and between
the Company and Louis H. Siracusano.
10.73(M) Employment Agreement, dated as of August 26, 1997, by and between
the Company and Donald H. Buck.
10.74 Losses Escrow Agreement, dated as of August 26, 1997, by and
among the Company, Louis H. Siracusano, Donald H. Buck, Arnold P.
Ferolito and IBJ Schroder Bank & Trust Company.
</TABLE>
<PAGE> 59
<TABLE>
<S> <C> <C>
10.75(M) Agreement, dated as of August 26, 1997, by and between the
Company and Martin Irwin.
10.76(M) Agreement, dated as of August 26, 1997, by and between the
Company and Arnold P. Ferolito.
16.1 Arthur Andersen LLP letter re: change in certifying accountant
(incorporated by reference to the exhibit of the same number
contained in the Company's Current Report on Form 8-K, dated
September 4, 1997).
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information purposes only
and not filed.
</TABLE>
- ---------------------
* Incorporated by reference to the exhibit of the same number contained in
Amendment No. 4 to IPL's Registration Statement on Form S-1 (the
"Registration Statement"), filed with the Securities and Exchange Commission
(the "SEC") on February 4, 1994.
+ Incorporated by reference to the exhibit of the same number contained in
Amendment No. 1 to IPL's Registration Statement filed with the SEC on
October 21, 1993.
** Incorporated by reference to the exhibit of the same number contained in
Amendment No. 3 to IPL's Registration Statement filed with the SEC on
January 10, 1994.
++ Incorporated by reference to the exhibit of the same number contained in
IPL's Annual Report on Form 10-K for the fiscal year ended July 31, 1994.
*** Incorporated by reference to the exhibit of the same number contained in
IPL's Annual Report on Form 10-K for the fiscal year ended July 31, 1995.
+++ Incorporated by reference to the exhibit of the same number contained in
IPL's Annual Report on Form 10-K for the fiscal year ended July 31, 1996.
(M) Management contract or compensatory plan or arrangement.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL POST GROUP INC.
1. The name of the corporation is International Post Group Inc.
2. The address of the corporation's registered office in Delaware is 15
East North Street, Dover (Kent County), Delaware 19901. United
Corporate Services, Inc. is the corporation's registered agent at that
address.
3. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware
General Corporation Law.
4. The total number of shares of stock which the Corporation has authority
to issue is 18,000,000 shares, of which (i) 3,000,000 shares are
preferred stock, par value $0.01 per share (the "Preferred Stock"), and
(ii) 15,000,000 shares are common stock, par value $0.01 per share (the
"Common Stock").
4.1. The Board of Directors is hereby authorized to issue the
Preferred Stock in one or more series, to fix the number of
shares of any such series of Preferred Stock, to determine the
designation of any such series, and to fix the powers,
preferences, and rights, and the qualifications, limitations,
or restrictions of the Preferred Stock.
4.2. The authority of the Board of Directors shall include, without
limitation, the power to fix or alter the dividend rights,
dividend rate, conversion rights, voting rights (except that
voting rights, if any, of the holders of Preferred Stock in
respect of the election of directors shall be limited to
voting with the holders of common stock, as a single class,
with no more than one vote per share of Preferred Stock),
rights and terms of redemption (including sinking fund
provisions, if any), the redemption price or prices, and the
liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any
such unissued series and the designation thereof, or any of
them; and to increase or decrease the number of shares of any
series subsequent to the issue of that series, but not below
the number of shares of such series then outstanding. In case
the number of shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
5. Then name of the sole incorporator is Sara Adler and her mailing
address is c/o Kaye, Scholer, Florman, Hays & Handler, 425 Park Avenue,
New York, New York 10022.
<PAGE> 2
6. The Board of Directors shall have the power to make, alter or repeal
the by-laws of the corporation.
7. The election of the Board of Directors need not be by written ballot.
8. The corporation shall indemnify to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware as amended from
time to time each person who is or was a director or officer of the
corporation and the heirs, executors and administrators of such a
person.
9. No director shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director for any act or omission occurring subsequent to the date when
this provision becomes effective, except that he may be liable (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii)
under section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived an improper personal
benefit.
10. No action required or permitted to be taken at any annual or special
meeting of stockholders of the Corporation may be taken without a
meeting, and the power of stockholders of the Corporation to consent in
writing, without a meeting, to the taking of any action is specifically
denied; provided, however, that the holders of Preferred Stock may act
by written consent to the extent provided in a resolution or
resolutions of the Board of Directors authorizing the issuance of a
particular series of Preferred Stock pursuant to Article Four of this
Certificate of Incorporation.
Dated: October 12, 1993 /s/ Sara Adler
----------------------
Sole Incorporator
-2-
<PAGE> 3
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL POST GROUP INC.
Pursuant to Section 242 of the General Corporation Law of Delaware
The undersigned, the President and Secretary of International Post
Group Inc., a Delaware corporation (the "Corporation"), do hereby certify as
follows:
1. Paragraph 1 of the Certificate of Incorporation of the
Corporation is amended to read in its entirety as follows:
"1. The name of the corporation is International Post
Limited."
2. Pursuant to Sections 228 and 242 of the General Corporation
Law of Delaware, the foregoing amendment was duly adopted by the unanimous
written consent of the Board of Directors of the Corporation on February 7, 1994
and by the unanimous written consent of the stockholders of the Corporation on
February 7, 1994.
Dated: February 7, 1994 /s/ Martin Irwin
-----------------------
Martin Irwin, President
/s/ Gary R. Strack
- -------------------------
Gary R. Strack, Secretary
-3-
<PAGE> 4
CERTIFICATE OF MERGER
MERGING VIDEO SERVICES CORPORATION
INTO INTERNATIONAL POST LIMITED
(Pursuant to Section 252 of the
Delaware General Corporation Law)
International Post Limited, a Delaware corporation DOES HEREBY CERTIFY
that:
1. The name and state of incorporation of each of the constituent
corporations is as follows:
<TABLE>
<CAPTION>
Name State of Incorporation
<S> <C>
International Post Limited Delaware
Video Services Corporation New Jersey
</TABLE>
2. An agreement and plan of merger (the "Agreement and Plan of
Merger") has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with Section 252 of the
Delaware General Corporation Law.
3. International Post Limited will be the surviving corporation.
4. The Certificate of Incorporation of International Post Limited
(the "Certificate") is hereby amended as follows:
Section 1 of the Certificate shall read in its entirety:
1. The name of the corporation is Video Services Corporation.
The first paragraph of Section 4 of the Certificate shall read in its entirety:
4. The total number of shares of stock which the Corporation has
authority to issue is 28,000,000 shares, of which (i) 3,000,000 shares
are preferred stock, par value $.01 per share (the "Preferred Stock"),
and (ii) 25,000,000 share are common stock, par value $.01 per share
(the "Common Stock").
5. The Certificate as amended shall be the certificate of
incorporation of the surviving corporation.
-4-
<PAGE> 5
6. The executed Agreement and Plan of Merger is on file at an
office of International Post Limited, located at 545 Fifth Avenue, New York, New
York 10017.
7. A copy of the Agreement and Plan of Merger will be furnished
by International Post Limited, on request and without cost, to any stockholder
of either constituent corporation.
8. As of the date hereof, the authorized capital stock of Video
Services Corporation is 7,500,000 shares of common stock, without par value, and
no shares of preferred stock.
IN WITNESS WHEREOF, this Certificate of Merger has been executed by the
undersigned as of the 26th day of August, 1997.
INTERNATIONAL POST LIMITED
By: /s/ Martin Irwin
Name: Martin Irwin
Title: President and Chief Executive Officer
-5-
<PAGE> 1
Exhibit 10.70
STOCK RESALE AGREEMENT
THIS STOCK RESALE AGREEMENT (the "Agreement"), dated as of August 26,
1997, is by and among International Post Limited, a Delaware corporation
("IPL"), Louis H. Siracusano ("Siracusano"), Donald H. Buck ("Buck") and Arnold
P. Ferolito ("Ferolito") (each, a "Stockholder" and collectively, the
"Stockholders"). Any reference herein to any Stockholder shall be deemed to also
include a reference to the heirs, estate and personal representatives of such
Stockholder. Unless otherwise indicated herein: (i) each capitalized term used
herein shall have the meaning attributed to it in the glossary set forth in
Section 23 hereof; and (ii) each capitalized term used herein but not defined
herein shall have the meaning attributed to it in the Merger Agreement.
W I T N E S S E T H:
WHEREAS IPL, the Stockholders, and Video Services Corporation, a New
Jersey corporation ("Video"), are parties to an Agreement and Plan of Merger,
dated as of June 27, 1997 (the "Merger Agreement"), pursuant to which, inter
alia, Video shall be merged (the "Merger") with and into IPL and shares of Video
Common Stock, shall be converted into the right to receive a number of shares of
IPL Common Stock; and
WHEREAS, IPL and each of the Stockholders desire to make certain
representations, covenants and agreements in connection with the shares of IPL
Common Stock to be received by the Stockholders pursuant to the Merger (the
"Shares").
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set
forth, the parties hereto, intending to be legally bound, do hereby agree as
follows:
1. General Restriction on Transfers of Common Stock. No Stockholder shall,
prior to the expiration of six (6) months after the Effective Time, Transfer any
Shares except in accordance with the terms and provisions of this Agreement. The
provisions set forth in Sections 2 through 8 hereof: (i) represent independent
rights of the Stockholders to engage in a Transfer of Shares and the fact that
any such Transfer cannot be completed pursuant to one such provision shall not
be deemed to limit or restrict any Transfer so long as the same may be completed
in compliance with the terms of another provision of this Agreement; and (ii)
represent exceptions to the general six (6) month restriction and shall have no
further application after
<PAGE> 2
the expiration of such six (6) month period. Any purported Transfer in violation
of this Agreement shall be null and void and of no force and effect and the
purported transferees shall have no rights or privileges in or with respect to
the Shares purported to have been so transferred. IPL shall refuse to recognize
any such Transfer and shall not reflect on its records any change in record
ownership of such Shares purported to have been so transferred.
The terms and provisions of this Agreement shall be applicable to all of the
Shares now or hereafter owned by any Stockholder and by any Permitted
Transferee.
2. Losses Escrow Agreement. The Stockholders shall deposit the Deposited
Shares in accordance with the Losses Escrow Agreement and may, from time to
time, engage in substitution of and for, Shares, in accordance with the terms
thereof.
3. Management Options. The Stockholders may grant to any or all of the
employees of or consultants to, Video or IPL or their respective subsidiaries
immediately prior to the Merger, options (the "Management Options") to purchase
up to 721,529 Shares (including the grants contemplated in Section 4 below). and
may sell the Shares underlying the Management Options to the holders of the
Management Options upon the exercise thereof; provided, however, that any such
grant shall be and may be, made in accordance with Section 7.7 of the Merger
Agreement or pursuant to Section 4 below.
4. New Options. The Stockholders shall grant New Options to Mr. Terrence
A. Elkes and Mr. Kenneth F. Gorman and may sell the Shares underlying the New
Options to such individuals upon their exercise of the New Options.
5. Permitted Transfers. Each of the Stockholders may Transfer any or all
of its Shares to any Permitted Transferee, provided that such Permitted
Transferee agrees in writing to be bound by the provisions set forth in this
Agreement.
6. Tax Sales by Siracusano. Siracusano may sell Shares as required in
order to discharge (after taking into account applicable transaction costs) up
to $300,000 of any obligation for Taxes resulting from the Merger or any
transaction contemplated pursuant to the Merger Agreement including, without
limitation, the Spin-Off Transaction, the Contribution Agreement, and related
transactions (and any additional sales as may be required to discharge any tax
liability arising from such sales and additional sales) as follows: (A) in a
public or private sale; (B) pursuant to Rule 144 of the Securities Act of 1933,
as amended; (C) pursuant to the Registration Statement; or (D)
<PAGE> 3
pursuant to the Registration Rights Agreement in accordance with the terms
thereof.
7. Permitted Transfer. The Stockholders may Transfer Shares to the extent
that such Transfer does not reduce the collective ownership of Shares by the
Stockholders and their Permitted Transferees below 50.1% of the outstanding
number of shares of IPL Common Stock at the time of such Transfer.
8. Other Sales. Each of the Stockholders may sell any or all of his Shares
in a transaction provided that each such sale is in compliance with the
provisions of the Tag-Along Rights Agreement.
9. Restrictive Stock Legend. IPL will cause each certificate of any
Stockholder evidencing the Shares outstanding during the period the restriction
set forth in Section 1 is in effect to bear a legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE TERMS
AND CONDITIONS OF AN AGREEMENT DATED AUGUST 26, 1997, AS IT MAY BE
AMENDED, AMONG INTERNATIONAL POST LIMITED, LOUIS H. SIRACUSANO, DONALD H.
BUCK AND ARNOLD P. FEROLITO, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF VIDEO SERVICES CORPORATION.
Upon the expiration of the period during which the provisions of Section 1 are
in effect or in the event that the Shares otherwise cease to be subject to the
restrictions on transfer set forth in this Agreement, IPL shall, upon the
written request of the Stockholder, issue to the Stockholder a new certificate
evidencing such shares without the legend required by this Section 9. Shares
transferred in accordance with Sections 3, 4, 6, 7 and 8 hereof shall be issued
without such legend.
10. Arbitration. Disputes that arise under this Agreement will be resolved
as follows:
(i) except as set forth in the penultimate paragraph of this
Section 10, no party shall bring a civil action arising under or with respect to
this Agreement;
(ii) at any time any party may demand arbitration of any
dispute, arising under or with respect to this Agreement by delivering written
notice thereof to: (x) the parties hereto; and (y) an office of JAMS/Endispute
located in New York City (or,
<PAGE> 4
if none, then the office of JAMS/Endispute located closest to New York City);
and
(iii) any such arbitration shall be conducted in New York City
according to JAMS/Endispute's Arbitration Rules then in effect applicable to
disputes of the types submitted to arbitration and the results of such
arbitration shall be final and binding on the parties.
In the event that JAMS/Endispute is not available to provide such arbitration
services with respect to any such dispute, then that dispute shall be resolved
by final, binding arbitration in New York City by three arbitrators pursuant to
the rules then prevailing of the American Arbitration Association applicable to
disputes of the type submitted to arbitration. Judgement on the award rendered
by any of the above referenced arbitrators may be confirmed and entered in and
by any court having jurisdiction.
Notwithstanding the foregoing, each party specifically reserves the right
to seek equitable remedies in a court of competent jurisdiction.
11. Representations and Warranties of the Stockholders. Each Stockholder
represents and warrants to IPL as follows: This Agreement has been duly executed
and delivered by the Stockholder and constitutes the valid and binding agreement
of the Stockholder, enforceable against the Stockholder in accordance with its
terms.
12. Notices, etc. All notices, requests, demands, waivers, consents,
approvals or other communications to any party hereunder shall be in writing and
shall be deemed to have been duly given if: (i) delivered personally to such
party; or (ii) sent to such party by telegram or telecopy, with a copy sent on
the same day via overnight delivery to the following addresses:
If to IPL, to:
International Post Limited
545 Fifth Avenue
New York, New York 10017
Attention: Martin Irwin
Fax#: (212) 986-1364
If to Siracusano, to:
Louis H. Siracusano
13 Lexington Lane
Montvale, New Jersey 07645
<PAGE> 5
If to Buck, to:
Donald H. Buck
2 Deerburn Court
Florham Park, NJ 07932
If to Ferolito, to:
Arnold P. Ferolito
c/o Video Services Corporation
240 Pegasus Avenue
Northvale, New Jersey 07647-1904
All notices to IPL shall also be sent to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022-9998
Attention: Jeffry Hoffman
Fax #: (212) 758-9526
All notices to the Stockholders shall also be sent to:
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036-1510
Attention: Keith Schaitkin
Fax #: (212) 626-0799
or to such other address as the addressee may have specified in notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communications shall be deemed to have been given and
received as of the date so delivered, telegraphed or telecopied.
13. Amendments, Waivers, etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated except by an instrument
in writing signed by each of the parties hereto.
14. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns, including without limitation in the case of any
corporate party hereto any corporate successor by merger or otherwise.
15. Entire Agreement. This Agreement embodies the entire agreement and
understanding among the parties relating to the subject matter hereof and
supersedes all prior agreements and
<PAGE> 6
understandings relating to such subject matter. There are no representations,
warranties or covenants by the parties hereto relating to such subject matter
other than those expressly set forth in this Agreement. In the event of any
conflict between the terms and provisions of this Agreement and the terms and
provisions of the Merger Agreement, the terms and provisions of the Merger
Agreement shall prevail.
16. Severability. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith or not to take an action consistent herewith or required hereby, the
validity, legality and enforceability of the remaining provisions and
obligations contained or set forth herein shall not in any way be affected or
impaired thereby.
17. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any right, power or remedy by such party.
18. No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
19. Third Party Beneficiaries. Except as expressly provided herein, this
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder. .
20. Governing Law. This Agreement shall be governed by, and interpreted
under, the laws of the State of New York applicable to contracts made and to be
performed therein without regard to conflict of laws principles.
21. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
<PAGE> 7
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together constitute an instrument. Each counterpart may consist of a number of
copies each signed by less than all, but together signed by all, the parties
hereto.
23. Glossary. The following terms as used in this Agreement shall have the
meanings indicated below:
"Deposited Shares" has the meaning set forth in the Escrow
Agreement.
"Permitted Transferee" with respect to a Transfer by any individual
Stockholder, means any immediate family member (including without limitation,
any spouse or former spouse, child or trust for the benefit of such individuals)
or Affiliate or entity beneficially owned by one or more such Persons.
"Transfer" with respect to a share of IPL Common Stock, means the
sale, assignment, transfer, pledge, hypothecation, gift or other disposition of
such share, or the encumbrance or granting of any rights, options or interests
whatsoever in or in respect of such share.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first above written.
INTERNATIONAL POST LIMITED
/s/ Martin Irwin
Name: Martin Irwin
Title: President
STOCKHOLDERS:
/s/ Louis H. Siracusano
Louis H. Siracusano
/s/ Arnold P. Ferolito
Arnold P. Ferolito
<PAGE> 8
/s/ Donald H. Buck
Donald H. Buck
<PAGE> 1
Exhibit 10.71
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of August 1997, among
International Post Limited, a Delaware corporation (the "Company"), Louis H.
Siracusano, Arnold P. Ferolito and Donald H. Buck.
1. Background. The Company is a party to an Agreement and Plan of Merger,
dated as of June 27, 1997 (the "Merger"), with Video Services Corporation, a New
Jersey corporation ("Video"), and the other parties to this Agreement relating
to the merger of the Company and Video (the "Merger"). This Registration Rights
Agreement shall become effective upon the effective time of the Merger (the
"Effective Time"). Capitalized terms used herein shall have the meanings
ascribed to them in Section 3 hereof.
2. Registration under Securities Act, etc.
2.1 Registration on Request.
(a) Request. Upon the written request of a Holder (the
"Initiating Holder") requesting that the Company effect the registration under
the Securities Act of all or part of such Holder's Registrable Securities and
specifying the intended method or methods of disposition thereof, the Company
will promptly, but in any event within twenty (20) days, give written notice of
such requested registration to all other Holders and thereupon will use its best
efforts to effect the registration under the Securities Act of:
(i) the Registrable Securities which the Company has
been so requested to register by the Initiating Holder, for
disposition in accordance with the intended method or methods of
disposition stated in such request, and
(ii) all other Registrable Securities which the Company
has been requested to register by the holders thereof by written
request delivered to the Company within twenty (20) days after the
giving of such written notice by the Company (which request shall
specify the intended method or methods of disposition of such
Registrable Securities),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered, provided that (A) the Company shall not be required to effect any
registration pursuant to this Section 2.1 prior to the date which is six (6)
months after the Effective Time, (B) if the Company shall have previously
effected a registration pursuant to this Section 2.1 or shall have previously
effected a registration of which notice has been given to all Holders pursuant
to Section 2.2 hereof, the Company shall
<PAGE> 2
not be required to effect a registration pursuant to this Section 2.1 until a
period of six (6) months shall have elapsed from the effective date of the most
recent such previous registration and (C) the Company shall not be required to
effect any registration pursuant to this Section 2.1 on more than three (3)
separate occasions.
(b) Registration Statement Form. Each registration requested
pursuant to this Section 2.1 shall be effected by the filing of a registration
statement on Form S-1 (or any other form which includes substantially the same
information as would be required to be included in a registration statement on
such form as presently constituted), unless the use of a different form has been
agreed to in writing by Holders holding at least a majority (by number of
shares) of the Registrable Securities as to which registration has been
requested pursuant to this Section 2.1.
(c) Expenses. The Company will pay all Registration Expenses
in connection with each registration of Registrable Securities requested
pursuant to this Section 2.1.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected (i)
unless it has been declared effective by the Commission, and remains in effect
for the period specified in Section 2.4(a)(ii) hereof, provided that a
registration which does not become effective after the Company has filed a
registration statement with respect thereto solely by reason of the refusal to
proceed of the Holders shall be deemed to have been effected by the Company at
the request of the Holders unless the Holders shall have elected to pay all
Registration Expenses in connection with such registration, (ii) if after it has
become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason other than solely as a result of a
misrepresentation or an omission by any Holder, or (iii) the conditions to
closing specified in the purchase agreement or underwriting agreement entered
into in connection with such registration are not satisfied, other than by
reason of some act or omission by any Holder.
(e) Registration Rights Exclusive. The Company will not
register securities for sale for the account of any Person other than the
Holders, and will not register any securities other than Registrable Securities,
in any registration of Registrable Securities requested by one (1) or more
Holders pursuant to this Section 2.1, unless permitted to do so by the written
consent of such Holders representing at least a majority (by number of shares)
of the Registrable Securities as to which registration has been requested by
such Holders and except for any registration required to be made pursuant to any
registration rights granted by the Company prior to the Effective Time
(including, without limitation, pursuant to that certain Registration Rights
Agreement among the Company, MTE Holdings, Inc., Video, Martin Irwin, Jeffrey J.
Kaplan, Adrien Macaluso, Terrence A. Elkes and Kenneth F. Gorman). After the
Effective Time, the Company will not grant to any Person the right to request a
registration of securities not permitted by this subdivision (e) or not
permitted by Section 2.5(a) hereof.
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<PAGE> 3
2.2 Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at
any time proposes to register any of its securities under the Securities Act,
whether or not for sale for its own account, on a form and in a manner which
would permit registration of Registrable Securities for sale to the public under
the Securities Act, it will each such time give prompt written notice to all
Holders of its intention to do so, describing such securities and specifying the
form and manner and the other relevant facts involved in such proposed
registration, and upon the written request of any such Holder delivered to the
Company within thirty (30) days after the giving of any such notice by the
Company (which request shall specify the Registrable Securities intended to be
disposed of by such Holder and the intended method or methods of disposition
thereof), the Company will use its best efforts to effect the registration under
the Securities Act of all Registrable Securities which the Company has been so
requested to register by the Holders, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities so to be registered, provided that:
(i) if, at any time after giving such written notice of
its intention to register any of its securities and prior to the
effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason
not to register such securities, the Company may, at its election,
give written notice of such determination to each Holder and
thereupon shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not
from its obligation to pay the Registration Expenses in connection
therewith as provided in subdivision (b) of this Section 2.2),
without prejudice, however, to the rights of the Holders to request
that such registration be effected as a registration under Section
2.1 hereof;
(ii) if (A) the registration so proposed by the Company
involves an underwritten offering of the securities so being
registered, for sale for the account of the Company and/or any
Person to be distributed (on a firm commitment basis) by or through
one (1) or more underwriters of recognized standing under
underwriting terms appropriate for such a transaction, (B) the
Registrable Securities so requested to be registered for sale for
the account of Holders are not also to be included in such
underwritten offering (either because the Company has not been
requested so to include such Registrable Securities pursuant to
Section 2.5(c) hereof or, if requested to do so, has been unable so
to include such Registrable Securities after using its best efforts
to do so as provided in Section 2.5(c) hereof) and (C) the managing
underwriter of such underwritten offering shall advise the Company
in writing that, in its opinion, the distribution of all or a
specified portion of such Registrable Securities concurrently with
the securities being distributed by such underwriters for the
account of the Company and/or a Person will materially and adversely
affect the distribution of such securities by such underwriters
(such opinion to state the reasons therefor), then
3
<PAGE> 4
the Company will promptly furnish each such Holder with a copy of
such opinion and may require, by written notice to each such Holder
accompanying such opinion, that the distribution of all or a
specified portion of such Registrable Securities be deferred (in
case of a deferral as to a portion of such Registrable Securities,
such portion to be allocated among such Holders in proportion to the
respective numbers of shares of Registrable Securities so requested
to be registered by such Holders) until the completion of the
distribution of such securities by such underwriters, but in no
event for a period of more than ninety (90) days after the effective
date of such registration;
(iii) in the event of a deferral as described in (ii)
above, any Holder may assign its right to register the designated
portion of its Registrable Securities to be incidentally included in
any such registration to any other Holder; and
(iv) the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 2.2
incidental to the registration by the Company of any of its
securities in connection with mergers, acquisitions, exchange
offers, dividend reinvestment plans or stock option or other
employee benefit plans.
No registration of Registrable Securities effected under this Section 2.2 shall
relieve the Company of its obligation to effect registrations of Registrable
Securities upon the request of the Holders pursuant to Section 2.1 hereof.
(b) Expenses. The Company will pay all Registration Expenses
in connection with each registration of Registrable Securities requested
pursuant to this Section 2.2.
2.3 Shelf Registration.
(a) As soon as practicable after the Effective Time, the
Company shall, upon the written request of any Holder, file (if eligible to do
so), and use all reasonable efforts to cause to be declared effective, a "shelf"
registration statement on Form S-3 pursuant to Rule 415 (or similar rule that
may be adopted by the Commission) under the Securities Act for all of the
Registrable Securities (the "Shelf Registration") held by that Holder. The
Company agrees to use its best efforts to keep the Shelf Registration
continuously effective until all of the Registrable Securities covered by the
Shelf Registration are sold thereunder; provided, however, that the Company may
terminate the Shelf Registration at any time for any reason, provided that the
Company shall file (if eligible to do so), and use all reasonable efforts to
cause to be declared effective a new Shelf Registration with respect to any
remaining Registrable Securities which have not theretofore been sold under a
prior Shelf Registration no later than four (4) months after any such
termination. The Company further agrees to supplement or make amendments to the
Shelf
4
<PAGE> 5
Registration(s), if required by the rules, regulations or instructions
applicable to registration statements on Form S-3 or by the Securities Act.
(b) Expenses. The Company will pay all Registration Expenses
in connection with the Shelf Registration(s) effected pursuant to this Section
2.3.
(c) Registration Rights Not Exclusive. The Company may
register securities in the Shelf Registration(s) for sale for the account of
Persons other than Holders.
2.4 Registration Procedures. If, and whenever, the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 2.1, 2.2, and 2.3
hereof, the Company will as expeditiously as possible:
(a) (i) prepare and (in any event within sixty (60) days after
the end of the period within which requests for registration may be
delivered to the Company) file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities and other securities covered by such registration statement
until the earlier of such time as all of such Registrable Securities and
securities have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof set forth in such
registration statement or the expiration of six (6) months after such
registration statement becomes effective; and
in each case will furnish to each such seller and each Requesting Holder at
least five (5) business days prior to the filing thereof a copy of such
registration statement and any amendment or supplement to such registration
statement or prospectus and shall not file such registration statement or such
amendment or supplement to which the holders of a majority of the Shares held by
all such sellers or any Requesting Holder shall have reasonably objected on the
grounds that such registration statement or such amendment or supplement does
not comply in all material respects with the requirements of the Securities Act
or of the rules or regulations thereunder;
(b) furnish to each seller of such Registrable Securities and
each Requesting Holder such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each
preliminary prospectus and any summary prospectus), in conformity with the
requirements of the Securities Act, such documents, if any, incorporated
by reference in such
5
<PAGE> 6
registration statement or prospectus, and such other documents as such
seller or Requesting Holder may reasonably request;
(c) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such
jurisdictions as each seller shall reasonably request, to keep such
registration or qualification in effect for so long as such registration
statement remains in effect, and do any and all other acts and things
which may be necessary or advisable to enable such seller to consummate
the disposition in such jurisdictions of its Registrable Securities
covered by such registration statement, except that the Company shall not
for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (c) be obligated to be so qualified, or
to subject itself to taxation in any such jurisdiction, or to consent to
general service of process in any such jurisdiction;
(d) furnish to each seller of Registrable Securities and each
Requesting Holder a signed counterpart, addressed to such seller and such
holder, of (i) an opinion of counsel for the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), and (ii) a "comfort" letter, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants who
have certified the Company's financial statements included in such
registration statement, covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities and, in the case of the accountants' letter, such other
financial matters as such seller or such holder may reasonably request;
(e) immediately notify each seller of Registrable Securities
covered by such registration statement and each Requesting Holder, at any
time when a prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the happening of any
event as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing, or the entry of any stop order in respect
thereof, and, at the request of any such seller or holder, prepare and
furnish to such seller and holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required
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<PAGE> 7
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, or, in the
case of any stop order, take such action as is necessary to have such stop
order withdrawn;
(f) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its securities holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve (12) months, but not more
than eighteen (18) months, beginning with the first month of the first
fiscal quarter after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder;
(g) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
(h) use its best efforts to list all Common Stock covered by
such registration statement on each securities exchange on which any of
the Common Stock is then listed or, if the Common Stock is not then listed
on any national securities exchange, use its best efforts to have such
Common Stock covered by such registration statement included on The Nasdaq
Stock Market or, at the option of the Company, listed on a national
securities exchange.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing and as shall be required by law or by the
Commission in connection therewith.
2.5 Underwritten Offerings.
(a) Underwritten Offerings Exclusive. Whenever a registration
requested by one (1) or more Holders pursuant to Section 2.1 hereof is for an
underwritten offering, only shares of Registrable Securities which are to be
distributed by the underwriters designated by such Holders may be included in
such registration, unless such Holders shall have permitted other securities to
be included in such registration and such underwritten offering as provided in
Section 2.1(e) hereof. If such Holders shall determine that the number of shares
of Registrable Securities and any such other securities to be sold in any such
underwritten offering should be limited due to market conditions or otherwise,
the Company will include in such registration to the extent of the number which
the Company is so advised can be sold in such offering (i) first, Registrable
Securities requested to be included in such registration, pro rata among the
Holders on the basis of the number of shares of such securities requested to be
included by such Holders, and (ii) second, other securities of the Company
proposed to be
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<PAGE> 8
included in such registration, in accordance with the priorities, if any, then
existing among the Company and the holders of such securities.
(b) Underwriting Agreement. If requested by the underwriters
for any underwritten offering of Registrable Securities on behalf of a Holder or
Holders pursuant to a registration requested under Section 2.1 hereof, the
Company will enter into an underwriting agreement with such underwriters for
such offering, such agreement to contain such representations and warranties by
the Company and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities to the effect and to the extent provided in
Section 2.8 hereof. The Holders on whose behalf Registrable Securities are to be
distributed by such underwriters shall be parties to any such underwriting
agreement and the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters, shall also
be made to and for the benefit of such Holders. Such Holders shall not be
required by the Company to make any representations or warranties to or
agreements with the Company or the underwriters other than reasonable
representations, warranties or agreements regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method or methods of
disposition and any other representation required by law.
(c) Incidental Underwritten Offerings. If the Company at any
time proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 hereof and such securities are to be distributed by
or through one or more underwriters, the Company will use its best efforts, if
requested by any Holder who requests registration of Registrable Securities in
connection therewith pursuant to Section 2.2 hereof, to arrange for such
underwriters to include the Registrable Securities to be offered and sold by
such Holder among the securities to be distributed by or through such
underwriters, provided that, for purposes of this sentence, best efforts shall
not require the Company or any other seller of the securities proposed to be
distributed by or through such underwriters to reduce the amount or sale price
of such securities proposed to be so distributed. The holders of Registrable
Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters, shall also be made to and
for the benefit of such Holders, and the Company will cooperate with such
Holders to the end that the conditions precedent to the obligations of such
Holders under such underwriting agreement shall not include conditions that are
not customary in underwriting agreements with respect to combined primary and
secondary distributions and shall be otherwise satisfactory to such Holders.
Such Holders shall not be required by the Company to make any representations or
warranties to, or agreements with, the Company or the underwriters other than
reasonable representations, warranties or agreements regarding such Holder, such
Holder's Registrable Securities and such Holder's intended method or methods of
distribution and any other representation required by law.
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<PAGE> 9
(d) Selection of Underwriters. Whenever a registration
requested pursuant to Section 2.1 or 2.3 hereof is for an underwritten offering,
the holders of a majority of the Registrable Securities included in such
registration shall have the right to select the managing underwriter to
administer the offering subject to the approval of the Company, such approval
not to be unreasonably withheld.
(e) Holdback Agreements.
(i) If any registration pursuant to Section 2.1 or 2.2
hereof shall be in connection with an underwritten public offering,
each holder of Registrable Securities agrees by acquisition of such
Registrable Securities, if so required by the managing underwriter,
not to effect any public sale or distribution of Registrable
Securities (other than as part of such underwritten public offering)
within seven (7) days prior to the effective date of such
registration statement or the earlier of ninety (90) days after the
effective date of such registration statement and the date on which
all securities under such registration statement are sold.
(ii) The Company agrees (A) not to effect any public
sale or distribution of any of its equity securities or securities
convertible into or exchangeable or exercisable for any such
securities during the seven (7) days prior to and the earlier of
ninety (90) days after any underwritten registration pursuant to
Section 2.1 or 2.2 hereof has become effective and the date on which
all securities under such registration statement are sold, except as
part of such underwritten registration and except pursuant to
registrations on Form S-8 or any successor thereto, and (B) to use
its best efforts to cause each holder of its equity securities or
any securities convertible into or exchangeable or exercisable for
any of such securities, in each case purchased from the Company at
any time after the date of this Agreement (other than in a public
offering), to agree not to effect any such public sale or
distribution of such securities during such period.
2.6 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, the Company will give the Holders on whose
behalf such Registrable Securities are to be so registered and their
underwriters, if any, each Requesting Holder, and their respective counsel and
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such holders and such underwriters or their respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
9
<PAGE> 10
2.7 Rights of Requesting Holders. The Company will not file any
registration statement under the Securities Act, unless it shall first have
given to each Person which holds five percent (5%) or more of Common Stock at
the time outstanding at least thirty (30) days' prior written notice thereof,
and, if so requested by any such Person within thirty (30) days after such
notice, each such Person shall have the right, at any time when, in the sole and
exclusive judgment of such Person, such Person is or might be deemed to be a
controlling person of the Company within the meaning of the Securities Act (a
"Requesting Holder") (a) to participate in the preparation and filing of each
such registration statement to the extent provided in Section 2.6 hereof, (b) to
receive the documents it is entitled to receive and to make the requests it is
entitled to make under Section 2.3 hereof and (c) at the Company's expense, to
retain counsel to assist such Requesting Holder in such participation, provided
that if, at any time, such Requesting Holder shall be entitled and shall elect
to retain counsel as aforesaid, the Company shall only be required to pay
expenses in respect of one (1) counsel, such counsel to be selected by the
Requesting Holder or Holders (other than the Company or any of its subsidiaries
or affiliates) holding a majority or more of the Shares held at such time by all
Requesting Holders. If any such registration statement refers to any Requesting
Holder by name or otherwise as the holder of any securities of the Company, then
such holder shall have the right (in addition to any other rights it may have
under this Section 2.7) to require (x) the insertion therein of language, in
form and substance satisfactory to such holder, to the effect that the holding
by such holder of such securities is not to be construed as a recommendation by
such holder of the investment quality of the Company's debt or equity securities
covered thereby and that such holder does not imply that such holder will assist
in meeting any future financial requirements of the Company, or (y) in the event
that such reference to such holder by name or otherwise is not required by the
Securities Act or any rules and regulations promulgated thereunder, the deletion
of the reference to such holder.
2.8 Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless (i) in the case of
any registration statement filed pursuant to Section 2.1, 2.2 or 2.3 hereof, the
seller of any Registrable Securities covered by such registration statement, its
directors, officers, employees and agents, each other Person who participates as
an underwriter in the offering or sale of such securities and each other Person,
if any, who controls such seller or any such underwriter within the meaning of
the Securities Act, and (ii) in the case of any registration statement of the
Company, any Requesting Holder, its directors, officers, employees and agents,
and each other Person, if any, who controls such Requesting Holder within the
meaning of the Securities Act (each such Person referred to in (i) or (ii), an
"Indemnified Party"), against any losses, claims, damages, liabilities or
expenses, joint or several, to which such Indemnified Party may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) arise out
of or are based upon (x) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the
10
<PAGE> 11
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
document incorporated by reference therein, (y) any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (z) any violation by the Company
of the Securities Act, and the Company will reimburse such Indemnified Party for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding, provided that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or expense (or action or
proceeding in respect thereof) arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by such Indemnified Party specifically stating that it is for use in
the preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of any Registrable Securities by such Indemnified
Party.
(b) Contribution by the Company. If for any reason the
foregoing indemnity is unavailable, then the Company shall contribute to the
amount paid or payable by the Indemnified Party as a result of such losses,
claims, damages, liabilities or expenses referred to in subdivision (a) above:
(i) in such proportion as is appropriate to reflect the
relative benefits received by the Indemnifying Party on the one hand
and the Indemnified Party on the other from the offering of such
securities, or;
(ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Indemnifying
Party on the one hand and the Indemnified Party on the other in
connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other
relevant equitable considerations.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(c) Indemnification by the Sellers. The Company may require,
as a condition to including any Registrable Securities in any registration
statement filed pursuant to Section 2.4 hereof, that the Company shall have
received an undertaking satisfactory to it from the prospective seller of such
securities to indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.8) the Company, each
director of the Company, each officer of the Company who shall sign such
registration statement and each
11
<PAGE> 12
other Person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement in or omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus included therein, or any amendment or supplement thereof, if such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling Person and shall survive the
transfer of such securities by such seller. The Company may further require the
prospective seller to agree to contribute to the amount paid or payable by an
indemnified party in the event the foregoing indemnity is unavailable, in the
same manner and to the same extent as set forth in subdivision (b) of this
Section 2.8.
(d) Notice of Claims, etc. Promptly after receipt by an
Indemnified Party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.8,
such Indemnified Party will, if a claim in respect thereof is to be made against
an Indemnifying Party, give written notice to the latter of the commencement of
such action, provided that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its obligations
under the preceding subdivisions of this Section 2.8 except to the extent it may
have been prejudiced by such failure. In case any such action is brought against
an Indemnified Party, unless in such Indemnified Party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
in respect of such claim, the Indemnifying Party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
Indemnifying Party similarly notified, to the extent that it may wish, with
counsel reasonably satisfactory to such Indemnified Party, and after notice from
the Indemnifying Party to such Indemnified Party of its election so to assume
the defense thereof, the Indemnifying Party shall not be liable to such
Indemnified Party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. No Indemnifying Party shall, without the consent of the
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
(e) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.8 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
such Registrable Securities under any federal or state law or regulation of
governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification required by
this Section 2.8 shall be made by periodic payments of the amount thereof during
the course of the
12
<PAGE> 13
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
2.9 Adjustments Affecting Registrable Securities. The Company will
not effect or permit to occur any combination or subdivision of shares which
would adversely affect the ability of the holders of Registrable Securities to
include such Registrable Securities in any registration of its securities
contemplated by this Section 2 or the marketability of such Registrable
Securities under any such registration.
2.10 Restrictions. Notwithstanding anything contained herein to the
contrary, in no event shall the Company be obligated to effect any registration
of any Registrable Securities (a "New Registration") under this Agreement if
such Registrable Securities are then covered by an effective registration
statement (an "Existing Registration") unless the holder thereof agrees to
relinquish the Existing Registration upon the effectiveness of the New
Registration.
3. Definitions. For purposes of this Agreement, the following terms shall
have the following respective meanings:
Commission: The U.S. Securities and Exchange Commission and any
successor federal agency having similar powers.
Common Stock: Common Stock, par value $.01 per share, of the
Company.
Company: As defined in the introductory paragraph of this Agreement.
Effective Time: As defined in Section 1.
Equitable Securities: Any Common Stock held by The Equitable Life
Assurance Society of the United States and/or the Equitable Deal Flow Fund, L.P.
and their successors and assigns which are entitled to "piggyback" registration
rights pursuant to an agreement with the Company.
Exchange Act: At any time, the Securities Exchange Act of 1934, as
then in effect or any similar federal statute then in effect, and any reference
to a particular Section of such Act shall include a reference to the comparable
section, if any, of any such similar federal statute.
Holders: A holder of Registrable Securities.
Indemnified Party: As defined in Section 2.8(a).
Initiating Holder: As defined in Section 2.1(a).
Merger: As defined in Section 1.
13
<PAGE> 14
Person: An individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization or a government or any
department or agency thereof.
Registrable Securities: The Common Stock issued to Video's
stockholders in the Merger or any Shares issued or issuable with respect thereto
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or otherwise. As to any
particular Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (ii) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (iii) they shall have
been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then enforced, or (iv)
they shall have ceased to be outstanding.
Registration Expenses: All expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration, filing and NASD fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for the Company and of its independent public accountants, including the
expenses of any special audits or "comfort" letters required by or incident to
such performance and compliance, the reasonable fees and disbursements of
counsel (other than house counsel) retained by the holders of the Registrable
Securities being registered and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, but excluding underwriting
discounts and commissions.
Requesting Holder: As defined in Section 2.7.
Securities Act: The Securities Act of 1933, or any similar federal
statute, as at the time in effect, and any reference to a particular section of
such Act shall include a reference to the comparable section, if any, of any
such similar federal statute.
Shares: Shares of Common Stock.
Video: As defined in Section 1.
4. Rule 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act, the Company will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the Commission thereunder
(or, if the Company is not required to file such reports, will, upon the request
of any holder of Registrable Securities, make publicly available other
information), and
14
<PAGE> 15
will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holder to sell shares of Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
requirements.
5. Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Holder or
Holders of at least a majority or more of the Registrable Securities; provided,
that no rights of any party or third-party beneficiary to this Agreement shall
be negatively impacted without such party's written consent. Each Holder at the
time shall be bound by any consent authorized by this Section 5, whether or not
such Registrable Securities shall have been marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of such
Registrable Securities for purposes of any request or other action by any Holder
or Holders pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any Holder or Holders
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership of such Registrable Securities.
7. Notices. Notices and other communications under this Agreement shall be
in writing and shall be effective if hand delivered or sent by (a) certified or
registered United States mail, postage pre-paid, (b) expedited prepaid delivery
service, either commercial or United States Postal Service, with proof of
delivery, or (c) telecopier (with answer back acknowledged), addressed to the
addresses set forth on the signature page hereto or to such other address and
person as shall be designated from time to time by any party hereto, as the case
may be, in a written notice to the other parties hereto in the manner provided
in this Section 7.
8. Buyback Agreements. The Company agrees that it will not buy or enter
into any agreement to buy Shares from any holder thereof, so long as there
remain any Registrable Securities that are either not registered as provided in
Section 2.1 or Section 2.2 hereof or are subject to restrictions on resale under
the Securities Act, unless participation in any such sale or agreement is
offered to all Holders, provided that the number of Shares to be purchased from
each such Holder shall be in proportion to the respective number of Shares held
by each such Holder.
15
<PAGE> 16
9. Miscellaneous. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto, whether so expressed or not, and, in particular, shall inure to
the benefit of and be enforceable by any holder or holders of Registrable
Securities. This Agreement embodies the entire agreement and understanding
between the Company and the other parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof. This
Agreement shall be construed and enforced in accordance with and governed by the
law of the State of New York. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof. This
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered by their respective officers thereunto duly authorized as of the date
first above written.
INTERNATIONAL POST LIMITED
By /s/ Martin Irwin
Name: Martin Irwin
Title: President
Address: 545 Fifth Avenue
New York, New York 10017
Attention: Martin Irwin
Telephone Number: (212) 687-4000
/s/ Louis Siracusano
LOUIS H. SIRACUSANO
Address: 13 Lexington Lane
Montvale, New Jersey 07645
/s/ Arnold P. Ferolito
ARNOLD P. FEROLITO
Address: 240 Pegasus Avenue
Northvale, New Jersey
/s/ Donald H. Buck
DONALD H. BUCK
Address: 2 Dearborn Court
Florham Park, New Jersey 07932
17
<PAGE> 1
Exhibit 10.72
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of August 26, 1997, by and between Video
Services Corporation, a Delaware corporation (formerly known as International
Post Limited), with its principal office at 545 Fifth Avenue, New York, New York
10017 (the "Company"), and Louis H. Siracusano, with an address at 13 Lexington
Lane, Montvale, New Jersey 07645 (the "Employee").
INTRODUCTION
The parties hereto desire to provide for the employment of the
Employee with the Company. In order to accomplish such purpose, and in
consideration of the terms, covenants and conditions hereinafter set forth, the
parties hereby enter into this employment agreement.
ARTICLE I
EMPLOYMENT; TERM; DUTIES
1.01 Employment. Upon the terms and conditions hereinafter set
forth, the Company hereby employs the Employee, and the Employee hereby accepts
employment, as President and Chief Executive Officer of the Company.
1.02 Term. Unless sooner terminated as provided in Article IV
hereof, the Employee's employment hereunder shall be for a term commencing on
the date hereof and ending on the later of (i) the close of business on the
fourth anniversary of the date hereof; or (ii) the date which is twenty-four
months after either party hereto gives written notice to the other that it
desires to terminate this Agreement. The actual term of employment hereunder,
giving effect to any early termination of employment under Article IV hereof, is
referred to as the "Term".
1.03 Duties. During the Term, the Employee shall perform such
executive duties for the Company and for its subsidiaries, consistent with his
position hereunder, as may be assigned to him from time to time by the Board of
Directors of the Company. The Employee shall perform his duties hereunder on a
full time basis; provided, however, that he shall not be prohibited from
engaging in: (i) the activities specified on Schedule B hereto; (ii) volunteer
or charitable activities; or (iii) management or ownership of passive
investments so long as they do not interfere with the foregoing obligations.
<PAGE> 2
1.04 Exclusive Agreement. The Employee represents and warrants to
the Company that he is not a party to any agreement or arrangement, whether
written or oral, in effect which would prevent the Employee from rendering
service to the Company during the Term.
ARTICLE II
COMPENSATION
2.01 Base Salary. For all services rendered by the Employee
hereunder and all covenants and conditions undertaken by him pursuant to this
Agreement, the Company shall pay the Employee an annual base salary ("Base
Salary") during the Term or the Scheduled Term (as defined in Section 4.02), as
the case may be, in equal bi-weekly installments, of $200,000 per year. The Base
Salary payable to the Employee hereunder shall be reviewed annually, and may be
increased but not decreased, by the Compensation Committee of the Board of
Directors of the Company (the "Compensation Committee"). In the event of any
such increase, the salary so determined shall thereafter constitute the Base
Salary. In addition, the Compensation Committee shall consider, on an annual
basis, the payment of a discretionary bonus by the Company to the Employee, in
addition to the Incentive Compensation referred to in Section 2.02 hereof.
If the first or last month of the Term or the Scheduled Term, as the
case may be, is not a full calendar month, then any calculation of Base Salary
for such period shall be prorated for the number of days employed in such
months.
2.02 Incentive Compensation. The parties agree to the following
incentive compensation arrangements ("Incentive Compensation") which shall apply
during the Term.
(A) Annual Bonus. For each fiscal year (or portion thereof) during the
Term, the Employee shall be eligible to receive an annual bonus (the "Annual
Bonus"), payable by the Company, of up to 40% of the Base Salary for such period
(such bonus to be calculated as contemplated in the following table), 50% of
which will be based upon achievement of certain Cash Flow (as defined herein)
and 50% of which will be based upon the achievement of certain Net Income (as
defined herein) (such criteria being hereinafter collectively referred to as the
"Annual Targets"). The Annual Targets shall be agreed upon not less than 45 days
prior to the beginning of each fiscal year, by the Employee and the Compensation
Committee provided, however, that the Annual Targets for the period ending June
30, 1998, will be agreed upon within 45 days following the date hereof. The
parties acknowledge that it is their intention that the Annual
<PAGE> 3
Targets shall be set at levels that are reasonably achievable. In the event that
the Company does not achieve an Annual Target in any period during the Term, the
Compensation Committee may (but shall have no obligation to) award the Employee
a bonus with respect to such period and, if the Compensation Committee does so,
such bonus shall be in such amount as the Compensation Committee, in its sole,
absolute and unrestricted discretion, shall determine.
The Annual Bonus payable hereunder shall be payable in a single
installment within 30 days following the date (the "Delivery Date") of delivery
to the Board of Directors of the Company's audited financial statements for the
period to which such Annual Bonus relates.
Upon achievement of the percentage of any Annual Target specified below,
the Employee shall be entitled to receive as an Annual Bonus an amount equal to
the percentage, specified below, of his Base Salary (an aggregate of 40% of Base
Salary if both such Targets are fully achieved at the Maximum Annual
Percentage):
<TABLE>
<CAPTION>
% of Annual % of Base Pay
Target Achieved to be Paid
--------------- -------------
<S> <C> <C>
Less than 90% -0-
90 to 94.9 5
94.9+ to 99.9 10
99.9+ to 109.9 15
over 109.9 (the 20
"Maximum Annual
Percentage")
</TABLE>
(B) Long-Term Bonus. For the period (the "Period") beginning on July 1,
1997 and ending on June 30, 2001, the Employee shall be eligible to receive a
long-term bonus (the "Long-Term Bonus") payable by the Company, of up to 100% of
the aggregate of his entire Base Salary during the initial four (4) year Term of
this Agreement (the "Cumulative Base Salary") (such bonus to be calculated as
contemplated in the following table), 75% of which will be based upon the
achievement of certain
<PAGE> 4
cumulative Net Income for the Period and 25% of which will be based upon the
achievement of certain cumulative Cash Flow for the Period (such criteria being
hereinafter collectively referred to as the "Long-Term Targets"). The Long-Term
Targets shall be agreed upon not less than 90 days following the date hereof.
The parties acknowledge that it is their intention that the Long-Term Targets
shall be set at levels that are reasonably achievable. In the event that the
Company does not achieve a Long-Term Target during the Period, the Compensation
Committee may (but shall have no obligation to) award the Employee a bonus with
respect to such period and, if the Compensation Committee does so, such bonus
shall be in such amount as the Compensation Committee, in its sole, absolute and
unrestricted discretion, shall determine.
The Long-Term Bonus payable hereunder shall be payable in a single
installment within 30 days following the Delivery Date of the Company's audited
financial statements for the period ended June 30, 2001.
Any Long-Term Bonus otherwise payable hereunder shall be reduced by
amounts previously paid as Annual Bonus hereunder.
Upon the achievement of the percentage of any Long-Term Target specified
below during the Period, the Employee shall be entitled to receive a Long-Term
Bonus equal to the percentage specified below, of his Cumulative Base Salary (an
aggregate of 100% of Cumulative Base Salary if both such Long-Term Targets are
fully achieved at the Maximum Long-Term Percentage):
<TABLE>
<CAPTION>
% of Long-Term % of Cumulative Base
Target Cumulative Salary for the
Net Income Achieved Period to be Paid
------------------- --------------------
<S> <C> <C>
Less than 90% 0%
90+ to 99.9 37.5
99.9+ to 109.9 56.25
over 109.9 (the 75
"Maximum Long-
Term Percentage")
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
% of Long-Term % of Cumulative
Target Cumulative Base Salary for the
Cash Flow Achieved period to be Paid
------------------ -------------------
<S> <C> <C>
Less than 90% 0%
90+ to 99.9 12.5
99.9+ to 109.9 18.75
over 109.9 (the 25
"Maximum Long-
Term Percentage")
</TABLE>
(C) Adjustments. If the Company should engage in any acquisition,
disposition or other extraordinary transaction during the Term, the applicable
Targets and Long-Term Targets shall be appropriately and equitably adjusted,
such adjustments to be reflected in a writing signed by the Employee and the
Company prior to the occurrence of such event.
(D) Definitions. The following terms shall have the meanings set forth
below:
"Cash Flow" shall mean, with respect to any period, the
sum of
(i) the Company's consolidated Net Income, plus;
(ii) the Company's consolidated depreciation, amortization and
other non-cash charges for such period or periods, plus;
(iii) any taxes accrued but not paid by the Company for or in
respect of such period to the extent included in the
calculation of Net Income, plus;
(iv) decreases in working capital for the Company for such period
or periods, less;
(v) the Company's or its subsidiaries' Capital Expenditures for
such period or periods (but only to the extent of scheduled
payments
<PAGE> 6
maturing and required to be paid during the applicable
period), less;
(vi) increases in consolidated working capital for the Company
during such period, and less;
(vii) repayments by the Company or its subsidiaries of principal
under all Indebtedness (but only to the extent of scheduled
payments required to be made during the applicable period),
all as determined in accordance with generally accepted
accounting principles ("GAAP").
"Capital Expenditures" shall mean all payments for any fixed assets
or improvements or for replacements, substitutions or additions thereto, that
have a useful life of more than one year and which are required to be
capitalized under GAAP, including, without limitation, payments under capital
leases.
"Indebtedness" shall mean indebtedness of the Company or its
subsidiaries for borrowed money.
"Net Income" shall mean, for any period, an amount equal to the net
income of the Company and its subsidiaries determined on a consolidated basis in
accordance with GAAP for such period.
2.03 Deductions. The Company shall deduct from the compensation
described in Sections 2.01 and 2.02 any Federal, state or city withholding
taxes, social security contributions and any other amounts which may be required
to be deducted or withheld by the Company pursuant to any Federal, state or city
laws, rules or regulations.
2.04 Disability Adjustments. Any compensation otherwise payable to
the Employee pursuant to Section 2.01 in respect of any period during which the
Employee is disabled (as contemplated in Section 4.03) shall be reduced by any
amounts paid to the Employee for loss of earnings or the like under any
insurance plan or policy the premiums for which are paid for in their entirety
by the Company.
ARTICLE III
BENEFITS; EXPENSES
3.01 Benefits. During the Term, the Employee shall be entitled to
participate in and receive such benefits, services, equipment, compensation and
incentive plans and group life, health, accident, disability and hospitalization
insurance plans,
<PAGE> 7
pension plans and retirement plans as the Company may make available to its
executive employees. In addition, the Employee shall be entitled to participate
in, and the Company shall continue to maintain and pay for at its expense, upon
the same terms, the life insurance policies specified on Schedule A attached
hereto and the disability insurance policies currently provided to him by Video
Services Corporation.
3.02 Expenses. The Company agrees that the Employee is authorized to
incur reasonable expenses in the performance of his duties hereunder, and upon
presentation of a reasonably itemized account thereof, the Company shall
promptly pay or reimburse the Employee for such reasonable expenses so incurred
by the Employee.
3.03 Vacations. During each full year of the Term, the Employee
shall be entitled to four (4) weeks of paid vacation to be taken at times
determined by the Employee which do not unreasonably interfere with the
performance of his duties hereunder, provided, that any such vacation time not
taken during any year shall be forfeited and that no single vacation shall
exceed two (2) consecutive weeks.
3.04 Domicile. During the Term, the Employee (except for reasonable
business travel required by the Company) shall conduct his activities hereunder
at a Company office located in the New York metropolitan area.
ARTICLE IV
TERMINATION; DEATH; DISABILITY
4.01 Termination of Employment With Cause. In addition to any other
remedies available to it at law, in equity or as set forth in this Agreement,
the Company shall have the right, upon written notice to the Employee, to
immediately terminate his employment hereunder if the Employee (a) breaches in
any material respect any material provision of this Agreement and such breach is
not remedied within thirty (30) days after written notice thereof from the Board
of Directors of the Company setting forth in reasonable detail the matters
constituting such breach; or (b) willfully fails or refuses in any material
respect to perform such duties as may be reasonably assigned to him, consistent
with his title and general areas of responsibility, from time to time by the
Board of Directors of the Company and fails to cure such failure or refusal
within thirty (30) days after receipt of notice from the Board of Directors of
the Company stating with specificity the nature of such failure or refusal; or
(c) has been convicted of a felony; or (d) has committed any act of fraud,
misappropriation of funds or embezzlement in connection
<PAGE> 8
with his employment hereunder ((a) through (d) above to mean "Cause", and
termination as a result of (a) through (d) above to mean "Termination With
Cause"). The date of any termination of employment under this Section 4.01 or
under Section 4.02, 4.03 or 4.04 is referred to herein as the "Termination
Date". In the event of a Termination With Cause, the Company shall pay the
Employee as follows:
(a) within ten (10) days following the Termination Date, any
accrued but unpaid Base Salary as of the Termination Date;
(b) within ten (10) days following the Termination Date, the
Employee's Base Salary on a daily basis (computed on a 365-day year) in effect
on the Termination Date, multiplied by the number of accrued and unused vacation
days at the Termination Date;
(c) within ten (10) days following the Termination Date, any
accrued but unpaid expenses incurred by the Employee as of the Termination Date
in accordance with Section 3.02 hereof;
(d) within ten (10) days following the Termination Date, any
accrued and unpaid benefits to which the Employee may be entitled pursuant to
Section 3.01 hereof;
(e) within ten (10) days after the date of the Company's
receipt of its year end financial statements for the year in which the
Termination Date occurs, an amount equal to (x) the amount of Incentive
Compensation, if any, that would have been payable to the Employee with respect
to the fiscal year during which the Termination Date occurred had the
Termination Date not occurred multiplied by (y) a fraction, the numerator of
which is the number of days in such fiscal year which expired prior to the
Termination Date and the denominator of which is 365;
(f) within ten (10) days following the Termination Date, any
other accrued and unpaid compensation payable to the Employee as of the
Termination Date, the amount of which has already been calculated as of the
Termination Date in accordance with the terms hereof; and
(g) within ten (10) days following the date after the
Termination Date as of which it is calculated in accordance with the terms
hereof, any other accrued and unpaid compensation payable to the Employee as of
the Termination Date.
<PAGE> 9
4.02 Termination of Employment Without Cause. Notwithstanding any
provision to the contrary herein, the Company may at any time upon written
notice to the Employee, in its sole and absolute discretion and for any or no
reason, terminate the employment of the Employee hereunder without Cause;
provided, that if such termination is not a Termination With Cause, the Company
shall pay the Employee as follows:
(a) within ten (10) days following the Termination Date, any
accrued but unpaid Base Salary as of the Termination Date;
(b) the Employee's Base Salary until the end of the Scheduled
Term (as hereinafter defined) as and when such Base Salary would have been paid
had the termination of employment not taken place;
(c) the Employee's Incentive Compensation until the end of the
Scheduled Term (if any would have been due and payable to him under Section
2.02), as and when such Incentive Compensation would have been paid had the
termination of employment not taken place;
(d) within ten (10) days following the Termination Date, a
cash payment equal to the Employee's Base Salary on a daily basis (computed on a
365-day year) in effect on the Termination Date, multiplied by the number of
accrued and unused vacation days at the Termination Date;
(e) within ten (10) days following the Termination Date, any
accrued but unpaid expenses incurred by the Employee as of the Termination Date
in accordance with Section 3.02 hereof;
(f) within ten (10) days following the Termination Date, any
accrued and unpaid benefits to which the Employee may be entitled pursuant to
Section 3.01 hereof;
(g) within ten (10) days following the Termination Date, any
other accrued and unpaid compensation payable to the Employee as of the
Termination Date, the amount of which has already been calculated as of the
Termination Date in accordance with the terms hereof; and
(h) within ten (10) days following the date after the
Termination Date as of which it is calculated in accordance with the terms
hereof, any other accrued and unpaid compensation payable to the Employee as of
the Termination Date.
<PAGE> 10
For purposes of this Agreement, "Scheduled Term" shall mean (x) if
the employment of the Employee is terminated under any provision of Article IV
(other than Section 4.01) prior to the close of business on the fourth
anniversary of the date hereof, the period ending at the close of business on
the fourth anniversary of the date hereof and (y) if the employment of the
Employee is terminated under any provision of Article IV (other than Section
4.01) upon or after the close of business on the fourth anniversary of the date
hereof, the period ending at the close of business on the date which is
twenty-four (24) months after the date on which the employment of the Employee
is so terminated.
In the event that the Employee terminates his employment following
an uncured material breach of this Agreement by the Company, then such
termination by the Employee shall be deemed for all purposes (including, without
limitation, the Plan) to be a termination by the Company of the employment of
the Employee hereunder without Cause pursuant to this Section 4.02. The Company
shall have thirty (30) days following written notice by the Employee to the
Company of such breach, setting forth in reasonable detail the matters
constituting such breach, to cure such breach.
The Employee acknowledges that the payments referred to in Section
4.01 and this Section 4.02 constitute the only payments which the Employee shall
be entitled to receive from the Company under this Agreement in the event of any
termination of his employment pursuant to Section 4.01 and this Section 4.02,
and that except for such payments the Company shall have no further liability or
obligation to him under this Agreement.
4.03 Death; Disability. The Employee's employment hereunder shall
terminate upon his death or, at the election of the Company by written notice to
the Employee, if the Employee becomes Disabled (as such term is hereinafter
defined). In the event of a termination of the Employee's employment for death
or Disability, the Company shall pay the Employee (or his legal representatives,
as the case may be), as follows:
(a) within ten (10) days following death or such notice, any
accrued but unpaid Base Salary as of the Termination Date;
(b) the Employee's Base Salary until the expiration of 12
months from the date of death or termination for Disability (the "Extension
Period"), such Base Salary to be paid as and when such Base Salary would have
been paid had the
<PAGE> 11
employment of the Employee continued through the Extension Period;
(c) within ten (10) days after the next Financial Statement
Receipt Date to occur, an amount equal to (x) the amount of Incentive
Compensation, if any, that would have been payable to the Employee with respect
to the fiscal year during which the Termination Date occurred had the
Termination Date not occurred multiplied by (y) a fraction, the numerator of
which is the number of days in such fiscal year which expired prior to the
Termination Date and the denominator of which is 365;
(d) within ten (10) days following the Termination Date, a
cash payment equal to the Employee's Base Salary on a daily basis (computed on a
365-day year) in effect on the Termination Date, multiplied by the number of
accrued and unused vacation days at the Termination Date;
(e) within ten (10) days following the Termination Date, any
accrued but unpaid expenses incurred by the Employee as of the Termination Date
in accordance with Section 3.02 hereof;
(f) within ten (10) days following the Termination Date, any
accrued and unpaid benefits to which the Employee may be entitled pursuant to
Section 3.01 hereof;
(g) within ten (10) days following the Termination Date, any
other accrued and unpaid compensation payable to the Employee as of the
Termination Date, the amount of which has already been calculated as of the
Termination Date in accordance with the terms hereof; and
(h) within ten (10) days following the date after the
Termination Date as of which it is calculated in accordance with the terms
hereof, any other accrued and unpaid compensation payable to the Employee as of
the Termination Date.
For the purposes of this Agreement, the Employee shall be deemed to
be "Disabled" or have a "Disability" if as a result of the occurrence of mental
or physical disability during the Term he has been unable to perform his duties
hereunder for three (3) consecutive months or ninety (90) days in any twelve
(12) consecutive month period, as determined in good faith by the Board of
Directors of the Company.
The Employee acknowledges that the payments referred to in this
Section 4.03 constitute the only payments to which the Employee (or his legal
representatives, as the case may be) shall
<PAGE> 12
be entitled to receive from the Company under this Agreement in the event of a
termination of his employment for death or Disability, and that except for such
payments the Company shall have no further liability or obligation to him (or
his legal representatives, as the case may be) under this Agreement.
4.04 Change of Control. The Employee may, at any time during the six
(6) month period following a Change of Control (as defined in the International
Post Limited 1993 Long Term Incentive Plan), by delivery of written notice to
the Company, terminate his employment hereunder in the event that during such
period the compensation, benefits, authority, responsibilities, privileges,
duties and/or status or title of the Employee are materially diminished
(individually or in the aggregate). Any such permitted termination by the
Employee shall be deemed to constitute a termination without Cause by the
Company under Section 4.02 hereof for all purposes.
ARTICLE V
INVENTIONS; NON-DISCLOSURE; NON-COMPETITION
5.01 Inventions. All processes, technologies and inventions
(collectively, "Inventions"), including new contributions, improvements,
discoveries, trademarks and trade names, conceived, developed, invented, made or
found by the Employee, alone or with others, during his employment by the
Company or within six months after the termination thereof, whether or not
patentable and whether or not conceived, developed, invented, made or found on
the Company's time or with the use of the Company's facilities or materials and
which relate to the postproduction business, shall be the property of the
Company and shall be promptly and fully disclosed by the Employee to the
Company. The Employee shall perform all necessary acts (including, without
limitation, executing and delivering any confirmatory assignments, documents or
instruments requested by the Company) to vest title to any such Invention in the
Company and to enable the Company, at its expense, to secure and maintain
domestic and/or foreign patents or any other rights for such Inventions.
5.02 Non-Disclosure. The Employee shall not, at any time during the
Term or thereafter, directly or indirectly, disclose or furnish to any other
person, firm or corporation except in the course of the proper performance of
his duties hereunder (a) any information relating to any process, technique or
procedure used by the Company; or (b) any information relating to the operations
or financial status of the Company (including, without limitation, all financial
data), which information is not specifically a matter of public record; or (c)
any information of
<PAGE> 13
a confidential nature obtained as a result of his present or future relationship
with the Company, which information is not specifically a matter of public
record; or (d) the name, address or other information relating to any customer
or supplier of the Company; or (e) any other trade secrets of the Company,
except that the Employee shall not be liable under the terms of this Section
5.02 for disclosing or furnishing any of the foregoing which (1) are or become
generally available to the public other than as a result of a disclosure in
violation of this Agreement, or (2) are generally known in any industry in which
the Company is or may become involved or (3) is required to be disclosed by the
Employee pursuant to law or the order of a court of competent jurisdiction, or
other legal process or authority, it being understood, however, that the
Employee will provide the Company with prompt notice of the requirement for such
disclosure as soon as practical after the Employee is notified thereof and prior
to its disclosure thereof so as to enable the Company to challenge the order
compelling such disclosure if the Company so desires. Promptly upon the
expiration or termination of the Employee's employment hereunder for any reason,
the Employee shall surrender to the Company all documents, drawings, work
papers, lists, memoranda, records and other data (including all copies)
constituting or pertaining in any way to any of the foregoing information.
5.03 Non-Competition. The Employee agrees that during the
Non-Competition Term (as hereinafter defined) he will not in any manner,
directly or indirectly, except where specifically contemplated by the terms of
his employment or this Employment Agreement, (a) be employed by, engaged in or
participate in the ownership, management, operation or control of, or act in any
advisory or other capacity for, any Competing Entity which conducts its business
within the Territory (as the terms Competing Entity and Territory are
hereinafter defined); provided, however, that notwithstanding the foregoing, the
Employee may make solely passive investments in any Competing Entity the common
stock of which is "publicly held" and of which the Employee shall not own or
control, directly or indirectly, in the aggregate securities which constitute 5%
or more of the voting rights or equity ownership of such Competing Entity; or
(b) solicit or divert any business or any customer from the Company or assist
any person, firm or corporation in doing so or attempting to do so; or (c) cause
or seek to cause any person, firm or corporation to refrain from dealing or
doing business with the Company or assist any person, firm or corporation in
doing so; or (d) hire or seek to hire any person who at the time so hired, or
within 12 months prior to such date, was an employee of the Company on the date
hereof or during such Non-Competition Term or assist any person, firm or
corporation in doing so or attempting to do so; provided, however, the foregoing
shall not prohibit the Employee from engaging in the activities and
<PAGE> 14
investments set forth on Schedule B hereto both during and after the Term.
For purposes of this Section 5.03, (i) the term "Non-Competition
Term" shall mean (x) the Term of this Agreement plus two (2) years, in the event
of a termination of employment pursuant to Section 4.01 and (y) the Scheduled
Term (as long as the Company is in compliance with its obligations under Article
IV), in the event of a termination of employment pursuant to any provision of
Article IV other than Section 4.01; (ii) the term "Competing Entity" shall mean
any entity which presently or hereafter during the Non-Competition Term engages
in any business activity in which the Company or its successor is engaged during
the Non-Competition Term; and (iii) the term "Territory" shall mean any greater
metropolitan area in which the Company is engaged in business while the Employee
is employed by the Company or within six months of the Termination Date.
5.04 Breach of Provisions. In the event that the Employee shall
breach any of the provisions of this Article V, or in the event that any such
breach is threatened by the Employee, in addition to and without limiting or
waiving any other remedies available to the Company at law or in equity, the
Company shall be entitled to immediate injunctive relief in any court, domestic
or foreign, having the capacity to grant such relief, to restrain any such
breach or threatened breach and to enforce the provisions of this Article V. The
Employee acknowledges and agrees that there is no adequate remedy at law for any
such breach or threatened breach and, in the event that any action or proceeding
is brought seeking injunctive relief, the Employee shall not use as a defense
thereto that there is an adequate remedy at law.
5.05 Reasonable Restrictions. The parties acknowledge that (a) the
agreements in this Article V are essential to protect the business and goodwill
of the Company, and (b) the foregoing restrictions are under all of the
circumstances reasonable and necessary for the protection of the Company and its
business.
5.06 Definitions. For purposes of this Agreement, the term "Company"
shall be deemed to include any subsidiary of the Company.
<PAGE> 15
ARTICLE VI
MISCELLANEOUS
6.01 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective legal representatives,
heirs, distributees and successors; provided, that the rights and obligations of
the Employee under this Agreement shall not be assignable by him.
6.02 Notices. All notices and other communications hereunder and all
legal process in regard hereto shall be validly given, made or served if in
writing, when delivered personally (by courier service or otherwise), or when
actually received when mailed by first-class certified or registered United
States mail, postage-prepaid and return receipt requested, to the address of the
party to receive such notice or other communication set forth below, or at such
other address as any party hereto may from time to time advise the other party
pursuant to this Section:
If to the Company:
Video Services Corporation
545 Fifth Avenue
New York, New York 10017
Attention: Chairman of the Board of Directors
If to the Employee:
Louis H. Siracusano
13 Lexington Lane
Montvale, New Jersey 07645
6.03 Severability. If any provision of this Agreement, or portion
thereof, shall be held invalid or unenforceable by a court of competent
jurisdiction, such invalidity or unenforceability shall attach only to such
provision or portion thereof, and shall not in any manner affect or render
invalid or unenforceable any other provision of this Agreement or portion
thereof, and this Agreement shall be carried out as if any such invalid or
unenforceable provision or portion thereof were not contained herein. In
addition, any such invalid or unenforceable provision or portion thereof shall
be deemed, without further action on the part of the parties hereto, modified,
amended or limited to the extent necessary to render the same valid and
enforceable.
6.04 Waiver. No waiver by a party hereto of a breach or default
hereunder by the other party shall be considered
<PAGE> 16
valid, unless in writing signed by such first party, and no such waiver shall be
deemed a waiver of any subsequent breach or default of the same or any other
nature.
6.05 Entire Agreement. This Agreement sets forth the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes any and all prior agreements between the Company and the Employee,
whether written or oral, relating to any or all matters covered by and contained
or otherwise dealt with in this Agreement. No representation, warranty,
undertaking or covenant is made by either party hereto except as provided herein
and any representations, warranties, undertakings or covenants not set forth
herein are specifically disclaimed. This Agreement does not constitute a
commitment of the Company with regard to the Employee's employment, express or
implied, other than to the extent expressly provided for herein.
6.06 Amendment. No modification, change or amendment of this
Agreement or any of its provisions shall be valid, unless in writing and signed
by the party against whom such claimed modification, change or amendment is
sought to be enforced.
6.07 Authority. The parties each represent and warrant that they
have the power, authority and right to enter into this Agreement and to carry
out and perform the terms, covenants and conditions hereof.
6.08 Titles. The titles of the Articles and Sections of this
Agreement are inserted merely for convenience and ease of reference and shall
not affect or modify the meaning of any of the terms, covenants or conditions of
this Agreement.
6.09 Applicable Law. This Agreement, and all of the rights and
obligations of the parties in connection with the employment relationship
established hereby, shall be governed by and construed in accordance with the
internal laws of the State of New York without giving effect to principles
relating to conflicts of law.
6.10 Directors' and Officers' Liability Coverage. The Company will
provide the Employee with appropriate directors and officers liability insurance
coverage throughout the Term. The Employee shall be entitled to indemnification
and advance of expenses by the Company to the fullest extent available under
Delaware law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
<PAGE> 17
VIDEO SERVICES CORPORATION
By: /s/ Christopher Modrinski
Name:
Title:
/s/ Louis H. Siracusano
Louis H. Siracusano
<PAGE> 18
SCHEDULE A
LIFE INSURANCE POLICIES
<TABLE>
<CAPTION>
Policy Number <F1> Issue Date
-------------- ----------
<S> <C> <C>
5390709 10/18/75
6099251 09/13/79
6197003 04/01/80
6256020 08/12/80
6433902 07/27/81
7216209 10/14/86
8602222 11/12/90
9754354 07/12/94
<FN>
<F1> All of the above life insurance policies are with Massachusetts Mutual Life
Insurance Company.
</FN>
</TABLE>
<PAGE> 19
SCHEDULE B
The direct or indirect ownership and disposition of investments in, and
the exercise, as a stockholder, of the rights of a stockholder with respect to:
Cassette Dub, Inc., a New Jersey corporation, VSC Post Production, Inc., a New
York corporation, Martin Audio/Video Corporation, a Delaware corporation, Nova
Manufacturing, Inc., a New Jersey corporation, Video Dub, Inc., a New Jersey
corporation, Videotape Distributors, Inc., a New Jersey corporation, VSC
Communications, Inc., a New Jersey corporation and E-Magine, a New York limited
liability company.
<PAGE> 1
Exhibit 10.73
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of August 26, 1997, by and between Video
Services Corporation, a Delaware corporation (formerly known as International
Post Limited), with its principal office at 545 Fifth Avenue, New York, New York
10017 (the "Company"), and Donald H. Buck with an address at 2 Deerburn Court,
Florham Park, New Jersey 07932 (the "Employee").
INTRODUCTION
The parties hereto desire to provide for the employment of the
Employee with the Company. In order to accomplish such purpose, and in
consideration of the terms, covenants and conditions hereinafter set forth, the
parties hereby enter into this employment agreement.
ARTICLE I
EMPLOYMENT; TERM; DUTIES
1.01 Employment. Upon the terms and conditions hereinafter set
forth, the Company hereby employs the Employee, and the Employee hereby accepts
employment, as Vice President of the Company.
1.02 Term. Unless sooner terminated as provided in Article IV
hereof, the Employee's employment hereunder shall be for a term commencing on
the date hereof and ending on the later of (i) the close of business on the
third anniversary of the date hereof and (ii) the date which is twelve months
after either party hereto gives written notice to the other that it desires to
terminate this Agreement. The actual term of employment hereunder, giving effect
to any early termination of employment under Article IV hereof, is referred to
as the "Term".
1.03 Duties. During the Term, the Employee shall perform such
executive duties for the Company and for its subsidiaries, consistent with his
position hereunder, as may be assigned to him from time to time by the President
or Chief Executive Officer of the Company. The Employee shall perform his duties
hereunder on a full time basis, provided, however that he shall not be
prohibited from engaging in: (i) the activities specified on Schedule B hereto;
(ii) volunteer or charitable activities; or (iii) management or ownership of
passive
<PAGE> 2
investments, so long as they do not interfere with the foregoing obligations.
1.04 Exclusive Agreement. The Employee represents and warrants
to the Company that he is not a party to any agreement or arrangement, whether
written or oral, in effect which would prevent the Employee from rendering
service to the Company during the Term.
ARTICLE II
COMPENSATION
2.01 Base Salary. For all services rendered by the Employee
hereunder and all covenants and conditions undertaken by him pursuant to this
Agreement, the Company shall pay the Employee an annual base salary ("Base
Salary") during the Term or the Scheduled Term (as defined in Section 4.02), as
the case may be, in equal bi-weekly installments, of $175,000 per year. The Base
Salary payable to the Employee hereunder shall be reviewed annually, and may be
increased but not decreased, by the Compensation Committee of the Board of
Directors of the Company. In the event of any such increase, the salary so
determined shall thereafter constitute the Base Salary. In addition, the
Compensation Committee of the Board of Directors of the Company shall consider,
on an annual basis, the payment of a discretionary bonus by the Company to the
Employee in addition to the Incentive Compensation referred to in Section 2.02
hereof.
If the first or last month of the Term or the Scheduled Term,
as the case may be, is not a full calendar month, then any calculation of Base
Salary for such period shall be prorated for the number of days employed in such
months.
2.02 Incentive Compensation. Promptly following the date
hereof, the parties hereto shall negotiate and agree to a reasonable, equitable,
incentive compensation arrangement ("Incentive Compensation") to apply during
the Term.
2.03 Deductions. The Company shall deduct from the
compensation described in Sections 2.01 and 2.02 any Federal, state or city
withholding taxes, social security contributions and any other amounts which may
be required to be deducted or withheld by the Company pursuant to any Federal,
state or city laws, rules or regulations.
2.04 Disability Adjustments. Any compensation otherwise
payable to the Employee pursuant to Section 2.01 in respect of any period during
which the Employee is disabled (as contemplated in Section 4.03) shall be
reduced by any amounts
<PAGE> 3
paid to the Employee for loss of earnings or the like under any insurance plan
or policy the premiums for which are paid for in their entirety by the Company.
In addition, the Employee shall be entitled to participate in, and the Company
shall continue to maintain and pay for at its expense, upon the same terms, the
life insurance policies specified on Schedule A attached hereto and the
disability insurance policies currently provided to him by Video Services
Corporation.
ARTICLE III
BENEFITS; EXPENSES
3.01 Benefits. During the Term, the Employee shall be entitled
to participate in and receive such benefits, services, equipment, compensation
and incentive plans and group life, health, accident, disability and
hospitalization insurance plans, pension plans and retirement plans as the
Company may make available to its executive employees.
3.02 Expenses. The Company agrees that the Employee is
authorized to incur reasonable expenses in the performance of his duties
hereunder, and upon presentation of a reasonably itemized account thereof, the
Company shall promptly pay or reimburse the Employee for such reasonable
expenses so incurred by the Employee.
3.03 Vacations. During each full year of the Term, the
Employee shall be entitled to four (4) weeks of paid vacation to be taken at
times determined by the Employee which do not unreasonably interfere with the
performance of his duties hereunder, provided, that any such vacation time not
taken during any year shall be forfeited and that no single vacation shall
exceed two (2) consecutive weeks.
3.04 Domicile. During the Term, the Employee (except for
reasonable business travel required by the Company) shall conduct his activities
hereunder at a Company office located in the New York metropolitan area.
ARTICLE IV
TERMINATION; DEATH; DISABILITY
4.01 Termination of Employment With Cause. In addition to any
other remedies available to it at law, in equity or as set forth in this
Agreement, the Company shall have the right, upon written notice to the
Employee, to immediately terminate his employment hereunder if the Employee (a)
breaches
<PAGE> 4
in any material respect any material provision of this Agreement and such breach
is not remedied within thirty (30) days after written notice thereof from the
Board of Directors of the Company setting forth in reasonable detail the matters
constituting such breach; or (b) willfully fails or refuses in any material
respect to perform such duties as may be reasonably assigned to him, consistent
with his title and general area of responsibility, from time to time by the
Board of Directors of the Company and fails to cure such failure or refusal
within thirty (30) days after receipt of notice from the Board of Directors of
the Company stating with specificity the nature of such failure or refusal; or
(c) has been convicted of a felony; or (d) has committed any act of fraud,
misappropriation of funds or embezzlement in connection with his employment
hereunder ((a) through (d) above to mean "Cause", and termination as a result of
(a) through (d) above to mean "Termination With Cause"). The date of any
termination of employment under this Section 4.01 or under Section 4.02, 4.03 or
4.04 is referred to herein as the "Termination Date". In the event of a
Termination With Cause, the Company shall pay the Employee as follows:
(a) within ten (10) days following the Termination Date, any
accrued but unpaid Base Salary as of the Termination Date;
(b) within ten (10) days following the Termination Date, the
Employee's Base Salary on a daily basis (computed on a 365-day year) in effect
on the Termination Date, multiplied by the number of accrued and unused vacation
days at the Termination Date:
(c) within ten (10) days following the Termination Date, any
accrued but unpaid expenses incurred by the Employee as of the Termination Date
in accordance with Section 3.02 hereof;
(d) within ten (10) days following the Termination Date, any
accrued and unpaid benefits to which the Employee may be entitled pursuant to
Section 3.01 hereof;
(e) within ten (10) days after the date of the Company's
receipt of its year end financial statements for the year in which the
Termination Date occurs, an amount equal to (x) the amount of Incentive
Compensation, if any, that would have been payable to the Employee with respect
to the fiscal year during which the Termination Date occurred had the
Termination Date not occurred multiplied by (y) a fraction, the numerator of
which is the number of days in such fiscal year which expired prior to the
Termination Date and the denominator of which is 365;
<PAGE> 5
(f) within ten (10) days following the Termination
Date, any other accrued and unpaid compensation payable to the Employee as of
the Termination Date, the amount of which has already been calculated as of the
Termination Date in accordance with the terms hereof; and
(g) within ten (10) days following the date after
the Termination Date as of which it is calculated in accordance with the terms
hereof, any other accrued and unpaid compensation payable to the Employee as of
the Termination Date.
4.02 Termination of Employment Without Cause. Notwithstanding
any provision to the contrary herein, the Company may at any time upon written
notice to the Employee, in its sole and absolute discretion and for any or no
reason, terminate the employment of the Employee hereunder without Cause;
provided, that if such termination is not a Termination With Cause, the Company
shall pay the Employee as follows:
(a) within ten (10) days following the Termination
Date, any accrued but unpaid Base Salary as of the Termination Date;
(b) the Employee's Base Salary until the end of the
Scheduled Term (as hereinafter defined) as and when such Base Salary would have
been paid had the termination of employment not taken place;
(c) the Employee's Incentive Compensation until the
end of the Scheduled Term (if any would have been due and payable to him under
Section 2.02), as and when such Incentive Compensation would have been paid had
the termination of employment not taken place;
(d) within ten (10) days following the Termination
Date, a cash payment equal to the Employee's Base Salary on a daily basis
(computed on a 365-day year) in effect on the Termination Date, multiplied by
the number of accrued and unused vacation days at the Termination Date;
(e) within ten (10) days following the Termination
Date, any accrued but unpaid expenses incurred by the Employee as of the
Termination Date in accordance with Section 3.02 hereof;
(f) within ten (10) days following the Termination
Date, any accrued and unpaid benefits to which the Employee may be entitled
pursuant to Section 3.01 hereof;
<PAGE> 6
(g) within ten (10) days following the Termination
Date, any other accrued and unpaid compensation payable to the Employee as of
the Termination Date, the amount of which has already been calculated as of the
Termination Date in accordance with the terms hereof; and
(h) within ten (10) days following the date after
the Termination Date as of which it is calculated in accordance with the terms
hereof, any other accrued and unpaid compensation payable to the Employee as of
the Termination Date.
For purposes of this Agreement, "Scheduled Term" shall mean
(x) if the employment of the Employee is terminated under any provision of
Article IV (other than Section 4.01) prior to the close of business on the third
anniversary of the date hereof, the period ending at the close of business on
the third anniversary of the date hereof and (y) if the employment of the
Employee is terminated under any provision of Article IV (other than Section
4.01) on or after the close of business on the third anniversary of the date
hereof, the period ending at the close of business on the date which is twelve
months after the date on which the employment of the Employee is so terminated.
In the event that the Employee terminates his employment
following an uncured material breach of this Agreement by the Company, then such
termination by the Employee shall be deemed for all purposes (including, without
limitation, the Plan) to be a termination by the Company of the employment of
the Employee hereunder without Cause pursuant to this Section 4.02. The Company
shall have thirty (30) days following written notice by the Employee to the
Company of such breach, setting forth in reasonable detail the matters
constituting such breach, to cure such breach.
The Employee acknowledges that the payments referred to in
Section 4.01 and this Section 4.02 constitute the only payments which the
Employee shall be entitled to receive from the Company under this Agreement in
the event of any termination of his employment pursuant to Section 4.01 and this
Section 4.02, and that except for such payments the Company shall have no
further liability or obligation to him under this Agreement.
4.03 Death; Disability. The Employee's employment hereunder
shall terminate upon his death or, at the election of the Company by written
notice to the Employee, if the Employee becomes Disabled (as such term is
hereinafter defined). In the event of a termination of the Employee's employment
for death or Disability, the Company shall pay the Employee (or his legal
representatives, as the case may be), as follows:
<PAGE> 7
(a) within ten (10) days following death or such
notice, any accrued but unpaid Base Salary as of the Termination Date;
(b) the Employee's Base Salary until the expiration
of 12 months from the date of death or termination for Disability (the
"Extension Period"), such Base Salary to be paid as and when such Base Salary
would have been paid had the employment of the Employee continued through the
Extension Period;
(c) within ten (10) days after the next Financial
Statement Receipt Date to occur, an amount equal to (x) the amount of Incentive
Compensation, if any, that would have been payable to the Employee with respect
to the fiscal year during which the Termination Date occurred had the
Termination Date not occurred multiplied by (y) a fraction, the numerator of
which is the number of days in such fiscal year which expired prior to the
Termination Date and the denominator of which is 365;
(d) within ten (10) days following the Termination
Date, a cash payment equal to the Employee's Base Salary on a daily basis
(computed on a 365-day year) in effect on the Termination Date, multiplied by
the number of accrued and unused vacation days at the Termination Date;
(e) within ten (10) days following the Termination
Date, any accrued but unpaid expenses incurred by the Employee as of the
Termination Date in accordance with Section 3.02 hereof;
(f) within ten (10) days following the Termination
Date, any accrued and unpaid benefits to which the Employee may be entitled
pursuant to Section 3.01 hereof;
(g) within ten (10) days following the Termination
Date, any other accrued and unpaid compensation payable to the Employee as of
the Termination Date, the amount of which has already been calculated as of the
Termination Date in accordance with the terms hereof; and
(h) within ten (10) days following the date after
the Termination Date as of which it is calculated in accordance with the terms
hereof, any other accrued and unpaid compensation payable to the Employee as of
the Termination Date.
For the purposes of this Agreement, the Employee shall be
deemed to be "Disabled" or have a "Disability" if as a result of the occurrence
of mental or physical disability
<PAGE> 8
during the Term he has been unable to perform his duties hereunder for three (3)
consecutive months or ninety (90) days in any twelve (12) consecutive month
period, as determined in good faith by the Board of Directors of the Company.
The Employee acknowledges that the payments referred to in
this Section 4.03 constitute the only payments to which the Employee (or his
legal representatives, as the case may be) shall be entitled to receive from the
Company under this Agreement in the event of a termination of his employment for
death or Disability, and that except for such payments the Company shall have no
further liability or obligation to him (or his legal representatives, as the
case may be) under this Agreement.
4.04 Change of Control. The Employee may, at any time during
the six (6) month period following a Change of Control (as defined in the
International Post Limited 1993 Long Term Incentive Plan), by delivery of
written notice to the Company, terminate his employment hereunder in the event
that during such period the compensation, benefits, authority, responsibilities,
privileges, duties and/or status or title of the Employee are materially
diminished (individually or in the aggregate). Any such permitted termination by
the Employee shall be deemed to constitute a termination without Cause by the
Company under Section 4.02 hereof for all purposes.
ARTICLE V
INVENTIONS; NON-DISCLOSURE; NON-COMPETITION
5.01 Inventions. All processes, technologies and inventions
(collectively, "Inventions"), including new contributions, improvements,
discoveries, trademarks and trade names, conceived, developed, invented, made or
found by the Employee, alone or with others, during his employment by the
Company or within six months after the termination thereof, whether or not
patentable and whether or not conceived, developed, invented, made or found on
the Company's time or with the use of the Company's facilities or materials and
which relate to the post-production business, shall be the property of the
Company and shall be promptly and fully disclosed by the Employee to the
Company. The Employee shall perform all necessary acts (including, without
limitation, executing and delivering any confirmatory assignments, documents or
instruments requested by the Company) to vest title to any such Invention in the
Company and to enable the Company, at its expense, to secure and maintain
domestic and/or foreign patents or any other rights for such Inventions.
<PAGE> 9
5.02 Non-Disclosure. The Employee shall not, at any time
during the Term or thereafter, directly or indirectly, disclose or furnish to
any other person, firm or corporation except in the course of the proper
performance of his duties hereunder (a) any information relating to any process,
technique or procedure used by the Company: or (b) any information relating to
the operations or financial status of the Company (including, without
limitation, all financial data), which information is not specifically a matter
of public record; or (c) any information of a confidential nature obtained as a
result of his present or future relationship with the Company, which information
is not specifically a matter of public record; or (d) the name, address or other
information relating to any customer or supplier of the Company; or (e) any
other trade secrets of the Company, except that the Employee shall not be liable
under the terms of this Section 5.02 for disclosing or furnishing any of the
foregoing which (1) are or become generally available to the public other than
as a result of a disclosure in violation of this Agreement, or (2) are generally
known in any industry in which the Company is or may become involved or (3) is
required to be disclosed by the Employee pursuant to law or the order of a court
of competent jurisdiction, or other legal process or authority, it being
understood, however, that the Employee will provide the Company with prompt
notice of the requirement for such disclosure as soon as practical after the
Employee is notified thereof and prior to its disclosure thereof so as to enable
the Company to challenge the order compelling such disclosure if the Company so
desires. Promptly upon the expiration or termination of the Employee's
employment hereunder for any reason, the Employee shall surrender to the Company
all documents, drawings, work papers, lists, V memoranda, records and other data
(including all copies) constituting or pertaining in any way to any of the
foregoing information.
5.03 Non-Competition. The Employee agrees that during the
Non-Competition Term (as hereinafter defined) he will not in any manner,
directly or indirectly, except where specifically contemplated by the terms of
his employment or this Employment Agreement, (a) be employed by, engaged in or
participate in the ownership, management, operation or control of, or act in any
advisory or other capacity for, any Competing Entity which conducts its business
within the Territory (as the terms Competing Entity and Territory are
hereinafter defined); provided, however, that notwithstanding the foregoing, the
Employee may make solely passive investments in any Competing Entity the common
stock of which is "publicly held" and of which the Employee shall not own or
control, directly or indirectly, in the aggregate securities which constitute 5%
or more of the
<PAGE> 10
voting rights or equity ownership of such Competing Entity; or (b) solicit or
divert any business or any customer from the Company or assist any person, firm
or corporation in doing so or attempting to do so; or (c) cause or seek to cause
any person, firm or corporation to refrain from dealing or doing business with
the Company or assist any person, firm or corporation in doing so; or (d) hire
or seek to hire any person who at the time so hired, or within 12 months prior
to such date, was an employee of the Company on the date hereof or during such
Non-Competition Term or assist any person, firm or corporation in doing so or
attempting to do so; provided, however, that the foregoing shall not prohibit
the Employee from engaging in the activities and investments set forth on
Schedule B hereto both during and after the Term.
For purposes of this Section 5.03, (i) the term
"Non-Competition Term" shall mean (x) the Term of this Agreement plus two (2)
years, in the event of a termination of employment pursuant to Section 4.01 and
(y) the Scheduled Term (as long as the Company is in compliance with its
obligations under Article IV), in the event of a termination of employment
pursuant to any provision of Article IV other than Section 4.01; (ii) the term
"Competing Entity" shall mean any entity which presently or hereafter during the
Non-Competition Term engages in any business activity in which the Company or
its successor is engaged during the Non-Competition Term; and (iii) the term
"Territory" shall mean any greater metropolitan area in which the Company is
engaged in business while the Employee is employed by the Company or within six
months of the Termination Date.
5.04 Breach of Provisions. In the event that the Employee
shall breach any of the provisions of this Article V, or in the event that any
such breach is threatened by the Employee, in addition to and without limiting
or waiving any other remedies available to the Company at law or in equity, the
Company shall be entitled to immediate injunctive relief in any court, domestic
or foreign, having the capacity to grant such relief, to restrain any such
breach or threatened breach and to enforce the provisions of this Article V. The
Employee acknowledges and agrees that there is no adequate remedy at law for any
such breach or threatened breach and, in the event that any action or proceeding
is brought seeking injunctive relief, the Employee shall not use as a defense
thereto that there is an adequate remedy at law.
5.05 Reasonable Restrictions. The parties acknowledge that (a)
the agreements in this Article V are essential to protect the business and
goodwill of the Company, and (b) the foregoing restrictions are under all of the
<PAGE> 11
circumstances reasonable and necessary for the protection of the Company and its
business.
5.06 Definitions. For purposes of this Agreement, the term
"Company" shall be deemed to include any subsidiary of the Company.
ARTICLE VI
MISCELLANEOUS
6.01 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective legal
representatives, heirs, distributees and successors; provided, that the rights
and obligations of the Employee under this Agreement shall not be assignable by
him.
6.02 Notices. All notices and other communications hereunder
and all legal process in regard hereto shall be validly given, made or served if
in writing, when delivered personally (by courier service or otherwise), or when
actually received when mailed by first-class certified or registered United
States mail, postage-prepaid and return receipt requested, to the address of the
party to receive such notice or other communication set forth below, or at such
other address as any party hereto may from time to time advise the other party
pursuant to this Section:
If to the Company:
Video Services Corporation
545 Fifth Avenue
New York, New York 10017
Attention: Chairman of the Board of Directors
If to the Employee:
Donald H. Buck
2 Deerburn Court
Florham Park, New Jersey 07932
6.03 Severability. If any provision of this Agreement, or
portion thereof, shall be held invalid or unenforceable by a court of competent
jurisdiction, such invalidity or unenforceability shall attach only to such
provision or portion thereof, and shall not in any manner affect or render
invalid or unenforceable any other provision of this Agreement or portion
thereof, and this Agreement shall be carried out as if any such invalid or
unenforceable provision or portion
<PAGE> 12
thereof were not contained herein. In addition, any such invalid or
unenforceable provision or portion thereof shall be deemed, without further
action on the part of the parties hereto, modified, amended or limited to the
extent necessary to render the same valid and enforceable.
6.04 Waiver. No waiver by a party hereto of a breach or
default hereunder by the other party shall be considered valid, unless in
writing signed by such first party, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or any other nature.
6.05 Entire Agreement. This Agreement sets forth the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes any and all prior agreements between the Company and the Employee,
whether written or oral, relating to any or all matters covered by and contained
or otherwise dealt with in this Agreement. No representation, warranty,
undertaking or covenant is made by either party hereto except as provided herein
and any representations, warranties, undertakings or covenants not set forth
herein are specifically disclaimed. This Agreement does not constitute a
commitment of the Company with regard to the Employee's employment, express or
implied, other than to the extent expressly provided for herein.
6.06 Amendment. No modification, change or amendment of this
Agreement or any of its provisions shall be valid, unless in writing and signed
by the party against whom such claimed modification, change or amendment is
sought to be enforced.
6.07 Authority. The parties each represent and warrant that
they have the power, authority and right to enter into this Agreement and to
carry out and perform the terms, covenants and conditions hereof.
6.08 Titles. The titles of the Articles and Sections of this
Agreement are inserted merely for convenience and ease of reference and shall
not affect or modify the meaning of any of the terms, covenants or conditions of
this Agreement.
6.09 Applicable Law. This Agreement, and all of the rights and
obligations of the parties in connection with the employment relationship
established hereby, shall be governed by and construed in accordance with the
internal laws of the State of New York without giving effect to principles
relating to conflicts of law.
6.10 Directors' and Officers' Liability Coverage. The Company
will provide the Employee with appropriate directors
<PAGE> 13
and officers liability insurance coverage throughout the Term. The Employee
shall be entitled to indemnification and advance of expenses by the Company to
the fullest extent available under Delaware law.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
VIDEO SERVICES CORPORATION
By:/s/ Christopher Modrinski
Name:
Title:
/s/ Donald H. Buck
Donald H. Buck
<PAGE> 14
SCHEDULE A
Life Insurance Policies
<TABLE>
<CAPTION>
Policy Number<F1> Issue Date
------------- ----------
<S> <C> <C>
9741383 4/19/94
6196938 4/1/80
9756296 7/11/94
<FN>
<F1>All of the above life insurance policies are with Massachusetts Mutual Life
Insurance Company.
</FN>
</TABLE>
<PAGE> 15
SCHEDULE B
The direct or indirect ownership and disposition of investments in, and
the exercise, as a stockholder, of the rights of a stockholder with respect to:
Cassette Dub, Inc., a New Jersey corporation, VSC Post Production, Inc., a New
York corporation, Martin Audio/Video Corporation, a Delaware corporation, Nova
Manufacturing, Inc., a New Jersey corporation, Video Dub, Inc., a New Jersey
corporation, Videotape Distributors, Inc., a New Jersey corporation, VSC
Communications, Inc., a New Jersey corporation and E-Magine, a New York limited
liability company.
<PAGE> 1
Exhibit 10.74
LOSSES ESCROW AGREEMENT
LOSSES ESCROW AGREEMENT (the "Agreement"), dated as of August 26, 1997,
by and among International Post Limited, a Delaware corporation ("IPL"), Louis
H. Siracusano ("Siracusano"); Arnold P. Ferolito ("Ferolito"); and Donald H.
Buck ("Buck") (each a "Stockholder" and collectively, the "Stockholders") and
IBJ Schroder Bank & Trust Company (the "Escrow Agent"). Any reference herein to
any Stockholder shall be deemed to also include a reference to the heirs, estate
and personal representatives of such Stockholder. Unless otherwise indicated
herein, each capitalized term used herein shall have the meaning attributed to
it in the glossary set forth in Section 20 hereof.
W I T N E S S E T H:
WHEREAS, IPL, Video Services Corporation, a New Jersey corporation
("Video") and the Stockholders are parties to an Agreement and Plan of Merger
(the "Merger Agreement"), dated the date hereof, which, among other things,
provides for the merger (the "Merger") of Video with and into IPL; and
WHEREAS, as a condition to the closing of the Merger, IPL and the
Stockholders have agreed to execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, the parties hereto, intending to be legally bound, do hereby agree as
follows:
Section 1. Appointment of Escrow Agent
IPL and the Stockholders hereby appoint the Escrow Agent as their agent
to hold and disburse all assets from time to time deposited with the Escrow
Agent pursuant hereto on the terms and subject to the conditions set forth in
this Agreement, and the Escrow Agent hereby accepts such appointment. By their
execution of this Agreement, IPL and the Stockholders expressly authorize the
Escrow Agent to, and the Escrow Agent expressly agrees to, take the actions
contemplated by this Agreement in accordance with the provisions of this
Agreement.
Section 2. Escrow Accounts; Deposit of Funds.
(a) On the date hereof each of the Stockholders is delivering to the
Escrow Agent a stock certificate (duly endorsed in blank or accompanied by a
stock power duly endorsed in blank) representing the number of shares of IPL
Common Stock set forth opposite its name below:
<PAGE> 2
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Siracusano 878,186 (the "Siracusano Deposited Shares")
Ferolito 878,186 (the "Ferolito Deposited Shares")
Buck 16,941 (the "Buck Deposited Shares")
</TABLE>
The shares represented by the certificates so deposited (together with
shares deposited pursuant to Section 4 hereof) are referred to herein
collectively as the "Deposited Shares". Each Stockholder shall retain all voting
rights in respect of the Deposited Shares deposited by such Stockholder, as well
as the right to receive all cash dividends paid on such shares until such time,
if any, as they are transferred to IPL. All securities received in respect of
such shares as dividends and all other shares of IPL Common Stock deposited
pursuant to this Agreement shall be added to the Deposited Shares and shall be
deemed Siracusano Deposited Shares, Ferolito Deposited Shares and Buck Deposited
Shares, as applicable.
(b) The Escrow Agent will, upon receipt of any funds from any
Stockholder as contemplated in Section 3 hereof, establish money-market escrow
accounts at the Escrow Agent's office, which accounts shall be designated in the
records of the Escrow Agent as follows: (i) Siracusano Escrow Account (the
"Siracusano Escrow Account"); (ii) Ferolito Escrow Account (the "Ferolito Escrow
Account"); (iii) Buck Escrow Account (the "Buck Escrow Account"), in which the
Escrow Agent shall deposit the funds submitted to it in respect of such
Stockholder. Each account listed in clauses (i) through (iii) is referred to
herein as an "Escrow Account" and the Siracusano Escrow Account, the Ferolito
Escrow Account and the Buck Escrow Account are referred to collectively as the
"Escrow Accounts". Each Escrow Account shall be maintained by, and shall be
under the exclusive dominion and control of, the Escrow Agent. The Escrow
Accounts shall be maintained as separate accounts; funds deposited in each
Escrow Account shall not be co-mingled with the funds deposited in any other
Escrow Account; and the Escrow Agent shall disburse the funds in the Escrow
Accounts only in accordance with the provisions of this Agreement; provided,
however, that the Escrow Agent also shall disburse funds from any of the Escrow
Accounts in accordance with written directions executed by all of the
Stockholders and IPL. Each Escrow Account may, upon the written direction of the
Stockholder depositing any funds therein, be invested in one or more of the
following: (i) securities issued or directly and fully guaranteed or insured by
the United States
<PAGE> 3
of America or any agency or instrumentality thereof, (ii) time deposits and
certificates of deposit and commercial paper issued by any domestic commercial
bank having capital and surplus in excess of $50,000,000 (an "Approved Bank"),
(iii) commercial paper issued by any person incorporated under the laws of the
United States, or any State thereof, rated at least A-1 or the equivalent
thereof by Standard & Poor's Corporation or at least P-1 or the equivalent
thereof by Moody's Investor's Service, Inc. and in each case maturing within one
year after the date of acquisition, (iv) repurchase obligations with a term of
not more than five days for underlying securities of the type described in
clauses (i) through (iii) of this definition entered into with any Approved
Bank, and (v) investments in money market funds which have net assets of at
least $50 million, substantially all of whose assets comprise securities of the
types described in clauses (i) - (iv) above.
All amounts earned in each Escrow Account shall be paid over to the
appropriate Stockholder on a quarterly basis on each January 1, April 1, July 1
and October 1 (or the first Business Day thereafter) upon the written request of
such Stockholder to the Escrow Agent and such interest shall be reported by such
Stockholder as income of such Stockholder for all income tax purposes.
Section 3. Substitution of Cash.
(a) At any time and from time to time a Stockholder may, upon
compliance with the procedures set forth in this Section 3, obtain possession of
all or any portion of the Deposited Shares deposited by such Stockholder in
accordance with Section 2 or Section 4 hereof, by substituting therefor (a "Cash
Substitution") cash in an amount equal to the Determined Cash Amount and
depositing such amount with the Escrow Agent. At any time a Cash Substitution is
to be made pursuant hereto and upon compliance with the provisions of this
Section 3, any necessary certificates shall be delivered to the Stockholder as
soon as practicable after issuance by the transfer agent. In connection
therewith, the Escrow Agent is authorized to submit certificates as necessary
directly to the transfer agent by FedEx or by messenger service and IPL and the
Stockholders agree and acknowledge that the Escrow Agent shall have no duty,
obligation or liability in connection with such delivery or any action of the
transfer agent.
(b) In the event that a Stockholder desires to engage in a Cash
Substitution, the Stockholder shall deliver a written notice signed by the
Stockholder to the Escrow Agent, who shall deliver such notice to the other
Stockholders and to IPL no later than one Business Day after receipt thereof
(the "Cash Substitution
<PAGE> 4
Notice") which notice shall state: (i) that the Stockholder desires to engage in
such Cash Substitution; and (ii) the Determined Cash Amount in respect thereof
together with a statement setting forth in reasonable detail the computation
thereof.
(c) Within 5 Business Days (the "Section 3 Acceptance Period") of
receipt of the Cash Substitution Notice by IPL, IPL may object to the Cash
Substitution on the basis (and only on the basis) that it disagrees with the
computation of the Determined Cash Amount by sending written notice of such
objection (a "Section 3 Objection") to the Escrow Agent, who shall deliver such
notice to the Stockholders no later than one Business Day after receipt thereof
, which shall set forth the reasons therefor and the date of IPL's receipt of
the Cash Substitution Notice. Failure by IPL to deliver a Section 3 Objection to
the Escrow Agent, prior to the end of the Section 3 Acceptance Period, shall be
deemed an acceptance of the Cash Substitution Notice and the Determined Cash
Amount. In the event that the Escrow Agent receives a Cash Substitution Notice
and fails to receive a Section 3 Objection prior to the end of the related
Section 3 Acceptance Period, the Escrow Agent shall complete the Cash
Substitution in accordance with the terms hereof and as contemplated in the Cash
Substitution Notice.
(d) In the event that IPL timely delivers a Section 3 Objection to the
Escrow Agent; who shall deliver a copy to the Stockholders no later than one
Business Day after receipt thereof: (i) the Stockholder may submit the matter to
dispute resolution pursuant to Section 11 hereof; and (ii) the Escrow Agent
shall not complete the Cash Substitution until: (A) directed to do so pursuant
to a written instruction signed by IPL; or (B) directed to do so pursuant to a
certificate signed by the Stockholders and IPL stating that pursuant to the
dispute resolution procedures set forth in Section 11 hereof, it has been
resolved that the Determined Cash Amount, as stated in the Cash Substitution
Notice, is correct and that the requested Cash Substitution should be completed.
(e) In engaging in a Cash Substitution, a Stockholder shall be entitled
to substitute cash proceeds to be derived from the sale of all or a portion of
the Deposited Shares to be received in such Cash Substitution. The Stockholders
and IPL shall take such action as is reasonably necessary to permit and
facilitate any such sale and substitution. In connection therewith, the Escrow
Agent shall only be required to act upon joint instructions signed by the
Stockholders and IPL.
<PAGE> 5
Section 4. Substitution of Stock.
(a) At any time and from time to time, a Stockholder may, upon
compliance with the procedures set forth in this Section 4, obtain possession of
all or any portion of the cash held in the Escrow Account applicable to such
Stockholder, by substituting therefore (a "Stock Substitution") certificates
representing shares of IPL Common Stock in an amount equal to the Determined
Stock Amount and depositing such certificates with the Escrow Agent. At any time
a Stock Substitution is to be made pursuant hereto and upon compliance with the
provisions of this Section 4, any necessary certificates shall be delivered to
the Stockholder as soon as practicable after issuance by the transfer agent. In
connection therewith, the Escrow Agent is authorized to submit certificates as
necessary directly to the transfer agent by FedEx or by messenger service and
IPL and the Stockholders agree and acknowledge that the Escrow Agent shall have
no duty, obligation or liability in connection with such delivery or any action
of the transfer agent.
(b) In the event that a Stockholder desires to engage in a Stock
Substitution, the Stockholder shall deliver a written notice signed by the
Stockholder to the Escrow Agent, who shall deliver such notice to the other
Stockholders and to IPL no later than one Business Day after receipt thereof
(the "Stock Substitution Notice") which notice shall state: (i) that the
Stockholder desires to engage in such Stock Substitution; and (ii) the
Determined Stock Amount in respect thereof together with a statement setting
forth in reasonable detail the computation thereof.
(c) Within 5 Business Days (the "Section 4 Acceptance Period") of
receipt of the Stock Substitution Notice by IPL, IPL may object to the Stock
Substitution on the basis (and only on the basis) that it disagrees with the
computation of the Determined Stock Amount by sending written notice of such
objection (a "Section 4 Objection") to the Escrow Agent, who shall deliver such
notice to the Stockholders no later than one Business Day after receipt thereof,
which shall set forth the reasons therefor and the date of IPL's receipt of the
Stock Substitution Notice. Failure by IPL to deliver a Section 4 Objection to
the Stockholders and the Escrow Agent, prior to the end of the Section 4
Acceptance Period, shall be deemed an acceptance of the Stock Substitution
Notice and the Determined Amount. In the event that the Escrow Agent receives a
Stock Substitution Notice and fails to receive a Section 4 Objection prior to
the end of the related Section 4 Acceptance Period,
<PAGE> 6
the Escrow Agent shall complete the Stock Substitution in accordance with the
terms hereof and as contemplated in the Stock Substitution Notice.
(d) In the event that IPL timely delivers a Section 4 Objection to the
Escrow Agent, who shall deliver a copy to the Stockholders no later than one
Business Day after receipt thereof: (i) the Stockholder may submit the matter to
dispute resolution pursuant to Section 11 hereof; and (ii) the Escrow Agent
shall not complete the Stock Substitution until: (a) directed to do so pursuant
to a written instruction signed by IPL; or (B) directed to do so pursuant to a
certificate signed by the Stockholders and IPL stating that pursuant to the
dispute resolution procedures set forth in Section 11 hereof, it has been
resolved that the Determined Stock Amount, as stated in the Stock Substitution
Notice, is correct and that the requested Stock Substitution should be
completed.
Section 5. Indemnification Claims.
(a) The Stockholders and IPL agree that in the event and to the extent
that any Stockholder has any liability or obligation to provide indemnification
or contribution (collectively, "Indemnification") for any losses of IPL, its
successors or assigns (each an "Indemnified Person") pursuant to the terms of
the Merger Agreement:
(i) the claims of an Indemnified Person in respect of
such Stockholder shall be limited to the Deposited Shares and the Escrow Account
in respect of such Stockholder and no Indemnified Person shall have any other
right, claim or recourse to such Stockholder or the assets of such Stockholder;
(ii) to the extent that such losses arise from any
obligation for which such Stockholders are jointly and severally liable under
the Merger Agreement, and in respect of which an Indemnified Person is entitled
to Indemnification under the Merger Agreement, the right of the Indemnified
Person to receive such Indemnification in respect of any particular Stockholder
regarding any such loss and to assert any claim against the Deposited Shares and
the Escrow Account attributable to such Stockholder hereunder, shall be limited
to an amount determined by multiplying: (A) the amount of such loss for which
such Indemnification is required to be provided under the Merger Agreement; by
(B) the Stockholder Percentage of such Stockholder; and
(iii) to the extent that such losses arise from any
obligation for which such Stockholders are not jointly or severally liable under
the Merger Agreement, and in respect of which an Indemnified Person is entitled
to Indemnification under
<PAGE> 7
the Merger Agreement, the right of an Indemnified Person to receive such
Indemnification in respect of any particular Stockholder regarding any such loss
and to assert any claim against the Deposited Shares and the Escrow Account
attributable to such Stockholder hereunder, shall be limited solely to the
Deposited Shares and the Escrow Account attributable to the particular
Stockholder having an Indemnification obligation in respect of such loss and no
Indemnified Person shall have recourse to, or have any right to make any claim
against, receive any payment from, or receive all or any portion of the
Deposited Shares or the Escrow Account attributable to, any other Stockholder or
any other assets of any Stockholder.
(b) In the event that an Indemnified Person believes that it is
entitled to the payment of money for Indemnification from a Stockholder pursuant
to the provisions of Article X of the Merger Agreement, such Indemnified Person
shall proceed to assert any such claim (an "Indemnification Claim") in the
manner set forth in the Merger Agreement.
(c) The Escrow Agent shall not disburse any amount with respect to any
claim for Indemnification made by any Indemnified Person until directed to make
a payment pursuant to either: (i) a written instruction signed by the
Stockholder against which such claim is asserted (the "Subject Stockholder") and
the Indemnified Person (it being understood and agreed that, in the event that a
Stockholder agrees in writing, or it is determined by a final, binding
non-appealable order or judgment of a court of competent jurisdiction, that he
is obligated to provide a specified amount as Indemnification to an Indemnified
Person pursuant to the terms of Article X of the Merger Agreement, then such
Stockholder shall also provide the notice contemplated herein); or (ii) a
certificate signed by the Stockholders and IPL stating that the claim has been
resolved pursuant to a final, binding non-appealable order or judgment of a
court of competent jurisdiction.
(d) In the event that the Escrow Agent is required to make any payment
in respect of a Subject Stockholder to any Indemnified Person pursuant to the
terms of Section 5(c) above, then such payment shall be made by the Escrow Agent
subject to and in accordance with the following procedure:
(i) the Escrow Agent shall make such payment on the
fifth (5th) Business Day (provided that in the event of a Cash Substitution or
Stock Substitution during such period with respect to which a Section 3
Objection or Section 4 Objection is given, then the date will be the fifth day
following the date such objection is resolved or as soon as thereafter
practicable pursuant to Section 11 hereof) following the occurrence of the
<PAGE> 8
first to occur of the events contemplated in Section 5(c)(i) or (ii), (the
"Payment Date");
(ii) during the four (4) Business Days prior to the
Payment Date the Subject Stockholder may, at its option, engage in a Cash
Substitution or Stock Substitution by giving a Cash Substitution Notice or a
Stock Substitution Notice pursuant to Section 3 or 4 hereof and the Payment Date
will be appropriately extended to the minimum extent necessary to permit such
Cash Substitution or Stock Substitution to occur;
(iii) the Subject Stockholder may, at its option by
written notice to the Escrow Agent, who shall deliver a copy to the Indemnified
Person no later than one Business Day after receipt thereof, given not less than
four (4) Business Days prior to the Payment Date, elect to have any amount to be
paid hereunder, paid in either cash from the Escrow Account, Deposited Shares,
or a combination thereof (provided that in the event of the failure of the
Escrow Agent to receive any such notice prior to the fifth day preceding the
Payment Date, such payment will be made first in cash from the Escrow Account
and then from the Deposited Shares);
(iv) for the purpose of making any payment in
Deposited Shares, the same shall be valued at Market Value determined as of the
close of business on the fourth day preceding the Payment Date; and
(v) in executing funds transfers, the Escrow Agent
will rely upon account numbers or other identifying numbers of a Stockholder or
Indemnified Person or its bank, rather than names. The Escrow Agent shall not be
liable for any loss, liability or expense resulting from any error made by a
Stockholder or Indemnified Person with respect to an account number or other
identifying number provided it has accurately followed written instructions from
the Stockholder or Indemnified Person in accordance with the disbursement
provisions set forth above. The Escrow Agent will confirm the instructions set
forth in such written instructions with the authorized individuals making such
request at the authorized telephone numbers appearing above each such
individual's name. The Escrow Agent will verify by telephone all payment orders
unless they call for a transfer to a pre-identified account.
(e) Notwithstanding anything to the contrary contained herein, the
Stockholders and IPL will not take any action pursuant to this Agreement which
would constitute or result in any assignment of a Federal Communications
Commission ("FCC") license or any change of control of any FCC licensee, whether
de facto or de jure, if such assignment of license or change of
<PAGE> 9
control would require under then existing law (including the written rules and
regulations promulgated by the FCC), the prior approval of the FCC, without
first obtaining such approval of the FCC. The parties hereto hereby agree that
voting rights in the Deposited Shares transferred to IPL hereunder will remain
in each Stockholder unless any required approval of the FCC shall be obtained to
the transfer of voting rights. The Stockholders hereby agree to take such action
as IPL may reasonably request in order to complete any transfer of Deposited
Shares contemplated hereby, including specifically, at IPL's cost and expense,
the use of each Stockholders reasonable efforts to assist in obtaining the
approval of the FCC for any action or transaction contemplated hereby which is
then required by law, and specifically, without limitation, upon request, to
prepare, sign and file with the FCC the assignor's or transferor's portion of
any application or applications for consent to the assignment of license or
transfer of control necessary or appropriate under the FCC's rules and
regulations for approval of (a) any sale or sales of Deposited Shares by or on
behalf of the Escrow Agent pursuant hereto, or (b) any assumption by IPL of
voting rights or management rights in the Deposited Shares effected in
accordance herewith.
Section 6. Final Distribution.
(a) Promptly following the date (the "Final Date") which is the later
of: (i) three (3) years following the date hereof; and (ii) the Section 6 Date,
the Escrow Agent shall, not less than five (5) Business Days following the
giving of written notice to IPL and each Stockholder of its intention to do so,
distribute all Deposited Shares and all funds on deposit in the Escrow Accounts
to the applicable Stockholder who has deposited such funds or shares hereunder;
provided, however, that if, prior to the Final Date, an Indemnified Person has
delivered to the Escrow Agent a written notice (a "Claim Notice") that it has
asserted an Indemnification Claim pursuant to the terms of the Merger Agreement
and the amount of such claim (the "Indemnification Claimed Amount") in respect
of any Subject Stockholder and there has been no disposition of the
Indemnification Claim covered thereby either: (A) as a result of a final,
binding, non-appealable order or judgment of a court of competent jurisdiction
resulting in an order of such court to the Escrow Agent regarding the payment of
such Indemnification Claim; or (B) a written agreement of the Subject
Stockholder resulting in written instructions to the Escrow Agent signed by the
Indemnified Person and the Subject Stockholder: (i) the Escrow Agent shall
continue to hold an aggregate amount (determined in the manner set forth in
Section 6(c)) through the retention of Deposited Shares and of funds in the
Escrow Account, in each case applicable to such
<PAGE> 10
Stockholder, equal to the Indemnification Claimed Amount until such
Indemnification Claim is so disposed of; and (ii) shall deliver to each
Stockholder the balance of the Deposited Shares or the funds held in the
applicable Escrow Account, in excess of the amounts required to be retained
pursuant to the preceding clause (i) (such distribution pursuant to this clause
(ii) and retention pursuant to clause (i), to be made from Deposited Shares,
cash in Escrow Accounts, or a combination thereof, as shall be designated by
each Stockholder by written notice to the Escrow Agent and IPL within five (5)
Business Days following the Final Date); provided that if such notice has not
been received by the Escrow Agent at least three (3) days prior to the Final
Date, then the Escrow Agent shall make such distribution on the third Business
Day following its receipt of such notice. The Escrow Agent shall not make any
distribution of Deposited Shares or funds on deposit in the Escrow Accounts
until it has received written notice from the Stockholders.
(b) Any amount or portion thereof retained pursuant to Section 6(a),
shall be: (i) applied pursuant to Section 5 hereof; or (ii) applied pursuant to
written instructions to the Escrow Agent executed by the Indemnified Person and
the Subject Stockholder; or (iii) in the event that the Escrow Agent receives a
certificate from a Subject Stockholder and the Indemnified Person which states
that the matters set forth in the Claim Notice have been determined by a final,
binding, non-appealable order of a court of competent jurisdiction, and the
amount retained in respect of such Indemnification Claim, pursuant to this
Section 6, exceeds the amount required to be paid pursuant to Section 5 hereof
in respect of such Indemnification Claim, then the excess shall be paid over to
the Subject Stockholder (and, in the event of any dispute with respect to the
foregoing, the same may be submitted for resolution pursuant to the dispute
resolution procedures set forth in Section 11 hereof and the Escrow Agent shall
thereafter release amounts in the applicable Escrow Account and the applicable
Deposited Shares, in accordance with the determination resulting therefrom).
(c) For purposes of withholding assets pursuant to Section 6(a), any
Deposited Shares shall be valued at Market Value determined in good faith by the
Board of Directors of IPL as of the Final Date and all amounts held in any
Escrow Account shall be valued at the amount of cash held in such account. For
the purposes of this Agreement, the Escrow Agent may assume, without inquiry or
responsibility, that all actions taken by the Board of Directors of IPL shall be
in good faith. In the event that any amounts held in any Escrow Account in cash
are withheld from distribution pursuant to this Section 6, due to the existence
of any Indemnification Claim pending as of such date, then to the extent that
the amount so withheld (the "Retained Amount") exceeds 150% of the amount
specified in a certificate signed by
<PAGE> 11
the Stockholders and IPL as the amount finally determined by a court of
competent jurisdiction pursuant to a final, binding, non-appealable order to be
the actual amount to be paid in respect of the Indemnification Claim, IPL shall
pay to the Subject Stockholders in respect of such Indemnification Claim, an
amount (reduced by any other earnings received by the Subject Stockholder
pursuant to this Agreement in respect of such amounts during such period) equal
to interest on such excess calculated from the Final Date until the date of such
payment, at a rate equal to 2% in excess of the average annual interest rate
paid by IPL to its then current lending bank during each annual period (or part
thereof) that such amounts are retained (or, in the event there is no such bank
during any such period, 15% per annum), but not in excess of the maximum rate of
interest permitted by law.
Section 7. Duties and Obligations.
(a) It is agreed that the duties and obligations of the Escrow Agent
are those herein specifically provided and no other. The Escrow Agent shall not
have any liability under, or duty to inquire into, the terms and provisions of
any agreement, other than this Agreement. The Escrow Agent's duties are
ministerial in nature and the Escrow Agent shall not incur any liability
whatsoever so long as it has acted in good faith, except for willful misconduct
or gross negligence. In the event that, at any time, the Escrow Agent has any
question as to the interpretation or application of any provision of this
Agreement, or requests written instructions or confirmation of any action or
inaction to be taken or not to be taken by the Escrow Agent hereunder, the
Escrow Agent may, in its discretion, refrain from taking any action or engaging
in any activity, until it has received such instruction or confirmation as it
may reasonably request and the parties hereto will provide the same as
reasonably requested by the Escrow Agent from time to time.
(b) The Escrow Agent may consult with counsel of its choice, and shall
not be liable for any action taken, suffered or omitted by it in accordance with
the advice of such counsel. The Escrow Agent shall not be bound by any
modification, amendment, termination, cancellation, rescission or supersession
of this Agreement unless the same shall be in writing and signed by all of the
parties hereto.
(c) In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions, claims or demands
from any party hereto which, in its opinion, conflict with any of the provisions
of this Agreement, it shall be entitled to commence an action in interpleader
and to
<PAGE> 12
pay the funds and property then held in the Escrow Accounts into court,
whereupon its sole obligation shall be to take such action as is ordered by a
final, binding, non-appealable order or judgment of a court of competent
jurisdiction.
(d) The Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for.
(e) The Escrow Agent shall not have any responsibility for the
genuineness or validity of any document or other item deposited with it or any
liability for action in accordance with any written instructions or certificates
given to it hereunder and reasonably believed by it to be signed by the proper
parties.
(f) The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to initiate or defend any
legal proceedings (including interpleader) which may be instituted against it in
respect of the subject matter of this Agreement. If it does elect to act, it
will do so only if it is indemnified against the reasonable cost and expense of
such defense or initiation.
(g) This Agreement shall terminate when all funds and property on
deposit pursuant hereto have been disbursed as provided in this Agreement.
Section 8. Resignation. The Escrow Agent may at any time resign
hereunder by giving written notice of its resignation to the parties hereto, at
least thirty days prior to the date specified for such resignation to take
effect, and, upon the effective date of such resignation, all funds and property
then held by the Escrow Agent hereunder shall be delivered by it to such person
as may be designated in writing by all of IPL and the Stockholders, whereupon
all of the Escrow Agent's obligations hereunder shall cease and terminate. If no
such person shall have been designated by such date, all obligations of the
Escrow Agent hereunder shall nevertheless cease and terminate except that the
Escrow Agent's sole responsibility thereafter shall be to continue to hold all
the funds and property then held by it and to deliver the same to a person
designated in writing by all of IPL and the Stockholders or in accordance with
the directions of a final, binding, non-appealable order or judgment of a court
of competent jurisdiction.
Section 9. Indemnification. IPL agrees to indemnify, defend and hold
the Escrow Agent harmless from and against any and all loss, damage, tax,
liability and expense, including, without limitation, reasonable attorneys'
fees, that may be incurred by the Escrow Agent arising out of or in connection
with
<PAGE> 13
its acceptance of appointment as Escrow Agent hereunder, except as caused by its
gross negligence or willful misconduct, including, without limitation, the legal
costs and expenses of defending itself against any claim or liability in
connection with its performance hereunder. Each Stockholder agrees to indemnify,
defend and hold the Escrow Agent harmless from and against any and all loss,
damage, tax, liability and expense, including, without limitation, reasonable
attorneys' fees, that may be incurred by the Escrow Agent arising out of any
wrongful act or omission by such Stockholder hereunder, except as caused by the
Escrow Agent's gross negligence or willful misconduct, including, without
limitation, the legal costs and expenses of defending itself against any claim
or liability in connection with its performance hereunder.
Section 10. Expenses. IPL shall reimburse the Escrow Agent for all
expenses and disbursements incurred by the Escrow Agent including, without
limitation, fees and expenses, of counsel of the Escrow Agent incurred in
connection with this Agreement.
Section 11. Arbitration. Disputes that arise under this Agreement,
between the Stockholders and IPL will be resolved as follows:
(i) except as set forth in the penultimate paragraph of this
Section 11, neither IPL nor any of the Stockholders shall bring a civil action
arising under or with respect to this Agreement;
(ii) at any time IPL or any of the Stockholders may demand
arbitration of any dispute, arising under or with respect to this Agreement by
delivering written notice thereof to: (x) the parties hereto; and (y) an office
of JAMS/Endispute located in New York City (or, if none, then the office of
JAMS/Endispute located closest to New York City); and
(iii) any such arbitration shall be conducted in New York City
according to JAMS/Endispute's Arbitration Rules then in effect applicable to
disputes of the types submitted to arbitration and the results of such
arbitration shall be final and binding on the parties.
In the event that JAMS/Endispute is not available to provide such arbitration
services with respect to any such dispute, then that dispute shall be resolved
by final, binding arbitration in New York City by three arbitrators pursuant to
the rules then prevailing of the American Arbitration Association applicable to
disputes of the type submitted to arbitration. Judgement on the award rendered
by any of the above referenced arbitrators may be confirmed and entered in and
by any court having jurisdiction.
<PAGE> 14
Notwithstanding the foregoing, each party specifically reserves the
right to seek equitable remedies in a court of competent jurisdiction.
It is understood and agreed by IPL and the Stockholders that the
purpose of this Agreement is to provide a mechanism to fund the payment of
certain indemnification obligations that may arise pursuant to the terms of
Article X of the Merger Agreement. This Section 11 is to be utilized solely to
resolve disputes under this Agreement. The determination of the right of any
party to be indemnified or to receive any payment under Section X of the Merger
Agreement in respect of any matter is not within the subject matter of this
Agreement and is not subject to the provisions of this Section 11.
Section 12. Fees. The fees and expenses of the Escrow Agent are to be
paid by IPL pursuant to the terms of a letter agreement between Escrow Agent and
IPL dated April 7, 1997 and the Escrow Agent shall not collect any such fees
from the amounts or property escrowed hereunder.
Section 13. Notices. All notices, requests, demands, waivers, consents,
approvals or other communications to any party hereunder shall be in writing and
shall be deemed to have been duly given if: (i) delivered personally to such
party; or (ii) sent to such party by telegram or telecopy, with a copy sent on
the same day via overnight delivery to the following addresses:
If to IPL, to:
International Post Limited
545 Fifth Avenue
New York, New York 10017
Attention: Martin Irwin
Fax # (212) 986-1364
with a copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Attention: Jeffry S. Hoffman, Esq.
(212) 758-9500
Fax # (212) 758-9526
If to Siracusano, to:
<PAGE> 15
Louis H. Siracusano
13 Lexington Lane
Montvale, New Jersey 07645
(201) 573-8660
Fax # (201) 573-8665
If to Ferolito, to:
Arnold P. Ferolito
c/o Video Services Corporation
240 Pegasus Avenue
Northvale, New Jersey 07647-1904
(201) 767-1000
Fax # (201) 784-2878
If to Buck, to:
Donald H. Buck
2 Deerburn Court
Florham Park, NJ 07932
(201) 593-8478
Fax # (201) 593-9283
All notices to the Stockholders shall also be sent to:
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036-1510
Attention: Keith L. Schaitkin
Fax # (212) 626-0799
If to Escrow Agent, to it at:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust
Fax # (212) 858-2952
or to such other address as the addressee may have specified in notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communications shall be deemed to have been given and
received as of the date so delivered, telegraphed or telecopied, provided that
any notice, request, demand, waiver, consent, approval or other communications
sent to the Escrow Agent shall be deemed to have been given and received as of
the date received by the Escrow Agent.
<PAGE> 16
Section 14. Assignment. A party hereto may assign its rights under this
Agreement upon notice to all other parties hereto, provided that in connection
with any assignment by the Escrow Agent, the Escrow Agent shall comply with the
terms of Section 8 hereof.
Section 15. Binding Nature. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, heirs and personal representatives.
Section 16. Governing Law. This Agreement shall be governed by and
interpreted under the laws of the State of New York applicable to contracts made
and performed therein without giving effect to the principles of conflict of
laws thereof.
Section 17. Amendment; Waiver. No amendment, modification or waiver of
the provisions of this Agreement shall be effective unless in a writing executed
by the party against whom such amendment or modification is sought to be
enforced (or in the case of a waiver by the party waiving one or more of its
rights hereunder).
Section 18. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but
collectively all of such counterparts shall constitute one and the same
agreement.
Section 19. Adjustments. For purposes of this Agreement all references
to numbers of shares or calculations based thereon or relating thereto, shall be
appropriately adjusted for any stock dividend, stock split, reverse stock split,
combination, recapitalization or other similar event.
Section 20. Glossary. The following terms as used in this Agreement
shall have the meanings indicated below.
"Business Day" shall mean any day other than (i) a Saturday or
Sunday; or (ii) a day on which banks in the State of New York are
required or permitted to be closed.
"Cash Substitution Percentage" shall mean, with respect to any
Cash Substitution being sought by any Stockholder, a percentage
determined by dividing the Shares to be Removed pursuant to such Cash
Substitution, by the number of Initial Deposited Shares in respect of
such Stockholder.
"Cash to be Removed" shall mean, with respect to each
Stockholder, the amount of cash it is seeking to obtain
<PAGE> 17
possession of through a Stock Substitution pursuant to this
Section 4.
"Determined Cash Amount" shall mean an amount in U.S. dollars
determined, from time to time, with respect to any Stockholder seeking
to engage in a Cash Substitution, by multiplying the Total Cash Amount
in respect of such Stockholder, by the applicable Cash Substitution
Percentage.
"Determined Stock Amount" shall mean a certificate
representing a number of shares of IPL Common Stock determined, from
time to time, with respect to any Stockholder seeking to engage in a
Stock Substitution, by multiplying the Initial Deposited Shares in
respect of such Stockholder, by the applicable Stock Substitution
Percentage.
"Initial Deposited Shares" shall mean, with respect to each of
Siracusano, Ferolito and Buck, respectively, a number of shares equal
to the Siracusano Deposited Shares, the Ferolito Deposited Shares and
the Buck Deposited Shares (in each case including only those shares
deposited in escrow pursuant to this Agreement on the date hereof),
appropriately adjusted for any stock dividend, stock split, reverse
stock split, combination, recapitalization or other similar event.
"IPL Common Stock" shall mean the authorized common stock,
$.01 par value per share, of IPL.
"Market Value" shall mean the average of the closing bid and
asked prices of a share of IPL Common Stock on The Nasdaq Stock Market
during the five (5) trading days immediately prior to the date such
calculation is made, appropriately adjusted for stock dividends,
splits, combinations, subdivisions, recapitalizations and similar
events.
"Section 6 Date" in the event that the Escrow Agent and each
Stockholder have received written notice from IPL of an extension of
the applicable statute of limitations relating to any matter
contemplated in Sections 4.8, 4.9 or 4.14 of the Merger Agreement by
agreement of IPL and any Governmental Entity entered into prior to the
expiration of three (3) years from the date of the Closing, the date of
expiration of the last such extension.
"Shares to be Removed" shall mean, with respect to each
Stockholder, the number of Deposited Shares it is seeking to
<PAGE> 18
obtain possession of through a Cash Substitution pursuant to
this Section 3.
"Stock Substitution Percentage" shall mean, with respect to
any Stock Substitution being sought by any Stockholder, a percentage
determined by dividing the Cash to be Removed pursuant to such Stock
Substitution, by the Total Cash Amount in respect of such Stockholder.
"Stockholder Percentage" shall mean: (i) with respect
to Louis H. Siracusano, 46.062%; (ii) with respect to Arnold
P. Ferolito, 46.02%; and (iii) with respect to Donald H.
Buck, 7.876%.
"Total Cash Amount" shall mean, with respect to: (i)
Siracusano, $2.3 million; (ii) Ferolito, $2.3 million, and
(iii) Buck, $400,000.
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
INTERNATIONAL POST LIMITED
/s/ Martin Irwin
Name: Martin Irwin
Title: President
STOCKHOLDERS:
/s/ Louis H. Siracusano
Louis H. Siracusano
/s/ Arnold P. Ferolito
Arnold P. Ferolito
/s/ Donald H. Buck
Donald H. Buck
IBJ SCHRODER BANK & TRUST
COMPANY
By: /s/ Barbara McCluskey
<PAGE> 1
EXHIBIT 10.75
SEVERANCE AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of the 26th day of
August, 1997, by and between International Post Limited, a Delaware corporation
(the "Corporation") and Martin Irwin residing at 156 Fisher Road, Mahwah, New
Jersey 07430 (the "Executive").
B A C K G R O U N D
The Executive and the Corporation are parties to an employment
agreement (the "Existing Agreement") dated February 15, 1994. The Executive and
the Corporation have mutually agreed that the Executive's employment with the
Corporation will be terminated and that the Executive will resign his offices
with the Corporation, other than his position as a director of the Corporation,
in order to pursue other interests. As a result, the Corporation and the
Executive both desire to terminate the Existing Agreement and, in connection
therewith, to enter into the covenants and agreements contemplated herein.
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements hereinafter set
forth, the parties hereto, desiring to be legally bound, do hereby agree as
follows:
1. Resignation. The Executive agrees and acknowledges that
effective as of the date hereof (the "Effective Date"), the Executive's
employment shall be deemed to have been terminated and the Executive has, and
shall be deemed to have, resigned from all offices and positions with the
Corporation and any of its affiliates, other than his position as Vice Chairman
of the Board of the Corporation.
The Executive and the Corporation acknowledge and agree that,
except for: (i) the Existing Agreement, which is hereby terminated and shall
hereafter be deemed to be null and void and of no further force or effect; and
(ii) this Agreement, the Executive has not entered into any agreement, whether
written, oral or implied, with the Corporation with respect to the subject
matter hereof or any employment relationship. Notwithstanding the foregoing, (i)
the Executive shall have the rights set forth in Section 7.9(a) of the Agreement
and Plan of Merger among the Corporation, Video Services Corporation, Louis H.
Siracusano, Donald H. Buck and Arnold P. Ferolito and (ii) the provisions of
Section 5.02 of the Existing Agreement shall survive the termination thereof.
2. Payments.
(a) Termination Payment. The Corporation shall pay to the
Executive severance in equal bi-weekly installments at the rate of: (i) $150,000
per year for the one (1) year
<PAGE> 2
period from the date hereof; (ii) $100,000 per year for the one (1) year period
thereafter; and (iii) $75,000 per year for the one (1) year period thereafter
(subject to applicable withholding and deductions).
(b) Benefits. The Executive shall, for a period of three (3)
years from the date hereof (subject to the terms and conditions of particular
plans and programs) be entitled to participate in and receive such benefits,
services, equipment, compensation and incentive plans and group life, health,
accident, disability and hospitalization insurance plans, pension plans and
retirement plans as the Corporation may make available to employees of the
Corporation at the expense of the Corporation.
(c) Options. On the date hereof, Louis H. Siracusano, Arnold
P. Ferolito and Donald H. Buck shall grant to the Executive, options pursuant to
an option agreement in the form of Exhibit A hereto.
3. Withholdings. All amounts payable to the Executive under
this Agreement shall be subject to tax and similar withholdings and deductions
as are required by applicable law, rules and regulations.
4. Non-Competition. The Executive agrees that during the
Non-Competition Term (as hereinafter defined) he will not in any manner,
directly or indirectly, except where specifically contemplated by the terms of
this Agreement, (a) perform consulting services for, be employed by, engage in
or participate in the ownership, management, operation or control of, or act in
any advisory or other capacity for, any Competing Entity which conducts its
business within the Territory (as the terms Competing Entity and Territory are
hereinafter defined); provided, however, that notwithstanding the foregoing, the
employee may make solely passive investments in any Competing Entity the common
stock of which is "publicly held" and of which the employee shall not own or
control, directly or indirectly, in the aggregate securities which constitute 5%
or more of the voting rights or equity ownership of such Competing Entity; or
(b) solicit or divert any business or any customer from the Corporation or
assist any person, firm or corporation in doing so or attempting to do so; or
(c) cause or seek to cause any person, firm or corporation to refrain from
dealing or doing business with the Corporation or assist any person, firm or
corporation in doing so; or (d) hire or seek to hire any person who at the time
so hired, or within 12 months prior to such date was an employee of the
Corporation on the date hereof or during such Non-Competition Term or assist any
person, firm or corporation in doing so or attempting to do so.
For purposes of this Section 4, (i) the term "Non-Competition
Term" shall mean three (3) years commencing on the date hereof; (ii) the term
"Competing Entity" shall mean any entity which presently or hereafter during the
Non-Competition Term engages in any business activity in which the Corporation
or its successor is engaged during the Non-Competition Term; and (iii) the term
"Territory" shall mean any greater metropolitan area in which the Corporation is
-2-
<PAGE> 3
engaged in business while the Executive is employed by the Corporation or within
six months of the date hereof.
5. Severability. If any provision of this Agreement, or
portion thereof, shall be held invalid or unenforceable by a court of competent
jurisdiction, such invalidity or unenforceability shall attach only to such
provision or portion thereof, and shall not in any manner affect or render
invalid or unenforceable any other provision of this Agreement or portion
thereof, and this Agreement shall be carried out as if any such invalid or
unenforceable provision or portion thereof were not contained herein. In
addition, any such invalid or unenforceable provision or portion thereof shall
be deemed, without further action on the part of the parties hereto, modified,
amended or limited to the extent necessary to render the same valid and
enforceable.
6. Headings. The headings of the Sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the constitute on hereof.
7. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
the parties hereto. No waiver of any other provisions hereof (whether or not
similar) shall be binding unless executed in writing by both the parties hereto
nor shall such waiver constitute waiver.
8. Notice. Any notice to be given hereunder shall be given in
writing. Notice shall be deemed to be given when delivered by hand to, or five
days after being mailed, postage prepaid, registered with return receipt
requested, addressed as set forth above or such other address as either party
may specify to the other in writing in accordance with the terms hereof.
9. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which shall constitute one and the same Agreement.
10. Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of New York applicable to
contracts to be performed therein without giving effect to the conflict of law
principles thereof.
11. Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the employment of the Executive by
the Corporation and the subject matter hereof and supersedes any and all prior
understandings, agreements or correspondence between the parties. In the event
that this Agreement is not executed and delivered by the parties hereto, this
Agreement shall not have any effect and shall not constitute, and is not
intended to constitute, evidence or an admission or concession of any matter,
fact or thing.
-3-
<PAGE> 4
12. Further Assurances. The Executive and the Corporation each
agree to execute and deliver such other documents, certificates, agreements and
other writings and to take such other actions as may be necessary or desirable
in order to consummate or implement expeditiously the transactions contemplated
herein and to otherwise fulfill or satisfy the intention of this Agreement.
IN WITNESS WHEREOF the undersigned have executed this
Agreement as of the date set forth above.
INTERNATIONAL POST LIMITED
By: /s/ Gary Strack
Its: Vice President and Treasurer
/s/ Martin Irwin
Martin Irwin
-4-
<PAGE> 5
State of New York )
) ss:
County of New York )
On the 26th day of August, 1997, before me personally came
Martin Irwin, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed the same.
/s/ Joshua Nussbaum
Notary Public
-5-
<PAGE> 6
EXHIBIT A
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of August 26, 1997 is made by and between
LOUIS H. SIRACUSANO, ARNOLD P. FEROLITO and DONALD H. BUCK (each, a "Stockholder
and collectively, the "Stockholders") and MARTIN IRWIN (the "Optionee").
WHEREAS, Video Services Corporation ("VSC") (an entity in which the
Stockholders are the sole stockholders) has entered into a Merger Agreement (the
"Merger Agreement") with International Post Limited (the "Company") dated June
27, 1997, pursuant to which such corporations will be merged (the "Merger");
WHEREAS, the Stockholders desire to grant an option to Optionee to
purchase shares of the Common Stock and Optionee desires to accept such stock
option;
NOW, THEREFORE, the Stockholders and Optionee agree as follows:
Section 1. Grant of Option.
Section 1.1 Grant; Grant Date
Each Stockholder hereby grants to Optionee the right to purchase from
such Stockholder all or any part of the number of shares of Common Stock set
forth opposite his name in the table below (the "Option"), comprising an
aggregate of 75,000 shares of the Company's Common Stock, $.01 par value per
share, (the "Shares") upon the terms and conditions set forth in this Agreement.
The grant date of the Option shall be the date of this Agreement. Optionee
hereby accepts the Option, and agrees to be bound by all the terms and
provisions of this Agreement.
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Louis H. Siracusano 36,540
Arnold P. Ferolito 36,540
Donald H. Buck 1,920
</TABLE>
Section 1.2 Adjustments in Option
In the event that the outstanding Shares subject to the Option are
changed into or exchanged for a different number or kind of shares or securities
of the Company, or of another corporation, by
<PAGE> 7
reason of reorganization, merger or other subdivision, consolidation,
recapitalization, reclassification, stock split, stock dividend or combination
of shares or similar event, the Stockholders shall make an appropriate and
equitable adjustment in the Option so that Optionee's proportionate interest
shall be maintained as before the occurrence of such event to the maximum extent
possible. Any adjustment made by the Stockholders shall be final and binding
upon Optionee and all other interested parties.
Section 1.3 Option Terms
The Option granted under this Agreement shall be subject to
the following terms and conditions:
(a) Price. The exercise price for the Shares subject to the Option
shall be $0.75 per Share.
(b) Term. The Option shall expire on the fifth anniversary of the date
hereof.
(c) Vesting. At the effective time of the Merger, the Option shall
become fully vested and exercisable immediately.
(d) Exercise. To the extent that the Option has become exercisable in
accordance with this Agreement, it may be exercised in whole or in part at any
time prior to its expiration or termination, by providing written notice to each
Stockholder of the number of Shares as to which the Option is being exercised,
and enclosing payment for the Shares with respect to which the Option is being
exercised. Such payment shall be in cash. Partial exercise shall be for whole
Shares only and shall not be for less than five thousand (5,000) Shares in the
aggregate unless the number of Shares purchased constitutes the total number of
Shares then remaining subject to the Option or the Stockholders permit such
smaller exercise in their sole discretion. Notation of any partial exercise
shall be made by the Stockholders on Schedule I hereto. Any exercise shall be
allotted among the Stockholders in the following ratios:
<TABLE>
<CAPTION>
Percentage of Exercise
Stockholder Applied to his Shares
- ----------- ---------------------
<S> <C>
Louis H. Siracusano 48.720%
Arnold P. Ferolito 48.720%
Donald H. Buck 2.560%
</TABLE>
Section 1.4 Nontransferability
The Option shall not be transferable other than by will or the
applicable laws of descent and distribution, and no transfer so effected shall
be effective to bind the Stockholders unless the Stockholders have been
furnished with written notice thereof and such evidence as the Stockholders
-7-
<PAGE> 8
may deem necessary to establish the validity of the transfer and the acceptance
by the transferee or transferees of the terms and conditions of the Option.
Section 1.5 Conditions to Issuance of Stock Certificates
(a) If required, the stock certificates evidencing the Shares shall
bear legends restricting transferability; in substantially the form indicated
below:
"These Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be resold,
pledged or otherwise transferred unless they have been registered under
the Securities Act or unless an exemption from registration is
available."
(b) The Stockholders shall not be required to deliver any certificate
or certificates for Shares deliverable upon any exercise of the Option prior to
fulfillment of all of the following conditions:
(i) The completion of any registration or other
qualification of such Shares under any state or federal law or under rulings or
regulations of the Securities and Exchange Commission or of any other
governmental regulatory body, or the obtaining of approval or other clearance
from any state or federal governmental agency which the Stockholders shall, in
their sole discretion, deem necessary or advisable.
(ii) In the event that the Shares have not been
registered under the Securities Act, if the Stockholders shall, in their sole
discretion, deem it necessary or advisable, the execution by Optionee of a
written representation and agreement, in a form satisfactory to the
Stockholders, in which Optionee represents that the Shares acquired by him upon
exercise are being acquired for investment and not with a view to distribution
thereof.
(c) The parties to this Agreement understand, acknowledge and agree
that any transfer of all or any part of the Shares, or any change in the
ownership of the Company, shall be subject to the requirements of the
Communications Act of 1934, as amended, and the rules and regulations of the
Federal Communications Commission ("FCC") as may be in effect at the time of
such transfer, and that before certain rights provided for in this Agreement are
exercised, it may be necessary to obtain any approval of the FCC required under
applicable law.
Section 2. Miscellaneous.
Section 2.1 Entire Agreement: Amendment
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof. Any term or provision of this
Agreement may be waived at any time by the party which is entitled to the
benefit thereof, and any term or provision of this Agreement may be
-8-
<PAGE> 9
amended or supplemented at any time by the mutual consent of the parties hereto,
except that any waiver of any term or condition, or any amendment, of this
Agreement must be in writing.
Section 2.2 Governing Law
The laws of the State of New York shall govern the interpretation,
validity and performance of the terms of this Agreement regardless of the law
that might be applied under principles of conflict of laws.
Section 2.3 Successors
This Agreement shall be binding upon and inure to the benefit of the
successors, assigns and heirs of the respective parties.
Section 2.4 Notices
All notices or other communications made or given in connection with
this Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by registered or certified mail, return receipt
requested, to those listed below at their following respective addresses or at
such other address as each may specify by notice to the others:
To Optionee:
Martin Irwin
156 Fisher Road
Mahwah, New Jersey 07430
To the Stockholders:
c/o International Post Limited
545 Fifth Avenue
New York, New York 10017
Attention: Louis H. Siracusano
With a copy to each of the Stockholders at the following
addresses:
Louis H. Siracusano
13 Lexington Lane
Montvale, New Jersey 07645
(201) 573-8660
-9-
<PAGE> 10
Arnold P. Ferolito
c/o Video Services Corporation
240 Pegasus Avenue
Northvale, New Jersey 07647-1904
Donald H. Buck
2 Deerburn Court
Florham Park, New Jersey 07932
All notices to the Stockholders shall also be sent to:
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036-1510
Attention: Keith L. Schaitkin, Esq.
Fax Number: (212) 626-0799
Section 2.5 Waiver
The failure of a party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver thereof or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
Section 2.6 Titles; Construction
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of this Agreement.
-10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
/s/ Louis H. Siracusano
Louis H. Siracusano
/s/ Arnold P. Ferolito
Arnold P. Ferolito
/s/ Donald H. Buck
Donald H. Buck
Optionee:
/s/ Martin Irwin
Martin Irwin
<PAGE> 12
SCHEDULE I
Notations As to Partial Exercise
<TABLE>
<CAPTION>
Number of Balance of
Date of Purchased Shares on Authorized Notation
Exercise Shares Option Signature Date
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
Exhibit 10.76
International Post Limited
545 Fifth Avenue
New York, New York 10017
August 26, 1997
Mr. Arnold P. Ferolito
c/o Video Services Corporation
240 Pegasus Avenue
Northvale, New Jersey 07647
Dear Mr. Ferolito:
This letter will confirm our mutual understanding that you will be employed as a
consultant to the company during the one year period commencing on the date
hereof. In that capacity you will provide consulting services to the executive
officers of International Post Limited as may be reasonably requested by such
individuals from time to time, at their offices located in New York City or at
their offices located in Northvale, New Jersey. You will receive a consulting
fee of $5,000.00 per month payable monthly in advance. As a consultant to the
company you will be entitled to participate in health, life, accident,
disability and hospitalization insurance to the same extent as executive
officers of the company.
Please execute below to indicate your agreement with the foregoing.
INTERNATIONAL POST LIMITED
By:/s/ Martin Irwin
Its: President
AGREED AND ACCEPTED:
/s/ Arnold P. Ferolito
Arnold P. Ferolito
<PAGE> 1
Exhibit 21.1
Video Services Corporation owns 100 percent (100%) of the following companies,
directly or indirectly, except as otherwise indicated:
(i) A.F. Associates, Inc., a New Jersey corporation
(ii) Atlantic Satellite Communications, Inc., a New Jersey
corporation
(iii) Video Rentals, Inc., a New Jersey corporation
(iv) Waterfront Communications Corporation, a New York
corporation
(v) VSC Corporation, a Delaware corporation
(vi) VSC MAL Corp., a Delaware corporation
(vii) VSC LIMA Corp., a Delaware corporation
(viii) Manhattan Transfer/Edit, Inc., a Delaware corporation
(ix) IPL Express Courier, Inc., a New Jersey corporation
(x) International Post Finance Limited, a Delaware
corporation
(xi) Audio plus Video International, Inc., a New Jersey
corporation
(xii) CABANA corp., a Delaware corporation
(xiii) Cognitive Communications, LLC, a Delaware limited
liability company
98 percent owned by Manhattan Transfer/Edit, Inc.;
1 percent owned by Michael Rudnick; and
1 precent owned by Susan Wiener
(xiv) The Post Edge, Inc., a Florida corporation
(xv) Interactive Edge, Inc., a Florida corporation
(xvi) Edge Communications, Inc., a Florida corporation
66.7 percent owned by Video Services Corporation
33.3 percent owned by Romulo Granier-Guardia
(xvii) International Post Leasing Limited, a Delaware
corporation
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Video Services Corporation (formerly International Post Limited):
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Corporation's
previously filed Registration Statements on Form S-3 (File No 333-31745) and on
Form S-8 (File No 33-320557).
/s/ Arthur Andersen LLP
New York, New York
October 28, 1997
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement Form
S-8 No. 33-320557 pertaining to the 1993 Long Term Incentive Plan, the
Restricted Share Plan for Directors and Various Stock Option Agreements of
Video Services Corporation (formerly International Post Limited) and Form S-3
No. 333-31745 pertaining to the Registration Statement and related Prospectus
of Video Services Corporation (formerly International Post Limited), of our
report dated October 17, 1997, with respect to the consolidated financial
statements and schedules of Video Services Corporation (formerly International
Post Limited) included in this Form 10-K as of and for the year ended July 31,
1997.
/s/ Ernst & Young LLP
White Plains, New York
October 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF INCOME FILED AS PART
OF THE ANNUAL 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 154
<SECURITIES> 0
<RECEIVABLES> 10,422
<ALLOWANCES> 743
<INVENTORY> 0
<CURRENT-ASSETS> 11,617
<PP&E> 55,276
<DEPRECIATION> 26,797
<TOTAL-ASSETS> 66,548
<CURRENT-LIABILITIES> 9,544
<BONDS> 26,278
0
0
<COMMON> 62
<OTHER-SE> 29,025
<TOTAL-LIABILITY-AND-EQUITY> 66,548
<SALES> 52,387
<TOTAL-REVENUES> 52,387
<CGS> 27,682
<TOTAL-COSTS> 27,682
<OTHER-EXPENSES> 57
<LOSS-PROVISION> 114
<INTEREST-EXPENSE> 2,273
<INCOME-PRETAX> 268
<INCOME-TAX> 1,016
<INCOME-CONTINUING> (748)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (748)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
