SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 2000
[ ] 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 000-23388
VIDEO SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
13-3735647
(I.R.S. Employer Identification Number)
240 Pegasus Avenue Northvale, New Jersey 07647
(Address of principal executive offices, including zip code)
(201) 767-1000
(Registrant's telephone number, including area code)
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 filed such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, $.01 par value
per share, as of May 4, 2000, was 13,311,307.
<PAGE>
VIDEO SERVICES CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED) PAGE
Condensed Consolidated Balance Sheets as of June 30, 1999
and March 31, 2000 3
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1999 and 2000 4
Condensed Consolidated Statements of Operations for
the nine months ended March 31, 1999 and 2000 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended March 31, 1999 and 2000 6
Condensed Consolidated Statement of Stockholders' Equity for
the nine months ended March 31, 2000 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDING............................................ 18
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................... 18
Item 3. DEFAULTS UPON SENIOR SECURITIES............................. 18
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS..................................................... 18
Item 5. OTHER INFORMATION........................................... 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 18
SIGNATURES .......................................................... 19
<PAGE>
VIDEO SERVICES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 1999 and March 31, 2000 (unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, March 31,
ASSETS 1999 2000
----------------- ----------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 805 $ 434
Accounts receivable 14,876 18,348
Inventories 694 1,236
Costs and estimated earnings in excess of billings on
uncompleted contracts 934 1,553
Deferred income taxes 1,300 1,300
Prepaid expenses and other current assets 685 1,703
----------------- ----------------
Total current assets 19,294 24,574
Fixed assets, net 39,589 35,815
Excess of cost over fair value of net assets acquired, net 21,858 21,123
Receivable from affiliates - 98
Deferred income taxes 2,950 2,742
Other assets 1,627 1,742
----------------- ----------------
Total assets $ 85,318 $ 86,094
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 9,248 $ 10,151
Billings in excess of costs and estimated
earnings on uncompleted contracts 985 888
Current portion of long-term debt 7,702 9,362
Current portion of subordinated debt - 772
Income taxes payable 691 215
Other current liabilities 3,105 3,225
----------------- ----------------
Total current liabilities 21,731 24,613
Long-term debt 36,760 36,761
Subordinated debt 5,652 4,238
Other liabilities 2,282 1,436
Payable to affiliates 46 -
----------------- ----------------
Total liabilities 66,471 67,048
----------------- ----------------
Commitments and contingencies
Stockholders equity:
Preferred stock: $.01 par value - 3,000,000 shares
authorized; no shares outstanding at June 30, 1999
and March 31, 2000 - -
Common stock: $.01 par value, 25,000,000 shares authorized,
and 13,264,307 and 13,311,307 shares issued and
outstanding at June 30, 1999 and March 31, 2000 132 133
Additional paid-in-capital 21,218 21,350
Accumulated deficit (2,503) (2,437)
----------------- ----------------
Total stockholders' equity 18,847 19,046
----------------- ----------------
Total liabilities and stockholders' equity $ 85,318 $ 86,094
================= ================
</TABLE>
See accompanying notes
<PAGE>
VIDEO SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1999 and 2000 (unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 2000
----------------- -----------------
Revenues:
<S> <C> <C
Sales $ 6,000 $ 9,368
Services 16,700 17,613
----------------- -----------------
22,700 26,981
Costs:
Sales 5,316 8,208
Services 9,161 9,593
----------------- -----------------
14,477 17,801
Depreciation 2,306 2,431
----------------- -----------------
Gross profit 5,917 6,749
Selling, general and administrative expenses 5,184 5,261
Merger related costs 331 -
Amortization 283 270
----------------- -----------------
Operating income 119 1,218
Other income (expense):
Interest expense (997) (1,215)
Interest and other income (2) 115
----------------- -----------------
Income (loss) before income taxes and extraordinary gain (880) 118
Income tax expense (benefit) (59) 108
----------------- -----------------
Income (loss) before extraordinary gain (821) 10
Extraordinary gain (net of income tax expense of $254) - 382
----------------- -----------------
Net income (loss) $ (821) $ 392
================= =================
Earnings per share:
Basic:
Income (loss) before extraordinary gain $ (0.06) $ 0.00
Extraordinary gain 0.00 0.03
----------------- -----------------
Net income (loss) $ (0.06) $ 0.03
================= =================
Diluted:
Income (loss) before extraordinary gain $ (0.06) $ 0.00
Extraordinary gain 0.00 0.03
----------------- -----------------
Net income (loss) $ (0.06) $ 0.03
================= =================
Weighted average number of shares outstanding for basic
and diluted earnings per share 13,264,307 13,304,065
================= =================
</TABLE>
See accompanying notes
<PAGE>
VIDEO SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended March 31, 1999 and 2000 (unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 2000
----------------- -----------------
Revenues:
<S> <C> <C>
Sales $ 16,518 $ 19,545
Services 49,650 50,792
----------------- -----------------
66,168 70,337
Costs:
Sales 13,744 16,331
Services 28,056 27,568
----------------- -----------------
41,800 43,899
Depreciation 6,457 6,968
----------------- -----------------
Gross profit 17,911 19,470
Selling, general and administrative expenses 15,420 15,178
Merger related costs 331 -
Amortization 819 818
----------------- -----------------
Operating income 1,341 3,474
Other income (expense):
Interest expense (3,074) (3,592)
Interest and other income 26 143
----------------- -----------------
Income (loss) before income taxes and extraordinary gain (1,707) 25
Income tax expense (benefit) (150) 341
----------------- -----------------
Loss before extraordinary gain (1,557) (316)
Extraordinary gain (net of income tax expense of $254) - 382
----------------- -----------------
Net income (loss) $ (1,557) $ 66
================= =================
Earnings per share:
Basic:
Loss before extraordinary gain $ (0.12) $ (0.02)
Extraordinary gain 0.00 0.03
----------------- -----------------
Net income (loss) $ (0.12) $ 0.01
================= =================
Diluted:
Loss before extraordinary gain $ (0.12) $ (0.02)
Extraordinary gain 0.00 0.03
----------------- -----------------
Net income (loss) $ (0.12) $ 0.01
================= =================
Weighted average number of shares outstanding for basic
and diluted earnings per share 13,264,307 13,285,143
================= =================
</TABLE>
See accompanying notes
<PAGE>
VIDEO SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31, 1999 and 2000 (unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
1999 2000
----------------- -----------------
Operating Activities
<S> <C> <C>
Net cash provided by operating activities $ 2,131 $ 1,387
Investing Activities
Additions to fixed assets (7,223) (3,520)
Proceeds from sales of fixed assets 209 426
Increase in receivable from officers (25) -
Increase in receivable from affiliates (180) (184)
----------------- -----------------
Net cash used in investing activities (7,219) (3,278)
Financing Activities
Increase in subordinated debt 156 101
Repayments of subordinated debt - (251)
Proceeds from long-term borrowings 20,868 13,640
Repayment of borrowings (16,114) (11,979)
Proceeds from exercised stock options - 9
----------------- -----------------
Net cash provided by financing activities 4,910 1,520
Net decrease in cash (178) (371)
Cash and cash equivalents, beginning of period 1,492 805
----------------- -----------------
Cash and cash equivalents, end of period $ 1,314 $ 434
================= =================
</TABLE>
See accompanying notes
<PAGE>
VIDEO SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended March 31, 2000 (unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Common Common
Stock Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
-------------- -------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1999 13,264,307 $ 132 $ 21,218 $ (2,503) $ 18,847
Stock related compensation 44,000 1 123 - 124
Exercised stock options 3,000 - 9 - 9
Net income - - - 66 66
-------------- -------------- ------------- --------------- --------------
Balance at March 31, 2000 13,311,307 $ 133 $ 21,350 $ (2,437) $ 19,046
============== ============== ============= =============== ==============
</TABLE>
See accompanying notes
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 1999 and March 31, 2000
and for the three and nine months ended March 31, 1999 and 2000
(dollars in thousands, except for share amounts)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended March 31,
2000 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2000.
The balance sheet at June 30, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements.
The unaudited interim financial information should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
Video Services Corporation and Subsidiaries' (the "Company") annual report on
Form 10-K for the year ended June 30, 1999.
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 are divided into three segments: (i)
Satellite and Distribution Services, (ii) Systems and Products and (iii)
Production Services. The Satellite and Distribution Services segment integrates
and distributes broadcast quality video content via a satellite and fiber optic
transmission network routed through its digital/analog switching center and is
an international provider of technical and distribution services to distributors
of television programming. The Systems and Products segment designs, engineers
and produces advanced video facilities for the broadcast and cable television,
post-production and corporate markets. This segment also develops, manufactures
and markets advanced color correcting and manipulation systems for the film,
post-production and multimedia industries and rents professional video equipment
to the sports, entertainment and other segments of the broadcast and cable
television and corporate markets. The Production Services segment is an
international provider of technical and creative services to owners, producers
of television programming, television advertising and other programming content.
On August 27, 1997, Video Services Corporation ("Old Video") merged with
and into International Post Limited ("IPL") with IPL as the surviving
corporation (the "Merger"). At the effective time of the Merger, IPL changed its
name to Video Services Corporation. As part of the Merger, the Company made a
strategic evaluation of facilities and personnel requirements and determined
that certain IPL facilities would be closed with the equipment being
consolidated into other facilities and determined that certain IPL personnel
would be redundant. Accordingly, the Company recorded a reserve for severance
costs of $1,426 and lease related costs of $993 as of August 27, 1997. The
balance of the liability was $915 and $415 at June 30, 1999 and March 31, 2000,
respectively. At June 30, 1999 it was estimated that approximately $591 of such
expenditures would be made in fiscal 2000, $196 in fiscal 2001, $128 in fiscal
2002. The Company anticipates that funding for these amounts will be provided by
operations.
Note 2 - Inventories
Inventories consist of system components and equipment which are valued at
the lower of specific cost or market and tape stock which is valued at the lower
of cost or market on a FIFO basis.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 3 - Accounts Receivable
<TABLE>
<CAPTION>
June 30, March 31,
1999 2000
--------------------- ---------------------
<S> <C> <C>
Accounts receivable, trade............................ $ 13,750 $ 16,132
Contracts receivable billed:
Uncompleted contracts.............................. 702 1,471
Completed contracts................................ 1,453 1,969
--------------------- ---------------------
15,905 19,572
Less: Allowance for doubtful accounts
and volume discounts........................ 1,029 1,224
--------------------- ---------------------
$ 14,876 $ 18,348
===================== =====================
</TABLE>
Note 4 - Fixed Assets
Fixed assets, at cost, including equipment under capitalized leases,
summarized by major categories consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1999 2000
--------------------- ---------------------
<S> <C> <C>
Machinery and equipment................................ $ 44,482 $ 42,143
Leasehold improvements................................. 12,389 12,772
Furniture and fixtures................................. 2,222 2,227
Transportation equipment............................... 270 268
Building............................................... 2,199 2,199
Land................................................... 1,967 1,967
Equipment under capital leases......................... 5,256 10,155
--------------------- ---------------------
68,785 71,731
Less: Accumulated depreciation........................ 29,196 35,916
--------------------- ---------------------
$ 39,589 $ 35,815
===================== =====================
</TABLE>
Note 5 - Segment Data
The Company's continuing operations are classified into three reportable
business segments that provide different products and services: (i) Satellite
and Distribution Services, (ii) Systems and Products and (iii) Production
Services (See Note 1). Separate management of each segment is required because
each segment is subject to different marketing, production, and technology
strategies.
The Company evaluates performance and allocates resources based on
operating income from continuing operations. The Company does not allocate
income and expenses that are of a general corporate nature to industry segments
in computing operating income. These include corporate expenses, interest income
and expenses, and certain other income and expenses not directly attributable to
a specific segment.
Inter-segment sales are accounted for on the same basis used to price sales
to similar non-affiliated customers and such sales are eliminated in arriving at
consolidated amounts.
The accounting policies applied by each of the segments are the same as
those used by the Company in general.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 5 - Segment Data (Continued)
Assets by segment include assets directly identifiable with those
operations. Other assets primarily consist of corporate cash and cash
equivalents and fixed assets associated with nonsegment activities.
The Company operates primarily in the United States. Revenues from foreign
countries are not significant.
Summarized financial information by business segment for the three and nine
month periods ended March 31, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
March 31, March 31, March 31, March 31,
1999 2000 1999 2000
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers:
Systems and Products................... $ 6,397 $ 9,910 $ 17,726 $ 21,193
Satellite and Distribution Services.... 8,226 8,487 23,212 25,410
Production Services.................... 8,077 8,584 25,230 23,734
------------------ ----------------- ------------------ ------------------
Revenues............................... $ 22,700 $ 26,981 $ 66,168 $ 70,337
================== ================= ================== ==================
Intersegment revenues:
Systems and Products................... $ 212 $ 360 $ 1,781 $ 537
Satellite and Distribution Services.... 305 251 907 815
Production Services.................... 69 35 266 210
------------------ ----------------- ------------------ ------------------
Total intersegment revenues............ $ 586 $ 646 $ 2,954 $ 1,562
================== ================= ================== ==================
Operating income:
Systems and Products................... $ (3) $ 583 $ 935 $ 1,684
Satellite and Distribution Services.... 1,804 1,185 4,413 5,109
Production Services.................... 54 738 319 425
Corporate.............................. (1,736) (1,288) (4,326) (3,744)
------------------ ----------------- ------------------ ------------------
Operating income....................... 119 1,218 1,341 3,474
Interest expense....................... (997) (1,215) (3,074) (3,592)
Interest and other income.............. (2) 115 26 143
------------------ ----------------- ------------------ ------------------
Income (loss) before income taxes and
extraordinary gain.................... $ (880) $ 118 $ (1,707) $ 25
================== ================= ================== ==================
</TABLE>
<TABLE>
June 30, March 31,
1999 2000
----------------- -----------------
<S> <C> <C>
Identifiable assets at June 30, 1999 and March 31, 2000:
Systems and Products................... $ 6,427 $ 9,332
Satellite and Distribution Services.... 20,691 21,335
Production Services.................... 25,698 24,273
Corporate.............................. 32,502 31,154
----------------- -----------------
Total assets........................... $ 85,318 $ 86,094
================= =================
</TABLE>
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 6 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
March 31, March 31, March 31, March 31,
1999 2000 1999 2000
--------------- -------------- --------------- ---------------
Numerator:
<S> <C> <C> <C> <C>
Income (loss) before extraordinary gain $ (821) $ 10 $ (1,557) $ (316)
--------------- -------------- --------------- ---------------
Numerator for basic earnings per share
net income (loss) available to common
stockholders..................... (821) 10 (1,557) (316)
Effect of dilutive securities:
4% convertible subordinated notes and
stock options.................... --- --- --- ---
--------------- -------------- --------------- ---------------
Numerator for diluted earnings per share
net income (loss) available to common
stockholders after assumed conversions $ (821) $ 10 $ (1,557) $ (316)
=============== ============== =============== ===============
Denominator:
Denominator for basic earnings per share-
weighted-average shares.......... 13,264,307 13,304,065 13,264,307 13,285,143
Effect of dilutive securities:
4% convertible subordinated notes and
stock options.................... --- --- --- ---
--------------- -------------- --------------- ---------------
Denominator for diluted earnings per
share-adjusted weighted - average
shares and assumed conversions... 13,264,307 13,304,065 13,264,307 13,285,143
=============== ============== =============== ===============
Basic earnings (loss) per share before
extraordinary gain............... $ (0.06) $ 0.00 $ (0.12) $ (0.02)
=============== ============== =============== ===============
Diluted earnings (loss) per share before
extraordinary gain............... $ (0.06) $ 0.00 $ (0.12) $ (0.02)
=============== ============== =============== ===============
</TABLE>
Earnings (loss) per share has been computed using the weighted average
number of shares outstanding during each period.
The effect of 4% convertible subordinated notes and stock options have been
excluded from the diluted earnings per share calculation, because they are
anti-dilutive.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 7 - Long-Term Debt
<TABLE>
<CAPTION>
June 30, March 31,
1999 2000
----------------- -----------------
<S> <C> <C>
Senior secured term loan........................................... $ 25,250 $ 20,500
Senior secured revolving credit loan............................... 12,700 15,400
Mortgage payable to credit institution bearing interest at
8.95% - prime (7.75% at June 30, 1999 and 9.00% at
March 31, 2000) plus 1%, collateralized by fixed
assets with net book value at $2,395 and $2,336................. 2,209 2,049
Capitalized lease obligations...................................... 4,303 8,174
----------------- -----------------
44,462 46,123
Less: current maturities.......................................... 7,702 9,362
----------------- -----------------
$ 36,760 $ 36,761
================= =================
</TABLE>
Senior Secured Long-Term Debt - The Company has a $33,000 senior secured
term loan (the "Term Loan") and the Revolving Loan (as defined herein), with a
five-year facility provided by KeyBank, as the agent bank (the "Facility") which
are secured by all assets of the Company and its existing and future directly
and indirectly owned subsidiaries. The Revolving Loan bears interest at the
lenders' prime rate plus or minus certain percentages based upon the Company's
leverage ratio (funded debt divided by EBITDA) or LIBOR (London Interbank
Offered Rate) plus a number of basis points based upon the Company's leverage
ratio. The Term Loan bears interest at LIBOR plus a number of basis points based
upon the Company's leverage ratio. The facility contains various convenants that
require the Company to maintain certain financial ratios, limits capital
expenditures, prohibit dividends and similar payments and restrict the Company's
ability to incur other indebtedness. The Facility is guaranteed by all of the
Company's subsidiaries.
In August 1997, the Company entered into an interest rate swap agreement
with KeyBank to reduce the impact of changes in interest rates on its Term Loan.
The agreement, which matures in five years, has a total beginning notional
principal amount of $33,000, which decreases in accordance with scheduled
principal payments on the Company's Term Loan. The swap agreement effectively
converts the Company's borrowings under its Term Loan to a fixed rate. The
Company pays the counterparty a fixed rate of 7.58% per annum and receives
payments based upon the floating one month LIBOR rate. The Company is exposed to
credit loss in the event of nonperformance by the counterparty; however, the
Company does not anticipate nonperformance by the counterparty.
Revolving Credit Facility - The Company has a $17,000 senior secured
revolving credit facility (the "Revolving Loan") with KeyBank. The Company had
outstanding direct borrowings of $15,400 under the Revolving Loan at March 31,
2000. The Company also has outstanding under the Revolving Loan letters of
credit of approximately $825 at March 31, 2000. The Company's Revolving Loan
weighted average interest rate was 9.05% at March 31, 2000.
Subordinated Debt - At June 30, 1999, the Company had $6,350 principal
amount of eight year convertible subordinated notes, due May 4, 2003, with an
interest rate of 4%, convertible at $14 per share after five years and
redeemable after six years. The debt was valued at $4,890 at May 5, 1995 using
an effective rate of 8.34%. The valuation discount is being amortized over the
life of the notes.
The Company entered in to an agreement in February 2000, to replace and
supersede the obligations set forth in the $2,540 principal amount, 4%
convertible subordinated note due May 4, 2003. The Company's new obligation
continues to be subordinated to senior indebtedness. Periodic payments will be
made and be paid in full by May 2003, with an imputed interest rate of 10%. An
extraordinary gain has been recognized in the three month period ended March 31,
2000, amounting to $382, net of applicable income tax expense of $254, and is
shown separately in the consolidated statements of operations.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(dollars in thousands)
Overview
The Company's business is currently divided into three segments: (i)
Satellite and Distribution Services, (ii) Systems and Products and (iii)
Production Services (see Note 5). The Satellite and Distribution Services
segment integrates and distributes broadcast quality video content via a
satellite and fiber optic transmission network routed through its digital/analog
switching center. The Systems and Products segment designs, engineers and
produces advanced video facilities for the broadcast and cable television,
post-production and corporate markets. This segment also develops, manufactures
and markets advanced color correcting and manipulations systems for the film,
post-production and multimedia industries and rents professional video equipment
to the sports, entertainment and other segments of the broadcast and cable
television and corporate markets. The Production services segment is an
international provider of technical and creative services to owners, producers
of television programming, television advertising and other programming content.
Results of Continuing Operations
Three Months Ended March 31, 2000 compared to Three Months Ended March 31,
1999.
Total revenues increased by $4,281 to $26,981 in 2000 from $22,700 in 1999.
Revenues from the Satellite and Distribution Services segment increased by 3.2%
to $8,487 in 2000 from $8,226 in 1999. This increase was primarily due to an
increase in syndicated satellite services, video transmissions and a continued
increase in the number of customers connected to the Company's satellite and
fiber optic network, partially offset by a reduced volume of standards
conversion and duplication services. Revenues from the Systems and Products
segment increased by 54.9% to $9,910 in 2000 from $6,397 in 1999. This increase
was primarily due to increased demand for design and installation of turnkey
video systems. The Production Services segment increased by 6.3% to $8,584 in
2000 from $8,077 in 1999. This increase is primarily due to the higher volume of
visual effects, broadcast design and editing services, partially offset by a
reduced volume of creative editorial services.
Total costs increased by $3,324 to $17,801 in 2000 from $14,477 in 1999.
Costs of the Satellite and Distribution Services segment increased by $410 to
$4,484 in 2000 from $4,074 in 1999. This increase consisted primarily of costs
associated with the ramp up of the fully operational West Coast facility
partially offset by lower syndication costs. Costs of the Systems and Products
segment increased by $2,892 to $8,340 in 2000 from $5,448 in 1999. This increase
was primarily driven by the equipment costs associated with the increased volume
in installations of turnkey video systems. Costs of the Production Services
segment increased by $22 to $4,977 in 2000 from $4,955 in 1999.
The Company's overall gross profit margin (excluding depreciation)
decreased from 36.2% in 1999 to 34.0% in 2000. Gross profit margin from the
Satellite and Distribution Services segment decreased from 50.5% in 1999 to
47.2% in 2000 as a result of the increased costs associated with the West Coast
facility combined with the reduced standards conversion and duplication
revenues, partially offset by higher margins on the syndication revenues. Gross
profit margin from the Systems and Products segment increased to 15.8% in 2000
from 14.8% in 1999 primarily as a result of the increased volume of turnkey
video systems contracts. Gross profit margin from Production Services segment
increased to 42.0% in 2000 from 38.7% in 1999 as a result of an increase in
revenues combined with stable fixed costs.
Selling, general and administrative expenses increased to $5,261 in 2000
from $5,184 in 1999. Selling, general and administrative expenses as a
percentage of revenues decreased by 3.3% from 22.8% in 1999 to 19.5% in 2000.
The ratio decrease was primarily attributable to the increased revenues of the
Company.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Results of Continuing Operations (continued)
Merger related costs were incurred during the 1999 fiscal year. The Company
received unsolicited expressions of interest in acquiring the Company from third
parties. The Company incurred $331 of advisory and legal fees in connection with
its evaluation of these expressions of interest. Since discussions were
terminated, these costs were expensed.
Depreciation expense increased to $2,431 in 2000 from $2,306 in 1999,
primarily due to the new high definition telecine suite. Amortization expense
decreased from $283 in 1999 to $270 in 2000 reflecting the amortization of the
goodwill (excess of cost over the fair value of net assets acquired), which is
being amortized over 25 years.
Interest expense increased to $1,215 in 2000 from $997 in 1999, as a result
of higher interest rates associated with the term and revolving loans and
increased obligations for equipment capital leases.
The effective tax rate applied against pre-tax income (loss) was 91.5% in
2000 and (6.7)% in 1999. The effective tax rate for 2000 as compared to the
federal statutory tax rate of 34% was primarily the result of goodwill
amortization, which is not deductible for income tax purposes and state income
taxes. State income taxes are net of state net operating loss valuations
provided for certain subsidiaries as a result of estimates regarding future
operations.
Extraordinary gain of $382 in 2000 is attributable to the settlement and
replacement of the $2,540 4% convertible subordinated note.
Net income (loss) increased to $392 in 2000 from ($821) in 1999 primarily
as a result of the factors discussed above.
Nine Months Ended March 31, 2000 compared to Nine Months Ended March 31, 1999.
Total revenues increased by $4,169 to $70,337 in 2000 from $66,168 in 1999.
Revenues from the Satellite and Distribution Services segment increased by 9.5%
to $25,410 in 2000 from $23,212 in 1999. This increase was primarily due to the
West Coast facility being fully operational, an increase in syndicated satellite
services, video transmissions and a continued increase in the number of
customers connected to the Company's satellite and fiber optic network. Revenues
from the Systems and Products segment increased by 19.6% to $21,193 in 2000 from
$17,726 in 1999. This increase was primarily due to increased demand for design
and installation of turnkey video systems. The Production Services segment
decreased by 5.9% from $25,230 in 1999 to $23,734 in 2000. The decrease is
primarily due to the loss of network operations contracts, a lower volume of
creative editorial services and lower film to videotape transfer services offset
by increased visual effects and broadcast design services.
Total costs increased by $2,099 to $43,899 in 2000 from $41,800 in 1999.
Costs of the Satellite and Distribution Services segment increased by $665 to
$12,696 in 2000 from $12,031 in 1999. This increase consisted primarily of costs
associated with the ramp up of the fully operational West Coast facility offset
by lower syndication costs. Costs of the Systems and Products segment increased
by $2,685 to $16,826 in 2000 from $14,141 in 1999. This increase was primarily
driven by the equipment costs associated with the increased volume in
installations of turnkey video systems. Costs of the Production Services segment
decreased by $1,251 from $15,628 in 1999 to $14,377 in 2000. The decrease was
primarily a result of a reduction in fixed salaries and costs.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Results of Continuing Operations (continued)
The Company's overall gross profit margin (excluding depreciation)
increased to 37.6% in 2000 from 36.8% in 1999. Gross profit margin from the
Satellite and Distribution Services segment increased to 50.0% in 2000 from
48.2% in 1999 as a result of the new West Coast facility being fully operational
and higher margins on the syndication revenues. Gross profit margin from the
Systems and Products segment increased to 20.6% in 2000 from 20.2% in 1999
primarily as a result of the increased volume of turnkey video systems
contracts. Gross profit margin from Production Services segment increased to
39.4% in 2000 from 38.1% in 1999 as a result of a reduction in fixed salaries
and costs.
Selling, general and administrative expenses decreased from $15,420 in 1999
to $15,178 in 2000. Selling, general and administrative expenses as a percentage
of revenues decreased by 1.7% from 23.3% in 1999 to 21.6% in 2000. The ratio
decrease was primarily attributable to the increased revenues of the Company.
Merger related costs were incurred during the 1999 fiscal year. The Company
received unsolicited expressions of interest in acquiring the Company from third
parties. The Company incurred $331 of advisory and legal fees in connection with
its evaluation of these expressions of interest. Since discussions were
terminated, these costs were expensed.
Depreciation expense increased to $6,968 in 2000 from $6,457 in 1999,
primarily due to the new West Coast facility. Amortization expense was $818 in
2000 and $819 in 1999 reflecting the amortization of the goodwill (excess of
cost over the fair value of net assets acquired), which is being amortized over
25 years.
Interest expense increased to $3,592 in 2000 from $3,074 in 1999, as a
result of higher interest rates associated with the term loan and the revolving
loan and increased equipment capital lease obligations.
The effective tax rate applied against pre-tax income (loss) was 1364% in
2000 and (8.8)% in 1999. The effective tax rate for 2000 as compared to the
federal statutory tax rate of 34% was primarily the result of goodwill
amortization, which is not deductible for income tax purposes and state income
taxes. State income taxes are net of state net operating loss valuations
provided for certain subsidiaries as a result of estimates regarding future
operations.
Extraordinary gain of $382 in 2000 is attributable to the settlement and
replacement of the $2,540 4% convertible subordinated note due May 4, 2003.
Net income (loss) increased to $66 in 2000 from ($1,557) in 1999 primarily
as a result of the factors discussed above.
Liquidity and Capital Resources
The Company meets its liquidity needs and capital expenditures requirements
with internally generated funds, borrowing under its bank credit facility
(including line of credit), equipment financing and capital leases. Such funds
are used for capital expenditures, working capital needs and repayment of
outstanding indebtedness.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
In August 1997, the Company entered into a five-year facility with a
$33,000 term loan and a $17,000 revolving line of credit. The facility bears
interest at: (i) the lenders' prime rate plus or minus certain percentages based
upon the Company's leverage ratio (funded debt divided by EBITDA (defined as
earnings before interest, taxes, depreciation and amortization) or (ii) LIBOR
plus a number of basis points based upon the Company's leverage ratio. The
Company has the option to choose the applicable interest rate. The facility is
secured by all of the assets of the Company and its subsidiaries. The facility
contains covenants, which require the Company to maintain certain financial
ratios, prohibit dividends and similar payments and restrict the Company's
ability to incur other indebtedness. The facility is guaranteed by all of the
Company's subsidiaries.
In February 2000, the Company entered into an agreement to replace and
supersede the obligations set forth in the $2,540 principal amount of the 4%
convertible subordinated note due May 4, 2003. The Company's new obligation
continues to be subordinated debt. Periodic payments will be made and fully paid
by May 15, 2003. An extraordinary gain of $382 has been recognized.
At March 31, 2000, the Company's outstanding indebtedness was approximately
$51,133, including $15,400 under the revolving credit facility. At March 31,
2000, the weighted average interest rate was approximately 9.34% on the
Company's outstanding indebtedness. The remainder of the facility (approximately
$775) will be available for future working capital requirements and general
corporate purposes.
Cash Flow from Operating Activities. For the nine months ended March 31,
2000, net cash provided by operating activities was $1,879, primarily resulting
from EBITDA of $11,403, which was offset by increases in working capital
requirements. At March 31, 2000, the net deferred tax asset includes the benefit
for net operating loss carryforwards. Realization is not assured, however, the
Company believes it will generate sufficient taxable income to realize the
entire deferred tax asset. For the nine months ended March 31, 1999, net cash
provided by operating activities was $2,131, primarily resulting from EBITDA of
$8,643, which was offset by increases in working capital requirements.
Cash Flow from Investing Activities. For the nine months ended March 31,
2000, the Company used $3,278 for investing activities, consisting of $3,520 for
the purchase of additional equipment, which was offset by sales of fixed assets.
Approximately $1,850 of additional equipment was used for a high definition
telecine suite.
Cash Flow from Financing Activities. For the nine months ended March 31,
2000, cash provided by financing activities, net of repayment of borrowings of
long-term indebtedness, was $1,520. Such amount primarily consisted of $8,400 in
borrowings under the revolving line of credit described above and $5,240 of
capital equipment leases. The Company repaid $11,979 of borrowings primarily in
connection with the revolving line of credit and the refinancing described
above.
Impact of Year 2000:
The Company, as of the date of this filing, has not experienced any
material adverse effects on its operations relating to the Year 2000 issues
associated with its systems or those of third parties with whom it has
significant business relationships. The Company has not incurred any material
costs associated with the year 2000.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Quantitative and Qualitative Disclosures about Market Risk:
Market risks relating to the Company's operations result primarily from
change in interest rates as well as credit risk concentrations. To address these
risks the Company entered into an interest rate swap as described below. The
Company does not use financial instruments for trading purposes.
The Company hedges its exposure to changes in interest rates on its senior
secured term loan. In August 1997, the Company entered into a five year interest
rate hedge agreement with a total notional amount of $33,000 to manage interest
costs associated with changing interest rates. This agreement converts
underlying variable rate debt based on LIBOR under the Company's term loan to
fixed rate debt with an interest rate of 8.33%.
There has not been any material changes in the reported market risks since
the fiscal year ended June 30, 1999.
Forward-Looking Statements:
The above discussion contains forward-looking statements. There are certain
important factors that could cause results to differ materially from those
anticipated by the statements made above. These factors 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.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
10.65 Settlement Agreement and Release, dated December 9, 1999, by
and between the Company and Barbara D'Ambrogio and David
D'Ambrogio
27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information
purposes only and not filed.
(b) REPORTS ON FORM 8-K
NONE
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
VIDEO SERVICES CORPORATION
(Registrant)
Date: May 4, 2000 /s/Louis H. Siracusano
----------------------------
Name: Louis H. Siracusano
Title: President and Chief Executive Officer
Date: May 4, 2000 /s/Michael E. Fairbourne
----------------------------
Name: Michael E. Fairbourne
Title: Chief Accounting Officer
SETTLEMENT AGREEMENT AND RELEASE
Barbara D'Ambrogio and David D'Ambrogio (together, the "Plaintiffs") on the
one hand, and Video Services Corporation, formerly known as International Post
Limited ("VSC"), and CABANA corp., a wholly owned subsidiary of VSC("Cabana"
and, together with VSC, the "Defendants") on the other hand, hereby knowingly
and voluntarily agree to enter into this Settlement Agreement and Release
("Agreement"), dated as of December 9, 1999, in order to resolve all outstanding
issues, including the Action (as defined below), and set forth all obligations
between the parties.
W I T N E S S E T H :
WHEREAS, each of the Plaintiffs had been employed by Cabana pursuant to the
terms of an employment agreement with Cabana, dated May 4, 1995 (the "Employment
Agreements");
WHEREAS, Cabana terminated each of the Plaintiffs' employment on August 14,
1997;
WHEREAS, the Plaintiffs commenced an action in the United States District
Court, Southern District of New York, on May 14, 1999, index no. 99 Civ. 3570,
against the Defendants (the "Action");
WHEREAS, the parties to this Agreement met on December 9, 1999 and reached
an agreement to settle the Action, and, pursuant to this Agreement, hereby
formalize such agreement to settle the Action;
WHEREAS, the parties to this Agreement wish to settle all outstanding
issues between them and dismiss the Action with prejudice pursuant to this
Agreement;
WHEREAS, except as provided herein, this Agreement shall replace and
supersede the Employment Agreements and any other employment agreements the
Plaintiffs may have had with Cabana and its parents or affiliates, and such
prior agreements shall have no further force or effect; and
WHEREAS, except as provided herein, this Agreement shall replace and
supersede the obligations set forth in the $2,540,000 ET Partnership 4%
Convertible Subordinated Note due May 4, 2003 (the "Note"), as well as all other
payment obligations that the Defendants may have to the Plaintiffs, ET
Partnership, and/or entities wholly owned or controlled by the Plaintiffs and/or
ET Partnership, and such prior obligations shall have no further force or
effect.
<PAGE>
NOW THEREFORE,
1. Cancellation of the Note. Upon execution of this Agreement, the
Plaintiffs shall cause the Note to be marked "CANCELLED" and returned to VSC,
and the Note shall be of no further force or effect.
2. Payment Obligations of VSC. VSC shall make periodic payments to ET
Partnership, by check or wire transfer (in a manner directed by the Plaintiffs),
according to the following schedule: (a) $200,000 upon execution of this
Agreement; (b) $32,000 on the 15th of each consecutive month for forty (40)
months commencing on February 15, 2000; (c) $400,000 on July 15, 2000; and (d)
$100,000 on January 15, 2001. The above payment obligations shall replace any
and all payment obligations that the Defendants may have toward the Plaintiffs,
ET Partnership, and/or entities wholly owned or controlled by the Plaintiffs
and/or ET Partnership, including all payment obligations that the Defendants had
under the Note.
3. Failure to Make Timely Payments. In the event that VSC fails to make any
payment in accordance with the schedule set forth in Section-2, the Plaintiffs
shall notify VSC, in writing, of such failure. Upon receipt of such notice, VSC
shall have thirty (30) days to cure such failure (the "Cure Period"). If such
payment is not received within the Cure Period, the Plaintiffs shall notify VSC,
in writing, that all of the payments scheduled under Section 2 shall become
immediately due and payable unless such payment is received within five (5)
business days of VSC's receipt of such notice. If VSC fails to make payment
within such period, the entire amount set forth in Section 2 (minus all prior
payments) shall become immediately due and payable. In no event shall VSC be
permitted to "cure" more than four (4) times in total or more than two (2) times
in any calendar year. In the event that (i) the Plaintiffs have previously
initiated the Cure Period in accordance with this Section 3 on four (4) prior
occasions or two (2) prior occasions during a calendar year and (ii) VSC fails
to make a timely payment for a fifth time or a third time during such calendar
year, as the case may be, the entire amount set forth in Section 2 (minus all
prior payments) shall become immediately due and payable.
4. Inventions; Confidential Information; Non-Competition. Notwithstanding
any of the terms of this Agreement all obligations set forth in the Inventions,
Confidential Information, Non-Competition, and Breach of Provisions clauses
(paragraphs 7.1 - 7.4) of each of the Plaintiff's Employment Agreements shall be
extended and shall remain in effect through December 31, 2001 and shall apply in
the greater metropolitan areas of the cities of New York, Miami and Los Angeles.
5. Subordination.
5.1 Subordination to Senior Indebtedness. VSC's payment of the payments set
forth in Section 2 of this Agreement are expressly subordinated to the payment
in full of all amounts payable on, under or in connection with Senior
Indebtedness (as hereinafter defined) to the extent set forth in this Section 5.
The term "Senior Indebtedness" shall mean all present and future Indebtedness
(as hereinafter defined) of VSC and its subsidiaries that is not by its terms
expressly subordinated to this Agreement. The term "Indebtedness" means any item
which could be classified as debt on VSC's consolidated financial statements
prepared in accordance with GAAP, including, without limitation, (i) the
principal of or premium (if any) in respect of all indebtedness for money
borrowed and indebtedness evidenced by securities, debentures, bond or other
similar instruments (including purchase money obligations) for payment; (ii) all
capital lease obligations; (iii) all obligations issued or assumed as the
deferred purchase price of property, all conditional sale obligations and all
obligations under any title retention agreement; (iv) all obligations for the
reimbursement of any obligor on any letter of credit, banker's acceptance,
security purchase facility or similar credit transaction; (v) all obligations of
third parties of the types referred to in clauses (i) through (iv) above and all
dividends of third parties for the payment of which, in either case, VSC or its
subsidiaries in the regular course of its business became responsible or liable
as obligor, guarantor or otherwise; and (vi) all obligations of third parties
secured by any lien on any property or asset of VSC or its subsidiaries.
Notwithstanding anything contained herein to the contrary, the term
"Indebtedness" does not include trade accounts payable.
5.2 Priority of Senior Indebtedness of Default. No payment with respect to
this Agreement shall be made by VSC or received by the Plaintiffs if: (a) there
is outstanding at the time such payment is to be made any Senior Indebtedness;
and (b) there exists at such time, or immediately after giving effect to such
payment there would exist, any default in the payment of principal of, or any
premium or interest on, any Senior Indebtedness or any other event of default
under the terms of any Senior Indebtedness then outstanding, which default has
not been waived or cured prior thereto; provided, however, that VSC shall resume
making payments with respect to this Agreement, which shall include any and all
past due payments not made because of this Section 5.2 or otherwise as well as
all payments that become due and payable during the interim period, on the first
anniversary of the date that notice of such default with respect to Senior
Indebtedness is first received by VSC if (i) the default is not the subject of
judicial proceedings and (ii) the maturity of the Senior Indebtedness for which
the default relates has not been accelerated. In the event VSC fails to make a
payment(s) to the Plaintiffs, or intends not to make a payment(s) to the
Plaintiffs, because of the provisions of this Section 5.2, VSC shall: (x)
promptly notify the Plaintiffs in writing that it has failed to make such
payment(s) or of its intention not to make such payment(s), as the case may be,
and (y) upon demand by the Plaintiffs, promptly provide the Plaintiffs with
publicly available information or non-public information permissible for
disclosure under the laws, rules, and regulations governing the release of
information by public companies that the Plaintiffs reasonably deem necessary
for purposes of establishing that the conditions of subsections (a) and (b), set
forth in this Section 5.2, have been satisfied.
5.3 Priority of Senior Indebtedness on Liquidation. Upon any payment or
distribution of assets of VSC of any kind or character, whether in cash,
property or securities, to creditors upon any dissolution or winding up or total
or partial liquidation or reorganization of VSC, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all amounts due or to become due in respect of any and all Senior Indebtedness
shall first be paid in full and payment or distribution of assets of VSC of any
kind or character, whether in cash, property or securities, to which the Holder
would be entitled shall be paid to the holders of Senior Indebtedness (pro rata
to each such holder on the basis of the respective amounts of Senior
Indebtedness held by such holders of Senior Indebtedness or on such other basis
as the holders of Senior Indebtedness or a court of competent jurisdiction shall
direct) to the extent necessary to pay all Senior Indebtedness in full after
giving effect to any concurrent payment or distribution to or from the holders
of Senior Indebtedness, before any payment or distribution is made to the
Plaintiffs.
5.4 Duties of the Plaintiffs to Holders of Senior Indebtedness. In the
event that any payment or distribution of assets of VSC of any kind or
character, whether in cash, property or securities, shall be received by the
Plaintiffs, in violation of Section 5.2 or Section 5.3, such payment or
distribution shall be (and shall be deemed to be) held in trust for the benefit
of, and shall be paid over or delivered to, the holders of such Senior
Indebtedness for application to the payment of all Senior Indebtedness remaining
unpaid (pro rata to each holder on the basis of the amount of Senior
Indebtedness held by such holder or on such other basis as the holders of Senior
Indebtedness or a court of competent jurisdiction shall direct) to the extent
necessary to pay all such Senior Indebtedness in full in accordance with its
terms, after giving effect to any concurrent payment or distribution to or for
the holders of such Senior Indebtedness.
5.5 Enforcement by Holders of Senior Indebtedness. The provisions of
Sections 5.2, 5.3 and 5.4 shall be for the benefit of the holders of Senior
Indebtedness and may be enforced directly by such holders against the Plaintiffs
without the necessity of joining VSC as a party.
5.6 Subrogation. After all Senior Indebtedness is paid in full, or a sum of
money sufficient for the payment thereof shall have been set aside for payment,
and until the payments set forth in Section 2 of this Agreement, the Plaintiffs
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of VSC applicable to the Senior
Indebtedness to the extent that payments or distributions otherwise payable to
the Plaintiffs have been applied to the payment of Senior Indebtedness.
5.7 Subordination Unimpaired. It is understood that the provisions of this
Section 5 are intended solely for the purpose of defining the relative rights of
the Plaintiffs on the one hand and the rights of holders of Senior Indebtedness
on the other, and nothing contained herein, including, without limitation, any
act or failure to act by VSC or the failure of VSC to comply with the terms of
this Agreement, is intended to or shall impair the right of any holder of Senior
Indebtedness to enforce the subordination of the obligations under this
Agreement.
6. No Further Consideration. Each Plaintiff acknowledges that he or she is
not entitled to and agrees that he or she will not seek any further
consideration, including compensation, commissions, vacation pay or any other
payment or benefit, from the Defendants, except as provided herein.
7. Release. Each Plaintiff hereby irrevocably and unconditionally releases
and discharges the Defendants, BPET Partnership and any other entities formed by
the merger between Big Picture Editorial, Inc. and Even Time Limited, their
predecessors, successors and assigns, parents, affiliated entities, officers,
directors, employees, representatives, attorneys, and all persons acting by,
through, under or in concert with any of them (collectively, the "Releasees"),
from any and all charges, complaints, claims, liabilities, obligations,
promises, agreements, controversies, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts and expenses (including attorneys' fees
and costs) of any nature whatsoever, known or unknown, which each of the
Plaintiffs have, ever have had, or ever in the future may have that are based on
acts or omissions occurring from the beginning of the world up to and including
the date this Agreement is fully executed, including but not limited to any
claims arising out of each of the Plaintiffs' employment or the termination of
that employment with Cabana based upon any theory of tort, contract or other
law, including discrimination based on race, sex, age, religion, national
origin, sexual orientation, disability or marital status under the Age
Discrimination in Employment Act, the Family and Medical Leave Act of 1993,
Title VII of the Civil Rights Act, as amended, the Americans with Disabilities
Act, the Employee Retirement Income Security Act, the New York Wage Payment
Laws, the New York State Human Rights Law, the New York State Labor Law, the New
York City Human Rights Law, and other analogous federal, state and local laws.
In exchange for the execution by the Plaintiffs of this Agreement, the
Releasees hereby release the Plaintiffs from any and all claims, causes of
action and demands of any kind whether known or unknown, which they have, ever
have had, or ever in the future may have that are based on acts or omissions
occurring from the beginning of the world up to and including the date this
Agreement is fully executed.
8. Indemnification. Notwithstanding any of the terms of this Agreement, the
Plaintiffs agree to indemnify and hold the Defendants, BPET Partnership and any
other entities formed by the merger between Big Picture Editorial, Inc. and Even
Time Limited, their successors and assigns, parents, affiliated entities,
officers, directors, employees, representatives, attorneys, and all persons
acting by, through, under or in concert with any of them (the "Indemnified
Parties") harmless from and against any claims, causes of action or damages
including without limitation losses, costs, including attorneys' fees,
liabilities and interest arising out of or relating to any alleged agreement
between or among either Plaintiff (or any entity that Plaintiffs acted on behalf
of, or purportedly acted on behalf of, in entering such alleged agreement(s))
and Francis Zuccarello, Jon Levy, Enrico Madonna, Bob Meetsma, Claudia
Reda-Walker, Ross Axiotis, Renata Leone and/or Joe Defillips.
9. Conditions of Indemnification. The obligations and liabilities of the
Plaintiffs under Section 8 hereof with respect to claims relating to third
parties shall be subject to the following terms and conditions:
(a) The Indemnified Parties will give the Plaintiffs prompt notice of any
such claims, and the Plaintiffs will assume the defense thereof by
representatives chosen by them in consultation with the Indemnified Parties.
(b) The Plaintiffs shall not, without the written consent of the
Indemnified Parties, settle or compromise any claim or consent to the entry of
any judgment that (i) does not include as an unconditional term thereof the
giving by the claimant to the Indemnified Parties a release from all liability
in respect of such claim or (ii) obligates the Indemnified Parties in any
manner.
(c) If the Plaintiffs, within a reasonable time after notice of any such
claim, fail to defend or, during such defense, the Indemnified Parties decide,
in good faith, that the Plaintiffs are not adequately defending such claims,
after notice to the Plaintiffs with a reasonable opportunity for the Plaintiffs
to cure any alleged inadequacy in the defense, the Indemnified Parties shall
have the right to undertake the defense, compromise or settle such claims at the
risk, cost and expense of the Plaintiffs.
(d) If a claim(s) is brought by any or all of the eight individuals listed
in Section 8 above and/or their representatives that may materially and
adversely effect the Indemnified Parties other than as a result of money damages
or other money payments, the Indemnified Parties shall have the right, after
consultation with the Plaintiffs, to defend, at the reasonable cost and expense
of the Plaintiffs, and to compromise or settle such claims with the consent of
the Plaintiffs, which consent shall not be unreasonably withheld.
(e) The Plaintiffs, on the one hand, and the Indemnified Parties, on the
other hand, agree to render to each other such assistance as they may reasonably
require of each other and to cooperate in good faith with each other in order to
ensure the proper and adequate defense of any claim, action, suit or proceeding
brought by any third party. Where counsel has been selected by the Plaintiffs,
the Indemnified Parties shall be entitled to rely upon the advice of such
counsel in the conduct of the defense.
10. Dismissal of the Action. Upon the execution of this Agreement, the
parties shall execute and file a stipulation of voluntary dismissal of the
Action, with prejudice.
11. No Waiver. Nothing in this Agreement shall be deemed to waive any
future claims of the parties to this Agreement in the event any of them breaches
any of the terms of this Agreement or engages in other wrongdoing.
12. Representations of the Plaintiffs. The Plaintiffs represent and warrant
that:
(a) they are the sole partners of ET partnership and
(b) neither the execution of this Agreement nor the consummation of the
transactions contemplated hereby will conflict with, or result in the breach of,
any agreement, relationship or understanding that the Plaintiffs and/or ET
Partnership may have with any third-party.
13. Company Property. Each Plaintiff acknowledges that he or she has
delivered to Cabana all keys, passes, computer disks, computer equipment,
computer passwords or codes, programs and instruction booklets, proprietary
materials, files and other property in his or her possession or control
belonging to Cabana.
14. Non-Disclosure. Each Plaintiff agrees that he or she will not divulge
the existence of or any term of this Agreement except to members of his or her
immediate family and attorney (and then only upon that person's agreement not to
divulge the existence or terms of this Agreement to anyone). The Defendants
agree not to divulge the existence of or any term of this Agreement except to
its or their attorneys, accountants, employees who for business reasons need to
be aware of the terms hereof, or regulatory, governmental or quasi-governmental
agencies, including disclosures required under the securities laws. The parties
agree that disclosure of this Agreement may be necessary in order to enforce it
or any of its terms.
15. No Disparagement. Each of the parties hereto agrees that he, she, or it
will not make any statement, disparaging or otherwise, to any individual
regarding the business, clients or financial condition of any other party,
without the prior written consent of that party. Each party acknowledges that
his, her or its failure to abide by the terms of this paragraph shall constitute
a material breach of this Agreement.
16. No Admission. Nothing contained in this Agreement nor the fact that the
parties have signed this Agreement shall be considered an admission by any party
hereto.
17. Severability. If any of the provisions contained in this Agreement
should be proven unlawful or unenforceable, that provision or provisions will be
considered as never written, but that will not affect the validity of the
remaining terms and conditions of this Agreement.
18. No Oral Changes; Applicable Law. This Agreement constitutes the entire
agreement between the parties. Any amendments to or changes in the obligations
created by this Agreement shall not be effective unless reduced to writing and
signed by each of the parties. This Agreement shall be construed under the
internal laws of the State of New York, without regard for principles of
conflicts of law, and any actions relating to this Agreement must be instituted
in the State of New York.
19. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties and to their respective heirs, personal representatives,
successors and assigns.
20. Knowing and Voluntary. Each Plaintiff warrants that he or she is fully
competent to enter into this Agreement and acknowledges that he or she has been
advised to consult with an attorney prior to signing this Agreement, that he or
she has read and understands this Agreement, and that he or she has signed this
Agreement freely and voluntarily.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
be one and the same document.
<PAGE>
PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS. To signify their agreement to the terms of this Agreement, the
parties have executed this Agreement on the dates set forth below.
/s/Barbara D'Ambrogio /s/David D'Ambrogio
- ------------------------- -------------------------
Barbara D'Ambrogio David D'Ambrogio
Sworn to before me this Sworn to before me this
15 day of February, 2000 15 day of February, 2000
/s/Yael Caucet /s/Yael Caucet
- ------------------------- -------------------------
Notary Public Notary Public
Video Services Corporation CABANA corp.
/s/Louis H. Siracusano /s/Edward L. Shendell
- ------------------------- -------------------------
By: By:
Sworn to before me this Sworn to before me this
15 day of February, 2000 15 day of February, 2000
/s/Geraldine Mondello /s/Geraldine Mondello
- ------------------------- -------------------------
Notary Public Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENTS OF INCOME FILED AS PART OF THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 434
<SECURITIES> 0
<RECEIVABLES> 19,572
<ALLOWANCES> 1,224
<INVENTORY> 1,236
<CURRENT-ASSETS> 24,574
<PP&E> 71,731
<DEPRECIATION> 35,916
<TOTAL-ASSETS> 86,094
<CURRENT-LIABILITIES> 24,613
<BONDS> 3,492
0
0
<COMMON> 133
<OTHER-SE> 18,913
<TOTAL-LIABILITY-AND-EQUITY> 86,094
<SALES> 70,337
<TOTAL-REVENUES> 70,337
<CGS> 43,899
<TOTAL-COSTS> 43,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 389
<INTEREST-EXPENSE> 3,592
<INCOME-PRETAX> 25
<INCOME-TAX> 341
<INCOME-CONTINUING> (316)
<DISCONTINUED> 0
<EXTRAORDINARY> 382
<CHANGES> 0
<NET-INCOME> 66
<EPS-BASIC> 0.010
<EPS-DILUTED> 0.010
</TABLE>
