Pictor Reveals Depth of Problems

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June 22, 2001

On June 21st a creditors meeting was conducted by the U.S. Trustee (of the bankruptcy court)
to further examine the state of the Pictor International Inc. Chapter 11 bankruptcy filing,
and to give creditors a chance to ask questions. (See earlier bankruptcy
Story 402 .)

Their assets dropped from the $635,000 reported in their May 3rd filing to the bankruptcy
court to $475,112.45. Their total debts rose from $1,278,341.54 to $1,742,800.29. According to
this most recent filing $416,088.56 of these debts are monies owed photographers.

The amounts owed photographers were itemized and included
$51,292.53 owed to Robert Llewellyn and $48,660 owed to Allan Laidman. There are 10 other
photographers owed between $5,000 and $15,000, 13 owed between $3,000 and $5,000, 23 owed
between $2,000 and $3,000 and 43 owed between $1,000 and $2,000.

At the time the bankruptcy was filed Pictor had $150 cash on hand and $180,000 in accounts
receivable for pictures licensed. Some of these accounts receivable go back as far as two
years. Since May 3rd about $82,000 of these receivables have been collected and added to the
cash account. Other assets include a Mitsubishi Eclipse valued at $6,259.70 and furniture,
fixtures, and computer equipment valued at $73,231.75. This value was determined by
calculating costs minus depreciation. Thus, there is no assurance that these assets can be
sold for anywhere near their estimated value.

Finally, $194,127.70 of the assets are for "Transparencies -- images placed with Debtor
pursuant to executory contracts with photographers (subject to, and not net of, cost of cure
or contract defaults with photographers whose images have been placed with Debtor), net of
depreciation." Pictor says these are all images which they wholly own and do not include any
of the images contract photographers have submitted for the purpose of licensing.

According to Marie Christine Tarrant, Chief Financial Officer of Pictor, at one time Pictor
Inc. (U.S.) had average gross sales of about $200,000 per month, but in the last year that
figure has dropped to about $85,000 per month which would be a little over $1 million on an
annual basis. In May 2001, the first month that Pictor operated as a "Debtor in Possession"
gross sales were $54,800.

Claims

The Bank of New York has a secured claim for $104,230 and will be paid first from any assets.
Various taxing authorities hold unsecured priority claims for a total of $173,268. After the
Bank of New York they will be paid before any monies are paid to the "unsecured non-priority"
creditors which includes the photographers. The largest tax claim is to the IRS for $103,943.

Included in the "unsecured non-priority creditors" with the photographers are all those who
are owed for rent, utilities, legal, stationary supplies, catalog distribution, Communications
Arts ads, etc. Also included in this category is an inter-company loan for $786,000, but
Pictor indicated that this debt might be subordinated in some way when they file their plan
for reorganization which should occur within about 120 days. The total for this category is
$1,465,301.29, but look for that figure to go up.

If Pictor were to go into liquidation (Chapter 7), after paying off all the monies owed to
those in categories one and two, any monies left would be divided proportionally among the
"non-priority" creditors based on the amount each was owed.

Who Is Owed What?

Earlier I mentioned that Pictor says their debt to photographer is $416,088.56. When I totaled
the individual items they supplied in court documents the debts to photographers came to
$474,366.54. Ms. Tarrant could not explain this discrepancy. The amounts owed photographers do
not include any of the monies from sales made by PictureQuest as that contract is with the
Ltd. company, not Pictor Inc. Presumably photographers will be paid in total by the Ltd.
company for any sales by PictureQuest, however Ms. Tarrant could not provide an absolute
answer on this point.

It is important to understand the structure of the company. Pictor International Ltd. is a
holding company headquartered in the UK and it handles sales in the UK. It wholly owns four
separate subsidiary companies in Germany, France, Spain and Pictor International Inc. in the
U.S. The only company affected by the bankruptcy is the U.S. company. A critical factor in how
photographers will be paid has to do with whether their contract is with the U.S. company or
with the UK limited company.

There are a number of photographers included in the $474,366.54 that have contracts with the
Ltd. company. They probably will be separated out, paid directly by Ltd. and the total owed to
Inc. creditors will be reduced accordingly. Ms. Tarrant had no idea what the total might be
but acknowledged that this was something they needed to determine.

The $474,366.54 does include all sales made internationally through the end of April 2001 as
well as sales made in the U.S. Photographers will be paid their full commissions on sales made
from May 1, 2001 onward once the money is collected. In the past Pictor had reported sales one
month after they were booked and (in theory) paid 90 days later whether they had collected or
not. In the reorganized company Ms. Tarrant is considering only reporting sales when they have
actually been collected and paying at that time.

Where Are The Transparencies?

One of the key questions for several photographers at the meeting was. "Where are my
transparencies." The Washington DC office has closed, as have all other offices except New
York. All operations have been moved to New York where they have a staff of 6 full-time people
and 2 part-timers.

They have a small space and were unable to accommodate all the files that were in the
Washington office. All 35mm images have been put in two non-air conditioned storage warehouses
in the DC area. No one is searching through any of those images to fulfill requests. The only
images that were moved to New York are large format images -- 2 1/4 x 2 1/4 and larger. There
are approximately 15 file cabinets of images in New York.

The 35mm images can not be returned to the photographers until the bankruptcy is settled. It
is Pictor's hope that if they can sell the agency the new owner will want to market those
images. Consequently, they want to keep them as they are. It should also be recognized that
with their greatly reduced staff they don't have the personnel to do file research, or break
up the file and return the images to the photographers, anyway.

One of the first actions of the Creditors Committee (more about that later) will be to try to
get the 35mm images into a more secure and environmentally safe area.

Reorganization Plan

Pictor is considering three options for reorganizing the company. The eventual plan will be
presented to the creditors for their approval in approximately 120 days. The options being
considered are:

• To sell the company. Pictor says they are in the very beginning discussions with a
  potential buyer.
  
• To find an existing U.S. stock agent who is willing to take over management of the U.S.
  business for Pictor Ltd. This would give that agent access to an international sales network.
  They are talking with at least one agent in this category.
  
• To continue to operate the company themselves.

Any agency interested in buying the U.S. division of Pictor, or
in handling U.S. representation of Pictor's files should contact the London headquarters.

Creditor Committee

A creditor committee has been established and all creditors will be getting notification
shortly about how that operates.

The Committee has the right to examine the debtor's officers and managers under oath, and to
review "the debtor's ledgers, accounting or tax approaches, salaries and benefits, and its
general business practices." The Committee has the right to be informed about the debtor's
plans and progress toward reorganization and may participate in formulating the debtor's plan,
or its own plan.

The Committee may employ attorneys, accountants or other professionals to assist and advise
and the fees and expenses may be paid from the general funds generated by the debtor's
business.
Many of the functions of the committee can be performed by its own members.

The first acts of the Creditor's Committee will be to (1) elect a Chairman who will be the
principle spokesperson for the committee, (2) consider hiring an attorney to represent the
creditors, and (3)
look into the image storage problem.

May 2001 Operations

Since May 1, 2001 Pictor Inc. has been operating as a "Debtor in Possession". Their sole U.S.
offices are in New York City and staffed by 6 full-time and 2 part-time people. Their first
monthly report shows gross sales of $54,800 and expenses of $132,427 for a net loss of
$77,627. Employee costs alone were $71,175. Assuming employee costs and leases remain the same
Pictor needs to have gross monthly sales upward of $170,000 to be able to pay the
photographers their royalties and break even.

Bankruptcy Clause Unenforceable

One thing the photographers learned is that the bankruptcy clause in the Pictor contract is
unenforceable according to U.S. bankruptcy law. The clause says:

"If the Agency is finally adjudicated as bankrupt, or if a receiver is appointed, or if an
assignment is made for the benefit of creditors, Photographer may by a notice in writing
revoke Agency's authorization under this Agreement. Upon such termination, all business
activity with respect to the Images shall immediately cease and Agency will promptly retrieve
and deliver to Photographer all Images as required under Paragraph 8 above."

This is pretty standard language for most contracts, but according to the bankruptcy lawyers,
once a company files Chapter 11 they can hold onto all images until a reorganization plan has
been presented to the creditors. At that point each creditor can accept or reject the plan. If
a creditor rejects the plan they can terminate their contract. How quickly they get their
images back is another matter because Pictor no longer has the staff to sort through the file.
It is likely that some other provision would have to be made for sorting and returning images.
Creditor who reject the plan will receive no payment for any past monies owed. If the creditor
accepts the plan then their existing contract continues in force.

Photographers with all agencies should examine their contracts and recognize their risks if
one of their U.S. stock agencies declares bankruptcy.