<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1997
REGISTRATION NO. 333-33559
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VARI-LITE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3648 75-2239444
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
201 REGAL ROW
DALLAS, TEXAS 75247
(214) 630-1963
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
H. R. BRUTSCHE III
PRESIDENT AND CHIEF EXECUTIVE OFFICER
201 REGAL ROW
DALLAS, TEXAS 75247
(214) 630-1963
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
ALAN J. PERKINS JEFFREY A. CHAPMAN
GARDERE & WYNNE, L.L.P. VINSON & ELKINS L.L.P.
1601 ELM STREET, SUITE 3000 2001 ROSS AVENUE, SUITE 3700
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
(214) 999-3000 (214) 220-7700
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED SEPTEMBER 18, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
2,000,000 SHARES
[LOGO]
VARI-LITE INTERNATIONAL
COMMON STOCK
--------------
All of the 2,000,000 shares of common stock, par value $0.10 per share (the
"Common Stock"), offered hereby are being sold by Vari-Lite International, Inc.
(the "Company"). Prior to this offering (the "Offering"), there has been no
public market for the Common Stock. It is currently anticipated that the initial
public offering price will be between $11.50 and $13.50 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for quotation of the
Common Stock on the Nasdaq National Market under the symbol "LITE."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<S> <C> <C> <C>
PROCEEDS
PRICE TO UNDERWRITING TO
PUBLIC DISCOUNT(1) COMPANY(2)
Per Share......................................... $ $ $
Total(3).......................................... $ $ $
</TABLE>
(1) The Company and the Selling Stockholders (as hereinafter defined) have
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting estimated expenses of $725,000, which are payable by the
Company.
(3) Certain stockholders of the Company (the "Selling Stockholders") have
granted the Underwriters a 45-day option to purchase up to 300,000
additional shares of Common Stock on the same terms and conditions as set
forth above solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Selling Stockholders will be $ , $ and $ ,
respectively. See "Selling Stockholders" and "Underwriting."
-------------------
The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them and subject to certain
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders, in whole or in part. It is expected that
delivery of the shares of Common Stock will be made on or about ,
1997.
A.G. EDWARDS & SONS, INC. EVEREN SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
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<S> <C> <C>
Vari-Lite International, Inc.
provides high technology,
creativity and service to the
world of entertainment
production.
Vari-Lite International twice
has received
Emmy-Registered Trademark-
Awards for Outstanding
Achievement in Engineering by
the National Academy of
Television Arts and Sciences
for its contribution to
television lighting.
Since 1990 six
Tony-Registered Trademark-
Awards have been awarded to
[Picture of the Company's products in use] designers using
VARI*LITE-Registered Trademark-
equipment on Broadway stages.
Five
Emmy-Registered Trademark-
Awards have been awarded to
designers using
VARI*LITE-Registered Trademark-
equipment on network
television broadcasts.
[Picture of [Picture of
Emmy Award] Tony Award]
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE AND TO COVER SOME OR
ALL OF A SHORT POSITION IN THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
[INSIDE GATE]
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<S> <C>
[Picture of man at
Artisan-Registered Trademark- console
controlling lights.]
Entertainment production is a global, [Picture from The Rolling Stones Voodoo
multi-billion dollar industry. Lounge Tour]
concert touring
theatre
television and film
corporate events
and an increasing variety of commercial
and recreational environments.
Vari-Lite International is in business concert touring
to meet the demanding artistic,
technical and logistic requirements of
its clients in each of these markets
and satisfy the expectations of an
evermore discerning public.
</TABLE>
<PAGE>
[INSIDE COVER]
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<S> <C>
In 1981, Vari-Lite International revolutionized television and film
the professional entertainment lighting industry [Picture of stage of Academy
by inventing the VARI*LITE-Registered Trademark- Award Telecast] The 63rd
system, the first automated lighting system that Annual Academy Award Telecast
allowed real-time, computerized, remote control
of light beam features such as color, size,
shape, position and intensity. A global
distribution network and an excellent reputation
for service and reliability has led to the use
of the VARI*LITE-Registered Trademark- system in
virtually every form of entertainment lighting.
corporate events
[Picture of Whirlpool Product
Launch]
Whirlpool Product Launch
theatre
[Picture of stage of Show
Boat production]
Livent, Inc. brings Show Boat
to Broadway
[Continuation of picture from The Rolling Stones opera
Voodoo Lounge Tour] [Picture of stage of "Trista
and Isalde" production]
"Trista and Isalde" The Los
Angeles Opera
"Voodoo Lounge Tour"
The Rolling Stones
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS (A) REFLECTS THE REINCORPORATION
("REINCORPORATION") OF THE COMPANY AS A DELAWARE CORPORATION PURSUANT TO A
MERGER OF VARI-LITE INTERNATIONAL, INC., A TEXAS CORPORATION ("VARI-LITE
TEXAS"), INTO THE COMPANY, WHICH WILL BE EFFECTED IMMEDIATELY PRIOR TO THE
CONSUMMATION OF THE OFFERING AND IN WHICH THE SHARES OF CLASS A AND CLASS B
COMMON STOCK OF VARI-LITE TEXAS WILL BE CONVERTED INTO SHARES OF THE COMPANY'S
COMMON STOCK ON A 3.76368-FOR-ONE BASIS AND (B) ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION UNLESS SPECIFICALLY PROVIDED OTHERWISE. ALL
REFERENCES TO THE COMPANY IN THIS PROSPECTUS REFER TO VARI-LITE INTERNATIONAL,
INC. AND ITS CONSOLIDATED SUBSIDIARIES, UNLESS THE CONTEXT INDICATES OTHERWISE.
THE COMPANY
The Company is a leading international provider of proprietary automated
lighting systems and related services to the entertainment industry, servicing
markets such as concert touring , theatre, television and film and corporate
events. In 1981, the Company revolutionized the professional entertainment
lighting industry by inventing the VARI*LITE-Registered Trademark- system, the
first automated lighting system that allowed real-time, computerized, remote
control of light beam features such as color, size, shape, position and
intensity. As a result, the VARI*LITE-Registered Trademark- brand name has
become recognized as the preeminent brand name for automated lighting. The
Company rents its VARI*LITE-Registered Trademark- automated lighting systems
exclusively through a domestic and international network of Company-owned
offices and independent distributors.
The Company believes that its position as an industry leader results from
its broad range of innovative and technologically superior products, its
long-standing collaborative relationship with participants in the entertainment
industry, its worldwide distribution system and its dedication to customer
service. The Company continuously addresses the technical and creative needs of
its customers by designing and manufacturing products that in many instances
have become the industry standard. Lighting designers using the Company's
automated lighting systems have won Tony-Registered Trademark- Awards for
Broadway lighting design every year since 1990 and have won five
Emmy-Registered Trademark- Awards for network television broadcast lighting
design. The Company won an Emmy-Registered Trademark- Award for Outstanding
Achievement in Engineering for television in 1991 and 1994. For its
accomplishments in the concert touring market, the Company was named by
Performance Magazine as the "Lighting Company of the Year" six times since 1989
and the "Equipment Manufacturer of the Year/Lighting" ten times since 1983.
The Company has capitalized on the growth of the entertainment industry and
has demonstrated its ability to broaden the application of its existing
technology and to develop new lighting systems and products to create and
penetrate new markets.
- CONCERT TOURING. The Company initially designed its systems to serve the
concert touring market and remains a leader in that market. The Company's
customers have included such notable performers as The Rolling Stones,
Phil Collins, Genesis, Fleetwood Mac, Pink Floyd, Paul McCartney, David
Bowie, Elton John, Tina Turner, Sting, Reba McEntire, Vince Gill, Garth
Brooks, Mary Chapin Carpenter, Wynona Judd, Barbra Streisand, Diana Ross,
Whitney Houston, Celine Dion, Sheryl Crow, Pearl Jam, Aerosmith, Bush and
the Indigo Girls.
- THEATRE. By developing the first virtually silent automated lighting
fixture, the Company secured a significant competitive advantage in the
theatre market, including touring theatre shows. The Company's systems
have been used in such shows as CHICAGO, RAGTIME, SHOW BOAT, RENT, LORD OF
THE DANCE, CAROUSEL, SMOKEY JOE'S CAFE, MISS SAIGON, SUNSET BOULEVARD,
KISS OF THE SPIDER WOMAN, THE WILL ROGERS FOLLIES, TOMMY, GREASE, HOW TO
SUCCEED IN BUSINESS WITHOUT REALLY TRYING, BRING IN 'DA NOISE BRING IN 'DA
FUNK, JESUS CHRIST SUPERSTAR, MARTIN GUERRE, JEKYLL & HYDE and OLIVER.
3
<PAGE>
- TELEVISION AND FILM. The Company successfully leveraged its versatile
product line to become a leading provider of automated lighting to the
television market and to increase its penetration of the film market. The
Company has provided automated lighting for the Academy Awards,
Emmy-Registered Trademark- Awards, Tony-Registered Trademark- Awards,
Grammy Awards, Country Music Awards, MTV Music Awards and other awards
shows, as well as television shows such as THE TONIGHT SHOW WITH JAY LENO,
THE LATE SHOW WITH DAVID LETTERMAN, LATE NIGHT WITH CONAN O'BRIEN, VIBE,
WHEEL OF FORTUNE, SATURDAY NIGHT LIVE, HOME IMPROVEMENT and AMERICAN
GLADIATORS, and the movies CONTACT, FORREST GUMP, BATMAN FOREVER, WAYNE'S
WORLD and SISTER ACT, among others. VARI*LITE-Registered Trademark-
automated lighting fixtures or "luminaires" are also installed in ABC's
New York studios, where they are used for PRIME TIME LIVE, 20/20 and GOOD
MORNING AMERICA.
- CORPORATE EVENTS. The Company is continuing to expand its presence in the
corporate events market by providing automated lighting systems for
conventions, business meetings, new product launches and special events.
The Company's systems have been used in events for Microsoft, Compaq, IBM,
Sony, Sprint, Nike, Reebok, Oldsmobile, Ford, Lincoln, BMW, Upjohn, Glaxo,
Whirlpool and Gillette, among others.
- ARCHITECTURAL. Recently, the Company has targeted the lighting needs of
architectural markets such as restaurants, casinos, retail stores,
corporate showrooms, shopping malls, building exteriors and landmarks. The
Company's Irideon-Registered Trademark-automated lighting system product
line, which is in the development stage, is designed specifically for such
architectural lighting applications.
The Company's VARI*LITE-Registered Trademark- systems incorporate advanced
proprietary and patented technology in both lighting fixtures and control
consoles. The Company is the only industry participant which combines patented
dichroic filter color changing systems, advanced heat removal techniques and
computer control systems that utilize distributed processing and resident cue
memory in each luminaire. By using such technology to execute a lighting effect
(or cue), an operator can transmit a single command to up to 1,000 luminaires
simultaneously, each of which stores its own set of cues. As a result, customers
using the Company's systems can create lighting presentations with greater
flexibility, complexity, speed and precision than with competing products.
The Company is also a leader in providing complementary products and
services to the entertainment industry, including concert sound systems,
conventional lighting equipment, custom stage construction and stage set design
services, and design and production management services for conventions,
business meetings and special events.
The Company's principal objectives are to maintain its worldwide leadership
positions in its existing markets and to create demand for its products in new
markets. The key elements of this strategy include (i) maintaining its
commitment to innovation, (ii) expanding its worldwide distribution capabilities
and (iii) continuing to offer value-added complementary services.
The Company's predecessor, Vari-Lite Texas, was incorporated in 1988 in the
State of Texas as a holding company to own Showco, Inc. ("Showco"), which began
operations in 1970, and Vari-Lite, Inc. ("Vari-Lite"), which began operations in
1981. Immediately prior to the consummation of the Offering, the Company was
reincorporated in the State of Delaware. The Company's principal executive
offices are located at 201 Regal Row, Dallas, Texas 75247 and its telephone
number is (214) 630-1963.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......... 2,000,000 shares
Common Stock to be outstanding after the
Offering................................... 7,800,003 shares(1)
Use of Proceeds............................. The net proceeds will be used to repay
indebtedness under the Company's Credit
Agreement (as hereinafter defined). See "Use
of Proceeds."
Proposed Nasdaq National Market symbol...... "LITE"
</TABLE>
- -------
(1) Excludes 496,000 shares of Common Stock issuable upon exercise of options to
be granted effective concurrently with consummation of the Offering at an
exercise price equal to the Offering price and 242,233 shares of Common
Stock issuable upon exercise of warrants with an exercise price of $11.53
per share. See "Management--Employee Benefit Plans--Omnibus Plan" and
"Shares Eligible for Future Sale."
RISK FACTORS
The risk factors that an investor should consider include, but are not
limited to: (i) fluctuations in operating results and seasonality; (ii) ability
to introduce new products; technological changes; (iii) reliance on intellectual
property; (iv) capitalized litigation costs; (v) dependence on entertainment
industry; (vi) competition; (vii) dependence on management; (viii) risks of
acquisitions; (ix) foreign exchange risk; international trade risk; (x)
dependence on key suppliers; (xi) dependence on manufacturing facility; (xii)
control of the Company by existing stockholders; (xiii) lack of prior public
market; possible volatility of stock price; determination of offering price;
(xiv) effect of certain charter and by-law provisions; (xv) dilution; and (xvi)
shares eligible for future sale.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE
YEARS ENDED SEPTEMBER 30, 30,
----------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- 1996 ---------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Rental revenues........................... $ 28,539 $ 31,869 $ 47,625 $ 65,864 $ 65,741 $ 45,389 $ 56,207
Products sales and service revenues....... 2,593 3,384 6,187 9,046 11,397 8,042 10,688
--------- --------- --------- --------- --------- ----------- ---------
Total revenues.......................... 31,132 35,253 53,812 74,910 77,138 53,431 66,895
Gross profit................................ 19,088 20,645 30,753 41,985 42,930 29,563 37,370
Selling, general and administrative
expense................................... 13,343 13,170 19,181 28,163 30,077 22,230 24,855
Research and development expense............ 1,948 2,347 3,033 3,283 4,404 2,947 4,872
Operating income............................ 3,797 5,128 8,539 10,539 8,449 4,386 7,643
Interest expense (net)...................... 1,675 1,606 1,805 2,788 3,092 2,437 2,694
Income before extraordinary loss............ $ 1,349 $ 2,269 $ 4,334 $ 4,714 $ 3,119 $ 1,136 $ 2,956
Net income per share(1)..................... $ 0.23 $ 0.39 $ 0.62 $ 0.81 $ 0.53 $ 0.19 $ 0.51
Weighted average shares outstanding......... 5,801 5,773 5,772 5,814 5,912 5,928 5,819
PRO FORMA DATA(2):
Income before extraordinary loss............ $ 4,258 $ 3,847
Net income per share........................ $ 0.54 $ 0.49
Weighted average shares outstanding......... 7,912 7,819
OTHER DATA:
EBITDA(3)................................... $ 8,084 $ 10,230 $ 14,620 $ 19,161 $ 18,517 $ 11,928 $ 16,287
Net cash provided by operations............. 6,950 7,879 10,937 14,513 8,531 3,286 11,972
Net cash used in investing activities....... (5,443) (10,789) (18,924) (20,641) (12,432) (9,125) (20,389)
Net cash provided by (used in) financing
activities................................ (949) 2,094 9,355 7,307 2,564 3,061 7,634
Capital expenditures........................ 5,503 11,050 13,566 20,748 12,587 9,125 20,518
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
AS
ACTUAL ADJUSTED(4)
--------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.......................................................................... $ 92,614 $ 92,614
Total debt............................................................................ 45,361 22,836
Stockholders' equity.................................................................. 27,420 49,945
</TABLE>
- -------
(1) Net income per share in fiscal 1994 includes an extraordinary loss from
early extinguishment of debt of $0.13 per share.
(2) Pro forma data gives effect to the Offering and the application of the
proceeds therefrom to repay the Company's outstanding borrowings under the
Credit Agreement at the beginning of the periods presented, assuming the
repayment of $22.5 million of debt at weighted average interest rates of
8.69% and 8.83% for the fiscal year ended September 30, 1996 and the
nine-month period ended June 30, 1997, respectively. See "Use of Proceeds."
(3) EBITDA is calculated herein as income before income taxes plus depreciation,
amortization and net interest expense. The Company believes that EBITDA
serves as an important financial analysis tool for measuring and comparing
financial information such as liquidity, operating performance and leverage.
EBITDA should not be considered an alternative to net income or other cash
flow measures determined under generally accepted accounting principals as
an indicator of the Company's performance or liquidity. EBITDA as disclosed
herein may not be comparable to EBITDA as disclosed by other companies.
(4) Adjusted to reflect the sale of 2,000,000 shares of Common Stock offered by
the Company hereby at an assumed Offering price of $12.50 per share and the
anticipated application of the net proceeds therefrom. See "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION
RELATING TO THE COMPANY THAT ARE BASED ON THE BELIEFS OF MANAGEMENT AS WELL AS
ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY. WHEN
USED IN THIS PROSPECTUS, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE,"
"EXPECT," "WILL," "COULD," "MAY" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO
MANAGEMENT OR THE COMPANY, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
SUCH STATEMENTS REFLECT THE CURRENT VIEWS OF MANAGEMENT WITH RESPECT TO FUTURE
EVENTS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS,
INCLUDING THOSE DESCRIBED IN THIS PROSPECTUS. SHOULD ONE OR MORE OF THESE RISKS
OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT,
ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN. IN ADDITION TO
THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE
CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING THE COMMON STOCK OFFERED HEREBY.
FLUCTUATIONS IN OPERATING RESULTS AND SEASONALITY
The Company has experienced and is expected to continue to experience
significant fluctuations in its quarterly operating results, both between
different quarters within the same fiscal year and with respect to the same
quarter between different fiscal years. These fluctuations arise from several
factors, including the timing and dollar value of sales-type leases with
customers, the dependence of the Company on concert tours, which are
unpredictable in timing and duration, the introduction of new products and
general economic conditions both domestically and internationally. Revenue from
concert touring accounted for 48.5%, 38.2%, 33.0%, 31.0% and 30.9% of the
Company's total revenue for the fiscal years ended September 30, 1994, 1995 and
1996 and for the nine months ended June 30, 1996 and 1997, respectively. The
Company's expenses are based, in part, on its expectations as to future revenue
and, as a result, net income for a given period could be disproportionately
affected by a reduction in revenue. In addition, the Company's business is
subject to seasonal fluctuations with the highest percentage of its revenues
being generated in the summer months and the lowest percentage being generated
in the winter months. Because of the possibilities of significant fluctuations,
results for any quarter may not be indicative of results that may be achieved in
a full year. While the Company expects to experience growth in revenue and
profit, there can be no assurance that the Company's historical levels of
revenue or profits will be sustained, particularly on a quarterly basis.
Furthermore, there can be no assurance that the concert touring market on which
the Company is dependent will continue to emphasize lighting as an important
element of concert shows or that the Company's current or future products will
continue to be used by concert touring customers. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Quarterly
Fluctuations and Seasonality."
ABILITY TO INTRODUCE NEW PRODUCTS; TECHNOLOGICAL CHANGES
The Company's past success has depended, and its future growth will depend,
in large part, on its ability to enhance and develop new features for its
existing products, to develop new technology, to introduce new products to meet
changing customer requirements and to adapt to evolving technology. There can be
no assurance that the Company will successfully develop such new technology,
enhancements, features or new products or that the Company's products will
continue to achieve market acceptance. Any delay in or failure to complete
development of such technology, enhancements, features or new products, or any
failure of the Company's products to continue to achieve market acceptance,
could have a material adverse effect on the Company. In addition, there can be
no assurance that products or technologies developed by others will not render
the Company's products or technologies uncompetitive or obsolete. In 1996, the
Company introduced its Irideon-Registered Trademark- interior lighting product
line, including the AR5-TM- luminaire and the Composer-Registered Trademark-
control system. In 1998, the Company anticipates introducing its high
brightness, multi-feature VL7-TM- spot luminaire. There can be no assurance that
these products will gain market acceptance or satisfactory revenue growth or
profitability.
7
<PAGE>
RELIANCE ON INTELLECTUAL PROPERTY
The Company generally relies on a combination of patent, trade secret,
copyright and trademark laws, contracts and technical measures to establish and
protect its proprietary rights in its products and technologies. However, the
Company believes that such measures provide only limited protection, and there
is no assurance that such measures will be adequate to prevent misappropriation.
As of August 31, 1997, the Company had more than 25 United States patents, more
than 10 applications for United States patents pending with respect to certain
elements of its hardware and software and more than 20 United States registered
trademarks. As of August 31, 1997, the Company had more than 110 foreign patents
and more than 100 applications for foreign patents pending. There can be no
assurance that any patents will be issued from the applications pending or, if
patents are issued, that the claims allowed under such patents or other patents
of the Company will be sufficiently broad to deter or prohibit others from
marketing similar products. Revenues generated in countries in which the Company
has limited or no patent protection may be adversely affected by sales of
products by competitors utilizing the Company's United States patented
technology. Although the Company takes precautions to protect its trade secrets,
it may be possible for unauthorized third parties to copy portions of the
Company's technology or to obtain and use information that the Company regards
as proprietary. Furthermore, the laws of certain countries in which the
Company's products are or may be distributed do not protect the Company's
products and intellectual property rights to the same extent as the laws of the
United States. In addition, there can be no assurance that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technologies. Any failure by the Company
to protect its intellectual property, including any failure to prevail in the
High End Lawsuit (as hereinafter defined), could have a material adverse effect
on the Company.
Significant and protracted litigation may be necessary to protect the
Company's intellectual property rights, to determine the scope of the
proprietary rights of others or to defend against claims of infringement. The
Company believes that its products do not infringe any existing third-party
proprietary rights; however, there can be no assurance that third-party claims
alleging infringement will not be asserted against the Company in the future. If
infringement is alleged, the Company could be required to discontinue the use of
certain processes, to cease the manufacture, use and rental or sale of
infringing products, to incur significant litigation damages, costs and expenses
and to either develop non-infringing technology or obtain licenses to use the
alleged infringing technology. There can be no assurance that the Company would
be able to develop such alternative technologies or to obtain such licenses on
terms commercially acceptable to the Company, if at all. Any infringement claims
could have a material adverse effect on the Company. See "Business--Intellectual
Property."
CAPITALIZED LITIGATION COSTS
The Company has capitalized and expects to continue to capitalize its costs
relating to the High End Lawsuit ($3.0 million as of August 31, 1997, and an
estimated additional $1.1 million through consummation of the trial), a patent
infringement suit in which the Company is the plaintiff. Unless the Company
receives a judgment in this litigation that the defendant has infringed at least
one of its patents and the Company concludes, based on all of the facts and
circumstances, that such a judgment will allow it to maintain its competitive
advantage provided by the infringed patents, all costs incurred by the Company
relating to the High End Lawsuit (including those previously capitalized) will
be required to be recorded as a non-cash expense in the period that the judgment
is rendered. There can be no assurance that the Company will not be required to
expense its costs relating to the High End Lawsuit. Furthermore, the defendant
has asserted as a counterclaim that the Company has used the Company's patents
to violate the antitrust laws. Although the Company believes such counterclaim
is without merit and intends to vigorously contest such counterclaim, if the
defendant were to receive a judgment in its favor with respect to such
counterclaim, the Company could be held liable for the defendant's damages which
could be substantial. See "Business--Legal Proceedings."
8
<PAGE>
DEPENDENCE ON ENTERTAINMENT INDUSTRY
Revenues from the concert touring, theatre, television and film markets
accounted for 81.5%, 71.7%, 72.0%, 70.2% and 71.4%, of the Company's net
revenues for the fiscal years ended September 30, 1994, 1995 and 1996 and for
the nine months ended June 30, 1996 and 1997, respectively. Generally, the
amounts spent on entertainment by the general public are discretionary and may
be adversely affected by general economic conditions. A significant reduction in
the amounts spent on entertainment by the general public could have a material
adverse effect on the Company.
COMPETITION
There is significant competition in many of the Company's markets, based
primarily on product capability, quality and reliability, price, worldwide
distribution capabilities, brand name recognition and reputation and customer
service and support. In the Company's rental businesses, there are a number of
competitors, particularly in the concert touring market. The Company competes in
some cases with companies that are larger or have greater development, marketing
and financial resources than the Company. There can be no assurance that the
Company will be able to compete successfully in its markets or that competitive
pressures will not have a material adverse effect on the Company. See
"Business--Competition."
DEPENDENCE ON MANAGEMENT
The success of the Company's business is highly dependent upon the Company's
President and Chief Executive Officer, H.R. Brutsche III, and the Company's
Chief Science Officer, James M. Bornhorst. The loss of the services of either of
such individuals could have a material adverse effect on the Company, and there
can be no assurance that the Company will be able to retain the services of such
individuals. The Company believes that its future success also will depend
significantly upon its ability to attract, motivate and retain additional highly
skilled managerial, operational, technical, sales and marketing personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting, assimilating and retaining the
personnel it requires to develop, manufacture and market its products or expand
its operations. See "Business--Employees" and "Management."
RISKS OF ACQUISITIONS
The Company may from time to time pursue the acquisition of other companies,
assets or product lines that complement or expand its existing business.
Acquisitions involve a number of risks that could adversely affect the Company,
including the diversion of management's attention, the assimilation of the
operations and personnel of the acquired companies, the amortization of acquired
intangible assets and the potential loss of key employees of the acquired
companies. No assurance can be given that any acquisition by the Company will
not materially and adversely affect the Company or that any such acquisition
will enhance the Company's business. The Company currently has no agreements or
understandings with respect to any potential acquisitions.
FOREIGN EXCHANGE RISK; INTERNATIONAL TRADE RISK
International revenues accounted for 37.0%, 46.9%, 49.3%, 48.4% and 48.7%,
of the Company's net revenues for the fiscal years ended September 30, 1994,
1995 and 1996 and the nine months ended June 30, 1996 and 1997, respectively.
Although the Company has offices, distributors, dealers and sales
representatives in more than 20 foreign countries, substantially all of the
Company's foreign revenue was generated by its offices in England and Japan. In
addition, the Company purchases certain components used in its products from
manufacturers located in foreign countries. As a result, the Company's
operations may be adversely affected by fluctuations of the value of the U.S.
dollar against foreign currencies, political instability resulting in the
disruption of trade with foreign countries, the imposition of additional
regulations relating to imports or duties, taxes and other charges, longer
payment cycles, difficulties in receivables collection and restrictions on the
transfer of funds. The Company has historically hedged its currency fluctuation
risk by borrowing in British
9
<PAGE>
pounds sterling and Japanese yen under the Credit Agreement, a portion of which
will be repaid with the net proceeds of the Offering. The Company may enter into
additional transactions in the future to hedge such risks; however there can be
no assurance that the Company will enter into such additional transactions or
that any such transactions will effectively hedge the Company's currency risk.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
DEPENDENCE ON KEY SUPPLIERS
The Company has frequently worked in concert with certain of its key
suppliers to design and develop new technologies which have been incorporated
into its products and is dependent upon such suppliers for many important
components used in the Company's automated lighting systems. The Company
generally purchases these components pursuant to purchase orders and has no
guaranteed supply arrangements with such suppliers. Some of these suppliers,
including Optical Coating Laboratory, Inc. and Philips Lighting Company, are
critical to the Company's continued uninterrupted production because they
provide custom-designed components. Major delivery delays or termination of the
Company's relationship with any supplier of such components could materially
adversely affect the Company. There can be no assurance that the Company's
suppliers will continue to be able and willing to meet the Company's
requirements for its key components.
DEPENDENCE ON MANUFACTURING FACILITY
The Company's principal manufacturing facility is located in Dallas, Texas.
The Company is dependent on this facility and a disruption of the Company's
manufacturing operations could have a material adverse effect on the Company.
Such disruption could result from various factors, including human error or a
natural disaster such as a tornado, fire or flood.
CONTROL OF THE COMPANY BY EXISTING STOCKHOLDERS
Upon consummation of the Offering, the Company's directors, officers and
employees will beneficially own approximately 47% of the outstanding Common
Stock. The holders of a majority of the outstanding Common Stock can elect all
of the directors of the Company and can approve, delay or prevent certain
fundamental corporate transactions, including mergers, consolidations and the
sale of substantially all of the Company's assets. For so long as these
stockholders own a significant percentage of the Common Stock, they will retain
substantial influence over the affairs of the Company which may result in
decisions that are not in the best interest of all stockholders of the Company.
These factors, along with the factors described in "Description of Capital
Stock--Special Provisions of the Certificate of Incorporation and By-Laws," may
also have the effect of delaying or preventing a change in management or voting
control of the Company. See "Principal Stockholders."
LACK OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; DETERMINATION
OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that after the Offering an active public market
for the Common Stock will develop or be sustained or that any market that may
develop for the Common Stock will be liquid. The market price of the Common
Stock could be subject to significant fluctuations in response to various
factors and events, including quarterly variations in operating results and the
liquidity of the market for the Common Stock. The Offering price for the Common
Stock offered hereby was determined by negotiation between the Company and the
Underwriters and may not be indicative of the prices at which the Common Stock
will trade after the Offering. There can be no assurance that the market price
of the Common Stock after the Offering will not fall below the Offering price.
See "Underwriting."
10
<PAGE>
EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company's Certificate of Incorporation and By-Laws include provisions
that may have the effect of discouraging proposals by third parties to acquire a
controlling interest in the Company, which could deprive stockholders of the
opportunity to consider an offer they would otherwise accept. See "Description
of Capital Stock--Special Provisions of the Certificate of Incorporation and
By-Laws."
DILUTION
Based on an assumed Offering price of $12.50 per share, new investors
purchasing the Common Stock offered hereby will experience immediate dilution in
net tangible book value of approximately $6.60 per share. In addition, the
future exercise of stock options and warrants would result in further dilution.
See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the market price of the Common Stock. Upon
completion of the Offering, the Company will have 7,800,003 shares of Common
Stock outstanding. Of these shares, the 2,000,000 shares sold in the Offering
(2,300,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable in the public market without restriction by
persons other than affiliates of the Company. All of the remaining shares are
"restricted securities" within the meaning of Rule 144 under the Securities Act.
Approximately 5,696,592 of such shares will have been held for more than one
year as of the date of this Prospectus and may be sold 90 days after the Company
has been subject to the reporting requirements of Section 13 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), subject to the volume,
manner of sale and other limitations of Rule 144. The Company and certain
stockholders who will collectively own 5,778,111 shares of Common Stock
immediately following the Offering, and the holders of warrants who will
collectively have the right immediately following the Offering to purchase
242,233 shares of Common Stock, have agreed not to sell or otherwise transfer
any shares of Common Stock for a period of 180 days after the effective date of
the Offering without the prior written consent of A.G. Edwards & Sons, Inc. Upon
completion of the Offering, the Company intends to file registration statements
on Form S-8 under the Securities Act to register all of the shares of Common
Stock issued or reserved for future issuance under the Omnibus Plan (as
hereinafter defined) and the ESOP (as hereinafter defined). See "Shares Eligible
for Future Sale" and "Underwriting."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company in the Offering, after deducting the estimated
underwriting discount and estimated Offering expenses to be paid by the Company,
are estimated to be $22.5 million, assuming an Offering price of $12.50 per
share. The Company will not receive any proceeds from the sale of shares of
Common Stock if the Underwriters exercise their over-allotment option. See
"Underwriting."
The Company intends to use the net proceeds of the Offering to repay
indebtedness of approximately $22.5 million under the Company's multicurrency
credit agreement, dated March 31, 1994, as amended (the "Credit Agreement"),
which will allow the Company to reborrow funds under the Credit Agreement to
purchase and construct additional rental equipment, to expand its domestic and
international distribution channels, to pursue potential acquisitions of
complementary businesses and for other general corporate purposes. The Company
currently has no agreements or understandings with respect to potential
acquisitions. As of August 31, 1997, approximately $42.5 million was outstanding
under the Credit Agreement (based on currency exchange rates as of such date).
The Credit Agreement provides for U.S. dollar denominated revolving credit
and term credit facilities in the amount of $23.0 million and $20.5 million,
respectively, British pounds sterling denominated revolving credit and term
credit facilities in the amount of $4.9 million and $6.3 million (U.S. dollar
equivalents as of August 31, 1997), respectively, and Japanese yen denominated
revolving credit and term credit facilities in the amount of $6.0 million and
$1.2 million (U.S. dollar equivalents as of August 31, 1997), respectively. The
U.S. dollar denominated revolving credit facility bears interest at the prime
rate of Brown Brothers Harriman & Co., agent under the Credit Agreement ("BBH"),
plus 1.0% (9.50% as of August 31, 1997). The British pounds sterling denominated
revolving credit facility bears interest at a rate determined by reference to
the London interbank offered rate ("LIBOR") for deposits in British pounds
sterling plus 2.0% (9.15% as of August 31, 1997). The Japanese yen denominated
revolving credit facility bears interest at a rate determined by reference to
the "Euroyen TIBOR" rate on the Bloomberg Financial Markets service at "TIBOEY"
plus 3.5% (4.06% as of August 31, 1997). The U.S. dollar denominated term loan
bears interest at either BBH's prime rate plus 1.0% (9.50% as of August 31,
1997) or a rate determined by reference to LIBOR for deposits in U.S. dollars
plus 3.5% (9.31% as of August 31, 1997). The British pounds sterling denominated
term loan bears interest at a rate determined by reference to LIBOR for deposits
in British pounds sterling plus 2.0% (8.44% as of August 31, 1997). The Japanese
yen denominated term loan bears interest at a rate determined by reference to
the Tokyo interbank offered rate for deposits in Japanese yen plus 2.5% (3.15%
as of August 31, 1997). Mandatory payments of principal are due and payable
quarterly on each term loan and interest is payable monthly or on the last day
of any eurocurrency interest period. The entire outstanding principal balance of
the term loans and the revolving credit facilities is due and payable in full on
June 30, 2001. Until April 1, 1998, a prepayment penalty equal to 0.25% of the
amount prepaid is due and payable in connection with voluntary prepayments of
the term loans. The Company is a party to two interest rate swap agreements
which fix the Company's effective interest costs under a portion of the Credit
Agreement. See "Risk Factors--Foreign Exchange Risk; International Trade Risk"
and Note E of "Notes to Consolidated Financial Statements."
DIVIDEND POLICY
The Company paid dividends of approximately $0.6 million with respect to
each of the 1994, 1995, 1996 and 1997 fiscal years. The Company does not
anticipate paying any other cash dividends on the Common Stock in the
foreseeable future and anticipates that future earnings will be retained to
finance operations and expansion. The payment of cash dividends in the future
will be at the discretion of the Board of Directors and will depend upon the
Company's earnings levels, capital requirements and financial condition and such
other factors the Board of Directors deems relevant. In addition, the Credit
Agreement limits the amount of dividends that may be paid by the Company in any
fiscal year to 30% of net income (as defined in the Credit Agreement) for such
fiscal year.
12
<PAGE>
DILUTION
The net tangible book value attributable to the Company's Common Stock at
June 30, 1997 was $23.5 million ($4.06 per share). "Net tangible book value per
share" represents the Company's total tangible assets less total liabilities
divided by the total number of shares of Common Stock outstanding. After giving
effect to the sale by the Company of the 2,000,000 shares of Common Stock to be
sold by the Company in the Offering (at an assumed Offering price of $12.50 per
share), and after deducting the estimated underwriting discount and expenses of
the Offering to be paid by the Company, and the application of the net proceeds
as set forth under "Use of Proceeds," the Company's net tangible book value as
of June 30, 1997, would have been $46.1 million ($5.90 per share), representing
an immediate increase of $1.84 in net tangible book value per share to existing
stockholders and an immediate dilution of $6.60 in net tangible book value per
share to new investors purchasing shares in the Offering. The following table
illustrates this dilution per share of Common Stock:
<TABLE>
<S> <C> <C>
Assumed Offering price per share..................................... $ 12.50
Net tangible book value per share at June 30, 1997................. $ 4.06
Increase per share attributable to new investors................... 1.84
---------
Pro forma net tangible book value per share after the Offering....... 5.90
---------
Dilution of net tangible book value per share to new investors(1).... $ 6.60
---------
---------
</TABLE>
- -------
(1) Excludes 242,233 shares issuable upon exercise of warrants with an exercise
price of $11.53 per share. To the extent any of these warrants are
exercised, new investors would suffer further dilution. See "Shares Eligible
for Future Sale."
The following table sets forth, on a pro forma basis as of June 30, 1997,
the difference between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company and the total
cash consideration and average price per share paid to the Company (based upon
an assumed Offering price of $12.50 per share for new investors):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE PER
NUMBER(1) PERCENT AMOUNT PERCENT SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2).............................. 5,800,003 74.4% $ 3,929,000 13.6% $ 0.68
New investors......................................... 2,000,000 25.6% 25,000,000 86.4% $ 12.50
------------ ----- ------------- -----
7,800,003 100.0% $ 28,929,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
- -------
(1) Excludes 496,000 shares issuable upon exercise of options to be granted
effective concurrently with consummation of the Offering at an exercise
price equal to the Offering price and 242,233 shares of Common Stock
issuable upon exercise of warrants at an exercise price of $11.53 per share.
To the extent any of these options or warrants are exercised, new investors
would suffer further dilution. See "Management-- Employee Benefit
Plans--Omnibus Plan" and "Shares Eligible for Future Sale."
(2) Approximately 91.5% of the shares of Common Stock owned by existing
stockholders have been held by them since 1982.
13
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization at June 30, 1997
(a) on a historical basis and (b) as adjusted to give effect to the sale by the
Company of 2,000,000 shares of Common Stock offered hereby at an assumed
Offering price of $12.50 per share and the application of the net proceeds
therefrom as described in "Use of Proceeds." The data set forth below should be
read in conjunction with the other financial information presented elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Short-term debt, including current portion of long-term debt.............................. $ 7,768 $ 7,768
--------- -----------
--------- -----------
Long-term debt, net of current portion.................................................... $ 37,593 $ 15,068
Stockholders' equity(1):
Preferred Stock, $0.10 par value; 10,000,000 shares authorized, no shares issued and
outstanding; no shares issued and outstanding as adjusted............................. $ -- $ --
Common Stock, $0.10 par value; 40,000,000 shares authorized, 5,800,003 shares issued and
outstanding; 7,800,003 shares issued and outstanding as adjusted...................... 580 780
Additional paid-in capital.............................................................. 3,162 25,487
Stockholder notes receivable............................................................ (186) (186)
Stock purchase warrants................................................................. 600 600
Cumulative foreign currency translation adjustment...................................... 1,137 1,137
Retained earnings....................................................................... 22,127 22,127
--------- -----------
Total stockholders' equity............................................................ 27,420 49,945
--------- -----------
Total capitalization.................................................................. $ 72,781 $ 72,781
--------- -----------
--------- -----------
</TABLE>
- -------
(1) Excludes exercise price to be paid in connection with the issuance of
496,000 shares of Common Stock issuable upon exercise of options to be
granted effective concurrently with consummation of the Offering at an
exercise price equal to the Offering price and 242,233 shares of Common
Stock issuable upon exercise of warrants with an exercise price of $11.53
per share.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data for the Company as of and
for each of the five fiscal years in the period ended September 30, 1996 and for
the nine-month period ended June 30, 1997 have been derived from the audited
consolidated financial statements of the Company. The selected consolidated
financial data for the nine-month period ended June 30, 1996 have been derived
from the unaudited consolidated financial statements of the Company which, in
the opinion of the Company's management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation. The
results of operations for the nine-month period ended June 30, 1997 are not
necessarily indicative of results that may be expected for the full year. This
data should be read in conjunction with the information set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE
YEARS ENDED SEPTEMBER 30, 30,
----------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
INCOME STATEMENT DATA:
Revenue:
Rental revenues.............................. $ 28,539 $ 31,869 $ 47,625 $ 65,864 $ 65,741 $ 45,389 $ 56,207
Products sales and service revenues.......... 2,593 3,384 6,187 9,046 11,397 8,042 10,688
--------- --------- --------- --------- --------- ----------- -----------
Total revenues............................. 31,132 35,253 53,812 74,910 77,138 53,431 66,895
Rental costs................................... 10,395 12,320 18,775 26,288 26,425 18,267 22,115
Product sales and service costs................ 1,649 2,288 4,284 6,637 7,783 5,601 7,410
--------- --------- --------- --------- --------- ----------- -----------
Gross profit................................... 19,088 20,645 30,753 41,985 42,930 29,563 37,370
Selling, general and administrative expense.... 13,343 13,170 19,181 28,163 30,077 22,230 24,855
Research and development expense............... 1,948 2,347 3,033 3,283 4,404 2,947 4,872
--------- --------- --------- --------- --------- ----------- -----------
Operating income............................... 3,797 5,128 8,539 10,539 8,449 4,386 7,643
Interest expense (net)......................... 1,675 1,606 1,805 2,788 3,092 2,437 2,694
--------- --------- --------- --------- --------- ----------- -----------
Income before taxes and extraordinary loss..... 2,122 3,522 6,734 7,751 5,357 1,949 4,949
Income taxes................................... 773 1,253 2,400 3,037 2,238 813 1,993
--------- --------- --------- --------- --------- ----------- -----------
Income before extraordinary loss............... 1,349 2,269 4,334 4,714 3,119 1,136 2,956
Extraordinary loss from early extinguishment of
debt (net of tax of $389).................... -- -- 756 -- -- -- --
--------- --------- --------- --------- --------- ----------- -----------
Net income..................................... $ 1,349 $ 2,269 $ 3,578 $ 4,714 $ 3,119 $ 1,136 $ 2,956
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
Net income per share........................... $ 0.23 $ 0.39 $ 0.62 $ 0.81 $ 0.53 $ 0.19 $ 0.51
Cash dividends per share(1).................... $ 0.05 $ 0.05 $ 0.05 $ 0.10 $ 0.11 $ 0.10 $ 0.10
Weighted average shares outstanding............ 5,801 5,773 5,772 5,814 5,912 5,928 5,819
OTHER DATA:
EBITDA(2)...................................... $ 8,084 $ 10,230 $ 14,620 $ 19,161 $ 18,517 $ 11,928 $ 16,287
Net cash provided by operations................ 6,950 7,879 10,937 14,513 8,531 3,286 11,972
Net cash used in investing activities.......... (5,443) (10,789) (18,924) (20,641) (12,432) (9,125) (20,389)
Net cash provided by (used in) financing
activities................................... (949) 2,094 9,355 7,307 2,564 3,061 7,634
Capital expenditures........................... 5,503 11,050 13,566 20,748 12,587 9,125 20,518
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................... $ 30,607 $ 37,626 $ 57,223 $ 73,465 $ 78,581 $ 92,614
Total debt..................................... 13,574 16,648 27,497 34,870 37,349 45,361
Stockholders' equity........................... 11,085 13,302 16,631 21,329 24,538 27,420
</TABLE>
- ---------
(1) After the Offering, the Company does not anticipate paying any cash
dividends on the Common Stock for the foreseeable future and anticipates
that future earnings will be retained to finance future operations and
expansion. See "Dividend Policy."
(2) EBITDA is calculated herein as income before income taxes plus depreciation,
amortization and net interest expense. The Company believes that EBITDA
serves as an important financial analysis tool for measuring and comparing
financial information such as liquidity, operating performance and leverage.
EBITDA should not be considered an alternative to net income or other cash
flow measures determined under generally accepted accounting principals as
an indicator of the Company's performance or liquidity. EBITDA as disclosed
herein may not be comparable to EBITDA as disclosed by other companies.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the fiscal years ended September 30, 1994, 1995
and 1996 and the nine-month periods ended June 30, 1996 and 1997. This
discussion should be read in conjunction with the Consolidated Financial
Statements and related notes thereto included elsewhere in this Prospectus.
GENERAL
The Company is a leading designer and manufacturer of automated lighting
systems and products which are marketed exclusively through its domestic and
international facilities and an independent distributor network. The Company
rents its VARI*LITE-Registered Trademark- automated lighting systems and other
products and provides services to the entertainment industry, including markets
such as concert touring, theatre, television and film and corporate events. In
addition, the Company sells its Irideon-Registered Trademark- automated lighting
systems for use in a wide variety of architectural applications.
The Company's revenues are generated through the rental of lighting and
sound systems and equipment, and through sales of related products and services
and architectural lighting systems. Rental revenues include revenues generated
from leases of VARI*LITE-Registered Trademark- automated lighting systems,
concert sound systems and conventional lighting equipment. Revenues from product
sales and services include custom stage construction and stage set design
services, design and production management services and the sale of
Irideon-Registered Trademark- automated lighting systems and related products.
Rental revenues were $47.6 million, $65.9 million and $65.7 million or
88.5%, 87.9% and 85.2% of total revenues during fiscal 1994, 1995 and 1996,
respectively. The majority of the Company's rental revenues are earned from the
rental of VARI*LITE-Registered Trademark- automated lighting systems, with the
remainder from the rental of concert sound systems and conventional lighting
equipment. The Company's rental revenues are recorded as earned over the term of
each contract except for revenues from sales-type leases which are recorded and
typically paid at the inception of the lease. Sales-type leases are long-term
leases for the Company's VARI*LITE-Registered Trademark- automated lighting
systems and are accounted for as sales for financial accounting purposes.
Revenues from sales-type leases were $4.4 million, $9.9 million and $4.5 million
during fiscal 1994, 1995 and 1996, respectively. Because sales-type lease
revenues are recorded in their entirety at the inception of the lease, wide
variations in revenues and earnings in any given quarter can occur. Rental costs
consist of direct costs of maintaining, supporting and delivering the rental
equipment and the depreciation costs of the capital expenditures incurred to
manufacture or purchase the rental equipment. The Company depreciates rental
equipment over periods of five to ten years. The direct costs associated with
sales-type leases include the net book value of the equipment rented which is
expensed in its entirety at the inception of the lease.
The Company generates sales revenue from its custom stage construction and
stage set design services, design and production management services to
corporations and business associations for conventions, business meetings and
special events and sales of Irideon-Registered Trademark- automated lighting
systems. The Company first introduced its Irideon-Registered Trademark- lighting
system in 1993 and revenues from the Irideon-Registered Trademark- product line
have increased from $0.8 million in fiscal 1994 to $2.6 million in fiscal 1996,
and $3.3 million for nine-month period ended June 30, 1997. During fiscal 1994,
1995 and 1996, and for the nine-month period ended June 30,1997, the Company's
Irideon-Registered Trademark- product line experienced operating losses of $0.1
million, $0.9 million, $1.2 million and $0.9 million, respectively, due to
start-up costs. To date, the gross margin percentage of Irideon-Registered
Trademark- products has been lower than those of the Company's rental business.
Although the gross margin percentage of Irideon-Registered Trademark- products
is expected to improve, it is expected to remain below that of the Company's
rental business.
16
<PAGE>
The following table reflects the percentages of total revenues by market:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30,
JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Concert Touring............................................... 48.5% 38.2% 33.0% 31.0% 30.9%
Theatre....................................................... 19.3 20.6 22.7 20.9 25.1
Television and Film........................................... 13.7 12.9 16.3 18.3 15.4
Corporate Events.............................................. 11.1 14.0 12.2 13.9 12.8
Other......................................................... 7.4 14.3 15.8 15.9 15.8
--------- --------- --------- --------- ---------
Total Revenues.............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Although the Company expects revenues earned from concert touring (primarily
rental revenues) to continue to represent a significant percentage of the
Company's total revenues, during the past three fiscal years, concert touring
revenues have decreased as a percentage of the Company's total revenues due to
an increase in rental revenues generated from the Company's other customer
markets. The Company has experienced fluctuations in its concert touring
revenues because of the unpredictable nature of the timing and duration of such
tours and expects such fluctuations to continue in the future.
The following table reflects the Company's geographic region revenues as a
percentage of total revenues (see Note J of the "Notes to Consolidated Financial
Statements"):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30,
JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
North America................................................. 63.0% 53.1% 50.7% 51.6% 51.3%
Europe........................................................ 23.7 33.8 34.5 34.3 34.7
Asia.......................................................... 13.3 13.1 14.8 14.1 14.0
--------- --------- --------- --------- ---------
Total Revenues.............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The majority of European and Asian revenues are denominated in British
pounds sterling and Japanese yen, respectively. The increase in European
revenues in fiscal 1995 primarily resulted from the VLEH acquisition (as
hereinafter defined) for approximately $6.0 million on March 31, 1994. The
acquired companies provided lighting services and custom stage construction and
stage set design services and included the Company's London, England
VARI*LITE-Registered Trademark- distributor. The VLEH acquisition was accounted
for by the Company using the purchase method of accounting. In addition to
London, the Company has offices in Tokyo, Hong Kong and Madrid. The Company
anticipates that foreign revenues will remain a significant part of the
Company's total revenues as the demand for entertainment in foreign markets
continues to increase. Fluctuations in foreign currencies have impacted, and
will continue to impact, the Company's consolidated results of operations due to
the translation of foreign currencies into U.S. dollars. The Company maintains
foreign currency borrowings to act as an economic hedge against fluctuations in
British pounds sterling and Japanese yen. See "Risk Factors--Foreign Exchange
Risk; International Trade Risk" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentages of total revenues represented
by certain income statement data and other data for the indicated periods:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED
JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Rental revenues....................................................... 88.5% 87.9% 85.2% 84.9% 84.0%
Product sales and service revenues.................................... 11.5 12.1 14.8 15.1 16.0
--------- --------- --------- --------- ---------
Total revenues...................................................... 100.0 100.0 100.0 100.0 100.0
Rental costs.......................................................... 34.9 35.1 34.3 34.2 33.1
Product sales and service costs....................................... 8.0 8.9 10.1 10.5 11.0
--------- --------- --------- --------- ---------
Gross margin.......................................................... 57.1 56.0 55.6 55.3 55.9
Selling, general and administrative expense........................... 35.6 37.5 39.0 41.6 37.2
Research and development expense...................................... 5.6 4.4 5.7 5.5 7.3
--------- --------- --------- --------- ---------
Operating income...................................................... 15.9 14.1 10.9 8.2 11.4
Interest expense (net)................................................ 3.4 3.7 4.0 4.6 4.0
--------- --------- --------- --------- ---------
Income before taxes and extraordinary loss............................ 12.5 10.4 6.9 3.6 7.4
Incomes taxes......................................................... 4.5 4.1 2.9 1.5 3.0
--------- --------- --------- --------- ---------
Income before extraordinary loss...................................... 8.0 6.3 4.0 2.1 4.4
Extraordinary loss.................................................... 1.4 -- -- -- --
--------- --------- --------- --------- ---------
Net income............................................................ 6.6% 6.3% 4.0% 2.1% 4.4%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OTHER DATA:
Rental revenues....................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Rental costs.......................................................... 39.4 39.9 40.2 40.2 39.3
--------- --------- --------- --------- ---------
Rental gross margin................................................... 60.6% 60.1% 59.8% 59.8% 60.7%
Product sales and service revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Product sales and service costs....................................... 69.2 73.4 68.3 69.6 69.3
--------- --------- --------- --------- ---------
Product sales and service gross margin................................ 30.8% 26.6% 31.7% 30.4% 30.7%
EBITDA................................................................ 27.2% 25.6% 24.0% 22.3% 24.3%
</TABLE>
NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30, 1996
REVENUES. Total revenues increased 25.2%, or $13.5 million, to $66.9
million in the nine-month period ended June 30, 1997, compared to $53.4 million
in the nine-month period ended June 30, 1996. The revenue increase was
attributable primarily to the factors set forth below.
Rental revenues increased 23.8%, or $10.8 million, to $56.2 million in the
nine-month period ended June 30, 1997, compared to $45.4 million in the
nine-month period ended June 30, 1996. This increase was primarily the result of
an overall increase in concert touring revenues due to an improved concert
touring market during the nine-month period ended June 30, 1997 compared to the
nine-month period ended June 30, 1996. As a result, the Company experienced
increased rental revenues from both automated lighting systems and sound
systems, as well as from other related products and services. Rental revenues
from sales-type leases accounted for approximately 34.1%, or $3.7 million, of
the increase in rental revenues in the nine-month period ended June 30, 1997,
compared with the nine-month period ended June 30, 1996. The increase in
sales-type lease revenues was primarily due to significant leases with a new
theatrical production and an amusement park.
18
<PAGE>
Product sales and service revenues increased 32.9%, or $2.7 million, to
$10.7 million in the nine-month period ended June 30, 1997, compared to $8.0
million in the nine-month period ended June 30, 1996. This increase was
primarily due to sales of the Company's Irideon-Registered Trademark- automated
lighting products which increased 123.2%, or $1.8 million, to $3.3 million in
the nine-month period ended June 30, 1997, compared to $1.5 million in the
nine-month period ended June 30, 1996. The remainder of the increase was
primarily attributable to the increase in revenues from stage construction
services as a result of increased concert touring activity.
RENTAL COSTS. Rental costs increased 21.1%, or $3.8 million, to $22.1
million in the nine-month period ended June 30, 1997, compared to $18.3 million
in the nine-month period ended June 30, 1996. Rental costs as a percentage of
rental revenues decreased to 39.3% in the nine-month period ended June 30, 1997,
from 40.2% in the nine-month period ended June 30, 1996. The decrease in rental
costs as a percentage of total rental revenues was primarily due to higher
utilization of the Company's rental equipment and increased leverage of fixed
costs during the nine-month period ended June 30, 1997, compared to the
nine-month period ended June 30, 1996. Also contributing to this decrease was a
decrease in sales-type lease costs as a percentage of sales-type lease rental
revenues in the nine-month period ended June 30, 1997, compared to the
nine-month period ended June 30, 1996. The decrease in sales-type lease costs
was due to the leasing of older equipment during the nine-month period ended
June 30, 1997, compared to the nine-month period ended June 30, 1996.
PRODUCT SALES AND SERVICE COSTS. Product sales and service costs increased
32.3%, or $1.8 million, to $7.4 million in the nine-month period ended June 30,
1997, compared to $5.6 million in the nine-month period ended June 30, 1996.
Product sales and service costs as a percentage of product sales and service
revenues decreased to 69.3% in the nine-month period ended June 30, 1997, from
69.6% in the nine-month period ended June 30, 1996. The decrease in product
sales and service costs as a percentage of the related revenues was primarily
due to the Irideon-Registered Trademark- product line, which experienced
improved production efficiencies and an increase in direct sales. Partially
offsetting this decrease was an increase in product sales and service costs for
the Company's custom stage construction business that was subcontracted to
others by the Company during the 1997 period, compared to the 1996 period.
Product sales and service costs associated with subcontracted services are
generally higher than costs associated with services provided directly by the
Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 11.8%, or $2.7 million, to $24.9 million in the
nine-month period ended June 30, 1997, compared to $22.2 million in the
nine-month period ended June 30, 1996. This increase resulted primarily from
payroll and related costs to support the Company's continued growth. This
expense as a percentage of total revenues decreased to 37.2% in the nine-month
period ended June 30, 1997, from 41.6% in the nine-month period ended June 30,
1996, due to costs incurred during fiscal year 1996 resulting from increases in
personnel and improvements in information systems in anticipation of growth
which occurred in fiscal 1997.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased 65.3%, or $2.0 million, to $4.9 million in the nine-month period ended
June 30, 1997, compared to $2.9 million in the nine-month period ended June 30,
1996. This expense as a percentage of total revenues increased to 7.3% in the
nine-month period ended June 30, 1997, from 5.5% in the nine-month period ended
June 30, 1996. These increases were primarily the result of an increase in the
employee-related costs associated with adding research and development engineers
during fiscal 1996 and the nine-month period ended June 30, 1997.
INTEREST EXPENSE. Interest expense increased 10.5%, or $0.3 million, to
$2.7 million in the nine-month period ended June 30, 1997, compared to $2.4
million in the nine-month period ended June 30, 1996. This increase was
attributable to additional long-term borrowings incurred by the Company to fund
capital expenditures.
INCOME TAXES. Effective tax rates in the nine-month periods ended June 30,
1997 and 1996 were 40.3% and 41.7%, respectively.
19
<PAGE>
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1995
REVENUES. Total revenues increased 3.0%, or $2.2 million, to $77.1 million
in fiscal 1996, compared to $74.9 million in fiscal 1995. The revenue increase
was attributable primarily to the factors set forth below.
Rental revenues decreased $0.2 million to $65.7 million in fiscal 1996,
compared to $65.9 million in fiscal 1995. This decrease was primarily the result
of a 54.2%, or $5.4 million, decrease in rental revenues from sales-type leases,
which decreased to $4.5 million in fiscal 1996, compared to $9.9 million in
fiscal 1995, primarily due to large, one-time sales-type leases to one major
casino and to several major cloned touring theatrical productions in fiscal
1995. Additionally, the Company experienced an overall decrease in concert
touring revenues in fiscal 1996 as a result of a downturn in the concert touring
market compared with fiscal 1995. These decreases were offset by increased
rental revenues earned from the Company's VARI*LITE-Registered Trademark-
automated lighting systems as more of these products were available for rental
as a result of fiscal 1995 capital expenditures, and an increase in automated
lighting rental revenues in Japan.
Product sales and service revenues increased 26.0%, or $2.4 million, to
$11.4 million in fiscal 1996, compared to $9.0 million in fiscal 1995. Product
sales and service revenues increased as a percentage of total revenues to 14.8%
in fiscal 1996, from 12.1% in fiscal 1995. This increase in revenue was
primarily due to sales of Irideon-Registered Trademark- automated lighting
products which increased 180.9%, or $1.7 million, to $2.6 million in fiscal
1996, compared to $0.9 million in fiscal 1995.
RENTAL COSTS. Rental costs increased 0.5%, or $0.1 million, to $26.4
million in fiscal 1996, compared to $26.3 million in fiscal 1995. Rental costs
as a percentage of rental revenues increased to 40.2% in fiscal 1996, from 39.9%
in fiscal 1995. This increase was primarily the result of increased sales-type
lease costs as a percentage of sales-type lease rental revenues in fiscal 1996,
compared to fiscal 1995, due to the leasing of newer equipment during fiscal
1996, compared to fiscal 1995.
PRODUCT SALES AND SERVICE COSTS. Product sales and service costs increased
17.3%, or $1.2 million, to $7.8 million in fiscal 1996 compared to $6.6 million
in fiscal 1995. Product sales and service costs as a percentage of product sales
and service revenues decreased from 73.4% in fiscal 1995 to 68.3% in fiscal
1996. The decrease in these costs as a percentage of their related revenues was
primarily the result of operating improvements in the Company's custom stage
construction business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 6.8%, or $1.9 million, to $30.1 million in
fiscal 1996, compared to $28.2 million in fiscal 1995. This expense as a
percentage of total revenues increased to 39.0% in fiscal 1996 from 37.5% in
fiscal 1995. These increases primarily resulted from increased payroll and
related costs and depreciation expense associated with increases in personnel
and improvements in information systems necessitated by the Company's continued
growth.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased 34.1%, or $1.1 million, to $4.4 million in fiscal 1996, compared to
$3.3 million in fiscal 1995. This expense as a percentage of total revenues
increased to 5.7% in fiscal 1996, from 4.4% in fiscal 1995. These increases were
primarily the result of an increase in the employee-related costs associated
with adding 16 research and development engineers during fiscal 1996.
INTEREST EXPENSE. Interest expense increased 10.9%, or $0.3 million, to
$3.1 million in fiscal 1996, compared to $2.8 million in fiscal 1995. This
increase was attributable to additional long-term borrowings incurred by the
Company to fund capital expenditures in fiscal 1995 and 1996.
INCOME TAXES. Effective tax rates in fiscal 1996 and 1995 were 41.7% and
39.2%, respectively.
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1994
REVENUES. Total revenues increased 39.2%, or $21.1 million, to $74.9
million in fiscal 1995, compared to $53.8 million in fiscal 1994. Approximately
56.2% of the growth in total revenues, or $11.9 million, was attributable to
revenues generated from Vari-Lite Europe Holdings Limited ("VLEH"), the
Company's London, England based subsidiary which was formed to acquire three
companies on March 31, 1994 (the "VLEH acquisition"). As a result, only six
months of VLEH's operations were included in fiscal 1994. Also during fiscal
20
<PAGE>
1995, the Company earned $8.9 million, or approximately 11.9% of total revenues,
from the rental of automated lighting and sound systems and other lighting
products and services used on the Rolling Stones Voodoo Lounge tour.
Rental revenues increased 38.3%, or $18.3 million, to $65.9 million in
fiscal 1995, compared to $47.6 million in fiscal 1994. Approximately 48.1% of
the growth in rental revenues, or $8.8 million, was attributable to an increase
in revenues from the VLEH acquisition. Rental revenues from sales-type leases
accounted for approximately 30.0%, or $5.5 million, of the increase in rental
revenues from fiscal 1994 to fiscal 1995. The increase in sales-type lease
revenues was primarily due to one major casino installation and an increase in
the cloning of several major touring theatrical productions in fiscal 1995. The
remainder of the increase in rental revenues was primarily due to revenues
earned from the Rolling Stones Voodoo Lounge tour and an overall increase in
automated lighting rental revenues in Japan.
Product sales and service revenues increased 46.2%, or $2.8 million, to $9.0
million in fiscal 1995, compared to $6.2 million in fiscal 1994. Product sales
and service revenues increased as a percentage of total revenues to 12.1% in
fiscal 1995, from 11.5% in fiscal 1994. These increases were primarily
attributable to the VLEH acquisition.
RENTAL COSTS. Rental costs increased 40.0%, or $7.5 million, to $26.3
million in fiscal 1995, compared to $18.8 million in fiscal 1994. Rental costs
as a percentage of rental revenues increased to 39.9% in fiscal 1995, from 39.4%
in fiscal 1994.
PRODUCT SALES AND SERVICE COSTS. Product sales and service costs increased
54.9%, or $2.3 million, to $6.6 million in fiscal 1995, compared to $4.3 million
in fiscal 1994. Product sales and service costs as a percentage of product sales
and service revenues increased to 73.4% in fiscal 1995 from to 69.2% in fiscal
1994. These increases were primarily the result of higher than anticipated costs
to construct custom stages and design stage sets for customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 46.8%, or $9.0 million, to $28.2 million in
fiscal 1995, compared to $19.2 million in fiscal 1994. This expense as a
percentage of total revenues increased to 37.5% in fiscal 1995 from 35.6% in
fiscal 1994. These increases were partially due to the non-recurring costs in
fiscal 1995 associated with the VLEH acquisition and an increase in consulting
and employee benefit expenses in fiscal 1995 as a result of the Company's
initiatives to improve its human resource and process management. During fiscal
1995, the Company established the ESOP and Equivalence Plan (as hereinafter
defined) and accrued contributions to them of an aggregate of $0.8 million.
These increases were also partially due to unusually high design modification
costs in fiscal 1995 to improve performance of certain rental equipment and
costs to make certain VARI*LITE-Registered Trademark- products compliant with
international safety regulations. The remainder of the increases in selling,
general and administrative expense resulted primarily from payroll and related
costs in fiscal 1995 to support continued growth.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased 8.2%, or $0.3 million, to $3.3 million in fiscal 1995, compared to
$3.0 million in fiscal 1994. This increase was primarily attributable to costs
incurred during fiscal 1995 in connection with the development of the Company's
Irideon-Registered Trademark- products. This expense as a percentage of revenues
decreased to 4.4% in fiscal 1995, from 5.6% in fiscal 1994.
INTEREST EXPENSE. Interest expense increased 54.5%, or $1.0 million, to
$2.8 million in fiscal 1995, compared to $1.8 million in fiscal 1994. This
increase was attributable to additional long-term borrowings incurred by the
Company to fund the VLEH acquisition and other capital expenditures primarily
associated with an increase in rental assets.
INCOME TAXES. Effective tax rates in fiscal 1995 and 1994 were 39.2% and
35.6%, respectively. The increase in the effective tax rate in fiscal 1995 was
primarily due to increased earnings from the Company's subsidiary in Japan,
which are taxed at a higher rate than the Company's other earnings, and
increased earnings in certain states in which the Company is subject to state
income tax.
EXTRAORDINARY LOSS. During fiscal 1994, the Company entered into the Credit
Agreement, the proceeds of which were used to refinance outstanding indebtedness
under then existing credit facilities, to fund the VLEH
21
<PAGE>
acquisition and to build rental equipment. The Company incurred prepayment
penalties, net of taxes, of $0.8 million relating to the early extinguishment of
the existing debt. See "--Liquidity and Capital Resources."
QUARTERLY FLUCTUATIONS AND SEASONALITY
The following table sets forth certain income statement data and EBITDA for
each of the Company's last 15 quarters, which were derived from unaudited
financial statements of the Company. In the opinion of the Company's management,
this income statement data contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation thereof.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
------------ ----------- --------- ------------ FISCAL YEAR
-----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Fiscal 1994
Total revenues.................................... $ 9,778 $ 9,591 $ 15,160 $ 19,283 $ 53,812
EBITDA............................................ 2,659 2,025 3,720 6,216 14,620
Operating income.................................. 1,321 633 2,019 4,566 8,539
Fiscal 1995
Total revenues.................................... $ 18,648 $ 17,234 $ 19,314 $ 19,714 $ 74,910
EBITDA............................................ 6,224 4,027 4,495 4,415 19,161
Operating income.................................. 4,267 1,951 2,284 2,037 10,539
Fiscal 1996
Total revenues.................................... $ 16,791 $ 16,995 $ 19,645 $ 23,707 $ 77,138
EBITDA............................................ 3,648 3,436 4,845 6,588 18,517
Operating income.................................. 1,186 915 2,285 4,063 8,449
Fiscal 1997
Total revenues.................................... $ 22,326 $ 22,384 $ 22,185
EBITDA............................................ 5,215 5,083 5,989
Operating income.................................. 2,424 2,265 2,954
</TABLE>
The Company has experienced and is expected to continue to experience
fluctuations in quarterly operating results, both between different quarters
within the same fiscal year and with respect to the same quarter between
different fiscal years. These fluctuations arise from several factors, including
the timing and dollar value of sales-type leases with customers, the dependence
of the Company on concert tours, which are unpredictable in timing and duration,
the introduction of new products and general economic conditions both
domestically and internationally. In addition, the Company's business is subject
to seasonal fluctuations with the highest percentage of its revenues being
generated in the summer months and the lowest percentage being generated in
winter months. Because of the possibilities of significant fluctuations, results
for any quarter may not be indicative of results that may be achieved in a full
year. While the Company expects to experience growth in its revenues and
profits, there can be no assurance that the Company's historical levels of
revenues or profits will be sustained, particularly on a quarterly basis. See
"Risk Factors--Fluctuations in Operating Results and Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations and capital
expenditures with cash flow from operations, bank borrowings and advances from
distributors and customers. The Company's operating activities generated cash
flow of approximately $10.9 million, $14.5 million, $8.5 million and $12.0
million during fiscal 1994, 1995 and 1996 and for the nine months ended June 30,
1997, respectively.
The Company intends to use the net proceeds of the Offering to repay
indebtedness under the Credit Agreement. As of August 31, 1997, approximately
$42.5 million was outstanding under the Credit Agreement (based on currency
exchange rates as of August 31, 1997). The Credit Agreement contains compliance
covenants, including requirements that the Company achieve certain financial
ratios or tests, including a fixed charge ratio, earnings ratio, minimum net
worth test, leverage ratio, capital expenditure coverage ratio and total debt to
cash flow ratio. In addition, the Credit Agreement places limitations on the
ability to pay stockholder distributions, make capital expenditures in excess of
specified amounts, incur additional indebtedness (subject to certain
22
<PAGE>
exceptions), make certain loans or investments, sell assets or reacquire Common
Stock. The Company incurs a commitment fee equal to 0.5% per annum on the
average daily unused portion of the revolver which is payable quarterly.
Substantially all of the Company's assets, except those pledged to distributors,
are pledged as collateral under the Credit Agreement. The Company expects to
obtain a new credit facility after completion of the Offering.
The Company has hedged a portion of its currency fluctuation risk by
borrowing in British pounds sterling and Japanese yen under the Credit
Agreement. Cash generated from the Company's England and Japan offices is
typically denominated in British pounds sterling and Japanese yen, respectively,
and is used to pay expenses incurred in these currencies and service the foreign
currency borrowings. The Company is a party to two interest rate swap agreements
which fix the Company's effective interest costs under a portion of the Credit
Agreement. See "Risk Factors--Foreign Exchange Risks; International Trade Risk,"
"Use of Proceeds" and Note E of "Notes to Consolidated Financial Statements."
The Company has funded the costs to manufacture automated lighting equipment
to be rented to certain distributors with advances made by the distributors
under the terms of the Company's distributorship agreements. The distributors
typically advance to the Company an amount equal to the cost to manufacture the
equipment, and enter into agreements whereby the distributors have the exclusive
right to sublease the lighting equipment within defined territories. Borrowings
by the Company under these agreements, which are secured by liens against the
applicable equipment, are repaid by the Company through future rentals due from
the distributors under the terms of their distributorship agreements and bear
interest at various rates ranging up to 10.25% annually. Proceeds received under
these distributorship agreements were approximately $1.0 million, $2.2 million,
$1.7 million and $0.6 million for fiscal 1994, 1995 and 1996 and for the
nine-month period ended June 30, 1997, respectively, and outstanding borrowings
from distributors at September 30, 1994, 1995 and 1996 and June 30, 1997 were
approximately $2.1 million, $2.9 million, $2.8 million and $2.1 million,
respectively. All amounts advanced by distributors are accounted for by the
Company as short-term debt. See "Business-- Marketing, Sales and Distribution."
The Company has borrowed money to purchase computer equipment and office
furniture and fixtures. These loans typically amortize over three years and bear
interest at various rates ranging from 8.25% to 10.40%. Proceeds received under
this type of financing were approximately $0.2 million, $1.6 million, $1.8
million and $1.1 million for fiscal 1994, 1995 and 1996 and the nine-month
period ended June 30, 1997, respectively, and borrowings outstanding at
September 30, 1994, 1995 and 1996 and June 30, 1997 were approximately $0.7
million, $1.7 million, $2.8 million and $3.0 million, respectively.
The Company has also used customer advances to fund short-term working
capital and immediate capital expenditure needs for specific contracts. As of
September 30, 1994, 1995 and 1996 and June 30, 1997, the Company had unearned
revenue related to customer advances of approximately $1.3 million, $1.6
million, $2.2 million and $2.5 million, respectively.
Dividends paid to stockholders totaled approximately $0.6 million with
respect to each of fiscal 1994, 1995, 1996 and 1997. The Company does not
anticipate paying any additional cash dividends after the consummation of the
Offering. See "Dividend Policy."
The Company's business requires significant capital expenditures. Capital
expenditures for fiscal 1994, 1995 and 1996 were approximately $13.6 million,
$20.7 million and $12.6 million, respectively, of which approximately $12.2
million, $18.0 million and $10.2 million were for rental equipment inventories.
The majority of the Company's revenues are generated through the rental of
automated lighting and concert sound systems and, as such, the Company must
maintain a significant amount of rental equipment to meet customer demands.
Total rental equipment inventories increased from approximately $47.6 million at
the beginning of fiscal 1994 to $102.5 million at June 30, 1997. This increase
primarily consisted of automated lighting equipment, including new products,
additional inventory of existing products and the replacement of equipment
leased under sales-type leases. The Company's management anticipates capital
expenditures of approximately $23.0 million during fiscal 1997, primarily for
expansion of rental inventories.
23
<PAGE>
Inventory included in current assets consists primarily of raw materials and
finished goods for the Company's Irideon-Registered Trademark- products and
spare parts inventory for the Company's VARI*LITE-Registered Trademark-
automated lighting equipment. Raw materials represented 38.1%, 83.4% and 88.6%
of total inventory at September 30, 1995 and 1996 and June 30, 1997,
respectively. The fluctuation in raw materials as a percentage of total
inventory was caused primarily by changes in the timing of the manufacturing of
Irideon-Registered Trademark- products which are manufactured as orders are
received.
The Company invests heavily in management information systems, believing
them to be a key factor in the Company's ability to remain ahead of its
competitors. In fiscal 1995 and 1996, the Company invested approximately $2.2
million constructing a wide-area network throughout the United States and
implementing Oracle financial and manufacturing applications. This computer
system is expected to meet the anticipated needs of the Company for the
foreseeable future.
The Company had a working capital deficit of approximately $2.0 million,
$4.8 million, $0.6 million and $1.3 million at September 30, 1994, 1995 and
1996, and June 30, 1997, respectively. The Company has historically maintained
working capital deficits since the bulk of its revenue generating assets are
classified as long-term assets rather than current assets.
In December 1995, the Company entered into a lease with an unaffiliated
developer which purchased a 32-acre site in the Dallas, Texas area for
approximately $3.6 million. The Company is leasing this land for an initial term
of five years, with six five-year renewal options. If the lease is not renewed
or is otherwise terminated, the Company may be required to make a residual
termination payment equal to 85% of the $3.6 million paid by the developer to
acquire the land. The Company has the right to obligate the developer to
construct a building on the land that the Company would lease for a term that
would be identical to the land lease. The Company has an option to purchase the
property at the end of the initial lease term or at any time during the renewal
terms for its original cost. The Company intends to cause the developer to
construct a 233,000 square foot facility where it will consolidate all of its
Dallas, Texas operations in fiscal 2000. The land lease is, and the facility
lease (if any) will be, accounted for as operating leases for financial
reporting purposes. See "Business--Properties" and Note G of the "Notes to
Consolidated Financial Statements."
The Company has capitalized and expects to continue to capitalize its costs
relating to the High End Lawsuit (approximately $3.0 million as of August 31,
1997, and an estimated additional $1.1 million through consummation of the
trial). Unless the Company receives a judgment in this litigation that at least
one of its patents has been infringed and the Company concludes, based on all of
the facts and circumstances, that such a judgment will allow it to maintain its
competitive advantage provided by the infringed patents, all costs incurred by
the Company relating to the High End Lawsuit (including those previously
capitalized) will be required to be recorded as a non-cash expense in the period
that the judgment is rendered. See "Risk Factors--Capitalized Litigation Costs"
and "Business--Litigation."
Management believes that cash flow generated from operations, combined with
the net proceeds from the Offering and borrowing capacity under the Credit
Agreement (after giving effect to the application of the proceeds of the
Offering) should be sufficient to fund its anticipated operating needs and
capital expenditures for at least twelve months after the date of the Offering.
However, because the Company's future operating results will depend on a number
of factors, including the demand for the Company's products and services, the
level of competition, the success of the Company's research and development
programs, the ability to achieve competitive and technological advances and
general and economic conditions and other factors beyond the Company's control,
there can be no assurance that sufficient capital resources will be available to
fund the expected expansion of its business beyond such period.
INFLATION
The Company has generally been able to offset cost increases with increases
in the rental rates and sales prices charged for its products and services.
Accordingly, the Company does not believe that inflation has had a material
effect on its results of operations to date. However, there can be no assurance
that the Company's business will not be adversely affected by inflation in the
future.
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BUSINESS
GENERAL
The Company is a leading international provider of proprietary automated
lighting systems and related services to the entertainment industry, servicing
markets such as concert touring, theatre, television and film and corporate
events. In 1981, the Company revolutionized the professional entertainment
lighting industry by inventing the VARI*LITE-Registered Trademark- system, the
first automated lighting system that allowed real-time, computerized, remote
control of light beam features such as color, size, shape, position and
intensity. As a result, the VARI*LITE-Registered Trademark- brand name has
become recognized as the preeminent brand name for automated lighting. The
Company rents its VARI*LITE-Registered Trademark- automated lighting systems
exclusively through a domestic and international network of Company-owned
offices and independent distributors.
The Company believes that its position as an industry leader results from
its broad range of innovative and technologically superior products, its
long-standing collaborative relationship with participants in the entertainment
industry, its worldwide distribution system and its dedication to customer
service. The Company continuously addresses the technical and creative needs of
its customers by designing and manufacturing products that in many instances
have become the industry standard. Lighting designers using the Company's
automated lighting systems have won Tony-Registered Trademark- Awards for
Broadway lighting design every year since 1990 and have won five
Emmy-Registered Trademark- Awards for network television broadcast lighting
design. The Company won an Emmy-Registered Trademark- Award for Outstanding
Achievement in Engineering for television in 1991 and 1994. For its
accomplishments in the concert touring market, the Company was named by
Performance Magazine as the "Lighting Company of the Year" six times since 1989
and the "Equipment Manufacturer of the Year/Lighting" ten times since 1983.
The Company has capitalized on the growth of the entertainment industry and
has demonstrated its ability to broaden the application of its existing
technology and to develop new lighting systems and products to create and
penetrate new markets.
- CONCERT TOURING. The Company initially designed its systems to serve the
concert touring market and remains a leader in that market. The Company's
customers have included such notable performers as The Rolling Stones,
Phil Collins, Genesis, Fleetwood Mac, Pink Floyd, Paul McCartney, David
Bowie, Elton John, Tina Turner, Sting, Reba McEntire, Vince Gill, Garth
Brooks, Mary Chapin Carpenter, Wynona Judd, Barbra Streisand, Diana Ross,
Whitney Houston, Celine Dion, Sheryl Crow, Pearl Jam, Aerosmith, Bush and
the Indigo Girls.
- THEATRE. By developing the first virtually silent automated lighting
fixture, the Company secured a significant competitive advantage in the
theatre market, including touring theatre shows. The Company's systems
have been used in such shows as CHICAGO, RAGTIME, SHOW BOAT, RENT, LORD OF
THE DANCE, CAROUSEL, SMOKEY JOE'S CAFE, MISS SAIGON, SUNSET BOULEVARD,
KISS OF THE SPIDER WOMAN, THE WILL ROGERS FOLLIES, TOMMY, GREASE, HOW TO
SUCCEED IN BUSINESS WITHOUT REALLY TRYING, BRING IN 'DA NOISE BRING IN 'DA
FUNK, JESUS CHRIST SUPERSTAR, MARTIN GUERRE, JEKYLL & HYDE and OLIVER.
- TELEVISION AND FILM. The Company successfully leveraged its versatile
product line to become a leading provider of automated lighting to the
television market and to increase its penetration of the film market. The
Company has provided automated lighting for the Academy Awards,
Emmy-Registered Trademark- Awards, Tony-Registered Trademark- Awards,
Grammy Awards, Country Music Awards, MTV Music Awards and other awards
shows, as well as television shows such as THE TONIGHT SHOW WITH JAY LENO,
THE LATE SHOW WITH DAVID LETTERMAN, LATE NIGHT WITH CONAN O'BRIEN, VIBE,
WHEEL OF FORTUNE, SATURDAY NIGHT LIVE, HOME IMPROVEMENT and AMERICAN
GLADIATORS, and the movies CONTACT, FORREST GUMP, BATMAN FOREVER, WAYNE'S
WORLD and SISTER ACT, among others. VARI*LITE-Registered Trademark-
automated lighting fixtures or "luminaires" are also installed in ABC's
New York studios, where they are used for PRIME TIME LIVE, 20/20 and GOOD
MORNING AMERICA.
- CORPORATE EVENTS. The Company is continuing to expand its presence in the
corporate events market by providing automated lighting systems for
conventions, business meetings, new product launches and special events.
The Company's systems have been used in events for Microsoft, Compaq, IBM,
Sony, Sprint, Nike, Reebok, Oldsmobile, Ford, Lincoln, BMW, Upjohn, Glaxo,
Whirlpool and Gillette, among others.
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- ARCHITECTURAL. Recently, the Company has targeted the lighting needs of
architectural markets such as restaurants, casinos, retail stores,
corporate showrooms, shopping malls, building exteriors and landmarks. The
Company's Irideon-Registered Trademark- automated lighting system product
line, which is in the development stage, is designed specifically for such
architectural lighting applications.
The Company's VARI*LITE-Registered Trademark- systems incorporate advanced
proprietary and patented technology in both lighting fixtures and control
consoles. The Company is the only industry participant which combines patented
dichroic filter color changing systems, advanced heat removal techniques and
computer control systems that utilize distributed processing and resident cue
memory in each luminaire. By using such technology to execute a lighting effect
(or cue), an operator can transmit a single command to up to 1,000 luminaires
simultaneously, each of which stores its own set of cues. As a result, customers
using the Company's systems can create lighting presentations with greater
flexibility, complexity, speed and precision than with competing products.
The Company is also a leader in providing complementary products and
services to the entertainment industry, including concert sound systems,
conventional lighting equipment, custom stage construction and stage set design
services, and design and production management services for conventions,
business meetings and special events.
INDUSTRY
The Company believes that the entertainment industry is an international,
multi-billion dollar industry. Lighting plays an integral role in the
entertainment industry, providing illumination of concert, theatre, television
and film performers, as well as creating special effects to augment a
performance. In general, the Company believes that approximately 10% of total
revenues (in the case of concert touring and theatre) or of total production
budgets (in the case of television, film and corporate events) are spent on
lighting and sound. The Company further believes that lighting and sound are
critical elements in determining the quality of a production and, therefore,
end-users consider quality an important factor in selecting vendors. The Company
believes that its industry leadership position results in large part from its
reputation in the entertainment community for innovative, high performance
products and quality service.
In the early 1980's, the concert touring market was the first to recognize
that automated lighting could be used not only to augment a performance but also
as an additional source of entertainment. According to an industry source, the
concert touring market in North America has grown at an annual rate of
approximately 6% over the past nine years, as measured by major headliner arena
ticket sales. The Company believes that the international concert touring market
will grow at a faster rate because it is at an earlier stage in its development.
The theatre market, as measured by the North American live theatre box
office receipts, has grown by an annual rate of approximately 11% over the last
ten years according to VARIETY. More importantly, touring shows, for which the
Company's automated lighting systems are ideally suited, accounted for 60% of
the total market in 1996 compared to 52% in 1986. The Company believes that the
North American and international theatre markets continue to represent a
significant opportunity for the Company.
Although the Company currently derives less than 20% of its revenue from the
television and film markets, these markets are the largest markets in which the
Company participates. The Company believes that it is the leading provider of
automated lighting systems for television special events, such as award shows,
and intends to target a broader spectrum of television and film productions in
the future.
In recent years, lighting designers have begun to utilize entertainment
lighting in new settings such as corporate events, restaurants, casinos, cruise
ships and retail settings. The Company has broadened the application of its
existing technologies and developed new technologies and products to address
this demand, such as the Company's Irideon-Registered Trademark- product line
for architectural use. The Company expects the demand for entertainment lighting
in both existing and new settings to increase in the future.
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<PAGE>
STRATEGY
The Company's principal objectives are to maintain its worldwide leadership
positions in its existing markets and to create demand for its products in new
markets. The key elements of this strategy include:
- MAINTAINING ITS COMMITMENT TO INNOVATION. The Company expects to remain
committed to research and development. By continuing to develop leading
edge, innovative technologies for use in multiple proprietary automated
lighting products with novel and versatile features, the Company expects
to maintain its leadership positions in existing markets and create demand
for its products in new markets.
- EXPANDING ITS WORLDWIDE DISTRIBUTION CAPABILITIES. The Company intends to
continue leveraging its position as an industry leader in automated
lighting by expanding its domestic and international distribution channels
by opening new offices, affiliating with additional independent
distributors and acquiring complementary businesses. The Company intends
to increase its focus as a full-service provider of quality products and
services by further expanding and diversifying its worldwide inventory and
distribution system, improving its extensive education and training
programs and continuing to emphasize customer service. The Company expects
to significantly amplify its recent efforts to offer a full range of
lighting services and products, including conventional lighting products,
in order to compete effectively for all of its customers' lighting needs.
- CONTINUING TO OFFER VALUE-ADDED COMPLEMENTARY SERVICES. The Company
intends to continue providing complementary sound, conventional lighting,
custom stage construction and stage set design services, and design and
production management services, thereby offering comprehensive solutions
to its customers' needs and leveraging its customer relationships to
maximize revenue.
PRODUCTS AND SERVICES
AUTOMATED LIGHTING--VARI*LITE-REGISTERED TRADEMARK- PRODUCTS.
The Company designs, manufactures and markets an extensive line of
integrated automated lighting systems, including light fixtures, or
"luminaires," control consoles and support equipment, and provides system
operators and maintenance services. To accommodate users who prefer to operate
the Company's lighting systems independently, the Company also conducts
extensive training programs. The Company rents rather than sells its
VARI*LITE-Registered Trademark- automated lighting systems.
VL1-TM- LUMINAIRE. The Company's initial product, the revolutionary VL1-TM-
luminaire, was the first automated luminaire using a dichroic filter color
changing system, thereby becoming the first compact, easily transportable light
capable of the real-time, computerized, remote control of light beam features
such as color, size, shape, position and intensity. The VL1-TM- luminaire was
introduced in 1981 and remained in service until 1996.
SERIES 200-TM- SYSTEM. The Company's VL2C-Registered Trademark- spot
luminaire, VL4-Registered Trademark- wash luminaire and Artisan-Registered
Trademark- Plus and mini-Artisan-Registered Trademark- 2 control consoles
constitute the Company's Series 200-TM- system. Spot luminaires create a hard-
edged, crisp beam which can be used for precisely focused illumination and
visual effects, as well as for projecting custom light images such as faces and
designs through the use of "gobos", designs etched into a piece of glass or cut
into a piece of metal through which a light beam is directed to create an image.
The VL2C-Registered Trademark- spot luminaire can change light color in
one-tenth of a second and can produce more than 120 separate light colors
through the use of the Company's patented color changing system. In designing
the Series 200-TM- system, the Company patented a number of features which it
believes makes the Company's light systems superior to those of its competitors.
The Company is the only industry participant which combines patented dichroic
filter color changing systems, advanced heat removal techniques and a computer
control systems that utilize distributed processing and resident cue memory in
each luminaire. By using such technology to execute a lighting effect (or cue),
an operator can transmit a single command to up to 1,000 luminaires
simultaneously, each of which stores its own set of cues. As a result, customers
using the Company's systems can create lighting presentations with greater
flexibility, complexity, speed and precision than with competing products.
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The VL4-Registered Trademark- wash luminaire projects a dispersed soft-edge
light beam for even illumination of objects and areas. The VL4-Registered
Trademark- luminaire's patented color changing system allows the user to select
30 preset and 160 programmable colors from thousands of available colors and to
change these colors in less than three-tenths of a second, or program the system
for timed color cross-fades. In addition, the VL4-Registered Trademark-luminaire
features precisely timed control of light intensity, including the ability to
instantaneously turn the light fixture on and off. Continuous adjustment of
diffusion and beam angle provides enhanced control of the beam shape.
SERIES 300-TM- SYSTEM. The Company developed its Series 300-TM- automated
lighting system principally to satisfy the demands of the theatre and television
and film markets for virtually silent, light weight automated lighting products
with sophisticated color changing features. The Company's Series 300-TM- system,
including the VL5-Registered Trademark- wash luminaire (including the VL5Arc-TM-
and VL5B-TM- luminaires), the VL6-Registered Trademark- spot luminaire and the
VLM-TM- automated moving mirror, as well as the Artisan-Registered Trademark-
Plus and mini-Artisan-Registered Trademark- 2 control consoles, also appeals to
major concert touring clients who want to rent large systems. The VL5-Registered
Trademark- luminaire is lighter than the VL4-Registered Trademark- luminaire,
and its cold-mirror reflector both eliminates the need for noisy cooling fans
and reduces the amount of heat the lights emit onto the stage. Color changes for
the VL5-Registered Trademark- are controlled by a system that allows color
cross-fades in as little as seven-tenths of a second and interchangeable lenses
work with an internal diffusing mechanism to provide a wide variety of beam
sizes and shapes. The VL6-Registered Trademark- spot luminaire is the companion
to the VL5-Registered Trademark- wash luminaire, and has two interchangeable
12-position wheels of dichroic color filters and gobos for split second color
and image changes and multi-color beams. The VL5Arc-TM- luminaire, which won the
"Product of the Year/ Lighting" for 1996, awarded by Lighting Dimensions
magazine, has a brighter bulb than the VL5-Registered Trademark- luminaire and
an innovative fluid-filled variable lens (patent pending) which allows beam size
control. The VLM-TM- automated moving mirror is a dual-sided highly reflective
Lexan-Registered Trademark- polycarbonate mirror panel. With its ability to both
pan and tilt 360 degrees, the VLM-TM- automated moving mirror can be used to
augment the effects produced by VARI*LITE-Registered Trademark- wash and spot
luminaires, or it can be used with conventional lights to create limited beam
motion at a very low cost.
The Company's VL5-Registered Trademark- wash luminaires and VL6-Registered
Trademark- spot luminaires are compatible with the industry-standard DMX 512
digital protocol and, as such, can be operated by DMX 512 control consoles,
unlike the Company's other products which require the more sophisticated, higher
performance of the Company's proprietary control consoles which use a high
speed, bi-directional communications protocol.
ARTISAN-REGISTERED TRADEMARK- CONTROL SYSTEMS. The Company's primary
control console, the Artisan-Registered Trademark- Plus, is used to operate all
of the Company's VARI*LITE-Registered Trademark- products. It provides control
of up to 1,000 luminaires, dimmers and other equipment with up to 1,000 cues per
channel, allowing the operator to control each luminaire or to store and play
back preset cues. The Company also rents the smaller, less expensive
mini-Artisan-Registered Trademark- 2 control console which has substantially the
same capabilities as the Artisan-Registered Trademark- Plus control console, but
requires longer programming time. Accordingly, the mini-Artisan-Registered
Trademark- 2 control console is often used either where space is limited or as a
back-up system to the Artisan-Registered Trademark- Plus control console.
OTHER PRODUCTS AND SERVICES. The Company provides trained personnel to
operate its automated lighting systems and offers training courses, maintenance
and other support services to customers. The Company considers these services to
be of critical importance to its business. The Company maintains extensive,
custom-designed training facilities in its Dallas, Texas and London, England
offices, where it trains both its own personnel and customers who find it more
efficient to have their own personnel operate and maintain the
VARI*LITE-Registered Trademark- equipment. The Company also provides smaller
training facilities in its New York, Los Angeles and Tokyo offices.
In addition to luminaires and control consoles, the Company rents related
equipment required to operate the Company's systems, such as power and control
signal distribution equipment, dimmers and cables. The Company has also
developed a unique stackable, plastic injection-molded storage case for
transporting its equipment. The Company's cases are custom-designed to protect
VARI*LITE-Registered Trademark- equipment and last longer than the
industry-standard carpet covered wood or laminate cases. These cases are also
significantly lighter than other cases, thereby reducing transportation costs.
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AUTOMATED LIGHTING--VARI*LITE-REGISTERED TRADEMARK- PRODUCTS
<TABLE>
<S> <C> <C> <C> <C> <C>
FISCAL YEAR
PRODUCT INTRODUCED DESCRIPTION
VL1-TM- 1981 The original VARI*LITE-Registered Trademark- spot luminaire.
Rendered obsolete in most markets by subsequent
VARI*LITE-Registered Trademark- products.
VL2C-Registered 1986 A high intensity spot luminaire using an arc light bulb.
Trademark- Favored by concert, television and theatrical lighting
designers due to its beam quality, motion control, bright
colors and wide range of color choices.
VL4-Registered 1988 A wash luminaire using an arc light bulb and featuring a
Trademark- high speed douser. The brightness and precisely timed
control of light intensity and beam size appeal to concert,
theatre and television and film clients.
VL5-Registered 1992 A lighter, less expensive version of the VL4-Registered
Trademark- Trademark- wash luminaire using a tungsten light bulb.
Silent operation, compactness and lighter weight appeal to
theatrical, concert, television and film and corporate
events users. Lower cost attracts both major concert touring
clients wanting to lease larger systems and entry level
concert touring clients with budgetary constraints.
VL5Arc-TM- 1997 A VL5-Registered Trademark- luminaire utilizing a 600 watt
arc source for very high brightness and a beam control
device. Used in productions where high brightness is
required.
VL5B-TM- 1995 A VL5-Registered Trademark- luminaire with a color system
designed for the television and theatre markets with an
enhanced pastel range.
VL6-Registered 1994 A compact, virtually silent spot luminaire which is the
Trademark- companion to the VL5-Registered Trademark- wash luminaire.
The brightness, small size and low cost of this luminaire
appeal to all lighting disciplines, especially theatrical
and television and film users as well as corporate events.
VL7-TM- 1998 A high brightness, multi-feature spot luminaire. Expected to
(projected) service all markets.
VLM-TM- 1994 An automated dual-sided moving mirror able to pan and tilt
360 degrees. Appeals to both large and entry level concert
touring clients.
Artisan-Registered 1986 A computerized console required to control most of the
Trademark- Plus Company's luminaires. Uses a proprietary communications
protocol which allows the operator more functionality,
efficiency and control of lighting effects than the industry
standard DMX 512 protocol.
Mini-Artisan-Registered 1994 A smaller, less expensive console designed to operate the
Trademark- 2 Company's luminaires. Often used as a back-up console to the
Artisan-Registered Trademark- Plus console.
<CAPTION>
</TABLE>
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AUTOMATED LIGHTING--IRIDEON-REGISTERED TRADEMARK- PRODUCTS.
In 1993, the Company began to apply its existing automated lighting
technologies to create its Irideon-Registered Trademark-products for the
architectural lighting industry. Through its subsidiary Irideon, Inc.
("Irideon"), the Company sells Irideon-Registered Trademark- automated lighting
products, even though it continues to rent all of its non-architectural
products.
AR500 LUMINAIRE-TM-. The AR500-TM- weather-proof wash luminaire is the
Company's first product designed specifically for exterior illumination of
objects such as monuments, bridges and commercial buildings. Like the Company's
other products, the AR500-TM- luminaire uses the Company's patented color
changing system to produce smooth color cross-fades through virtually the entire
color spectrum. Various lenses permit the light beam size to be altered and a
douser provides the ability to dim beam intensity. Lighting Dimensions Magazine
named the AR500-TM- luminaire the "Product of the Year/Lighting, Architectural
Category" in 1993. Since its introduction, the Company has sold over 1,300
AR500-TM- luminaires.
AR5-TM- LUMINAIRE. In 1996, the Company began selling interior
architectural automated lights for use in permanent architectural installations.
The AR5-TM- wash luminaire, which is the first product in a planned family of
products for interior applications, uses new dichroic filter coatings, many
plastic components and a newly-developed light source. These features make this
product attractive to lighting and interior designers because it is less
expensive than the Company's VARI*LITE-Registered Trademark- products and does
not require trained operators after the initial set-up. The AR5-TM- wash
luminaire was named "Product of the Year/Lighting, Architectural Category" in
1995 by Lighting Dimensions magazine and in 1996 won "Best New Product of the
Year" at Lightfair International.
COMPOSER-REGISTERED TRADEMARK- CONTROL SYSTEM. The AR500-TM- and AR5-TM-
luminaires both are operated with the Composer-Registered Trademark-control
system. The Composer-Registered Trademark- is a Windows-Registered Trademark-
95-based system that is programmable using a standard personal computer. After
programming has been completed, the personal computer can be removed and
lighting cues or sequences can be activated via an internal clock or from wall
switches. The Composer-Registered Trademark- control system is DMX compatible
which, among other things, allows it to operate products manufactured by others.
AUTOMATED LIGHTING--IRIDEON-REGISTERED TRADEMARK- PRODUCTS
<TABLE>
<S> <C> <C> <C> <C> <C>
FISCAL YEAR
PRODUCT INTRODUCED DESCRIPTION
AR500-TM- 1993 A weather-proof wash luminaire with the capability to change
beam color, size or intensity. The first automated luminaire
designed specifically for outdoor uses such as building
exteriors and landmarks and has the "UL-Registered
Trademark-" rating for "wet" location.
AR5-TM- 1996 An automated wash luminaire designed for architectural
applications such as restaurants, casinos, retail stores,
corporate showrooms and shopping malls.
Composer-Registered 1996 The control system used to operate Irideon-Registered
Trademark- Trademark- architectural luminaires. A Windows-Registered
Trademark- 95-based system that is programmable using a
standard personal computer with playback via an internal
clock or wall switches, thereby eliminating the need for
trained operators after initial set-up.
<CAPTION>
</TABLE>
COMPLEMENTARY BUSINESSES
The Company is a leader in providing complementary products and services to
the entertainment industry, including concert sound systems, conventional
lighting equipment, custom stage construction and stage set
30
<PAGE>
design services, and design and production management services for conventions,
business meetings and special events.
CONCERT SOUND SYSTEMS. The Company's Showco subsidiary rents concert sound
systems and provides related services almost exclusively to the worldwide
concert touring market. Its clients have included The Rolling Stones, KISS,
Janet Jackson, Eric Clapton, Paul McCartney, Genesis, Phil Collins, the Beach
Boys, James Taylor, Willie Nelson, Alanis Morissette, Reba McEntire, Vince Gill,
Alan Jackson, Moody Blues, Bob Seger, the Cranberries, INXS, Stone Temple Pilots
and Smashing Pumpkins. The Company's PRISM-Registered Trademark- sound system
was introduced in 1986 as the first large scale concert sound system engineered
as a totally integrated system specifically for use in concert touring. The
proprietary, scalable PRISM-Registered Trademark- system can be used in any
venue from smaller theatres to stadiums and is easier to assemble, disassemble
and transport than competitive sound systems. The quality of the
PRISM-Registered Trademark- sound system is evidenced by the numerous awards
Showco has received, including awards from Mix Magazine for "Outstanding
Institutional Achievement--Sound Reinforcement Company of the Year" in 1988 and
1991 through 1993 (for which it was also nominated in 1994 through 1997) and for
"Outstanding Technical Achievement--Sound Reinforcement Product of the Year"
(for the PRISM-Registered Trademark- Digital Control System) in 1990, the
Performance Readers Poll for "Sound Company of the Year" in 1988, 1989 and 1991
and Live Sound! "Instrumental Tin Ear Award--International Touring Company of
the Year" in 1995. Since 1987, three different Showco sound engineers have won
Mix Magazine's "Sound Engineer of the Year" award.
CONVENTIONAL LIGHTING PRODUCTS. Through its subsidiaries, Theatre Projects
Lighting Services Limited ("Theatre Projects"), which was acquired in 1994, and
Vari-Lite, the Company offers conventional lighting equipment, including
numerous types of luminaires and control consoles, large search lights,
automatic gel scrollers, trusses, dimmers and smoke machines, to London's West
End theatre market and the United Kingdom and European theatre touring markets,
as well as to concert touring artists worldwide and to businesses for corporate
events. The Company has rented equipment to such West End theatre productions as
CATS, PHANTOM OF THE OPERA, SUNSET BOULEVARD and JOSEPH AND HIS AMAZING
TECHNICOLOR DREAMCOAT and to performers such as The Rolling Stones, Paul
McCartney, Phil Collins, Vince Gill, Mary Chapin Carpenter and Torvill and Dean,
among others. The Company is also very active in the special events market,
providing services to numerous events for the British royalty. In the corporate
event market, the Company has provided its conventional lighting products to
numerous annual shareholder meetings and new product launches.
STAGES AND STAGE SETS. Through its Brilliant Stages Limited ("Brilliant
Stages") subsidiary, which was acquired in 1994, the Company sells custom stage
and stage set design and construction services to the international concert
touring, theatre and industrial trade show and corporate events markets. The
Company's welded aluminum stages are designed using CAD software and are
constructed to facilitate rapid assembly, disassembly and loading in a
semi-trailer for efficient transportation. The Company is noted for high-tech
stages and stage sets that include distinctive hydraulic components and
sophisticated electronic effects, such as the stages and stage sets designed and
built for the Rolling Stones Voodoo Lounge tour in 1995 and the Rolling Stones
Bridges to Babylon Tour '97, and has provided stages and stage sets to other
concert tour customers such as Pink Floyd, Elton John, Tina Turner, U2,
Metallica, Peter Gabriel and Phil Collins, and to trade shows for Whirlpool,
Smirnoff, Fuji Television and Philips, among others. The Company has also
provided services to such theatre productions as JOSEPH AND HIS AMAZING
TECHNICOLOR DREAMCOAT and LES MISERABLES.
CORPORATE MEETINGS AND SPECIAL EVENTS. The Company, through its IGNITION!
Creative Group, Inc. ("Ignition") subsidiary, provides design and production
management services to businesses for conventions, business meetings, new
product launches and special events. The Company provides concept development,
scenery, lighting, sound, special effects, scripting, media production, sound
and entertainment production for such events. Clients of the Company for these
services include Mary Kay Cosmetics, Inc., Kawasaki Motor Corp., U.S.A.,
Warner/Elektra/Atlantic Records, The Hong Kong Trade Development Council and
EXCEL Communications, Inc.
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MARKETING, SALES AND DISTRIBUTION
The Company markets its products and services to the entertainment industry,
including concert touring, theatre, television and film and corporate events
markets, as well as to the architectural market. Depending on the circumstances,
the Company solicits business from lighting and set designers and consultants,
sound engineers, artist managers, producers, production managers and production
companies, promoters, architects, corporations and business associations. The
Company believes that its customer relationships, reputation for innovative,
quality products, worldwide distribution and excellent service are the keys to
its success. The Rolling Stones represented 11.9% of the Company's revenues in
fiscal 1995. No other customer has accounted for more than 10% of the Company's
revenues for at least the last three fiscal years.
AUTOMATED LIGHTING--VARI*LITE-REGISTERED TRADEMARK- PRODUCTS. The Company
rents rather than sells its VARI*LITE-Registered Trademark-automated lighting
products. In addition to providing the Company with a higher level of quality
control over its rental products, which require trained operators and
maintenance personnel, the Company believes renting has enabled it to better
protect its intellectual property and generate revenues from each product over
an extended time period. In order to compete effectively, the Company relies
heavily on its reputation as an innovative industry leader and strives to
develop strong relationships with lighting designers and other individuals who
recommend lighting products to end-users.
The Company markets its automated lighting systems and services in the
United States through Company-owned offices in Dallas, New York, Los Angeles,
Nashville, Orlando, Las Vegas and Chicago and an independent distributor system.
Each Company-owned office targets a specific market segment. For example, the
New York office targets the theatre market, the Nashville office targets the
country music, television and concert markets, the Los Angeles office targets
the television and film market and the Orlando, Las Vegas and Chicago offices
target the corporate events market. The independent distributors focus on
specific geographic markets and tend to rent to all market segments. The
Company's international distribution system comprises Company-owned locations in
London, Tokyo, Hong Kong and Madrid, as well as, at August 31, 1997, independent
distributors in Australia, Austria, Belgium, France, Germany, Korea, Singapore
and Sweden and 27 independent dealers in 36 cities in the United States, Puerto
Rico, Mexico, Canada, the United Kingdom and five other countries in Europe.
The Company has two basic types of distribution arrangements: independent
distributors and independent dealers. Under the first arrangement, the
distributor advances the Company the funds needed to build the lighting systems
to be rented by that distributor. Although the distributor is solely responsible
for renting the equipment and providing support services to end-users, rental
revenues are split on a predetermined basis between the Company and the
distributor, with the distributor retaining the Company's share until the
distributor's advances to the Company have been repaid. Distributors are
required to undergo four weeks of intensive training in operation and
maintenance of the Company's lighting systems. Under the second arrangement,
independent dealers rent the less expensive Series 300-TM- systems from the
Company generally for fixed lease payments over a five-year term and bear the
entire risk of renting the lighting systems to end-users in regional markets.
In order to satisfy customers who wanted to purchase the Company's lighting
systems, in 1989 the Company began entering into sales-type leases. Under the
typical sales-type lease, the customer rents the Company's equipment for either
a five- or a ten-year term, with unlimited one-year renewal options, for a lump
sum payment at the commencement of the term, plus a nominal renewal option
exercise price. The customer is normally responsible for maintaining the
equipment under these arrangements, but often enters into a maintenance
agreement with the Company. As of August 31, 1997, the Company had entered into
over 50 sales-type leases with customers such as the Ringling Brothers and
Barnum & Bailey Circus, the Las Vegas Hilton, Mirage and MGM Grand hotels in Las
Vegas, the Lyric Opera in Chicago, The San Francisco Opera, Busch Gardens in
Florida, the Mel Tillis Theater in Branson, Missouri and the Aladdin touring ice
show.
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Recently, the Company has begun to further emphasize its full-service
strategy by expanding its capability to offer conventional lighting products.
This effort is designed to increase the Company's revenues from the rental of
all VARI*LITE-Registered Trademark- products.
AUTOMATED LIGHTING--IRIDEON-REGISTERED TRADEMARK- PRODUCTS. The Company
sells its architectural lighting products primarily through a worldwide network
of independent sales representatives and distributors, but also directly, to
lighting designers who recommend lighting equipment for architectural
applications such as restaurants, casinos, retail stores, corporate showrooms,
shopping malls, building exteriors and landmarks.
CONVENTIONAL LIGHTING PRODUCTS. The Company's conventional lighting
operations, which have historically operated independently from the
VARI*LITE-Registered Trademark- product operations, maintain internal marketing
and distribution departments and rely heavily on the Company's established
reputation for quality and service, which is enhanced by its high visibility
projects and customers. The Company reinforces this reputation by advertising in
trade and specialty magazines. Although most of the Company's conventional
lighting contracts are procured through a bidding process, the Company believes
that competition in this industry is based on expertise, quality and price. The
Company has recently begun to integrate these operations with those of its
VARI*LITE-Registered Trademark- products in order to improve its position as a
full-service provider.
CONCERT SOUND SYSTEMS. The Company markets its concert sound equipment
directly to end-users worldwide. Showco develops personal relationships with
artist managers, sound engineers, production managers and event producers and
relies on its reputation for superior quality and service to attract customers.
STAGES AND STAGE SETS. The Company markets its custom stage construction
and stage set design services principally to production companies and set and
lighting designers. The Company relies on a bidding process to award almost all
contracts, but the Company believes its reputation for quickly producing quality
products with sophisticated high technology motion and other features is the key
element to its marketing success. Although the Company relies to some degree on
the trade press for publicity, it engages in very little advertising.
CORPORATE MEETINGS AND SPECIAL EVENTS. The Company sells its design and
production management services to corporate meeting planners and sales and
marketing executives. In-house salespeople seek requests for proposals through
cold calls, sales letters and professional mailings and, to a lesser extent,
through advertising in trade publications. Upon receiving an invitation to
submit a proposal, the Company assembles a project team which develops concepts
and designs for a multi-media presentation to the potential client.
RESEARCH AND DEVELOPMENT; INTELLECTUAL PROPERTY
Since 1970, the Company and its predecessors have continually developed
proprietary products that serve the entertainment industry. The Company's
proprietary technology and development of innovative products that meet the
needs of its customers have enabled it to expand the applications for its
technology to new products and markets. From time to time, the Company
collaborates with unaffiliated entities to supplement and complement its
internal research and development activities.
As of August 31, 1997, the Company's research and development group
consisted of over 65 engineers. These internal capabilities enable the Company
to continually improve existing products, design new products and develop new
technology to meet the needs of its customers. In the fiscal years ended
September 30, 1994, 1995 and 1996, the Company's research and development
expenditures totaled $3.0 million, $3.3 million and $4.4 million, respectively.
The Company's extensive research and development efforts have produced a
number of leading-edge technological developments in the automated lighting
industry. When appropriate, the Company seeks patent protection for its
products, particularly in its automated lighting business. As of August 31,
1997, the Company had registered and received more than 25 domestic patents and
more than 110 foreign patents in several different countries and territories. In
addition, the Company had more than 10 patent applications pending in the United
States on automated lighting technology and more than 100 patent applications
pending worldwide.
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The Company's patents cover the basic concepts, control software, control
hardware and features unique to each of the Company's VARI*LITE-Registered
Trademark- luminaire models. The Company believes that its patents provide it
with a substantial competitive advantage in the automated lighting industry, and
the Company's ability to compete in the future will depend in part on
maintaining its technological advantage over its competitors. See "Risk
Factors--Reliance on Intellectual Property."
The Company has obtained trademark protection in the United States and
numerous foreign countries on various names, including, among others,
VARI*LITE-Registered Trademark-, Artisan-Registered Trademark- Plus,
Mini-Artisan-Registered Trademark- 2, Series 100-TM-, Series 200-TM-, VL1-TM-,
VL2C-Registered Trademark-, VL4-Registered Trademark-, VL5-Registered
Trademark-, VL5Arc-TM-, VL5B-TM-, VL6-Registered Trademark-, Showco-TM-,
PRISM-Registered Trademark-, Irideon-Registered Trademark-, AR500-TM-, AR5-TM-
and Composer-Registered Trademark-.
MANUFACTURING
With the exception of the Company's stage construction business, which is
based in London, England, the Company's manufacturing facilities are located in
Dallas, Texas. The Company's manufacturing process principally consists of
procuring, inspecting and assembling components custom-made by others to the
Company's specifications. The Company generally provides its suppliers with
specifications for its components and pays for all tooling used in their
production. The Company emphasizes the quality and reliability of its products
and, accordingly, submits all finished products to rigorous testing both at the
time they are manufactured and when they are returned to the Company at the
termination of each rental agreement. In North America, compliance is certified
by Underwriters Laboratories, Inc.-Registered Trademark- and the Canadian
Standards Association. In the European Union, the CE mark signifies compliance
with standards for Electromagnetic Compatibility and Low Voltage Directives and
the TUV Rheinland GS Safety Mark signifies safety compliance. The Company builds
all new equipment and is retrofitting certain existing equipment to be in
compliance with these standards and marks.
The Company has frequently worked in concert with certain of its key
suppliers to design and develop new technologies which have been incorporated
into the Company's products specifically to meet its requirements. As a result,
although most components and raw materials used by the Company are available
from more than one supplier, many important components for the Company's
lighting systems are provided by one vendor and are custom-designed (often
jointly by the Company and its vendors). The Company attempts to maintain
adequate inventories of these components and, based on its experience, does not
anticipate problems obtaining sufficient supplies in the foreseeable future. The
loss of any supplier that is the sole vendor of a component would delay the
Company's manufacturing schedules and possibly force the Company to purchase new
tooling, but the Company believes substitute suppliers can be found for all
components of all of its products. See "Risk Factors-- Dependence on Key
Suppliers."
EQUIPMENT INVENTORY MANAGEMENT
The Company uses an inventory control and management system to locate its
rental equipment at all times anywhere in the world. Each piece of equipment is
serialized for identification purposes. Equipment utilization is centrally
monitored at the Company's headquarters to determine (i) which products are in
highest demand in various geographic markets and whether certain equipment
should be relocated to increase utilization and revenue, (ii) whether product
shortages that require the production of additional units exist and (iii)
whether current pricing is at the appropriate level.
The maximum utilization rates of the Company equipment are affected by
production scheduling requirements of the concert touring, theatre, television
and film and corporate events markets. Utilization rates are also limited by the
need for maintenance, service and shipping time. The Company's inventory control
system helps the Company optimize its utilization rates in light of these
factors in order to satisfy customer requirements and maximize revenue.
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MANAGEMENT INFORMATION SYSTEMS
The Company invests heavily in management information systems, believing
them to be a key factor in the Company's ability to compete successfully. In
fiscal 1995 and 1996, the Company invested approximately $2.2 million
constructing a wide-area network throughout the United States and implementing
Oracle financial and manufacturing applications. This computer system is
expected to meet the anticipated needs of the Company for the foreseeable
future.
COMPETITION
Each of the Company's businesses is highly competitive. In its automated
lighting business, the Company primarily competes with Coemar SPA, Clay Paky
SPA, High End Systems, Inc. ("High End"), Light & Sound Design, Ltd. and Martin
Gruppen A/S. Of these competitors, only Light & Sound Design, Ltd. manufactures
and rents equipment, while the others sell equipment to other rental companies.
In the theatre, television and film, concert touring and corporate event
markets, the Company competes with a number of conventional lighting rental
companies, who also purchase automated lighting equipment from others. The
Company competes primarily on the basis of product capabilities, quality and
reliability, price, worldwide distribution capabilities, brand name recognition
and reputation and customer service and support. The VARI*LITE-Registered
Trademark- brand name has been recognized for years as the preeminent brand name
for automated lighting.
The Company has several national concert sound competitors, the most
significant of which is Clair Brothers Audio. However, other companies such as
Maryland Sound Industries, Inc., Audio Analysts USA, Inc., dB Sound, Inc. and
Southern California Sound Image, Inc. compete effectively by offering less
sophisticated equipment at lower prices. The Company competes in this business
principally on product capabilities, quality and reliability, price, brand name
recognition, reputation and customer service.
The Company's custom stage construction and stage set design business
competes principally in the United Kingdom and to a lesser extent in the United
States. The primary factors affecting competition in this market include
reputation for quality and the ability to quickly design and build sophisticated
state-of-the-art stages and stage sets. The market for design and production
management services is highly competitive and fragmented, including hundreds of
free lance producers and designers. Competition in this industry is based
primarily on personal relationships and creativity.
PROPERTIES
The Company leases all of its facilities, including five facilities
comprising approximately 153,000 square feet in Dallas, Texas under leases that
expire in April 1999, but can be extended until at least April 2000. The Dallas
facilities contain the Company's executive offices, manufacturing, warehouse,
maintenance, advanced technologies and research and development facilities and
training center. The executive offices, warehouse and manufacturing space of
Vari-Lite Europe Limited ("Vari-Lite Europe"), Theatre Projects and Brilliant
Stages are located in London, England in two facilities with approximately
71,500 square feet that are leased through January 1998 and March 2010. The
executive offices of Vari-Lite Asia, Inc. ("Vari-Lite Asia"), as well as its
Technical Center, are located in Tokyo in two leased facilities aggregating
approximately 10,300 square feet, the terms of which expire in February 1999 and
October 2000. In addition, the Company leases sales offices in Chicago, Hong
Kong, Madrid, Las Vegas, Los Angeles, Nashville, New York and Orlando. The
Company believes it maintains generally adequate insurance with respect to its
properties.
In December 1995, the Company entered into a lease with an unaffiliated
developer which purchased a 32-acre site in the Dallas, Texas area for
approximately $3.6 million. The Company is leasing this land for an initial term
of five years, with six five-year renewal options. If the lease is not renewed
or is otherwise terminated, the Company may be required to make a residual
termination payment equal to 85% of the $3.6 million paid by the developer to
acquire the land. The Company has the right to obligate the developer to
construct a building on the land that the Company would lease for a term that
would be identical to the land lease. The Company has an option to purchase the
property at the end of the initial term or at any time during
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the renewal terms for its original cost. The Company intends to cause the
developer to construct a 233,000 square foot facility where it will consolidate
all of its Dallas, Texas operations in fiscal 2000. The land lease is, and the
facility lease (if any) will be, accounted for as operating leases for financial
reporting purposes. See Note G of the "Notes to Consolidated Financial
Statements."
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is from time to time
threatened with or named as a defendant in various lawsuits, including patent
infringement claims. Additionally, the Company has filed lawsuits claiming
infringements of its patents by third parties for which the Company has been
subject to counterclaims.
In August 1995, the Company brought suit asserting a number of claims of
infringement of several of its patents by High End in the Northern District of
Texas seeking monetary damages and injunctive relief to prevent future patent
infringement (the "High End Lawsuit"). The Company also sought a temporary
restraining order for alleged trade secrets violations, which the court denied.
High End has denied the Company's claims and has counterclaimed seeking to have
certain of the Company's patents declared invalid and alleging that the
Company's claims are frivolous and that the Company has violated federal
antitrust laws. The Company believes High End's counterclaims are without merit.
Discovery in this matter is proceeding and trial is currently scheduled for
February 1998. The Company has capitalized and expects to continue to capitalize
its costs relating to this lawsuit ($3.0 million as of August 31, 1997 and an
estimated additional $1.1 million through consummation of the trial). Unless the
Company receives a judgment in this litigation that High End has infringed at
least one of its patents and the Company concludes, based on all of the facts
and circumstances, that such a judgment will allow it to maintain its
competitive advantage provided by the infringed patents, all costs incurred by
the Company relating to the High End Lawsuit (including those previously
capitalized) will be required to be recorded as a non-cash expense in the period
that the judgment is rendered.
EMPLOYEES
As of August 31, 1997, the Company had 459 full-time employees. In addition,
the Company had 201 part-time and temporary employees. None of the Company's
employees is a party to any collective bargaining agreement and the Company has
never experienced a work stoppage. The Company considers its relations with its
employees to be good.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- ------------------------------------------------------------------------
<S> <C> <C>
H. R. Brutsche III(1) 52 Chairman of the Board, President and Chief Executive Officer of the
Company
Michael P. Herman 54 Vice President-Finance, Chief Financial Officer and Secretary of the
Company
James H. Clark, Jr.(1)(2) 61 Director of the Company
John D. Maxson(1) 57 Director of the Company and Chairman of the Board of Showco and Ignition
J. Anthony Smith(3) 52 Director of the Company
C. Vincent Prothro(2)(3)(4) 55 Director of the Company
John R. Rettberg(2)(3)(4) 60 Director of the Company
Keizo Akimoto 63 President and Representative Director of Vari-Lite Asia
David W. Alley 52 Executive Vice President--International Operations and Director of
Vari-Lite
James P. Bates 51 Vice President--Information Technology and Chief Information Officer of
the Company
James M. Bornhorst 51 Vice President and Chief Science Officer of the Company and Vice
President--Advanced Technology and Director of Vari-Lite
Richard W. Bratcher, Jr. 37 President, Chief Executive Officer and Director of Showco
Brian L. Croft 59 Managing Director of VLEH
Robert V. Dungan 45 Vice President, General Manager and Director of Irideon
Loren J. Haas 39 Executive Vice President--North American Operations of Vari-Lite
Janis C. Pestinger 46 Vice President--Administration and Assistant Secretary of the Company
T. Clay Powers 38 Vice President--Product Development and Manufacturing of Vari-Lite and
Director of Showco
J. Scott Thompson 45 President, Chief Executive Officer and Director of Ignition
</TABLE>
- -------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Omnibus Plan Committee
H.R. BRUTSCHE III is one of the founders of the Company and its subsidiaries
and has served as a director of the Company and its subsidiaries since their
inception. Mr. Brutsche has served as Chairman of the Board, President and Chief
Executive Officer of the Company and its predecessors since 1980. Mr. Brutsche
also serves as Chairman of the Board of VLEH, Vari-Lite Europe, Brilliant Stages
and Theatre Projects and as President and Chief Executive Officer of Vari-Lite
and Irideon.
MICHAEL P. HERMAN joined the Company in June 1993 as Vice
President--Finance, Chief Financial Officer, Secretary and Treasurer. In January
1997, Mr. Herman ceased acting as Treasurer of the Company. Mr. Herman also
serves as Vice President--Finance, Chief Financial Officer, Secretary and
Treasurer of Vari-Lite, Irideon,
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Showco and Ignition. From May 1991 to May 1993, Mr. Herman was the Vice
President--Finance and Chief Financial Officer of Barry's Cameras, Inc., a chain
of retail camera and video stores.
JAMES H. CLARK, JR. has been a director of the Company and its predecessors
since 1978. Mr. Clark serves as Chairman of the Company's Executive Committee
and Audit Committee and is a director of all of the Company's subsidiaries. Mr.
Clark has been the Managing General Partner of Clark Partnership, Ltd., an
investment and venture capital partnership, since 1988, and serves as Chairman
of the Board of Texas Freezer Co. Mr. Clark's son is married to Mr. Prothro's
daughter.
JOHN D. MAXSON is one of the founders of the Company and its subsidiaries
and has served as a director of the Company and its subsidiaries since their
inception. Mr. Maxson has served as Chairman of the Board of Showco for
approximately 25 years and as Chairman of Ignition since its inception in
September 1994.
J. ANTHONY SMITH has been a director of the Company and its predecessors
since 1981. Mr. Smith also serves as a director of all of the Company's
subsidiaries. Mr. Smith has been the Managing Director of each of Hit & Run
Music (Publishing) Limited, an international independent music publisher, and
Hit & Run Music Limited, a professional manager of musicians, for over 20 years,
and the Managing Director of Ives Street Developments Limited, a property
management company, for six years.
C. VINCENT PROTHRO has been a director of the Company since April 1996. Mr.
Prothro has been Chairman of the Board of Dallas Semiconductor Corporation, a
manufacturer of electronic chips and chip-based subsystems, since 1984 and its
Chief Executive Officer and President since 1989. Mr. Prothro is also a general
partner of Southwest Enterprise Associates, L.P., a venture capital fund. Mr.
Prothro's daughter is married to Mr. Clark's son.
JOHN R. RETTBERG has been a director of the Company since April 1996 and
serves as Chairman of the Company's Compensation Committee and Omnibus
Committee. Mr. Rettberg currently serves as a consultant to the Northrop Grumman
Corporation ("Northrop Grumman"), an advanced technology company operating
primarily in the fields of aircraft and military electronics design, development
and manufacturing. Mr. Rettberg has served in this capacity since his retirement
from Northrup Grumman on January 1, 1995. Mr. Rettberg joined Northrop Grumman
in 1962 and, prior to his retirement, was Corporate Vice President and
Treasurer. Mr. Rettberg is also a director of J.P. Morgan Investment Mgmt., a
manager of mutual funds.
KEIZO AKIMOTO joined Vari-Lite Asia at its inception in 1984 and has been
its Representative Director (equivalent of chief executive officer) since 1985
and its President since 1992.
DAVID W. ALLEY has been Executive Vice President--International Operations
of Vari-Lite since February 1995 and has been a director of Vari-Lite since
March 1987 and of each of VLEH and Vari-Lite Asia since October 1994. From
December 1993 to February 1995, Mr. Alley served as Vice President-East and West
Coast Operations of Vari-Lite and as its Vice President-West Coast Operations
from June 1990 until December 1993. Mr. Alley has held various other positions
with Vari-Lite and Showco since 1981.
JAMES P. BATES has been the Vice President--Information Technology and Chief
Information Officer of the Company since September 1996. Prior to that time
since 1989, Mr. Bates held various positions with DSC Communications Corp., most
recently serving as Director of Applications Systems Implementation.
JAMES M. BORNHORST has been the Vice President and Chief Science Officer of
the Company and the Vice President--Advanced Technology of Vari-Lite since
October 1995 and a director of Vari-Lite since its inception. Prior to October
1995, Mr. Bornhorst served as Vice President--Engineering of Vari-Lite since
1983 and has been employed since 1972 in various other capacities with Showco
and Vari-Lite.
RICHARD W. BRATCHER, JR. has been the President and Chief Executive Officer
and a director of Showco since July 1996. He served as Vice President and
General Manager of Showco from August 1993 until July 1996 and as its shop
manager of Showco from August 1987 until August 1993. Mr. Bratcher has also
served in various other capacities with Showco since 1983.
BRIAN L. CROFT has been the Managing Director of VLEH and Vari-Lite Europe
since the formation of VLEH and its acquisition of Vari-Lite Europe in March
1994. From 1989 until its acquisition by the Company in
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March 1994, Mr. Croft was the General Manager and a director of Vari-Lite
Europe, Ltd., which was then an independent VARI*LITE-Registered Trademark-
distributor and a subsidiary of the Samuelson Group plc.
ROBERT V. DUNGAN has served as Vice President and General Manager of Irideon
since its inception in September 1994 and as a director of Irideon since January
1996. From January 1993 to September 1994, Mr. Dungan served as Vice
President-Products Group of Vari-Lite and served as its Operations Manager from
1988 until January 1993. He has also served in various other capacities with
Vari-Lite since 1983.
LOREN J. HAAS has been the Executive Vice President--North American
Operations of Vari-Lite since February 1995. From October 1992 until February
1995, Mr. Haas was General Manager--Dallas of Vari-Lite and was its Marketing
Manager from December 1990 until October 1992. Mr. Haas has served in various
other capacities with Vari-Lite since 1987.
JANIS C. PESTINGER has been Vice President--Administration and Assistant
Secretary of the Company since November 1996 and May 1993, respectively. Ms.
Pestinger also has served as Vice President--Administration of Vari-Lite since
December 1993 and for more than three years prior to that as its Risk and
Benefits Manager. Ms. Pestinger has served in various other positions with
Vari-Lite and Showco since 1979.
T. CLAY POWERS has been the Vice President--Product Development and
Manufacturing of Vari-Lite since July 1996. Prior to that he served as the
President and Chief Executive Officer of Showco since April 1992. Mr. Powers
also has served as a director of Showco since December 1990. From January 1991
to April 1992, Mr. Powers served as Vice President and General Manager of Showco
and from January 1990 to January 1991 Mr. Powers served as its Vice
President--Internal Operations. Mr. Powers has served in various other
capacities with Showco since 1982.
J. SCOTT THOMPSON has served as President and Chief Executive Officer of
Ignition since October 1994 and as a director of Ignition and its predecessor
since January 1992. Prior to October 1994, Mr. Thompson was a Vice President of
Showco since 1987 and served in various capacities with Showco since 1978.
Except for Mr. Brutsche, all executive officers serve at the discretion of
the Board of Directors. See "Management--Employment Agreements."
BOARD OF DIRECTORS
DIRECTOR CLASSES. The Board of Directors is comprised of two Class I
Directors (Messrs. Maxson and Prothro), two Class II Directors (Messrs. Clark
and Rettberg) and two Class III Directors (Messrs. Brutsche and Smith). The
terms of the Class I, Class II and Class III directors will expire at the annual
meetings of stockholders of the Company held in 1998, 1999 and 2000,
respectively. At each of those annual meetings and thereafter, directors will be
elected for a three-year term to succeed the directors of the class whose terms
are then to expire.
DIRECTOR COMPENSATION. Each director who is not an employee of the Company
or any of its subsidiaries is paid an annual fee of $20,000, plus $1,000 for
each meeting of the Board of Directors or a Committee of the Board of Directors
attended. The Company also pays all transportation and lodging costs for
directors to attend meetings of the Board of Directors and its Committees. Each
of Messrs. Clark, Maxson and Smith also receives $10,000 annually plus $250 per
meeting for serving as a director of Vari-Lite, $5,000 annually plus $62.50 per
meeting for serving as a director of VLEH, $4,000 annually plus $125 per meeting
for serving as a director of Showco, $4,000 annually plus $62.50 per meeting for
serving as a director of each of Vari-Lite Europe and Theatre Projects, $3,000
annually plus $125 per meeting for serving as a director of each of Vari-Lite
Asia, Ignition and Irideon and $3,000 annually plus $62.50 per meeting for
serving as a director of Brilliant Stages.
As of July 1, 1995, the Company entered into a Deferred Compensation
Agreement ("Deferred Compensation Agreement") with each of Messrs. Brutsche,
Clark, Maxson and Smith pursuant to which each of them receives $167,000
annually for six years, payable monthly. Also, as of March 31, 1994, the
Company, Vari-Lite and Showco entered into Compensation Continuation Agreements
with each of Messrs. Brutsche, Clark and Maxson pursuant to which the Company,
Vari-Lite and Showco each agreed to continue paying for 60 days after
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<PAGE>
the death of any such individual the cash compensation that the deceased was
receiving from the companies at the time of his death.
Each of Messrs. Clark, Maxson and Smith (each a "Consultant") also has
entered into a Consulting Agreement with the Company, dated as of July 1, 1995,
providing that the Consultant will be available to provide consulting services
to the Company in consideration for the Company's payment to the Consultant of
an annual consulting fee. Pursuant to their Consulting Agreements, Messrs. Clark
and Maxson each receives an annual consulting fee of $100,000, payable monthly,
and Mr. Smith receives an annual consulting fee of $20,000, payable monthly.
Each Consulting Agreement has an initial term of three years with an automatic
extension of one year for each completed year of service by the Consultant
thereunder and may be terminated in the event of death, upon permanent
disability, for cause (as defined in the Consulting Agreement) or upon the
occurrence of a change of control (as defined in the Consulting Agreement). If a
Consulting Agreement is terminated without cause, because of permanent
disability or through an action by the Company that constitutes constructive
termination, or as a result of a change of control, the Consultant will receive
the full consulting fee he would have received through the remainder of the
three-year term.
In addition, each of Messrs. Brutsche, Clark and Maxson is eligible to
receive benefits under one or more life insurance policies (collectively
"Policies" and individually "Policy") pursuant to split-dollar agreements (the
"Split-Dollar Agreements") with the Company. The Split-Dollar Agreements each
provides for sharing the costs and benefits of the Policy between the Company
and Mr. Brutsche, Mr. Clark or Mr. Maxson, as the case may be. The Company pays
the entire premium on each Policy to the insurer. An irrevocable trust created
or an individual designated by Mr. Brutsche, Mr. Clark or Mr. Maxson, as the
case may be, who is the owner of the Policy (the "Owner") reimburses the Company
for the portion of the premium attributable to the death benefit protection of
each Policy (the "P.S. 58 Cost"). The Company pays the amount of the P.S. 58
Cost to Mr. Brutsche, Mr. Clark or Mr. Maxson, as the case may be, as additional
compensation and such person then gifts such amount to the Owner to use to
reimburse the Company. Except under certain circumstances, upon the termination
of each Split-Dollar Agreement, the Company will be reimbursed for the premiums
it has paid under the Policy that is subject to such Split-Dollar Agreement. All
of the Split-Dollar Agreements utilize the collateral assignment method to
secure the Company's right to repayment of the premiums it has paid under the
Policies. Under this method, the Owner owns the Policy, and a collateral
assignment (establishing the Company's right to such premium reimbursement from
the cash surrender value or death benefits payable under the Policies) is filed
with the insurer. The Owner has the right to designate the beneficiaries of the
Policies and may borrow and make withdrawals from the cash surrender value, to
the extent such cash surrender value exceeds the amount of premiums owed to the
Company. The Owner may cancel or surrender the Policies at any time, subject to
any applicable obligation to repay the premiums paid by the Company.
COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors has
established an Executive Committee, an Audit Committee, a Compensation Committee
and an Omnibus Committee. The Executive Committee is composed of Messrs. Clark,
Maxson and Brutsche, with Mr. Clark serving as Chairman. The Executive Committee
has the authority, between meetings of the Board of Directors, to take all
actions with respect to the management of the Company's business that require
action by the Board of Directors, except with respect to certain specified
matters that by law must be approved by the entire Board.
The Audit Committee is composed of Messrs. Clark, Prothro and Rettberg, with
Mr. Clark serving as Chairman. The Audit Committee is responsible for (a)
reviewing the scope of, and the fees for, the annual audit, (b) reviewing with
the independent auditors the Company's accounting practices and policies, (c)
reviewing with the independent auditors their final report, (d) reviewing with
internal and independent auditors overall accounting and financial controls and
(e) being available to the independent auditors for consultation purposes.
The Compensation Committee is composed of Messrs. Smith, Prothro and
Rettberg, with Mr. Rettberg serving as Chairman. With the exception of granting
awards under the Omnibus Plan and Annual Incentive Plan (as hereinafter
defined), the Compensation Committee determines the compensation of the officers
of the Company and performs other similar functions.
40
<PAGE>
The Omnibus Committee is composed of Messrs. Prothro and Rettberg, with Mr.
Rettberg serving as Chairman. The Omnibus Committee administers the Omnibus Plan
and the Annual Incentive Plan, including the determination of eligibility and
the granting of awards under such plans.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's chief
executive officer and its four other most highly compensated executive officers
and a former executive officer of the Company for services rendered for the
fiscal year ended September 30, 1996 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL 1996 ANNUAL COMPENSATION
---------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)
- ---------------------------------------------------------- --------- ----------- --------------- ----------------
<S> <C> <C> <C> <C>
H. R. Brutsche III........................................ 433,008 48,713 167,000(1) 45,259(2)
Chairman of the Board, President and Chief Executive
Officer of the Company
Keizo Akimoto............................................. 199,737(3) 19,495(3) -- 2,805(4)
Representative Director of Vari-Lite Asia
David W. Alley............................................ 154,500 11,513 -- 6,660(5)
Executive Vice President--International Operations of
Vari-Lite
James M. Bornhorst........................................ 136,299 9,449 -- 6,374(6)
Vice President and Chief Science Officer of the Company
and Vice President--Advanced Technology of Vari-Lite
T. Clay Powers............................................ 126,267 10,500 -- 6,849(7)
Vice President--Product Development and Manufacturing of
Vari-Lite
James E. Kinnu(8) ........................................ 350,016 35,002 -- --
</TABLE>
- -------
(1) This amount was paid to Mr. Brutsche pursuant to the Deferred Compensation
Agreement. See "Management--Board of Directors--Directors Compensation."
(2) This amount includes $3,292 and $20,725 which were paid on behalf of Mr.
Brutsche for the Policies pursuant to the Split-Dollar Agreements and for a
term life insurance policy, respectively, maintained on the life of Mr.
Brutsche; $13,817 which was paid to reimburse Mr. Brutsche for taxable
income incurred with respect to the premiums paid on his behalf on the term
life insurance policy; $4,620 which was contributed by the Company on behalf
of Mr. Brutsche to the Company's 401(k) plan; and $2,805 worth of Common
Stock held in the ESOP which was allocated to Mr. Brutsche. See
"Management--Employment Agreements."
(3) Calculated by applying the conversion rate of Japanese yen to U.S. dollars
based on the exchange rate in effect at the end of each month during fiscal
1996.
(4) This amount was contributed by the Company on behalf of Mr. Akimoto to the
Equivalence Plan.
(5) This amount includes $3,855 which was contributed by the Company on behalf
of Mr. Alley to the Company's 401(k) plan and $2,805 worth of Common Stock
held in the ESOP which was allocated to Mr. Alley.
(6) This amount includes $3,756 which was contributed by the Company on behalf
of Mr. Bornhorst to the Company's 401(k) plan and $2,618 worth of Common
Stock held in the ESOP which was allocated to Mr. Bornhorst.
(7) This amount includes $4,231 which was contributed by the Company on behalf
of Mr. Powers to the Company's 401(k) plan and $2,618 worth of Common Stock
held in the ESOP which was allocated to Mr. Powers.
(8) Prior to his departure from the Company, effective September 30, 1996, Mr.
Kinnu served as the Company's Senior Executive Vice President and Chief
Operating Officer.
41
<PAGE>
EMPLOYMENT AGREEMENTS
As of July 1, 1995, the Company entered into an Employment Agreement (the
"Brutsche Employment Agreement") with H. R. Brutsche III, Chairman of the Board,
President and Chief Executive Officer of the Company. The initial term of the
Brutsche Employment Agreement is for five years, with an automatic extension of
one year for each completed year of service by Mr. Brutsche thereunder. Pursuant
to the Brutsche Employment Agreement, Mr. Brutsche receives an annual salary of
$433,000, subject to annual review by the Compensation Committee, which may
increase but not reduce his annual salary, and is eligible to receive an annual
bonus, long-term incentive compensation and deferred compensation in accordance
with plans established for officers and directors of the Company. Mr. Brutsche
is also entitled to receive various life, medical and disability insurance
benefits. Mr. Brutsche may be terminated in the event of his death or permanent
disability, for cause (as defined in the Brutsche Employment Agreement) or upon
the occurrence of a change of control (as defined in the Brutsche Employment
Agreement). If Mr. Brutsche is terminated because of his death, his estate will
receive his salary through the end of the month in which his death occurs plus
the prorated portion of any bonus due to him pursuant to the Annual Incentive
Plan. If Mr. Brutsche is terminated because of his permanent disability, Mr.
Brutsche will continue to receive his base salary through the remainder of the
five-year term of the Brutsche Employment Agreement, less any disability
benefits he receives. If Mr. Brutsche is terminated without cause, through an
action by the Company that constitutes constructive termination (as defined in
the Brutsche Employment Agreement) or as the result of a change of control, the
Company is obligated to continue to pay Mr. Brutsche his base salary in effect
at the time of termination through the remainder of the five-year term. In
addition to those provided for under the Brutsche Employment Agreement, Mr.
Brutsche is eligible to receive certain other benefits. See "Management--Board
of Directors--Director Compensation."
The Company entered into an Employment Agreement (the "Kinnu Employment
Agreement") with James E. Kinnu, the former Senior Executive Vice President and
Chief Operating Officer of the Company, as of August 28, 1995. The Kinnu
Employment Agreement had an initial term of three years and provided for Mr.
Kinnu to receive an annual base salary of $350,000 and to participate in the
Company's employee benefit plans. Pursuant to the Kinnu Employment Agreement, on
September 10, 1995, Mr. Kinnu received an interest-free loan of $200,000 (the
"Kinnu Loan") for a term of three years with the principal to be forgiven in
equal amounts each month over the term of the Kinnu Employment Agreement, and
reimbursement of relocation expenses of up to $25,000. Effective September 30,
1996, Mr. Kinnu was terminated by the Company without cause. In connection with
his termination, the Company will continue to pay Mr. Kinnu as a consultant
$350,000 per year until September 30, 1998, agreed to cancel and forgive the
Kinnu Loan and acquired 37,637 shares of Common Stock in consideration for the
forgiveness and cancellation of Mr. Kinnu's $132,900 principal amount
indebtedness to the Company, which accrued interest at 8% per annum, matured on
August 31, 1998 and was incurred by Mr. Kinnu to acquire such shares of Common
Stock.
EMPLOYEE BENEFIT PLANS
OMNIBUS PLAN. In August 1996, the Company adopted the Vari-Lite
International, Inc. 1997 Omnibus Plan (the "Omnibus Plan") to attract and retain
qualified employees and non-employee directors. An aggregate of 800,000 shares
of Common Stock, subject to adjustment for stock splits, stock dividends and
certain other types of reclassifications, has been authorized for issuance upon
exercise of options or as bonus stock. In addition, stock appreciation rights
("SARs"), phantom stock, dividend equivalents or restricted or performance
awards ("Awards") may be granted under the Omnibus Plan. The Omnibus Committee
administers the Omnibus Plan and determines to whom Awards are to be granted and
the terms and conditions, including the number of shares and the period of
exercisability thereof. Awards may be granted to officers, management, other key
employees and to non-employee directors of the Company or any of its present or
future subsidiaries as determined by the Omnibus Committee, provided that any
options to be granted to non-employee directors who are members of the Omnibus
Committee must be granted by the entire Board of Directors of the Company.
The Omnibus Plan authorizes the grant or issuance of both nonqualified stock
options and incentive stock options, with the terms of each such option set
forth in separate agreements. The Omnibus Plan requires that the exercise price
for each stock option must be not less than 100% of the fair market value of the
Common Stock at
42
<PAGE>
the time the option is granted. No incentive stock option, however, may be
granted to either a non-employee director or to an employee who owns more than
10% of the total combined voting power of all classes of outstanding stock of
the Company unless the option price is at least 110% of the fair market value of
the Common Stock at the date of grant. The fair market value of stock options
that may be granted to an employee in any calendar year is not limited, but no
employee may be granted incentive stock options that first become exercisable
during a calendar year to purchase Common Stock with an aggregate fair market
value (determined at the time of grant) in excess of $100,000. In addition, no
grantee may be granted more than an aggregate of 800,000 shares of Common Stock,
subject to adjustment for stock splits, stock dividends and certain other types
of reclassifications. SARs may be granted separately or in tandem with the grant
of an option. Any performance awards may be denominated or payable in cash,
Common Stock, other securities or other Awards and shall confer on the holder
thereof the right to receive payments based upon the achievement of such
performance goals and for such periods as the Omnibus Committee may establish.
Bonus stock may be sold to the grantees at various prices (but not below par
value) and made subject to such restrictions as may be determined by the Omnibus
Committee. The Omnibus Committee may grant other Awards that provide the grantee
with the right to purchase Common Stock or that are valued by reference to the
fair market value of the Common Stock including, but not limited to, phantom
securities or dividend equivalents.
The exercise or purchase price for all options, restricted stock and other
rights to acquire Common Stock, together with any applicable tax required to be
withheld, may be paid in cash or, at the discretion of the Omnibus Committee,
with shares of Common Stock owned by the grantee (or issuable upon exercise of
the option), execution of a promissory note by the grantee or with other lawful
consideration.
The dates on which options or other Awards first become exercisable and on
which they expire will be set forth in individual stock options or other
agreements setting forth the terms of the Awards. Such agreements may provide
that options and other awards expire upon termination of the grantee's status as
an employee or director or for any other reason and may provide that such
options continue to be exercisable following the grantee's death or disability
by the grantee's estate or by the person who acquired the right to exercise the
option by bequest or inheritance, or by the grantee or his representative in the
event of the grantee's disability, provided the option is exercised prior to the
earlier of the date of its expiration or six months after the date of the
grantee's death or disability. In the event of a change of control (as defined
in the Omnibus Plan) of the Company, all Awards that have not expired will
become fully and immediately vested and exercisable and may be exercised for the
remaining term of such Awards.
No Award may be assigned or transferred by the grantee, except by will or
the laws of intestate succession, although shares of Common Stock issued under
the Omnibus Plan may be transferred if all applicable restrictions have lapsed.
Amendments of the Omnibus Plan to change the class of persons eligible to be
granted awards or increase the number of shares as to which options or bonus
stock may be granted (except for adjustments resulting from stock splits and the
like) require the approval of the Company's stockholders. In all other respects
the Omnibus Plan can be amended, modified, suspended or terminated by the
Omnibus Committee, unless such action would otherwise require stockholder
approval as a matter of applicable law, regulation or rule. Amendments of the
Omnibus Plan may not, without the consent of the grantee, affect such grantee's
rights under an Award previously granted, unless the Award itself otherwise
expressly so provides. The Omnibus Plan terminates 10 years from the date of its
adoption by the Company's Board of Directors.
Subject to and concurrently with consummation of the Offering, options to
purchase 496,000 shares of Common Stock have been granted, with an exercise
price equal to the Offering price, to directors, officers and certain key
employees of the Company, including options to purchase 75,000, 15,000, 20,000,
25,000, 25,000, 12,000, 12,000, 10,000, 4,800 and 4,800 shares of Common Stock
granted to Messrs. Brutsche, Akimoto, Alley, Bornhorst, Powers, Clark, Maxson,
Smith, Prothro and Rettberg, respectively.
ESOP. The Company adopted the Vari-Lite International, Inc. Employees'
Stock Ownership Plan (the "ESOP"), effective as of January 1, 1995, for the
benefit of its employees and the employees of its participating
43
<PAGE>
subsidiaries (the Company and its participating subsidiaries are referred to
herein as the "Employers") who are at least 21 years of age, have completed at
least one "year of service" (as defined in the ESOP) and are actively
contributing to the Company's 401(k) plan. The ESOP is intended to be an
eligible individual account stock bonus plan that qualifies under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and, subject to
certain maximum provisions, allocates the Employers' discretionary contributions
to each participating employee according to the ratio of such employee's total
compensation to the aggregate amount of compensation received by all
participants in the ESOP. The term "compensation" includes base salary paid
during a plan year and cafeteria deferrals under Section 125 of the Code, but
does not include reimbursements or other expenses, allowances, fringe benefits
(cash or non-cash), moving expenses, deferred compensation, welfare benefits,
bonuses, overtime pay or amounts deferred under a salary deferral arrangement
under Section 401(k) of the Code.
The Company intends, but is not required, to make annual contributions to
the ESOP in the form of nonelective contributions and qualified matching
contributions (as each is defined in the ESOP) consisting of shares of Common
Stock, cash or a combination thereof. The ESOP provides for full distributions
of employee account balances for normal and late retirements, disability and
death and distributions of vested portions of employee accounts upon a
separation of service (as defined in the ESOP). Generally, a participant's
benefits under the ESOP will become vested 20% per year commencing upon
completion of three years of service and be fully vested upon completion of
seven years of service.
The assets of the ESOP are held by Overton Bank and Trust, N.A., as trustee
of The Vari-Lite International, Inc. Employees' Stock Ownership Trust, which
Trust is intended to be exempt from taxation under Section 501(a) of the Code.
The Company acts as Plan Administrator of the ESOP.
EQUIVALENCE PLAN. The Company adopted The Vari-Lite International, Inc.
Employees' Stock Equivalence Plan (the "Equivalence Plan"), effective as of
January 1, 1995, for the benefit of certain employees of subsidiaries of the
Company domiciled outside of the United States who are at least 21 years of age
and have completed at least one "year of service" (as defined in the Equivalence
Plan). The Equivalence Plan is intended to be a nonqualified employee retirement
plan known as a phantom stock plan under United States tax laws. Employees
participating in the Equivalence Plan are eligible to receive stock equivalence
units ("Units") credited to their accounts along with the contractual right to
receive the cash value of such Units in the future. No shares of stock will be
distributed under the Equivalence Plan. The value of each Unit is equal to the
fair market value of one share of Common Stock on the date such Unit is credited
to a participant's account. Upon conversion of the Units in accordance with the
terms of the Equivalence Plan, participants shall be entitled to receive, for
each Unit converted, an amount equal to the fair market value of one share of
Common Stock on the date of conversion. A holder of Units shall not have any
dividend or voting rights or any other rights as a stockholder of the Company,
unless otherwise provided by the Board of Directors of the Company.
The number of Units awarded under the Equivalence Plan, if any, will be
determined each year by the Compensation Committee. The Company's awards of
Units under the Equivalence Plan shall be made, subject to certain maximum
provisions, according to the ratio of each eligible employee's total
compensation to the amount of total compensation received by all participants in
the Equivalence Plan. The Equivalence Plan provides for full distributions of
employee account balances upon the retirement, disability or death of an
employee and distributions of vested percentages of employee accounts upon
termination of employment for any other reason. Generally, a participant's
benefits under the Equivalence Plan will fully vest upon his or her completion
of seven years of service.
The Company established an irrevocable grantor trust within the meaning of
the Code (commonly referred to as a rabbi trust) to provide funding for benefit
payments from the Equivalence Plan. Although the employers' contributions to the
rabbi trust are generally irrevocable, the assets placed in the trust must
remain subject to the claims of the employers' creditors. The rabbi trust
provides the participants in the Equivalence Plan with additional security that
they will receive benefits in the event of a change in the management of the
Company.
44
<PAGE>
The assets of the Equivalence Plan are held by Bank of Butterfield
International (Cayman) Ltd., as trustee of The Vari-Lite International, Inc.
Equivalence Plan Trust, and the Company acts as Plan Administrator.
ANNUAL INCENTIVE PLAN. On June 13, 1995, the Company adopted the Vari-Lite
International, Inc. Annual Incentive Plan (the "Annual Incentive Plan"),
effective October 1, 1994, to provide annual bonuses to eligible employees. Any
employee who is employed by the Company or one of its subsidiaries on March 31
of a year shall be considered an eligible employee for that year. Bonus amounts
for a year may be granted based on predetermined targets ("formula derived
awards") or in the discretion of the Omnibus Committee ("discretionary awards"),
or a combination of both. The targets for each year are established by the
Omnibus Committee and may be based solely on the Company's attaining its
operating income goal for that year (as established by the Omnibus Committee) or
may be based in part on the level of attainment by the Company of that operating
income goal and in part on the level of attainment of performance measures
established by the Omnibus Committee for that year based on subsidiary,
department or individual performance, or a combination thereof as determined by
the Omnibus Committee. The relative weight placed on each performance measure by
the Omnibus Committee may vary for each eligible employee based on his position
with the Company, or its subsidiaries or departments. Each year each eligible
employee shall have the opportunity to earn a specified percentage of his base
salary (excluding any bonus, commission or overtime) for that year as a formula
derived award. The range of percentage of base salary that a participant may
earn as a formula derived award is specified in the Annual Incentive Plan and is
determined by each eligible employee's level of responsibility and potential
impact on the Company's performance. No eligible employee shall be deemed to
have earned a formula derived award for a year unless the Company attains the
threshold level (specified in the Annual Incentive Plan) of operating income
established for that year, although the Company expects to modify this
restriction in the future. Discretionary awards are not limited.
The Company shall make payment of all bonus amounts for a year, if any, to
each eligible employee in cash no later than 90 days after the end of that year
(the "Payout Date"). Unless an eligible employee's employment terminates due to
death, total disability or retirement at or after age 65 during the year after
he has been employed for at least six months during that year, the employee must
be employed by the Company or one of its subsidiaries on the Payout Date for a
year to be entitled to receive payment of his bonus, if any, for that year. If
an eligible employee becomes eligible after the first day of the year or dies,
retires at or after age 65 or becomes totally disabled during the year, after
being employed by the Company for at least six months during that year, the
bonus amount, if any, payable to him for that year shall be prorated to reflect
the actual length of his service with the Company and its subsidiaries during
that year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At the beginning the fiscal year ended September 30, 1996, the Compensation
Committee of the Company consisted of Messrs. Maxson, Clark and Brutsche. Mr.
Brutsche is the Chairman of the Board, President and Chief Executive Officer of
the Company. In May 1996, Messrs. Smith, Prothro and Rettberg replaced Messrs.
Maxson, Clark and Brutsche on the Compensation Committee.
As of July 1, 1995, the Company entered into the Brutsche Employment
Agreement with Mr. Brutsche, Chairman of the Board, President and Chief
Executive Officer of the Company. The initial term of the Brutsche Employment
Agreement is for five years, with an automatic extension of one year for each
completed year of service by Mr. Brutsche thereunder. Pursuant to the Brutsche
Employment Agreement, Mr. Brutsche receives an annual salary of $433,000,
subject to annual review by the Compensation Committee, which may increase but
not reduce his annual salary, and is eligible to receive an annual bonus,
long-term incentive compensation and deferred compensation in accordance with
plans established for officers and directors of the Company. Mr. Brutsche is
also entitled to receive various life, medical and disability insurance
benefits. Mr. Brutsche may be terminated in the event of his death or permanent
disability, for cause (as defined in the Brutsche Employment Agreement) or upon
the occurrence of a change of control (as defined in the Brutsche Employment
Agreement). If Mr. Brutsche is terminated because of his death, his estate will
receive his salary through the end of the month in which his death occurs plus
the prorated portion of any bonus due to him pursuant to the Annual
45
<PAGE>
Incentive Plan. If Mr. Brutsche is terminated because of his permanent
disability, Mr. Brutsche will continue to receive his base salary through the
remainder of the five-year term of the Brutsche Employment Agreement, less any
disability benefits. If Mr. Brutsche is terminated without cause, through an
action by the Company that constitutes constructive termination (as defined in
the Brutsche Employment Agreement) or as the result of a change of control, the
Company is obligated to continue to pay Mr. Brutsche his base salary in effect
at the time of termination through the remainder of the five-year term.
As of July 1, 1995, the Company entered into the Deferred Compensation
Agreements with each of Messrs. Brutsche, Clark, Maxson and Smith pursuant to
which each of them receives $167,000 annually for six years, payable monthly.
Also, as of March 31, 1994, the Company, Vari-Lite and Showco entered into
Compensation Continuation Agreements with Messrs. Brutsche, Clark and Maxson
pursuant to which the Company, Vari-Lite and Showco each agreed to continue
paying for 60 days after the death of any such individual the cash compensation
that the deceased was receiving from the companies at the time of his death.
Messrs. Clark, Maxson and Smith also have entered into the Consulting
Agreements with the Company, dated as of July 1, 1995, providing that the
Consultant will be available to provide consulting services to the Company in
consideration for the Company's payment to the Consultant of an annual
consulting fee. Pursuant to their Consulting Agreements, Messrs. Clark and
Maxson each receives an annual consulting fee of $100,000, payable monthly, and
Mr. Smith receives an annual consulting fee of $20,000, payable monthly. Each
Consulting Agreement has an initial term of three years with an automatic
extension of one year for each completed year of service by the Consultant
thereunder and may be terminated in the event of death, upon permanent
disability, for cause (as defined in the Consulting Agreement) or upon the
occurrence of a change of control (as defined in the Consulting Agreement). If a
Consulting Agreement is terminated without cause, because of permanent
disability or through an action by the Company that constitutes constructive
termination, or as a result of a change of control, the Consultant will receive
the full consulting fee he would have received through the remainder of the
three-year term.
In addition, each of Messrs. Brutsche, Clark and Maxson is eligible to
receive benefits under one or more Policies pursuant to Split-Dollar Agreements
with the Company. The Split-Dollar Agreements each provides for sharing the
costs and benefits of the Policy between the Company and Mr. Brutsche, Mr. Clark
or Mr. Maxson, as the case may be. The Company pays the entire premium on each
Policy to the insurer. The Owner reimburses the Company for the P.S. 58 Cost.
The Company pays the amount of the P.S. 58 Cost to Mr. Brutsche, Mr. Clark or
Mr. Maxson, as the case may be, as additional compensation and such person then
gifts such amount to the Owner to use to reimburse the Company. Except under
certain circumstances, upon the termination of each Split-Dollar Agreement, the
Company will be reimbursed for the premiums it has paid under the Policy that is
subject to such Split-Dollar Agreement. All of the Split-Dollar Agreements
utilize the collateral assignment method to secure the Company's right to
repayment of the premiums it has paid under the Policies. Under this method, the
Owner owns the Policy, and a collateral assignment (establishing the Company's
right to such premium reimbursement from the cash surrender value or death
benefits payable under the Policies) is filed with the insurer. The Owner has
the right to designate the beneficiaries of the Policies and may borrow and make
withdrawals from the cash surrender value, to the extent such cash surrender
value exceeds the amount of premiums owed to the Company. The Owner may cancel
or surrender the Policies at any time, subject to any applicable obligation to
repay the premiums paid by the Company.
CERTAIN TRANSACTIONS
In fiscal years 1994, 1995 and 1996 and the nine-month period ended June 30,
1997, Philip D.C. Collins, who beneficially owns more than five percent of the
Common Stock of the Company, paid the Company, $1.5 million, $0.9 million, $0
and $1.9 million, respectively, for the rental of automated lighting products
and other services for use in his concert tours. Hit & Run Music Limited, a
corporation owned by J. Anthony Smith, manages Mr. Collins. The Company believes
that the terms of the above transactions were at least as favorable to the
Company as those which could have been obtained in an arm's length transaction
with an unaffiliated third party. In addition, certain directors of the Company
receive deferred compensation and consulting payments. See
"Management--Compensation Committee Interlocks and Inside Participation."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of Common Stock, as of September 15, 1997, by (a) each person known by
the Company to own beneficially more than 5% of the outstanding Common Stock,
(b) each director of the Company, (c) each Named Executive Officer and (d) all
executive officers and directors as a group. The Company believes that each of
such stockholders has the sole voting and dispositive power over the shares held
by such stockholder except as otherwise indicated. See "Risk Factors--Control of
the Company by Existing Stockholders."
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF OUTSTANDING
BENEFICIALLY OWNED COMMON STOCK
BEFORE --------------------------------------
NAME THE OFFERING BEFORE OFFERING AFTER OFFERING(1)
- ------------------------------------------------------ ------------------------ ----------------- -------------------
<S> <C> <C> <C>
H. R. Brutsche III(2)................................. 743,997 12.8 9.5
James H. Clark, Jr.(3)(4)............................. 650,699 11.2 8.3
John D. Maxson(3)(5).................................. 743,187 12.8 9.5
C. Vincent Prothro.................................... -- -- --
John R. Rettberg...................................... -- -- --
J. Anthony Smith(6)................................... 811,540 14.0 10.4
Anthony G. Banks(6)................................... 811,532 14.0 10.4
Philip D.C. Collins(6)................................ 811,536 14.0 10.4
Michael J.C.C. Rutherford(6).......................... 811,532 14.0 10.4
Alice Spradley(7)..................................... 455,402 7.9 5.8
Keizo Akimoto......................................... -- -- --
David W. Alley(8)..................................... 38,447 * *
James M. Bornhorst(9)................................. 221,636 3.8 2.8
T. Clay Powers(10).................................... 10,740 * *
James E. Kinnu(11).................................... -- -- --
All officers and directors as a group (18
persons)(12)........................................ 3,335,623 57.5 42.8
</TABLE>
- --------
* less than one percent
(1) Assumes no shares are sold pursuant to any exercise of the Underwriters'
over-allotment option. See "Selling Stockholders."
(2) Includes 45,164 shares held by Brutsche Family Trust, a trust of which BBH
serves as trustee, and 810 shares held by the ESOP for the benefit of Mr.
Brutsche. Mr. Brutsche disclaims beneficial ownership of the shares held by
Brutsche Family Trust. Mr. Brutsche's address is 201 Regal Row, Dallas,
Texas 75247.
(3) The address of Messrs. Clark and Maxson is 8117 Preston Road, Suite 220,
Dallas, Texas 75225.
(4) Includes 621,801 shares held by Clark Partnership, Ltd., a limited
partnership of which Mr. Clark is the managing general partner, and 3,764
shares held by Mr. Clark's wife. Mr. Clark disclaims beneficial ownership of
the shares owned by his wife.
(5) Includes 53,542 shares held by Peggy Maxson 1996 Irrevocable Trust, a trust
of which BBH serves as trustee. Mr. Maxson disclaims beneficial ownership of
such shares.
(6) The shares beneficially owned by Messrs. Banks, Collins, Rutherford and
Smith include 414,336 shares, 414,336 shares, 414,336 shares and 414,340
shares held by Walbrook Trustees (Jersey) Ltd., Re: G45 ("G45"), Walbrook
Trustees (Jersey) Ltd., Re: G46 ("G46"), Walbrook Trustees (Jersey) Ltd.,
Re: G47 ("G47") and Walbrook Trustees (Jersey) Ltd., Re: G48 ("G48"),
respectively. G45, G46, G47 and G48 are the stockholders of Ashtray Music
Ltd., a United Kingdom limited company. The 318,787 shares held by Ashtray
Music Ltd. are included in the shares owned beneficially by each of Messrs.
Banks, Collins, Rutherford and Smith. Except for 78,409 shares, 78,413
shares, 78,409 shares and 78,413 shares, which are owned by Messrs. Banks,
Collins, Rutherford and Smith, respectively, Messrs. Banks, Collins,
Rutherford and Smith disclaim beneficial ownership of all such shares.
(7) Includes 56,192 shares held by The Walter & Alice Spradley Family Trust,
203,243 shares held by The Walter & Alice Spradley Living Trust--Marital
Trust #1, 56,192 shares held by The Walter & Alice Spradley Living
Trust--Marital Trust #2A and 139,775 shares held by The Walter & Alice
Spradley Living Trust--Marital Trust #2B. Alice Spradley is the trustee of
all of such trusts. Mrs. Spradley's address is 3131 McKinney Avenue, Suite
490, Dallas, Texas 75204.
(8) Includes 810 shares held by the ESOP for the benefit of Mr. Alley.
(9) Includes 693 shares held by the ESOP for the benefit of Mr. Bornhorst.
(10) Includes 650 shares held by the ESOP for the benefit of Mr. Powers.
(11) Effective September 30, 1996, Mr. Kinnu was terminated as the Company's
Senior Executive Vice President and Chief Operating Officer.
(12) Includes 5,912 shares held by the ESOP for the benefit of some of such
persons.
47
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders listed in the following table have granted to the
several Underwriters options, exercisable within 45 days from the date of this
Prospectus, to purchase up to 300,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." The respective number of shares of
Common Stock subject to such options by each Selling Stockholder is set forth
opposite his name. The amount beneficially owned by the Selling Stockholders
prior to the Offering are as of September 15, 1997:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE SHARES OFFERED OWNED AFTER THE
OFFERING SUBJECT TO OFFERING(1)
---------------------- OVER-ALLOTMENT ----------------------
NAME NUMBER PERCENTAGE OPTIONS NUMBER PERCENTAGE
- ---------------------------------------------------------------- --------- ----------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C>
David W. Alley(2)(3)............................................ 38,447 * 1,976 36,471 *
Ashtray Music Ltd.(4)........................................... 318,787 5.5 26,728 292,059 3.7
Anthony G. Banks(4)............................................. 811,532 14.0 4,116 758,936 9.7
H.R. Brutsche III(2)(5)......................................... 743,997 12.8 39,972 704,025 9.0
Clark Partnership, Ltd.(6)...................................... 621,801 10.7 34,412 587,389 7.5
James H. Clark, Jr.(2)(6)(7).................................... 650,699 11.2 1,319 614,968 7.9
James H. Cullum Clark(7)........................................ 73,670 1.3 3,867 69,803 *
Philip D.C. Collins(4)(8)....................................... 811,536 14.0 4,116 758,940 9.7
John Covington(9)(10)........................................... 80,514 1.4 4,205 76,309 *
Brian L. Croft(2)............................................... 9,409 * 409 9,000 *
Robert V. Dungan(2)(11)......................................... 9,833 * 494 9,339 *
Robert W. Magruder(9)(12)....................................... 28,249 * 1,457 26,792 *
John D. Maxson(2)(13)........................................... 743,187 12.8 39,536 700,840 9.0
Peggy Maxson 1996 Irrevocable Trust(13)......................... 53,542 * 2,811 50,731 *
Howard Page(9)(14).............................................. 4,163 * 198 3,965 *
Michael J.C.C. Rutherford(4).................................... 811,532 14.0 4,116 758,936 9.7
J. Anthony Smith(2)(4)(8)....................................... 811,540 14.0 4,116 758,944 9.7
The Walter & Alice Spradley Living Trust--Marital Trust #1...... 203,243 3.5 26,476 176,767 2.2
Brooks W. Taylor(9)(15)......................................... 80,538 1.4 4,205 76,333 *
J. Scott Thompson(2)(16)........................................ 37,635 * 1,708 35,927 *
Thomas Walsh(9)(17)............................................. 80,552 1.4 4,205 76,347 *
Walbrook Trustees (Jersey) Ltd., Re: G45(4)..................... 733,123 12.6 21,752 684,643 8.8
Walbrook Trustees (Jersey) Ltd., Re: G46(4)..................... 733,123 12.6 21,752 684,643 8.8
Walbrook Trustees (Jersey) Ltd., Re: G47(4)..................... 733,123 12.6 21,752 684,643 8.8
Walbrook Trustees (Jersey) Ltd., Re: G48(4)..................... 733,127 12.6 21,752 684,647 8.8
Yale 1994 Trust................................................. 18,818 * 2,550 16,268 *
</TABLE>
- --------
* less than one percent.
(1) Assumes that the Underwriters' over-allotment option is exercised in full.
(2) Executive officer or director of the Company. See "Management--Directors and
Executive Officers."
(3) Includes 810 shares held by the ESOP for the benefit of Mr. Alley.
(4) The shares beneficially owned by Messrs. Banks, Collins, Rutherford and
Smith include 414,336 shares, 414,336 shares, 414,336 shares and 414,340
shares held by G45, G46, G47 and G48, respectively. G45, G46, G47 and G48
are the stockholders of Ashtray Music Ltd., a United Kingdom limited
company. The 318,787 shares held by Ashtray Music Ltd. are included in the
shares owned beneficially by each of Messrs. Banks, Collins, Rutherford and
Smith. Except for 78,409 shares, 78,413 shares, 78,409 shares and 78,413
shares, which are owned by Messrs. Banks, Collins, Rutherford and Smith,
respectively, Messrs. Banks, Collins, Rutherford and Smith disclaim
beneficial ownership of all such shares.
(5) Includes 45,164 shares held by Brutsche Family Trust, a trust of which BBH
serves as trustee, and 810 shares held by the ESOP for the benefit of Mr.
Brutsche. Mr. Brutsche disclaims beneficial ownership of such shares.
(6) The shares beneficially owned by Mr. Clark include 621,801 shares held by
Clark Partnership, Ltd., a limited partnership of which Mr. Clark is the
managing general partner, and 3,764 shares held by Mr. Clark's wife. Mr.
Clark disclaims beneficial ownership of the shares held by his wife.
(7) Mr. James H. Clark, Jr. is the father of Mr. James H. Cullum Clark.
(8) Mr. Collins is a significant customer of the Company and Mr. Smith owns the
corporation that manages Mr. Collins. See "Management--Certain
Transactions."
(9) Non-executive officer employee of the Company.
(10) Includes 419 shares held by the ESOP for the benefit of Mr. Covington.
(11) Includes 424 shares held by the ESOP for the benefit of Mr. Dungan.
(12) Includes 503 shares held by the ESOP for the benefit of Mr. Magruder.
(13) The shares of Common Stock held by Peggy Maxson 1996 Irrevocable Trust are
beneficially owned by Mr. Maxson, who disclaims beneficial ownership of such
shares.
(14) Includes 399 shares held by the ESOP for the benefit of Mr. Page.
(15) Includes 443 shares held by the ESOP for the benefit of Mr. Taylor.
(16) Includes 480 shares held by the ESOP for the benefit of Mr. Thompson.
(17) Includes 457 shares held by the ESOP for the benefit of Mr. Walsh.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company has authorized capital stock consisting of 40,000,000 shares of
Common Stock, $0.10 par value, and 10,000,000 shares of Preferred Stock, $0.10
par value. At September 15, 1997, there were 5,800,003 shares of Common Stock
outstanding, owned by 54 holders of record, and there were no shares of
Preferred Stock outstanding. A total of 800,000 shares of Common Stock are
reserved for future issuance under, and for issuance upon the exercise of
options to be granted under the Omnibus Plan, and a total of 242,233 shares of
Common Stock are reserved for issuance upon the exercise of outstanding
warrants. See "Management--Omnibus Plan" and "Shares Eligible for Future Sale."
Upon consummation of the Offering, 7,800,003 shares of Common Stock and no
shares of Preferred Stock will be outstanding.
COMMON STOCK
All outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby when issued and paid for will be, fully paid and nonassessable.
All holders of Common Stock have full voting rights and are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. Votes may not be cumulated in the election of directors.
Stockholders have no preemptive or subscription rights. Holders of Common Stock
are entitled to dividends when, as and if declared by the Board of Directors
from funds legally available therefor and are entitled, upon liquidation, to
share ratably in all assets remaining after payment of liabilities. The rights
of holders of Common Stock will be subject to any preferential rights of any
Preferred Stock which may be issued in the future.
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
PREFERRED STOCK
The Board of Directors of the Company is authorized (without any further
action by the stockholders) to issue Preferred Stock in one or more series and
to fix voting rights, liquidation preferences, dividend rates, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences. The Board of Directors may issue Preferred
Stock for such consideration and on such terms as it deems desirable.
Satisfaction of any dividend preferences of outstanding Preferred Stock would
reduce the amount of funds available for the payment of dividends on Common
Stock. Also, holders of Preferred Stock would normally be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding-up of
the Company before any payment is made to the holders of Common Stock. In
addition, under certain circumstances, the issuance of Preferred Stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management. The Board of Directors of the
Company, without stockholder approval, may issue Preferred Stock with voting and
conversion rights which could adversely affect the holders of Common Stock. The
Company has no present intention to issue any shares of Preferred Stock.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
ANTI-TAKEOVER PROVISIONS. The Certificate of Incorporation and By-Laws
contain certain provisions, in addition to the authorization of the Preferred
Stock, that may reduce the likelihood of a change in management or voting
control of the Company without the consent of the Company's Board of Directors.
These provisions could have the effect of delaying, deterring or preventing
tender offers or takeover attempts that some or a majority of the Company's
stockholders might consider to be in the stockholders' best interest, including
offers or attempts that might result in a premium over the market price for the
Common Stock. The By-Laws of the Company can be amended by the stockholders of
the Company only upon the affirmative vote of the holders of not less than 80%
of the outstanding voting stock of the Company. Additionally, in the event of a
change of control (as defined in the Omnibus Plan) of the Company, all awards
under the Omnibus Plan that have not expired become fully and immediately vested
and exercisable and may be exercised for the remaining terms of such awards.
49
<PAGE>
STAGGERED BOARD OF DIRECTORS. The Certificate of Incorporation and
By-Laws divide the Board of Directors into three classes that are elected to
staggered three-year terms. The Company believes that a staggered Board of
Directors will help assure the continuity and stability of the Company's
Board of Directors and the Company's business strategies and policies. In
addition, the staggered board provisions help ensure that the Company's
Board of Directors, if confronted with an unsolicited proposal from a third
party that has acquired a block of the voting stock of the Company, will
have sufficient time to review the proposal and appropriate alternatives and
to seek the best available result for all stockholders. The staggered board
provisions could increase the likelihood that, in the event of a takeover of
the Company, incumbent directors would retain their positions. The
affirmative vote of holders of at least 80% of the Company's outstanding
voting stock is required to amend these provisions.
REMOVAL OF DIRECTORS DURING THEIR TERMS. Under the Certificate of
Incorporation and By-Laws, directors may be removed during their term of
service only "for cause" and only by the affirmative vote of not less than
80% of the outstanding voting stock of the Company. As defined, "for cause"
means: (i) commission of an act of fraud or embezzlement against the
Company; (ii) conviction of a felony or a crime involving moral turpitude;
(iii) gross negligence or willful misconduct in performing the director's
duties to the Company or its stockholders; or (iv) breach of fiduciary duty
owed to the Company. The By-Laws also provide that vacant directorships may
be filled by the Board of Directors.
STOCKHOLDER ACTION. Unless limited by the Certificate of Incorporation
of a corporation, the Delaware General Corporation Law permits stockholder
action without a meeting, without prior notice and without a vote upon the
written consent of the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were
present and voted. The Certificate of Incorporation and By-Laws prohibit
stockholder action without a meeting. The affirmative vote of holders of at
least 80% of the Company's outstanding voting stock is required to amend
these provisions. Additionally, the Certificate of Incorporation and By-Laws
provide that meetings of the stockholders can only be called by the Chief
Executive Officer, a majority of the Board of Directors or holders of not
less than 50% of the outstanding voting stock of the Company.
FAIR PRICE PROVISION. The Certificate of Incorporation includes a "fair
price" provision that requires the affirmative vote of the holders of at
least 80% of the outstanding voting stock of the Company to approve a merger
with, or disposition of assets or the issuance of securities having a fair
market value of $5.0 million or more to, an interested stockholder (as
hereinafter defined), a liquidation proposed by an interested stockholder or
the reclassification of the Company's securities or a similar transaction
that increases the interested stockholder's proportionate ownership in the
Company. An "interested stockholder" is anyone who owns or controls,
directly, indirectly or together with others, 10% or more of the Company's
voting stock. A transaction with an interested stockholder will not require
stockholder approval if a majority of disinterested directors (as defined in
the Certificate of Incorporation) approves the transaction or if the
transaction involves the distribution to the stockholders of cash or other
consideration that satisfies the "fair price" criteria set forth in the
Certificate of Incorporation, which generally require that all stockholders
receive equal treatment, an adequate price and adequate disclosure. The fair
price provision of the Certificate of Incorporation may not be amended
without the affirmative vote of at least 80% of the Company's outstanding
voting stock. In addition, Section 203 of the Delaware General Corporation
Law, much like the fair price provision described above, limits the ability
of a corporation to enter into certain business combinations with an
"interested stockholder" (generally defined as a person owning 15% or more
of a corporation's outstanding voting stock) unless certain conditions are
met. The Certificate of Incorporation, however, includes a provision
electing not to be governed by Section 203.
EVALUATION FACTORS. The Certificate of Incorporation contains a
provision that allows the Board of Directors to evaluate factors other than
the price offered when considering a proposed acquisition of the Company.
The Certificate of Incorporation permits the Board of Directors to consider
the social, legal and
50
<PAGE>
economic effects of the proposed acquisition upon the Company's employees,
suppliers, customers and the communities in which the Company operates. The
Board of Directors can also consider any other factors it deems relevant,
including not only the consideration offered in the proposed transaction
relative to the market price of the Common Stock but also the value of the
Company in a freely negotiated transaction and in relation to the estimate
by the Board of Directors of the future value of the Company as an
independent entity. The affirmative vote of the holders of not less than 80%
of the outstanding voting stock of the Company is required to amend this
provision.
STOCKHOLDER PROPOSALS AND NOMINATIONS. The Company's By-Laws provide
that notice of proposed stockholder nominations for the election of
directors must be given in writing to the Secretary of the Company at the
principal executive offices of the Company not less than 75 days nor more
than 85 days prior to the meeting at which directors are to be elected (or
if fewer than 75 days' notice or prior public disclosure of the
stockholders' meeting date is given or made by the Company, not later than
the 10th day following the day on which the notice was mailed or such public
disclosure was made). The By-Laws also provide that at an annual
stockholders' meeting, and subject to any other applicable requirements,
only such business may be conducted as has been brought before the meeting
by, or at the direction of, the Board of Directors or by a stockholder who
has given timely prior written notice to the Secretary of the Company of
such stockholder's intention to bring such business before the meeting. For
such stockholder's notice to be timely, it must be delivered to or mailed
and received at the principal executive offices of the Company not later
than the date that corresponds to 120 days prior to the date the Company's
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders. Such notice must contain certain
information specified in the By-Laws.
LIMITATIONS ON LIABILITY OF DIRECTORS. The Certificate of Incorporation
limits the liability of directors to the extent allowed by the Delaware General
Corporation Law. Specifically, directors will not be held liable to the Company
or its stockholders for an act or omission in such capacity as a director,
except for liability as a result of: (i) a breach of the duty of loyalty to the
Company or its stockholders; (ii) actions or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii)
payment of an improper dividend or improper repurchase of the Company's stock
under Section 174 of the Delaware General Corporation Law; or (iv) actions or
omissions pursuant to which the director will receive an improper personal
benefit.
The principal effect of the limitation of liability provision is that a
stockholder is unable to prosecute an action for monetary damages against a
director of the Company unless the stockholder can demonstrate one of the
specified bases for liability. This provision, however, does not eliminate or
limit director liability arising in connection with causes of action brought
under the federal securities laws.
The Certificate of Incorporation does not eliminate the directors' duty of
care. The inclusion of this provision in the Certificate of Incorporation may,
however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an
action, if successful, might otherwise benefit the Company and its stockholders.
This provision should not affect the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the duty of care. The
affirmative vote of the holders of not less than 80% of the outstanding voting
stock of the Company is required to amend this provision.
INDEMNIFICATION. The Certificate of Incorporation and By-Laws provide that
the Company is generally required to indemnify its directors and officers for
all judgments, fines, settlements, legal fees and other expenses incurred in
connection with pending or threatened legal proceedings because of the
director's or officer's position with the Company or another entity that the
director or officer serves at the Company's request, subject to certain
conditions, and to advance funds to its directors and officers to enable them to
defend against such proceedings. To receive indemnification, the director or
officer must have been successful in the legal proceeding or acted in good faith
and in what was reasonably believed to be a lawful manner and in the Company's
best interest. The affirmative vote of the holders of not less than 80% of the
outstanding voting stock of the Company is required to amend this provision.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the current stockholders of the Company
will own approximately 74% of the outstanding Common Stock (71% if the
Underwriters' over-allotment option is exercised in full). The Company and
certain stockholders who will collectively own shares of Common Stock
immediately following the Offering, and holders of warrants who will
collectively have the right immediately following the Offering to purchase
242,233 shares of Common Stock, have agreed with A.G. Edwards & Sons, Inc. not
to sell, grant any option to sell, transfer or otherwise dispose of, directly or
indirectly, any shares of Common Stock for a period of 180 days following the
date of this Prospectus without the prior written consent of A.G. Edwards &
Sons, Inc. See "Underwriting."
Upon completion of the Offering, the Company will have 7,800,003 shares of
Common Stock outstanding. Of these shares, the 2,000,000 shares sold in the
Offering (2,300,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable in the public market without
restriction by persons other than affiliates of the Company. All of the
remaining shares are "restricted securities" within the meaning of Rule 144
under the Securities Act. Approximately 5,696,592 of such shares will have been
held for more than one year as of the date of this Prospectus and (subject to
the expiration or release from the 180-day lock-up agreements with A.G. Edwards
& Sons, Inc.) may be sold 90 days after the Company has been subject to the
reporting requirements of Section 13 of the Exchange Act, subject to the volume,
manner of sale and other limitations of Rule 144. See "Underwriting."
In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed between the later of the date on which "restricted shares"
(as that phrase is defined in Rule 144) were acquired from the Company and the
date on which they were acquired from an "affiliate" of the Company (as that
term is defined in Rule 144), then the holder of such restricted shares
(including an affiliate) is entitled to sell within any three-month period a
number of shares of Common Stock that does not exceed the greater of (a) 1% of
the then-outstanding shares of Common Stock (78,000 shares upon completion of
the Offering), and (b) the average weekly reported trading volume in the Common
Stock during the four calendar weeks preceding such sale. Sales under Rule 144
also are subject to certain notice and manner-of-sale requirements and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not an affiliate of the Company (in
general, a person who is not a director, officer or principal stockholder of the
Company) during the three months prior to resale and who has beneficially owned
such shares for at least two years is entitled to sell such restricted stock
under Rule 144 without regard to the requirements discussed above, other than
the manner-of-sale provisions.
The Company is unable to estimate the number of shares that may be sold in
the future by its stockholders since this will depend on the market price for
the Common Stock, the personal circumstances of the stockholders and other
factors. Any sale of substantial amounts of shares in the open market may
significantly reduce the market price of the Common Stock offered hereby.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act may be
relied upon with respect to the resale of shares of Common Stock originally
purchased from the Company by its employees, directors and officers prior to the
date the Company becomes subject to the reporting requirements of the Exchange
Act pursuant to written compensatory benefit plans or written contracts relating
to the compensation of such persons. Shares of Common Stock issued in reliance
on Rule 701 are "restricted shares" and, beginning 90 days after the Company
becomes subject to the reporting requirements of the Exchange Act, may be sold
by persons other than affiliates, subject to the provisions regarding
manner-of-sale under Rule 144, and by affiliates under Rule 144 without
compliance with its one-year minimum holding period requirements.
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all of the shares of Common Stock issued or reserved
for future issuance under the Omnibus Plan and the ESOP. After the effective
date of such registration statements, shares owned pursuant to grants of Awards
under the Omnibus Plan or issued pursuant to the ESOP will be available for
resale in the public market without restriction by
52
<PAGE>
persons who are not affiliates of the Company, and to the extent they are held
by affiliates, pursuant to Rule 144, without observance of the holding period
requirements. Effective with the consummation of the Offering, options to
purchase a total of 496,000 shares of Common Stock will be granted under the
Omnibus Plan, none of which will be exercisable in less than one year from the
date of grant, and 42,944 shares will be owned by the ESOP. See "Risk
Factors--Control of the Company by Existing Stockholders," "Management--Employee
Benefit Plans--Omnibus Plan," "Management--Employee Benefits Plans--ESOP" and
"Management-- Employee Benefits Plans--Equivalence Plan."
In connection with an amendment to the Credit Agreement on July 31, 1996,
the Company issued to certain members of its bank syndicate warrants to purchase
an aggregate of 242,233 shares of Common Stock at an exercise price of $11.53
per share, all of which will remain outstanding after consummation of the
Offering. The outstanding warrants can be exercised at any time and the
underlying shares can be sold either pursuant to demand registration rights
which are exercisable on the first anniversary of the consummation of the
Offering and thereafter on an annual basis through December 31, 2004, or
pursuant to piggyback registration rights which are exercisable at any time.
UNDERWRITING
The Underwriters named below have severally agreed with the Company subject
to the terms and conditions of the Underwriting Agreement, to purchase the
respective numbers of shares of Common Stock set forth opposite their names
below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
A.G. Edwards & Sons, Inc..........................................................
EVEREN Securities, Inc............................................................
----------
Total........................................................................... 2,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock, if any are purchased.
The Company has been advised by A.G. Edwards & Sons, Inc. and EVEREN
Securities, Inc., the Representatives of the several Underwriters (the
"Representatives"), that the Underwriters propose to offer the Common Stock to
the public at the Offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of $
per share and that the Underwriters and such dealers may reallow a discount of
not in excess of $ per share to other dealers. The Offering price and the
concession and discount to dealers may be changed by the Underwriters after the
Offering.
53
<PAGE>
In the Underwriting Agreement, the Selling Stockholders have granted the
Underwriters options, expiring at the close of business on the 45th day
subsequent to the date of this Prospectus, to purchase up to an aggregate of
300,000 additional shares of Common Stock at the Offering price, less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriters may exercise such options solely to cover over-allotments, if any,
in the sale of the shares. To the extent the Underwriters exercise such options,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of the option shares
as the number of shares to be purchased by it shown in the table above bears to
2,000,000, and the Selling Stockholders will be obligated, pursuant to the
options, to sell such shares to the Underwriters for which they will receive all
of the proceeds.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act. The liability of each Selling Stockholder under this indemnity
is limited to the amount of his proceeds.
The Company and certain stockholders who collectively will own 5,778,111
shares of Common Stock immediately following the Offering, and holders of
warrants who will collectively have the right immediately following the Offering
to purchase 242,233 shares of Common Stock, have agreed that they will not,
directly or indirectly, offer, sell or otherwise dispose of any shares of Common
Stock, other than the shares offered pursuant to this Prospectus, for a period
of 180 days from the date of this Prospectus without the prior written consent
of A.G. Edwards & Sons, Inc. See "Shares Eligible for Future Sale."
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
300,000 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, A.G. Edwards & Sons, Inc., on behalf of
the Underwriters, may impose "penalty bids" under contractual arrangements with
the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of the other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if it is undertaken, it may be discontinued
at any time.
The Representatives has informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to the Offering, there has been no public market for the Common Stock.
The Offering price for the Common Stock was determined by negotiation between
the Company and the Representatives. Among the factors considered in determining
the Offering price was the history of and the prospects for the Company and the
industry in which it operates, the past and present operating results of the
Company and the trends of such results, the future prospects of the Company, an
assessment of the Company's management, the general condition for the securities
markets at the time of the Offering and the prices for similar securities of
comparable companies.
54
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock covered by this
Prospectus will be passed upon for the Company by Gardere & Wynne, L.L.P.,
Dallas, Texas. Certain legal matters pertaining to the Common Stock will be
passed upon for the Underwriters by Vinson & Elkins L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company as of September 30,
1995 and 1996 and for each of the three years in the period ended September 30,
1996, and as of June 30, 1997 and for the nine months in the period then ended,
included in this Prospectus and the Registration Statement have been audited by
Deloitte & Touche LLP, independent certified public accountants, as stated in
their report thereon appearing herein, and have been so included in reliance
upon the report of such firm given upon the authority of that firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which is part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. For further information
concerning the Company and the Common Stock, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith, copies
of which may be inspected at the Commission's principal office, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, or copies of which may be
obtained from the Commission at such office upon payment of the fees prescribed
by the Commission or on the Internet at HTTP://WWW.SEC.GOV. The summaries in
this Prospectus of additional information included in the Registration Statement
or any exhibit thereto are qualified in their entirety by reference to such
information or exhibit filed with the Commission.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of September 30, 1995 and 1996, and June 30, 1997...... F-3
Consolidated Statements of Income for the Years Ended September 30, 1994, 1995 and
1996, and for the Nine Months Ended June 30, 1996 (unaudited) and 1997.............. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended September 30,
1994, 1995 and 1996, and for the Nine Months Ended June 30, 1997.................... F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 1994, 1995 and
1996, and for the Nine Months Ended June 30, 1996 (unaudited) and 1997.............. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Vari-Lite International, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheets of Vari-Lite
International, Inc. and subsidiaries (herein referred to as "the Company") as of
September 30, 1995 and 1996 and June 30, 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1996 and for the nine-month period ended
June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of September 30,
1995 and 1996 and June 30, 1997, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1996
and for the nine-month period ended June 30, 1997, in conformity with generally
accepted accounting principles.
Dallas, Texas
August 27, 1997 (October , 1997,
as to the first paragraph of Note F)
The accompanying consolidated financial statements are presented to give effect
to the Company's reincorporation in Delaware and related recapitalization, in
which the shares of Class A and Class B Common Stock will be converted into
shares of the Company's new common stock and a class of preferred stock will be
authorized, as described in Note F to the consolidated financial statements. The
above opinion is in the form which will be signed by Deloitte & Touche LLP upon
effectiveness of the above events, assuming that from August 27, 1997 to the
effective date of such events, no other material events have occurred which
would affect the accompanying consolidated financial statements and notes
thereto.
Deloitte & Touche LLP
Dallas, Texas
September 18, 1997
F-2
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash........................................................................... $ 3,973 $ 2,633 $ 1,350
Receivables, less allowance for doubtful accounts of $495, $348 and $448....... 8,616 12,078 13,554
Inventory...................................................................... 2,013 2,395 2,996
Prepaid expense and other current assets....................................... 1,876 816 2,016
--------- --------- -----------
TOTAL CURRENT ASSETS......................................................... 16,478 17,922 19,916
EQUIPMENT AND OTHER PROPERTY:
Lighting and sound equipment................................................... 79,486 87,932 102,497
Machinery and tools............................................................ 1,591 2,179 2,149
Furniture and fixtures......................................................... 3,563 3,728 3,791
Office and computer equipment.................................................. 5,244 7,593 8,035
Work in progress and raw materials inventory................................... 3,759 3,259 6,806
--------- --------- -----------
93,643 104,691 123,278
Less accumulated depreciation and amortization............................... 38,620 47,982 55,652
--------- --------- -----------
55,023 56,709 67,626
OTHER ASSETS..................................................................... 1,964 3,950 5,072
--------- --------- -----------
TOTAL ASSETS................................................................. $ 73,465 $ 78,581 $ 92,614
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.......................................... $ 10,361 $ 8,596 $ 10,833
Unearned revenue............................................................... 1,622 2,195 2,478
Income taxes payable........................................................... 857 350 105
Current portion of long-term obligations....................................... 8,477 7,427 7,768
--------- --------- -----------
TOTAL CURRENT LIABILITIES.................................................... 21,317 18,568 21,184
LONG-TERM OBLIGATIONS............................................................ 26,393 29,922 37,593
DEFERRED INCOME TAXES............................................................ 4,426 5,553 6,417
--------- --------- -----------
TOTAL LIABILITIES............................................................ 52,136 54,043 65,194
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.10 par value (10,000,000 shares authorized)................ -- -- --
Common Stock, $0.10 par value (40,000,000 shares authorized)................... 581 583 585
Treasury Stock................................................................. -- (28) (186)
Additional paid-in capital..................................................... 2,843 3,096 3,343
Stockholder notes receivable................................................... (399) (353) (186)
Stock purchase warrants........................................................ 663 600 600
Cumulative foreign currency translation adjustment............................. 780 905 1,137
Retained earnings.............................................................. 16,861 19,735 22,127
--------- --------- -----------
TOTAL STOCKHOLDERS' EQUITY................................................... 21,329 24,538 27,420
--------- --------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................... $ 73,465 $ 78,581 $ 92,614
--------- --------- -----------
--------- --------- -----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER FOR THE NINE MONTHS
30, ENDED JUNE 30,
------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Rental revenues.......................................... $ 47,625 $ 65,864 $ 65,741 $ 45,389 $ 56,207
Product sales and services revenues...................... 6,187 9,046 11,397 8,042 10,688
--------- --------- --------- ----------- ---------
TOTAL REVENUES......................................... 53,812 74,910 77,138 53,431 66,895
Rental cost.............................................. 18,775 26,288 26,425 18,267 22,115
Product sales and services cost.......................... 4,284 6,637 7,783 5,601 7,410
--------- --------- --------- ----------- ---------
TOTAL COST OF SALES.................................... 23,059 32,925 34,208 23,868 29,525
--------- --------- --------- ----------- ---------
GROSS PROFIT........................................... 30,753 41,985 42,930 29,563 37,370
Selling, general and administrative expense.............. 19,181 28,163 30,077 22,230 24,855
Research and development expense......................... 3,033 3,283 4,404 2,947 4,872
--------- --------- --------- ----------- ---------
TOTAL OPERATING EXPENSES............................... 22,214 31,446 34,481 25,177 29,727
--------- --------- --------- ----------- ---------
OPERATING INCOME......................................... 8,539 10,539 8,449 4,386 7,643
Interest expense (net)................................... 1,805 2,788 3,092 2,437 2,694
--------- --------- --------- ----------- ---------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS........ 6,734 7,751 5,357 1,949 4,949
Income taxes............................................. 2,400 3,037 2,238 813 1,993
--------- --------- --------- ----------- ---------
INCOME BEFORE EXTRAORDINARY LOSS......................... 4,334 4,714 3,119 1,136 2,956
Extraordinary loss from early extinguishment of debt (net
of tax of $389)........................................ 756 -- -- -- --
--------- --------- --------- ----------- ---------
NET INCOME............................................... $ 3,578 $ 4,714 $ 3,119 $ 1,136 $ 2,956
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
WEIGHTED AVERAGE SHARES OUTSTANDING...................... 5,771,648 5,814,014 5,911,983 5,928,266 5,818,571
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
NET INCOME PER SHARE..................................... $ 0.62 $ 0.81 $ 0.53 $ 0.19 $ 0.51
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL
--------------------- --------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- --------- ---------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1993............... -- $ -- 5,645,967 $ 564 -- $ -- $ 1,936
Dividends declared.....................
Shares purchased and retired........... (1,709) -- (4)
Shares issued.......................... 47,046 5 97
Net effect of translation adjustment...
Adjust warrant valuation allowance.....
Net income.............................
---------- --------- ---------- --------- --------- ----- -----------
BALANCE, SEPTEMBER 30, 1994............ -- -- 5,691,304 569 -- -- 2,029
Dividends declared.....................
Shares issued.......................... 90,328 9 322
Payments on stockholder notes
receivable...........................
Issuance of stock to the ESOP and
ESEP................................. 32,055 3 492
Net effect of translation adjustment...
Adjust warrant valuation allowance.....
Net income.............................
---------- --------- ---------- --------- --------- ----- -----------
BALANCE, SEPTEMBER 30, 1995............ -- -- 5,813,687 581 -- -- 2,843
Dividends declared.....................
Purchase of treasury stock............. (7,527) (28)
Purchases of stock warrants............
Issuance of stock warrants.............
Payments on stockholder notes
receivable...........................
Issuance of stock to the ESOP and
ESEP................................. 16,515 2 253
Net effect of translation adjustment...
Net income.............................
---------- --------- ---------- --------- --------- ----- -----------
BALANCE, SEPTEMBER 30, 1996............ -- -- 5,830,202 583 (7,527) (28) 3,096
Dividends declared.....................
Purchase of treasury stock............. (37,637) (158)
Payments on stockholder notes
receivable...........................
Issuance of stock to the ESOP and
ESEP................................. 14,965 2 247
Net effect of translation adjustment...
Net income.............................
---------- --------- ---------- --------- --------- ----- -----------
BALANCE, JUNE 30, 1997................. -- $ -- 5,845,167 $ 585 (45,164) $ (186) $ 3,343
---------- --------- ---------- --------- --------- ----- -----------
---------- --------- ---------- --------- --------- ----- -----------
<CAPTION>
CUMULATIVE
FOREIGN
STOCKHOLDER STOCK CURRENCY
NOTES PURCHASE TRANSLATION RETAINED
RECEIVABLE WARRANTS ADJUSTMENT EARNINGS TOTAL
------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1993............... $ -- $ 480 $ 651 $ 9,671 $ 13,302
Dividends declared..................... (315) (315)
Shares purchased and retired........... (4)
Shares issued.......................... (99) 3
Net effect of translation adjustment... 67 67
Adjust warrant valuation allowance..... 67 (67) --
Net income............................. 3,578 3,578
----- ----- ----------- ----------- ---------
BALANCE, SEPTEMBER 30, 1994............ (99) 547 718 12,867 16,631
Dividends declared..................... (604) (604)
Shares issued.......................... (323) 8
Payments on stockholder notes
receivable........................... 23 23
Issuance of stock to the ESOP and
ESEP................................. 495
Net effect of translation adjustment... 62 62
Adjust warrant valuation allowance..... 116 (116) --
Net income............................. 4,714 4,714
----- ----- ----------- ----------- ---------
BALANCE, SEPTEMBER 30, 1995............ (399) 663 780 16,861 21,329
Dividends declared..................... (648) (648)
Purchase of treasury stock............. (28)
Purchases of stock warrants............ (663) 403 (260)
Issuance of stock warrants............. 600 600
Payments on stockholder notes
receivable........................... 46 46
Issuance of stock to the ESOP and
ESEP................................. 255
Net effect of translation adjustment... 125 125
Net income............................. 3,119 3,119
----- ----- ----------- ----------- ---------
BALANCE, SEPTEMBER 30, 1996............ (353) 600 905 19,735 24,538
Dividends declared..................... (564) (564)
Purchase of treasury stock............. (158)
Payments on stockholder notes
receivable........................... 167 167
Issuance of stock to the ESOP and
ESEP................................. 249
Net effect of translation adjustment... 232 232
Net income............................. 2,956 2,956
----- ----- ----------- ----------- ---------
BALANCE, JUNE 30, 1997................. $ (186) $ 600 $ 1,137 $ 22,127 $ 27,420
----- ----- ----------- ----------- ---------
----- ----- ----------- ----------- ---------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER FOR THE NINE MONTHS
30, ENDED JUNE 30,
------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income....................................................... $ 3,578 $ 4,714 $ 3,119 $ 1,136 $ 2,956
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 5,876 8,436 9,869 7,393 8,490
Amortization of note discount and deferred loan fees........... 205 186 199 149 265
Extraordinary loss from the early extinguishment of debt....... 756 -- -- -- --
Provision for doubtful accounts................................ 67 334 348 103 94
Deferred income taxes.......................................... 958 702 1,127 (51) 864
Loss (gain) on sale of equipment and other property............ (53) (15) 42 -- (41)
Cost of rental equipment sold under sales-type leases.......... -- 353 606 -- 1,515
Provisions for ESOP and ESEP contributions..................... -- 750 250 186 189
Net change in assets and liabilities:
Accounts receivable.......................................... (2,823) (2,896) (3,396) (3,423) (1,570)
Prepaid expenses............................................. (959) (15) 1,060 (394) (1,200)
Inventory.................................................... -- (1,031) (382) (475) (601)
Other assets................................................. (1,130) (370) (2,616) (1,880) (1,325)
Accounts payable, accrued liabilities and income taxes
payable.................................................... 3,543 3,079 (2,726) (1,823) 1,045
Unearned revenue............................................. 919 286 1,031 2,365 1,291
--------- --------- --------- ----------- ---------
Net cash provided by operating activities.................... 10,937 14,513 8,531 3,286 11,972
Cash flows from investing activities:
Capital expenditures, including rental equipment................. (13,566) (20,748) (12,587) (9,125) (20,518)
VLEH acquisition................................................. (5,940) -- -- -- --
Proceeds from sale of equipment.................................. 582 107 155 -- 129
--------- --------- --------- ----------- ---------
Net cash used in investing activities........................ (18,924) (20,641) (12,432) (9,125) (20,389)
Cash flows from financing activities:
Proceeds from issuance of debt................................... 25,800 10,998 28,204 12,476 16,967
Principal payments on debt....................................... (12,525) (3,926) (24,601) (8,869) (8,127)
Proceeds from issuance of distributor advances................... 997 2,168 1,745 1,306 604
Principal payments on distributor advances....................... (4,200) (1,362) (1,894) (1,322) (1,254)
Proceeds from payments on stockholder notes receivable........... -- 33 46 38 166
Proceeds from issuance of common stock........................... 102 -- -- -- --
Prepayment penalty from early extinguishment of debt............. (500) -- -- -- --
Purchase of common stock......................................... (4) -- -- -- --
Purchase of treasury stock....................................... -- -- (28) -- (158)
Purchase of stock warrant........................................ -- -- (260) -- --
Dividends paid................................................... (315) (604) (648) (568) (564)
--------- --------- --------- ----------- ---------
Net cash provided by financing activities.................... 9,355 7,307 2,564 3,061 7,634
Effect on cash from foreign currency translation adjustment........ 99 (624) (3) 47 (500)
--------- --------- --------- ----------- ---------
Net increase (decrease) during the period.......................... 1,467 555 (1,340) (2,731) (1,283)
Cash, beginning of period.......................................... 1,951 3,418 3,973 3,973 2,633
--------- --------- --------- ----------- ---------
Cash, end of period................................................ $ 3,418 $ 3,973 $ 2,633 $ 1,242 $ 1,350
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Supplemental Cash Flow Information
- -------------------------------------------------------------------
Cash paid for interest expense................................... $ 1,812 $ 2,905 $ 3,234 $ 2,564 $ 2,956
Cash paid for income taxes....................................... $ 1,111 $ 1,752 $ 1,528 $ 1,470 $ 1,765
Non-cash transactions:
Acquisition of property under capital leases................... $ 302 $ -- $ -- $ -- $ --
Warrants issued................................................ $ -- $ -- $ 600 $ -- $ --
Warrant retired................................................ $ -- $ -- $ (403) $ -- $ --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE A--ORGANIZATION:
Vari-Lite International, Inc. and subsidiaries (herein referred to as "the
Company") is a leading international provider of proprietary automated lighting
systems and related services to the entertainment industry, servicing markets
such as concert touring, theatre, television and film and corporate events.
On March 31, 1994, the Company formed Vari-Lite Europe Holdings Limited
("VLEH") to acquire the net assets, consisting primarily of equipment and
property, and the operations of three London-based companies, which were in the
business of providing lighting services and stage and stage set design and
construction services. The total purchase price, including related acquisition
and financing costs was approximately $6,000, which was funded with a portion of
the proceeds from the Company's Credit Facility (see Note E). The acquisition
was accounted for using the purchase method of accounting, and accordingly, the
purchase price was allocated to the tangible assets acquired and liabilities
assumed based upon a determination of their fair values at the acquisition date.
The results of operations of VLEH have been included in the consolidated
financial statements since the date of the VLEH acquisition.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND USE OF ESTIMATES
The consolidated financial statements of Vari-Lite International, Inc.
includes the accounts of its wholly-owned subsidiaries Vari-Lite, Inc., Showco,
Inc., Irideon, Inc., IGNITION! Creative Group, Inc., Concert Production
Lighting, Inc., Vari-Lite Asia, Inc. (a Japanese corporation), Vari-Lite Hong
Kong Limited and VLEH and its subsidiaries. All material intercompany
transactions and balances have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements.
Actual results could differ from these estimates.
INTERIM FINANCIAL STATEMENTS
The consolidated statements of income, stockholders' equity and cash flows
for the nine months ended June 30, 1996, have been prepared by the Company
without audit. In the opinion of management, all adjustments (which included
only normal, recurring adjustments) necessary to present fairly the results of
operations and cash flows for the nine months ended June 30, 1996, have been
made. The results of operations for the nine months ended June 30, 1997, are not
necessarily indicative of the results to be expected for the full year.
INTEREST RATE SWAP AGREEMENTS
The Company uses interest rate swap agreements to reduce risks associated
with variable interest rates and does not enter into such transactions for
speculative or trading purposes. The net interest received or paid on interest
rate swap agreements is reflected as income or expense of the relevant hedged
position. Gains and losses resulting from the termination of interest rate swap
agreements are recognized in the period of sale.
F-7
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has certain financial instruments consisting primarily of cash,
accounts and lease receivables, debt and long-term obligations and interest rate
swap agreements. The carrying values of substantially all of the financial
instruments approximate their respective fair values.
INVENTORY
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Market for raw materials is based on replacement costs and for other
inventory classifications on net realizable value. Appropriate consideration is
given to deterioration, obsolescence and other factors in evaluating net
realizable value.
EQUIPMENT AND OTHER PROPERTY
Equipment and other property are stated at cost or, in the case of
capitalized leases, at the lower of the present value of future lease payments
or the fair value of the equipment. Depreciation and amortization are provided
on the straight-line method over the estimated useful lives of the various
classes of equipment and other property. In 1996, management reevaluated the
estimated useful lives of the Company's lighting equipment and accordingly
lengthened the lives of certain lighting equipment to correspond with the
anticipated revenue of the equipment.
LONG-LIVED ASSETS
As required by Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for Long-Lived Assets," the Company assesses potential impairments
to its long-lived assets when there is evidence that events or changes in
circumstances have made recovery of the assets' carrying value unlikely. An
impairment loss would be recognized when the sum of the expected future net cash
flows is less than the carrying amount of the asset. No such impairment losses
have been identified by the Company.
OTHER ASSETS
The Company capitalizes and includes in other assets deferred financing
costs and the costs of acquiring patents and trademarks on its products.
Deferred financing costs are amortized over the term of the related debt.
Amortization on patents and trademarks is computed on the straight-line basis
over the lives of the patents or trademarks or the period of expected benefit.
In addition, the Company capitalizes legal costs associated with the pursuit of
third parties for infringement of certain of the Company's patents, copyrights
and trademarks when the Company is successful, or management believes it will be
successful, and that these costs will be recovered pursuant to SFAS No. 121.
These costs are amortized over the lives of the applicable patents, copyrights
and trademarks.
REVENUE RECOGNITION
Revenues related to equipment rental and services are recognized as earned
over the terms of the contracts. Revenues from long-term leases classified as
sales-type leases are recognized upon delivery and installation of the
equipment. Revenues related to the sale of architectural products are recognized
upon shipment of the equipment. In 1995, one customer accounted for 11.9% of the
Company's revenues. No other customer accounted for more than 10% of the
Company's revenues during any of the three years in the period ended September
30, 1996 or the nine months ended June 30, 1997.
F-8
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RESEARCH AND DEVELOPMENT
Costs incurred in connection with the development of new products are
considered research and development costs and are charged to operations as
incurred.
INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes," and files a consolidated federal income tax
return. Deferred tax assets and liabilities are recorded based on the difference
between the tax basis of assets and liabilities and their carrying amounts for
financial reporting purposes, referred to as temporary differences. Provision is
made for deferred taxes relating to temporary differences in the recognition of
income and expense for financial reporting and for income tax purposes.
FOREIGN CURRENCY TRANSLATION
In accordance with SFAS No. 52, "Foreign Currency Translation," the asset
and liability accounts of the Company's non-U.S. subsidiaries are translated
into U.S. dollars using rates of exchange in effect at the balance sheet date.
Revenues and expenses are translated at exchange rates which approximate the
average rates prevailing during the year. The cumulative translation gains and
losses are included in stockholders' equity.
NET INCOME PER SHARE
Net income per share is calculated by dividing net income by the weighted
average shares outstanding for the applicable period. Common stock equivalents,
including warrants and options, are included, to the extent considered dilutive,
using the treasury stock method and are assumed to be outstanding for the full
period in the period of issuance.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("the FASB")
issued SFAS No. 123, "Accounting for Stock-Based Compensation," which is
effective for fiscal years ending after December 15, 1995. Management intends to
implement only the disclosure requirements of such statement for employee stock-
based compensation. However, the accounting provisions of this statement will be
required to be implemented upon the future issuance of non-employee stock-based
compensation. The Company does not believe that there will be a material impact
to the historically reported net income per share upon the implementation of
this statement.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
is effective for financial statements for both interim and annual periods ending
after December 15, 1997. Implementation of SFAS No. 128 will have no effect on
the Company's results of operations, financial position or cash flows but will
require a change in the calculation of earnings per share. The Company does not
believe that there will be a material impact to the reported amount of earnings
per share upon the implementation of this statement.
In February 1997, the FASB issued SFAS No. 129, "Capital Structure," which
is effective for financial statements for periods ending after December 15,
1997. Implementation of SFAS No. 129 will have no effect on the Company's
results of operations, financial position or cash flows.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
Comprehensive income is the change in equity of a business enterprise during a
period from transactions and other events from nonowner sources. SFAS No. 130
will
F-9
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
require that changes in the balances of items that are reported directly in a
separate component of stockholders' equity (such as unrealized gains and losses
and minimum pension liability adjustments) be added to net income to arrive at
comprehensive income. Implementation of SFAS No. 130 will have no effect on the
Company's results of operations, financial position or cash flows, but will
require additional footnote disclosures presenting the Company's comprehensive
income.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which is effective for financial statements
for periods beginning after December 15, 1997. Implementation of SFAS No. 131
will have no effect on the Company's results of operations, financial position
or cash flows, but may require a change in the disclosures regarding the
Company's operating segments.
OTHER
Certain reclassifications have been made to the September 30, 1994, 1995 and
1996 and the June 30, 1996 consolidated financial statements to conform to the
presentation in the June 30, 1997 consolidated financial statements.
NOTE C--INVENTORY:
Inventory consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
-------------------- -----------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Raw materials.................................................... $ 766 $ 1,998 $ 2,654
Work in progress................................................. 216 294 197
Finished goods................................................... 1,031 103 145
--------- --------- -----------
$ 2,013 $ 2,395 $ 2,996
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE D--OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
-------------------- -----------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Patents and trademarks........................................... $ 263 $ 2,355 $ 3,093
Deferred financing costs......................................... 947 1,432 1,436
Other, including sales-type lease receivables.................... 1,239 865 1,448
--------- --------- -----------
2,449 4,652 5,977
Less accumulated amortization.................................... (485) (702) (905)
--------- --------- -----------
$ 1,964 $ 3,950 $ 5,072
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-10
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE D--OTHER ASSETS: (CONTINUED)
Included in the amount of patents and trademarks are amounts capitalized by
the Company relating to the High End Lawsuit, a patent infringement suit in
which the Company is the plaintiff. Unless the Company receives a judgment in
this litigation that the defendant has infringed at least one of its patents and
the Company concludes, based on all of the facts and circumstances that such a
judgment will allow it to maintain its competitive advantage provided by the
infringed patents, all costs incurred by the Company related to the High End
Lawsuit (including those previously capitalized) will be required to be recorded
as an expense in the period that the judgment is rendered.
NOTE E--LONG-TERM OBLIGATIONS:
Long-term obligations expressed in U.S. dollars consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
-------------------- ---------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Credit Facility:
Term loans:
U.S. dollars............................................. $ 12,600 $ 20,000 $ 18,500
British pounds sterling.................................. 7,408 5,830 5,326
Japanese yen............................................. 1,805 1,284 1,064
Discount................................................. -- (600) (488)
--------- --------- ---------
Net term loans......................................... 21,813 26,514 24,402
Revolving lines of credit:
U.S. dollars............................................. 7,000 2,184 10,200
British pounds sterling.................................. 1,346 3,052 4,328
Japanese yen............................................. -- -- 1,410
--------- --------- ---------
Total revolving lines of credit........................ 8,346 5,236 15,938
Advances from distributors................................... 2,943 2,810 2,063
Obligations under capital leases with interest at 8.6% to
10.4%, maturities through 1999............................. 530 348 201
Other........................................................ 1,238 2,441 2,757
--------- --------- ---------
34,870 37,349 45,361
Less current portion......................................... (8,477) (7,427) (7,768)
--------- --------- ---------
$ 26,393 $ 29,922 $ 37,593
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-11
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE E--LONG-TERM OBLIGATIONS: (CONTINUED)
The Company's Credit Facility allows borrowings up to $28,000 under a
revolving line of credit. The Company incurred prepayment penalties in 1994 of
$756 (net of tax benefit of $389) relating to the early extinguishment of its
prior debt facility, which was expensed in the consolidated statement of income
as an extraordinary loss. Loans under the revolver may be drawn in U.S. dollars,
British pounds sterling or Japanese yen, subject to their availability under the
Credit Facility. Interest on the term loans and the revolvers is calculated as
follows:
<TABLE>
<CAPTION>
LOAN DENOMINATION INTEREST RATE
- -------------------------------------------- --------------------------------------------
<S> <C>
U.S. dollar term Prime rate plus 1% or LIBOR (for deposits in
U.S. dollars) plus 3.5%
Multicurrency revolver Prime rate plus 1% for U.S. dollar
borrowings and Euroyen TIBOR plus 3.5% for
Japanese yen borrowings
British pounds sterling term LIBOR (for deposits in British pounds
sterling) rate plus 2%
British pounds sterling revolver LIBOR (for deposits in British pounds
sterling) rate plus 2%
Japanese yen term TIBOR rate plus 2.5%
</TABLE>
Based on the outstanding amounts under the Credit Facility as of September
30, 1995 and 1996 and June 30, 1997, the weighted average interest rates were
10.35%, 8.69% and 8.83%, respectively.
At September 30, 1996 and June 30, 1997, the Company had interest rate swap
agreements with two of its primary lenders relating to a notional principal
amount of $19,800 and $17,700, respectively, which effectively changes the
Company's variable LIBOR interest rate exposure on substantially all of its U.S.
dollar term borrowings to a fixed weighted average interest rate of 9.60%. The
interest rate swap agreements mature on or before the maturity date of the
related borrowings as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ---------
<S> <C> <C>
Year one............................................................ $ 3,050 $ 3,800
Year two............................................................ 3,800 5,900
Year three.......................................................... 5,450 1,000
Year four........................................................... 1,000 7,000
Year five........................................................... 6,500 --
------------- ---------
$ 19,800 $ 17,700
------------- ---------
------------- ---------
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements. However, the Company does
not anticipate nonperformance by the other parties.
Principal payments of approximately $852 under the multicurrency term loan
are due quarterly and increase to $1,102 per quarter on September 30, 1997
through the remaining term of the loan. A lump sum payment of approximately
$8,355 is due June 30, 2001. Interest on outstanding term loans is due
quarterly. Principal amounts outstanding under the revolving line of credit are
due June 30, 2001 and interest on outstanding amounts is due monthly. Until
April 1, 1998, a prepayment penalty equal to 0.25% of the amount prepaid is due
and payable in connection with voluntary prepayments of the term loans.
The Credit Facility contains compliance covenants, including requirements
that the Company achieve certain financial ratios. In addition, the Credit
Facility places limitations on the ability to pay stockholder distributions,
make capital expenditures, incur additional indebtedness, make certain loans or
investments, sell
F-12
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE E--LONG-TERM OBLIGATIONS: (CONTINUED)
assets or reacquire the Company's stock. The Company incurs a commitment fee
equal to 0.5% per annum on the average daily unused portion of the revolver
which is payable quarterly. Substantially all of the Company's assets, except
those pledged to distributors (described below), are pledged as collateral under
the Credit Facility.
In connection with certain distributor agreements, the Company has received
advances to provide the necessary funds for construction of the leased lighting
systems (see Note G). The remaining balances outstanding under such borrowings
at September 30, 1995 and 1996, and June 30, 1997, were $2,943, $2,810 and
$2,063, respectively. Equipment with a net book value of approximately $8,700 at
June 30, 1997 ($7,500 at September 30, 1996) has been pledged to the
distributors as collateral for such loans. The interest rate on substantially
all the notes is variable and ranged from 3% to 7% for the years ended September
30, 1995 and 1996 and the nine months ended June 30, 1997. Substantially all the
advances are nonrecourse and are repaid from the Company's portion of the rental
revenue earned on the associated leases.
Maturities of long-term obligations, including capital lease obligations,
are approximately as follows:
<TABLE>
<CAPTION>
SEPTEMBER JUNE 30,
30, 1996 1997
------------ ---------
<S> <C> <C>
Year one............................................................ $ 7,427 $ 7,768
Year two............................................................ 5,204 5,353
Year three.......................................................... 4,872 4,762
Year four........................................................... 4,225 27,478
Year five........................................................... 15,621 --
------------ ---------
$ 37,349 $ 45,361
------------ ---------
------------ ---------
</TABLE>
NOTE F--STOCKHOLDERS' EQUITY:
On October , 1997, in conjunction with the Company's reincorporation in
Delaware and an initial public offering, the Board of Directors of the Company
created a new class of common stock and authorized 40,000,000 shares. As a
result of the reincorporation, stockholders will receive 3.76368 shares of
common stock for each share of the Company's Class A common stock and Class B
common stock held by the stockholders. Share amounts and the weighted average
shares outstanding for all periods presented give retroactive effect to the
recapitalization of the common stock. In addition, the Company authorized
10,000,000 shares of preferred stock which the Company's Board of Directors may
issue for such consideration and on such terms as it deems desirable, including
with voting and conversion rights that could adversely affect the holders of
common stock.
In connection with a prior debt facility, the Company and a lender entered
into a warrant purchase agreement, which granted the lender a warrant to
purchase shares of Common Stock. The Company initially allocated $400 of the
proceeds under this facility to the warrant and in subsequent years increased
such warrant value to an amount equal to the warrant valuation (as defined).
During 1996, the Company repurchased the warrant from the holder for $260.
In July 1996, in connection with an amendment to the Company's Credit
Facility, the Company issued warrants to purchase up to 242,233 shares of Common
Stock at an exercise price based on the Company's earnings as defined in the
warrant agreement ($11.53 per share). After December 31, 2001, and through the
warrant expiration date of December 31, 2004, the warrant holders may put the
shares of Common Stock issuable pursuant to the warrants back to the Company at
the price specified in the warrant agreement. This put right will terminate upon
the occurrence of certain events, including completion of this initial public
offering. The terms of the warrants also provide for registration rights and
adjustments to the price and number of shares in certain circumstances. As of
September 30, 1996 and June 30, 1997, no warrants had been exercised.
F-13
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE G--LEASES:
As lessor, the Company has agreements whereby it has leased certain lighting
equipment to various distributors. These agreements are accounted for as
operating leases. Under the terms of these agreements, these distributors have
the exclusive right for a specified time period to market the lighting equipment
by subrental within defined territories. The distributors' lease payments to the
Company are based on a pre-determined percentage of the gross rental revenue
received by the distributors from their subrental of the lighting equipment and
amounted to approximately $2,864, $3,797, $4,893, $3,778 and $3,576 for the
years ended September 30, 1994, 1995 and 1996, and for the nine months ended
June 30, 1996 (unaudited) and 1997, respectively. The lighting equipment under
these leasing arrangements had a net book value of approximately $7,552, $7,473
and $8,736 at September 30, 1995 and 1996, and June 30, 1997, respectively.
The Company is also the lessor under sales-type leases. Leases classified as
sales-type leases generally stipulate that all lease payments be made within 30
days of the commencement of the lease term; however, the Company has also
entered into certain sales-type leases that allow for periodic payment
throughout the term of the lease. The Company recorded revenues of $4,427,
$9,914, $4,544, $2,318 and $6,009 and cost of products and services of $1,465,
$3,422, $2,223, $1,023 and $2,054 for the years ended September 30, 1994, 1995
and 1996, and the nine months ended June 30, 1996 (unaudited) and 1997,
respectively, related to sales-type leases.
Equipment under leases which do not qualify as sales-type leases, including
distributor leases and dealer leases, are accounted for as operating leases.
Under dealer leases, dealers receive exclusive rights to subrent the Company's
lighting equipment in a certain geographic area. The Company provides the
lighting equipment to the dealers, who pay a monthly rental fee to the Company.
Future minimum lease payments receivable, including those which relate to
sales-type leases and are included in other assets, are as follows:
<TABLE>
<CAPTION>
SALES-TYPE OPERATING
------------------------------ --------------------------
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1996 JUNE 30, 1997 1996 1997
--------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Year one................................ $ 344 $ 181 $ 929 $ 1,798
Year two................................ 303 102 920 1,830
Year three.............................. 151 -- 785 1,577
Year four............................... -- -- 519 1,329
Year five............................... -- -- 209 1,089
Thereafter.............................. -- -- 20 19
----- ----- ------ -----------
Total minimum lease payments............ 798 283 $ 3,382 $ 7,642
------ -----------
------ -----------
Less amount representing interest....... (105) (28)
----- -----
Present value of net minimum lease
payments.............................. 693 255
Less current portion.................... (279) (177)
----- -----
Long-term lease receivables............. $ 414 $ 78
----- -----
----- -----
</TABLE>
F-14
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE G--LEASES: (CONTINUED)
AS LESSEE
The Company leases certain computers and equipment. The following is a
summary of assets held under capital leases:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
-------------------- ---------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Computers and equipment under capital leases............ $ 2,563 $ 2,563 $ 2,563
Less accumulated depreciation........................... (2,014) (2,144) (2,241)
--------- --------- ---------
Property under capital leases, net...................... $ 549 $ 419 $ 322
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company also leases manufacturing facilities and office space. The
future minimum lease payments, including those which relate to capital leases
and are included in long-term obligations, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
---------------------------- --------------------------
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, JUNE 30,
1996 1997 1996 1997
--------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
1997....................................... $ 223 $ 136 $ 1,109 $ 1,132
1998....................................... 99 63 897 802
1999....................................... 44 -- 527 454
2000....................................... -- -- 400 243
2001....................................... -- -- -- --
----- ----- ------ -----------
Total minimum lease payments............... 366 199 $ 2,933 $ 2,631
------ -----------
------ -----------
Less amount representing interest.......... (18) (14)
----- -----
Present value of net minimum lease
payments................................. 348 185
Less current portion....................... (200) (134)
----- -----
Long-term lease obligations................ $ 148 $ 51
----- -----
----- -----
</TABLE>
Rental expense for the years ended September 30, 1994, 1995 and 1996, and
the nine months ended June 30, 1996 (unaudited) and 1997 was approximately
$1,347, $1,957, $2,397, $1,760 and $1,956, respectively.
In December 1995, the Company entered into a lease with an unaffiliated
developer ("Lessor") for land to be used as the site for a new corporate
facility. After the initial lease term ending in December 2000, the lease may be
renewed for up to six additional five-year terms by agreement of the parties. If
the lease is not renewed or is otherwise terminated, the Company may be required
to make a residual termination payment equal to 85% of the $3,600 paid by the
Lessor to acquire the land. In addition, the Company has an option to purchase
the land at the end of the initial term or at any time during the renewal terms
for a price equal to the Lessor's cost. Rent payable under the lease is based
upon the $3,600 spent by the Lessor to acquire the land and the Lessor's cost of
funds from time to time. At September 30, 1996 and June 30, 1997, the Company
had an interest rate swap agreement with one of its primary lenders relating to
a notional amount of $3,600, which effectively changes the Company's variable
rent exposure on this lease to a fixed annual amount of $388. This interest rate
swap
F-15
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE G--LEASES: (CONTINUED)
agreement matures in October 2000. The Company is exposed to credit loss in the
event of nonperformance by the other party to the interest rate swap agreement.
However, the Company does not anticipate nonperformance by the other party.
Future minimum rental commitments and rent expense for the year ended September
30, 1996, and the nine months ended June 30, 1996 (unaudited) and 1997, have
been included in the amounts above.
NOTE H--INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------------------------- ------------------------
1994 1995 1996 1997
--------- --------- --------- 1996 ---------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
U.S. Federal................................................ $ 1,273 $ 1,289 $ 100 $ 87 $ 104
State....................................................... -- 217 54 46 3
International............................................... 169 829 957 731 976
Deferred:
U.S. Federal................................................ 860 906 992 (50) 765
State....................................................... 20 217 135 (1) 145
International............................................... 78 (421) -- -- --
--------- --------- --------- --- ---------
$ 2,400 $ 3,037 $ 2,238 $ 813 $ 1,993
--------- --------- --------- --- ---------
--------- --------- --------- --- ---------
</TABLE>
A reconciliation of income taxes computed at the U.S. Federal statutory tax
rate to the provision for income tax is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------------------------- ------------------------
1994 1995 1996 1997
--------- --------- --------- 1996 ---------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income tax expense at U.S. Federal statutory rate............. $ 2,289 $ 2,635 $ 1,821 $ 663 $ 1,683
Cumulative effect of change in accounting principle........... 90 -- -- -- --
International taxes........................................... 119 153 255 93 198
State taxes................................................... -- 434 189 69 94
Foreign and general business tax credits...................... (128) (300) (100) -- --
Other--primarily permanent differences........................ 30 115 73 (12) 18
--------- --------- --------- --- ---------
$ 2,400 $ 3,037 $ 2,238 $ 813 $ 1,993
--------- --------- --------- --- ---------
--------- --------- --------- --- ---------
</TABLE>
Deferred income taxes have been provided for the temporary differences
between the financial reporting bases and the tax bases of the Company's assets
and liabilities. Deferred income taxes resulted principally from the use of
accelerated depreciation for tax purposes and straight-line depreciation for
financial reporting purposes.
In 1995 and 1996 and for the nine months ended June 30, 1996 (unaudited) and
1997, there was no valuation allowance at the beginning or end of the respective
fiscal period.
F-16
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE H--INCOME TAXES: (CONTINUED)
For tax purposes, the Company has approximately $2,200 of foreign tax
credits that expire in 1997 through 2001. In addition, approximately $507 of
alternative minimum tax credits (which do not expire) is available to offset
future regular tax liability. The benefit of this tax credit carryforward has
been recognized for financial statement purposes as part of deferred taxes.
International income taxes relate to the results of operations of the
wholly-owned subsidiaries, Vari-Lite Asia, Inc., Vari-Lite Hong Kong Limited and
VLEH, as well as to withholding taxes on revenue generated by the Company's
foreign distributors.
NOTE I--EMPLOYEE BENEFIT PLANS:
The Company has a defined contribution 401(k) plan in which substantially
all its U.S. employees can elect to be participants. Under the terms of the
401(k) plan, employees can defer up to 20% of their earnings up to the permitted
maximum as defined by IRS regulations. The Company matches 50% of the employee's
contribution up to 5% of the employee's earnings during the plan year. During
the years ended September 30, 1994, 1995 and 1996, and for the nine months ended
June 30, 1996 (unaudited) and 1997, the Company's cost to match employee
contributions was approximately $150, $300, $242, $195 and $193, respectively.
Substantially all employees of VLEH may elect to be participants in the
Vari-Lite Europe Pension Plan. The plan is a defined contribution plan under
which employees may contribute up to 3% of their base salaries. The Company
makes contributions at a rate of 200% of the employee contributions, with
additional contributions made for certain key employees. The Company incurred
costs of $46, $140, $156, $114 and $150, representing matching contributions for
the years ended September 30, 1994, 1995 and 1996, and for the nine months ended
June 30, 1996 (unaudited) and 1997, respectively.
The Company adopted an employee stock ownership plan ("ESOP"), effective
January 1, 1995, in which its U.S. employees are eligible to participate after
completing one year of service, attaining age twenty-one and being a participant
making elective deferrals in the Company's 401(k) Plan. Each year the Company
may make discretionary contributions of stock to the ESOP as determined by the
Board of Directors or a committee thereof. Participants' interests in the ESOP
are distributed in the form of cash or stock upon normal retirement, disability,
death or at a specific time after any other termination of employment.
The Company adopted an employee stock equivalence plan ("ESEP") for the
non-U.S. subsidiaries, effective January 1, 1995, in which its employees are
eligible to participate after completing one year of service, attaining age
twenty-one and for London-based employees, participating in the VLEH Pension
Plan. Each year the Company may make discretionary contributions of stock to the
ESEP as determined by the Board of Directors or a committee thereof.
Participants' interests in the ESEP are distributed in the form of cash upon
normal retirement, disability, death or at a specific time after any other
termination of employment.
The Company contributed to the ESOP and ESEP an aggregate of 48,570 and
14,965 shares of Common Stock for fiscal 1995 and 1996, respectively, which were
valued at $750 and $250, respectively. Such shares are included as outstanding
for purposes of calculating net income per share. Dividends on these shares have
been recorded as a reduction to retained earnings. For contributions of Common
Stock to the ESOP and ESEP for fiscal 1997, the Company has accrued $189 through
June 30, 1997.
F-17
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE J--OPERATIONS BY GEOGRAPHIC AREA:
The income statement and balance sheet information by geographic area is
summarized in the following table:
<TABLE>
<CAPTION>
UNITED
STATES ASIA EUROPE INTERCOMPANY TOTAL
------------ --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
September 30, 1994
- ----------------------------------------------------
Net Revenues........................................ $ 37,903 $ 7,141 $ 12,744 $ (3,976) $ 53,812
Net Income.......................................... 3,280 51 247 -- 3,578
September 30, 1995
- ----------------------------------------------------
Net Revenues........................................ $ 43,443 $ 9,779 $ 25,337 $ (3,649) $ 74,910
Net Income.......................................... 3,381 773 560 -- 4,714
September 30, 1996
- ----------------------------------------------------
Net Revenues........................................ $ 45,253 $ 11,401 $ 26,584 $ (6,100) $ 77,138
Net Income.......................................... 1,590 1,153 376 -- 3,119
June 30, 1996 (unaudited)
- ----------------------------------------------------
Net Revenues........................................ $ 31,824 $ 7,524 $ 18,313 $ (4,230) $ 53,431
Net Income.......................................... 584 560 (8) -- 1,136
June 30, 1997
- ----------------------------------------------------
Net Revenues........................................ $ 40,364 $ 9,336 $ 23,232 $ (6,037) $ 66,895
Net Income.......................................... 1,643 924 389 -- 2,956
</TABLE>
<TABLE>
<CAPTION>
UNITED
STATES ASIA EUROPE INTERCOMPANY TOTAL
------------ --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
September 30, 1994
- ----------------------------------------------------
Assets.............................................. $ 53,317 $ 5,349 $ 13,068 $ (14,511) $ 57,223
Liabilities......................................... 33,589 2,545 11,691 (7,233) 40,592
September 30, 1995
- ----------------------------------------------------
Assets.............................................. $ 69,180 $ 5,698 $ 15,591 ($ 17,004) $ 73,465
Liabilities......................................... 46,462 3,191 13,522 (11,039) 52,136
September 30, 1996
- ----------------------------------------------------
Assets.............................................. $ 70,060 $ 4,760 $ 13,529 ($ 9,768) $ 78,581
Liabilities......................................... 45,623 2,486 10,838 (4,904) 54,043
June 30, 1996 (unaudited)
- ----------------------------------------------------
Assets.............................................. $ 69,076 $ 6,205 $ 15,440 $ (12,639) $ 78,082
Liabilities......................................... 46,542 3,330 12,947 (6,673) 56,146
June 30, 1997
- ----------------------------------------------------
Assets.............................................. $ 80,977 $ 5,297 17,768 $ (11,428) $ 92,614
Liabilities......................................... 55,496 1,808 14,454 (6,564) 65,194
</TABLE>
F-18
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE NINE MONTHS ENDED JUNE 30, 1996)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE K--RELATED PARTY TRANSACTIONS:
Certain directors provided consulting services to the Company and received
fees totaling approximately $526, $424, $512, $374 and $467 for the years ended
September 30, 1994 and 1995 and 1996 and for the nine months ended June 30, 1996
(unaudited) and 1997, respectively.
At September 30, 1996 and June 30, 1997, the Company had notes receivable
from stockholders totaling $353 and $186, respectively, related to common stock
purchases. The notes bear interest at various rates, mature at various times,
and are collateralized by 88,446 shares of common stock.
The Company received from a stockholder of the Company $1,500, $900, $0 and
$1,942 in the years ended September 30, 1994, 1995 and 1996 and the nine months
ended June 30, 1997, respectively, for the rental of automated lighting products
and other services.
NOTE L--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following summarizes the unaudited quarterly results of operations for
the years ended September 30, 1995 and 1996, and the nine months ended June 30,
1997:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1995
--------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
------------ ----------- --------- ------------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 18,648 $ 17,234 $ 19,314 $ 19,714
Income before income taxes.................................... 3,670 1,277 1,533 1,271
Net income.................................................... 2,232 777 932 773
Net income per share.......................................... 0.38 0.14 0.16 0.13
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996
--------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
------------ ----------- --------- ------------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 16,791 $ 16,995 $ 19,645 $ 23,707
Income before income taxes.................................... 359 113 1,476 3,409
Net income.................................................... 209 66 861 1,983
Net income per share.......................................... 0.03 0.01 0.15 0.34
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1997
--------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
------------ ----------- --------- ------------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 22,326 $ 22,384 $ 22,185
Income before income taxes.................................... 1,551 1,372 2,026
Net income.................................................... 892 789 1,275
Net income per share.......................................... 0.15 0.14 0.22
</TABLE>
F-19
<PAGE>
[INSIDE BACK COVER]
LOOKING AHEAD . . .
<TABLE>
<S> <C>
Vari-Lite International has incorporated its [Picture of LAX
VARI*LITE-Registered Trademark- technology into its new Building]
Irideon-Registered Trademark- equipment for the
architectural market. A growing product line of interior and
exterior fixtures and control systems bring the trademark
excellence of our stage and studio lighting systems to the
spaces where we live, work and enjoy our lives.
Long a Los
Angeles landmark,
the LAX Themed
Building has been
stunningly relit
with
Irideon-Registered Trademark-
fixtures.
[Picture of LAX
Building]
[Picture of VL6-TM- spot luminaire] [Picture of LAX
Building]
[Picture of VL5-TM- wash luminaire]
[Picture of mini-Artisan-Registered Trademark-2 console]
[Picture of engineer developing product]
The compact virtually silent Series 300-TM- products Vari-Lite
[VL6-TM- spot luminaire (top), VL5-TM- wash luminaire International has
(middle), and mini-Artisan-Registered Trademark-2 console protected its
(bottom)] have broadened the appeal of investment in
VARI*LITE-Registered Trademark- products in many markets. research and
- -C-Copyright 1997 Vari-Lite, Inc. All rights reserved. development with
VARI*LITE-Registered Trademark- and an aggressive
mini-Artisan-Registered Trademark- are registered trademarks intellectual
of Vari-Lite, Inc. VL5-TM-, VL6-TM-, Series 300-TM- are property program.
trademarks of Vari-Lite, Inc. Irideon-Registered Trademark- It has been
is a registered trademark of Irideon, Inc. in the U.S. and granted more than
other countries. The Vari-Lite International Globe is a 25 U.S. patents
trademark of Vari-Lite International, Inc. and more than 110
Emmy-Registered Trademark- and the Emmy Statuette are foreign patents.
registered trademarks of ATAS/NATAS.
Tony-Registered Trademark- is a registered trademark of The
American Theater Wing and The League of American Theaters
and Producers, Inc. Vari-Lite, Inc. products are protected
by patents granted and pending in the U.S. and other
countries.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Dilution.................................................................. 13
Capitalization............................................................ 14
Selected Consolidated Financial Data...................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 16
Business.................................................................. 25
Management................................................................ 37
Principal Stockholders.................................................... 47
Selling Stockholders...................................................... 48
Description of Capital Stock.............................................. 49
Shares Eligible for Future Sale........................................... 52
Underwriting.............................................................. 53
Legal Matters............................................................. 55
Experts................................................................... 55
Additional Information.................................................... 55
Index to Consolidated Financial Statements................................ F-1
</TABLE>
-------------------
UNTIL , 1997 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,000,000 SHARES
[LOGO]
VARI-LITE INTERNATIONAL
COMMON STOCK
-----------------
PROSPECTUS
-----------------
A.G. EDWARDS & SONS, INC.
EVEREN SECURITIES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses to be paid by the Company in
connection with the offering described in this Registration Statement will be as
follows. All of the amounts except the SEC registration fee, the NASD fee and
the Nasdaq National Market listing fee are estimates.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
SEC registration fee.............................................................. $ 9,410
NASD fee.......................................................................... 3,605
Nasdaq National Market listing fee................................................ 37,000
Legal fees and expenses........................................................... 200,000
Accounting fees and expenses...................................................... 200,000
Printing expenses................................................................. 100,000
Fees and expenses for qualification under state securities laws (including legal
fees)........................................................................... 5,000
Transfer agent's and registrar's fees and expenses................................ 20,000
Miscellaneous..................................................................... 149,985
----------
Total........................................................................... $ 725,000*
----------
----------
</TABLE>
- -------
* None of this amount is to be borne by the Selling Stockholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is incorporated under the laws of Delaware. Section 145 of
the Delaware General Corporation Law provides that a Delaware corporation may
indemnify any person against expenses, fines and settlements actually and
reasonably incurred by any such person in connection with a threatened, pending
or completed action, suit or proceeding in which he is involved by reason of the
fact that he is or was a director, officer, employee or agent of such
corporation, provided that (i) he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and (ii) with respect to any criminal action or proceeding, he had
no reasonable cause to believe his conduct was unlawful. If the action or suit
is by or in the name of the corporation, the corporation may indemnify any such
person against expenses actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification may be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation, unless and only to the extent that the Delaware Court
of Chancery or the court in which the action or suit is brought determines upon
application that, despite the adjudication of liability but in light of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
As permitted by the Delaware General Corporation Law, the Certificate of
Incorporation provides that the directors and officers of the Registrant shall
be indemnified by the Registrant against certain liabilities that those persons
may incur in their capacities as directors or officers. The Certificate of
Incorporation eliminates the liability of directors of the Registrant, under
certain circumstances, to the maximum extent permitted by the Delaware General
Corporation Law. See "Description of Capital Stock--Special Provisions of the
Certificate of Incorporation and By-Laws" included in the Prospectus.
II-1
<PAGE>
The Company has entered into Indemnification Agreements with the directors
and officers of the Company and its subsidiaries pursuant to which the Company
has agreed to indemnify such individuals to the fullest extent authorized by the
Delaware General Corporation Law.
The Underwriting Agreement filed as Exhibit 1.1 hereto contains reciprocal
agreements of indemnity between the Registrant and the Underwriters as to
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), and in certain circumstances provides for
indemnification of the Registrant's directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since August 31, 1994 the Registrant has issued and sold the following
securities (all such amounts having been adjusted to reflect the reincorporation
of the Registrant as a Delaware corporation pursuant to a merger with Vari-Lite
International, Inc., a Texas corporation ("Vari-Lite Texas"), which will be
effected immediately prior to the consummation of the Offering and pursuant to
which the two classes of Common Stock of Vari-Lite Texas will be converted into
the Registrant's Common Stock on a 3.76368-for-one basis) without registration
under the Securities Act (none of which sales were underwritten):
On September 28, 1994, the Registrant issued 18,818 shares of Common Stock
at a purchase price of $2.49 per share to Michael P. Herman, an officer and
employee of the Registrant. Exemption from registration was claimed under
Section 4(2) of the Securities Act regarding transactions by an issuer not
involving any public offering.
On March 31, 1995, the Registrant issued 9,409 shares of Common Stock at a
purchase price of $3.40 per share to Brian L. Croft, an officer and employee of
a subsidiary of the Registrant. Exemption from registration was claimed under
Section 4(2) of the Securities Act regarding transactions by an issuer not
involving any public offering.
On September 15, 1995, the Registrant issued 3,764, 3,764, 7,527, 9,409,
9,409, 9,409 and 37,637 shares of Common Stock at a purchase price of $3.69 per
share to Richard W. Bratcher, Jr., Howard Page, T. Clay Powers, Loren J. Haas,
Janis C. Pestinger, J. Scott Thompson and James E. Kinnu, respectively. Mr.
Kinnu was an officer and employee of the Registrant. Messrs. Powers, Thompson,
Bratcher and Haas and Ms. Pestinger are officers and employees of subsidiaries
of the Registrant and Mr. Page is an employee of a subsidiary of the Registrant.
Exemption from registration was claimed under Section 4(2) of the Securities Act
regarding transactions by an issuer not involving any public offering.
On September 29, 1995, the Registrant issued 32,055 shares to Overton Bank
and Trust, N.A., as trustee of the Vari-Lite International, Inc. Employees'
Stock Ownership Plan ("ESOP"), as the Registrant's discretionary contribution in
the amount of $494,995.26, or $15.44 per share, to the ESOP for the 1995
calendar plan year. Exemption from registration was claimed under Section 4(2)
of the Securities Act regarding transactions by an issuer not involving any
public offering.
On July 31, 1996, the Registrant issued warrants to purchase 242,233 shares
of Common Stock at an exercise price of $11.53 per share (determined on
September 30, 1996) to certain members of the Company's bank syndicate.
Exemption from registration was claimed under Section 4(2) of the Securities Act
regarding transactions by an issuer not involving any public offering.
On September 30, 1996, the Registrant issued 16,082 shares to Bank of
Butterfield International (Cayman) Ltd., as trustee of the Vari-Lite
International, Inc. Employees' Stock Equivalence Plan ("ESEP"), as the
Registrant's discretionary contribution in the amount of $248,340.35, or $15.44
per share, to the ESEP for the 1995 calendar plan year. Exemption from
registration was claimed under Section 4(2) of the Securities Act regarding
transactions by an issuer not involving any public offering.
On September 30, 1996, the Registrant issued 433 shares to Overton Bank and
Trust, N.A., as trustee of the ESOP, as the Registrant's additional
discretionary contribution in the amount of $6,683.63, or $15.44 per share,
II-2
<PAGE>
to the ESOP for the 1995 calendar plan year. Exemption from registration was
claimed under Section 4(2) of the Securities Act regarding transactions by an
issuer not involving any public offering.
On June 30, 1997, the Registrant issued 10,456 shares to Overton Bank and
Trust, N.A., as trustee of the ESOP, as the Registrant's discretionary
contribution in the amount of $174,652.86, or $16.70 per share, to the ESOP for
the 1996 calendar plan year. Exemption from registration was claimed under
Section 4(2) of the Securities Act regarding transactions by an issuer not
involving any public offering.
On June 30, 1997, the Registrant issued 4,509 shares to Bank of Butterfield
International (Cayman) Ltd., as trustee of the ESEP, as the Registrant's
discretionary contribution in the amount of $75,318.26, or $16.70 per share, to
the ESEP for the 1996 calendar plan year. Exemption from registration was
claimed under Section 4(2) of the Securities Act regarding transactions by an
issuer not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
<C> <C> <S>
*1.1 -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of the Registrant
*3.2 -- By-Laws of the Registrant
*4.1 -- Form of certificate representing shares of the Registrant's Common Stock
4.2 -- Warrant Agreement, dated as of July 31, 1996, among the Registrant, Brown Brothers Harriman &
Co., NBD Bank, SunTrust Bank, Atlanta (formerly known as Trust Company Bank) and Comerica
Bank--Texas
*5.1 -- Legal Opinion of Gardere & Wynne, L.L.P. regarding legality of securities being registered
10.1 -- Employment Agreement, dated as of July 1, 1995, between the Registrant and H. R. Brutsche III
*10.2 -- Amendment No. 1, dated as of August 11, 1997, to the Employment Agreement, dated as of July 1,
1995, between the Registrant and H.R. Brutsche III
10.3 -- Consulting Agreement, dated as of July 1, 1995, between the Registrant and J. Anthony Smith
10.4 -- Consulting Agreement, dated as of July 1, 1995, between the Registrant and John D. Maxson
*10.5 -- Amendment No. 1, dated as of August 11, 1997, to the Consulting Agreement, dated as of July 1,
1995, between the Registrant and John D. Maxson
10.6 -- Consulting Agreement, dated as of July 1, 1995, between the Registrant and James H. Clark, Jr.
10.7 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Registrant and H. R.
Brutsche III
10.8 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Registrant and John D.
Maxson
10.9 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Registrant and James H.
Clark, Jr.
10.10 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Registrant and J. Anthony
Smith
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <C> <S>
10.11 -- Compensation Continuation Agreement, dated as of March 31, 1994, among the Registrant,
Vari-Lite, Inc., Showco, Inc. and H. R. Brutsche III
10.12 -- Compensation Continuation Agreement, dated as of March 31, 1994, among the Registrant,
Vari-Lite, Inc., Showco, Inc. and John D. Maxson
10.13 -- Compensation Continuation Agreement, dated as of March 31, 1994, among the Registrant,
Vari-Lite, Inc., Showco, Inc. and James H. Clark, Jr.
10.14 -- Statement and Terms of Employment, dated as of April 1, 1994, between Vari-Lite Europe Ltd. and
Brian L. Croft
*10.15 -- Split-Dollar Agreement, dated as of October 12, 1995, among the Registrant, Brown Brothers
Harriman Trust Company of Texas, trustee of the H.R. Brutsche III Insurance Trust, and H. R.
Brutsche III
*10.16 -- Amended and Restated Split-Dollar Agreement, dated as of October 12, 1995, among the Registrant,
Brown Brothers Harriman Trust Company of Texas, trustee of the H.R. Brutsche III Insurance
Trust, and H. R. Brutsche III
*10.17 -- Amended and Restated Split-Dollar Agreement, dated as of October 12, 1997, among the Registrant,
Brown Brothers Harriman Trust Company of Texas, trustee of the John D. Maxson 1995 Irrevocable
Trust, and John D. Maxson
*10.18 -- Split-Dollar Life Insurance Agreement, dated as of October 12, 1995, among the Registrant, James
Howard Cullum Clark and James H. Clark, Jr.
*10.19 -- Amended and Restated Split-Dollar Agreement, dated as of October 12, 1995, between the
Registrant, James Howard Cullum Clark and James H. Clark, Jr.
*10.20 -- Vari-Lite International, Inc. 1997 Omnibus Plan (including forms of Incentive Stock Option
Agreement and Nonqualified Stock Option Agreement)
10.21 -- Vari-Lite International, Inc. Employees' Stock Ownership Plan
*10.22 -- Vari-Lite International, Inc. Employees' Stock Equivalence Plan
*10.23 -- Vari-Lite International, Inc. Annual Incentive Plan (as amended and restated)
*10.24 -- First Amendment to Vari-Lite International, Inc. Annual Incentive Plan
10.25 -- Credit Agreement, dated as of March 31, 1994, among the Registrant and all of its subsidiaries
and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, N.A., Trust Company Bank and
Comerica Bank--Texas
10.26 -- Amendment No. 1 to Credit Agreement, dated as of July 1, 1994, among the Registrant and all of
its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, N.A., Trust
Company Bank and Comerica Bank--Texas
10.27 -- Amendment No. 2 to Credit Agreement, dated as of September 30, 1994, among the Registrant and
all of its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, N.A., Trust
Company Bank and Comerica Bank--Texas
10.28 -- Amendment No. 3 to Credit Agreement, dated as of February 22, 1995, among the Registrant and all
of its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, N.A., Trust
Company Bank and Comerica Bank--Texas
10.29 -- Amendment No. 4 to Credit Agreement, dated as of November 22, 1995, among the Registrant and all
of its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, N.A., Trust
Company Bank and Comerica Bank--Texas
10.30 -- Amendment No. 5 to Credit Agreement, dated as of December 18, 1995, among the Registrant and all
of its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, SunTrust Bank,
Atlanta and Comerica Bank--Texas
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <C> <S>
10.31 -- Amendment No. 6 to Credit Agreement, dated as of May 20, 1996, among the Registrant and all of
its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, SunTrust Bank,
Atlanta and Comerica Bank--Texas
10.32 -- Amendment No. 7 to Credit Agreement, dated as of July 31, 1996, among the Registrant and all of
its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, SunTrust Bank,
Atlanta and Comerica Bank--Texas
10.33 -- Amendment No. 8 to Credit Agreement, dated as of January 16, 1997, among the Company and all of
its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, SunTrust Bank,
Atlanta and Comerica Bank--Texas
10.34 -- Employment Agreement, dated as of August 28, 1995, by and between the Registrant and James E.
Kinnu
10.35 -- Severance Agreement, dated as of September 30, 1996, by and between the Registrant and James E.
Kinnu
10.36 -- Ground Lease, dated as of December 21, 1995, among Brazos Beltline Development, Inc. and
Vari-Lite, Inc., Showco, Inc., Ignition! Creative Services, Inc., Concert Production Lighting,
Inc. and Irideon, Inc.
10.37 -- Guaranty, dated as of December 21, 1995, by the Registrant
*10.38 -- Form of Indemnification Agreement with Directors and Officers
*10.39 -- Agreement and Plan of Merger, dated as of August 27, 1997, between the Registrant and Vari-Lite
Texas
**10.40 -- International Swap Dealers Association, Inc. Master Agreement, dated as of November 23, 1993,
between the Registrant and Brown Brothers, Harriman & Co. (along with confirmation of Interest
Rate Swap Transaction)
**10.41 -- International Swap Dealers Association, Inc. Master Agreement, dated as of September 13, 1996,
between Vari-Lite, Inc. and SunTrust Bank, Atlanta (along with confirmations of Interest Rate
Transactions)
*21.1 -- List of Registrant's Subsidiaries
*23.1 -- Consent of Deloitte & Touche LLP
*23.2 -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
24.1 -- Power of attorney
27.1 -- Financial Data Schedule
</TABLE>
- -------
* Filed herewith
** To be filed by amendment
Unless otherwise indicated, all exhibits were previously filed.
(b) Financial Statement Schedules
Not applicable
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any
II-5
<PAGE>
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to provide to the
representatives of the underwriters at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the representatives of the underwriters to permit prompt delivery to
each purchaser.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas
and State of Texas on the 18th day of September, 1997.
<TABLE>
<S> <C> <C>
VARI-LITE INTERNATIONAL, INC.
By: /s/ H.R. BRUTSCHE III
-----------------------------------------
H.R. Brutsche III
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities indicated on the 18th day of September, 1997.
NAME TITLE
- ------------------------------ -----------------------------------------------
/s/ H.R. BRUTSCHE III Chairman of the Board, President and Chief
- ------------------------------ Executive Officer (Principal Executive
H.R. Brutsche III Officer)
* Vice President--Finance, Chief Financial
- ------------------------------ Officer and Secretary (Principal Financial
Michael P. Herman and Accounting Officer)
*
- ------------------------------ Director
James H. Clark, Jr.
*
- ------------------------------ Director
John D. Maxson
*
- ------------------------------ Director
C. Vincent Prothro
*
- ------------------------------ Director
John R. Rettberg
*
- ------------------------------ Director
J. Anthony Smith
*By: /s/ H.R. BRUTSCHE III
-------------------------
H.R. Brutsche III
ATTORNEY-IN-FACT
II-7
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INDEX TO EXHIBITS
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<CAPTION>
EXHIBIT NO. DESCRIPTION
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*1.1 -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of the Registrant
*3.2 -- By-Laws of the Registrant
*4.1 -- Form of certificate representing shares of the Registrant's Common Stock
4.2 -- Warrant Agreement, dated as of July 31, 1996, among the Registrant, Brown Brothers Harriman &
Co., NBD Bank, SunTrust Bank, Atlanta (formerly known as Trust Company Bank) and Comerica
Bank--Texas
*5.1 -- Legal Opinion of Gardere & Wynne, L.L.P. regarding legality of securities being registered
10.1 -- Employment Agreement, dated as of July 1, 1995, between the Registrant and H. R. Brutsche III
*10.2 -- Amendment No. 1, dated as of August 11, 1997, to the Employment Agreement, dated as of July 1,
1995, between the Registrant and H.R. Brutsche III
10.3 -- Consulting Agreement, dated as of July 1, 1995, between the Registrant and J. Anthony Smith
10.4 -- Consulting Agreement, dated as of July 1, 1995, between the Registrant and John D. Maxson
*10.5 -- Amendment No. 1, dated as of August 11, 1997, to the Consulting Agreement, dated as of July 1,
1995, between the Registrant and John D. Maxson
10.6 -- Consulting Agreement, dated as of July 1, 1995, between the Registrant and James H. Clark, Jr.
10.7 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Registrant and H. R.
Brutsche III
10.8 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Registrant and John D.
Maxson
10.9 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Registrant and James H.
Clark, Jr.
10.10 -- Deferred Compensation Agreement, dated as of July 1, 1995, between the Registrant and J. Anthony
Smith
10.11 -- Compensation Continuation Agreement, dated as of March 31, 1994, among the Registrant,
Vari-Lite, Inc., Showco, Inc. and H. R. Brutsche III
10.12 -- Compensation Continuation Agreement, dated as of March 31, 1994, among the Registrant,
Vari-Lite, Inc., Showco, Inc. and John D. Maxson
10.13 -- Compensation Continuation Agreement, dated as of March 31, 1994, among the Registrant,
Vari-Lite, Inc., Showco, Inc. and James H. Clark, Jr.
10.14 -- Statement and Terms of Employment, dated as of April 1, 1994, between Vari-Lite Europe Ltd. and
Brian L. Croft
*10.15 -- Split-Dollar Agreement, dated as of October 12, 1995, among the Registrant, Brown Brothers
Harriman Trust Company of Texas, trustee of the H.R. Brutsche III Insurance Trust, and H. R.
Brutsche III
*10.16 -- Amended and Restated Split-Dollar Agreement, dated as of October 12, 1995, among the Registrant,
Brown Brothers Harriman Trust Company of Texas, trustee of the H.R. Brutsche III Insurance
Trust, and H. R. Brutsche III
</TABLE>
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<TABLE>
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*10.17 -- Amended and Restated Split-Dollar Agreement, dated as of October 12, 1997, among the Registrant,
Brown Brothers Harriman Trust Company of Texas, trustee of the John D. Maxson 1995 Irrevocable
Trust, and John D. Maxson
*10.18 -- Split-Dollar Life Insurance Agreement, dated as of October 12, 1995, among the Registrant, James
Howard Cullum Clark and James H. Clark, Jr.
*10.19 -- Amended and Restated Split-Dollar Agreement, dated as of October 12, 1995, between the
Registrant, James Howard Cullum Clark and James H. Clark, Jr.
*10.20 -- Vari-Lite International, Inc. 1997 Omnibus Plan (including forms of Incentive Stock Option
Agreement and Nonqualified Stock Option Agreement)
10.21 -- Vari-Lite International, Inc. Employees' Stock Ownership Plan
*10.22 -- Vari-Lite International, Inc. Employees' Stock Equivalence Plan
*10.23 -- Vari-Lite International, Inc. Annual Incentive Plan (as amended and restated)
*10.24 -- First Amendment to Vari-Lite International, Inc. Annual Incentive Plan
10.25 -- Credit Agreement, dated as of March 31, 1994, among the Registrant and all of its subsidiaries
and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, N.A., Trust Company Bank and
Comerica Bank--Texas
10.26 -- Amendment No. 1 to Credit Agreement, dated as of July 1, 1994, among the Registrant and all of
its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, N.A., Trust
Company Bank and Comerica Bank--Texas
10.27 -- Amendment No. 2 to Credit Agreement, dated as of September 30, 1994, among the Registrant and
all of its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, N.A., Trust
Company Bank and Comerica Bank--Texas
10.28 -- Amendment No. 3 to Credit Agreement, dated as of February 22, 1995, among the Registrant and all
of its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, N.A., Trust
Company Bank and Comerica Bank--Texas
10.29 -- Amendment No. 4 to Credit Agreement, dated as of November 22, 1995, among the Registrant and all
of its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, N.A., Trust
Company Bank and Comerica Bank--Texas
10.30 -- Amendment No. 5 to Credit Agreement, dated as of December 18, 1995, among the Registrant and all
of its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, SunTrust Bank,
Atlanta and Comerica Bank--Texas
10.31 -- Amendment No. 6 to Credit Agreement, dated as of May 20, 1996, among the Registrant and all of
its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, SunTrust Bank,
Atlanta and Comerica Bank--Texas
10.32 -- Amendment No. 7 to Credit Agreement, dated as of July 31, 1996, among the Registrant and all of
its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, SunTrust Bank,
Atlanta and Comerica Bank--Texas
10.33 -- Amendment No. 8 to Credit Agreement, dated as of January 16, 1997, among the Company and all of
its subsidiaries and Brown Brothers Harriman & Co., Coutts & Co., NBD Bank, SunTrust Bank,
Atlanta and Comerica Bank--Texas
10.34 -- Employment Agreement, dated as of August 28, 1995, by and between the Registrant and James E.
Kinnu
10.35 -- Severance Agreement, dated as of September 30, 1996, by and between the Registrant and James E.
Kinnu
10.36 -- Ground Lease, dated as of December 21, 1995, among Brazos Beltline Development, Inc. and
Vari-Lite, Inc., Showco, Inc., Ignition! Creative Services, Inc., Concert Production Lighting,
Inc. and Irideon, Inc.
10.37 -- Guaranty, dated as of December 21, 1995, by the Registrant
*10.38 -- Form of Indemnification Agreement with Directors and Officers
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*10.39 -- Agreement and Plan of Merger, dated as of August 27, 1997, between the Registrant and Vari-Lite
Texas
**10.40 -- International Swap Dealers Association, Inc. Master Agreement, dated as of November 23, 1993,
between the Registrant and Brown Brothers, Harriman & Co. (along with confirmation of Interest
Rate Swap Transaction)
**10.41 -- International Swap Dealers Association, Inc. Master Agreement, dated as of September 13, 1996,
between Vari-Lite, Inc. and SunTrust Bank, Atlanta (along with confirmations of Interest Rate
Transactions)
*21.1 -- List of Registrant's Subsidiaries
*23.1 -- Consent of Deloitte & Touche LLP
*23.2 -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
24.1 -- Power of attorney
27.1 -- Financial Data Schedule
</TABLE>
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* Filed herewith
** To be filed by amendment
Unless otherwise indicated, all exhibits were previously filed.
<PAGE>
2,000,000 SHARES
COMMON STOCK
($0.10 PAR VALUE)
UNDERWRITING AGREEMENT
----------------------
_________________, 1997
A.G. EDWARDS & SONS, INC.
EVEREN Securities, Inc.
As Representatives of the Several Underwriters
c/o A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
The undersigned, Vari-Lite International, Inc., a Delaware corporation (the
"Company"), and the persons listed on Schedule I hereto (the "Selling
Stockholders" and together with the Company, the "Sellers"), hereby address you
as the representatives (the "Representatives") of each of the persons, firms and
corporations listed on Schedule II hereto (collectively, the "Underwriters") and
hereby confirm their agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell to the
Underwriters 2,000,000 shares (the "Firm Shares") of its common stock, par value
$0.10 per share ("Common Stock"), as provided in Section 2 of this Agreement.
Solely for the purpose of covering over-allotments in the sale of the Firm
Shares, the Selling Stockholders propose to grant to the Underwriters the right
to purchase up to an additional 300,000 shares of Common Stock (the "Option
Shares"), as provided in Section 3 of this Agreement. The Firm Shares and the
Option Shares are herein sometimes referred to as the "Shares" and are more
fully described in the Prospectus hereinafter defined.
2. PURCHASE, SALE AND DELIVERY OF FIRM SHARES. On the basis of the
representations, warranties and agreements herein contained, and subject to the
terms and conditions herein set forth,(a) the Company hereby agrees to issue and
sell the Firm Shares and (b) each Underwriter, agrees, severally and not
jointly, to purchase from the Company, at a price of $_______ per share (the
"Purchase Price"), the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule II hereto.
The Company will deliver definitive certificates for the Firm Shares, at
the office of A.G. Edwards & Sons, Inc., 77 Water Street, New York, New York
("Edwards' Office"), or such other place as you and the Company may mutually
agree upon, for the respective accounts of the several
<PAGE>
Underwriters against payment to the Company of the Purchase Price for the
Firm Shares by wire transfer or certified or bank cashiers' check payable in
clearing house (next day available) funds payable to the order of the Company
and delivered to the offices of Gardere & Wynne, L.L.P., 1601 Elm Street,
Suite 3000, Dallas, Texas 75201, or at such other place as may be agreed upon
between you and the Company (the "Place of Closing"), at 10:00 a.m., Dallas,
Texas time, on the third or fourth business day, unless otherwise permitted
by the Securities and Exchange Commission (the "Commission") pursuant to Rule
15c6-1 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), following the date of the public offering of the Shares (the "Closing
Date"). The Closing Date and the Place of Closing may be varied by agreement
between you and the Company.
The certificates for the Firm Shares so to be delivered will be made
available to you for inspection at Edwards' Office (or such other place as
you and the Company may mutually agree upon) at least one full business day
prior to the Closing Date and will be registered in such names and
denominations as you may request at least two full business days prior to the
Closing Date.
It is understood that an Underwriter, individually, may (but shall not be
obligated to) make payment on behalf of the other Underwriters whose checks
shall not have been received prior to the Closing Date for Shares to be
purchased by such Underwriter. Any such payment by an Underwriter shall not
relieve the other Underwriters of any of their obligations hereunder.
It is understood that the Underwriters propose to offer the Shares to the
public upon the terms and conditions set forth in the Registration Statement
hereinafter defined.
3. PURCHASE, SALE AND DELIVERY OF THE OPTION SHARES. On the basis of
the representations and warranties contained in this Agreement, and subject
to its terms and conditions, (a) each Selling Stockholder agrees, severally
and not jointly, to sell up to the number of Option Shares set forth opposite
such Selling Stockholder's name in Schedule I hereto and (b) the Underwriters
shall have the right to purchase, severally and not jointly, up to an
aggregate of 300,000 Option Shares from the Selling Stockholders at the
Purchase Price. Such Option Shares shall be purchased from each such Selling
Stockholder for the account of each Underwriter in the same proportion as the
number of Firm Shares set forth opposite such Underwriter's name bears to the
total number of Firm Shares (subject to adjustment by you to eliminate
fractional shares). If the option is exercised in part, the respective
number of Option Shares being purchased shall be sold by each Selling
Stockholder in the same proportion as the number of Option Shares set forth
opposite each such Selling Stockholders' name bears to the total number of
Option Shares (subject to adjustment by you to eliminate fractional shares).
Option Shares may be purchased solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares.
The options are exercisable on behalf of the several Underwriters by you,
as the Representatives, at any time, and from time to time, before the
expiration of 45 days from the date of this Agreement, for the purchase of
all or part of the Option Shares covered thereby, by notice
2
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given by you to the Attorneys-in-Fact (as hereinafter defined) for the
Selling Stockholders in the manner provided in Section 13 hereof, setting
forth the number of Option Shares as to which the Underwriters are exercising
the options, and the date for payment and delivery of said Option Shares,
which date shall be (a) no earlier than the Closing Date and (b) no earlier
than two business days after such notice, unless otherwise agreed to by the
parties, and no later than ten business days after such notice. You may
terminate the options at any time, as to any unexercised portion thereof, by
giving written notice to the Attorneys-in-Fact for the Selling Stockholders
to such effect.
You shall make such allocation of the Option Shares among the
Underwriters as may be required to eliminate purchases of fractional Shares.
Delivery of the Option Shares with respect to which the options shall
have been exercised shall be made to or upon your order at Edwards' Office
(or at such other place as you and the Attorneys-in-Fact may mutually agree
upon), against payment by you of the Purchase Price therefor to the Selling
Stockholders by wire transfer or certified or bank cashier's check or checks,
payable in clearing house (next day available) funds at the Place of Closing.
Such payment and delivery shall be made at 10:00 a.m., Dallas, Texas time, on
the date designated in the notice given by you as above provided for, unless
some other date and time are agreed upon, which date and time of payment and
delivery are called the "Option Closing Date." The certificates for the
Option Shares so to be delivered will be made available to you for inspection
at Edwards' Office (or such other place as you and the Attorneys-in-Fact may
mutually agree upon) at least one full business day prior to the Option
Closing Date and will be registered in such names and denominations as you
may request at least one full business day prior to the Option Closing Date.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
(a) The Company represents and warrants to, and agrees with, each
Underwriter that:
(i) A registration statement on Form S-1 (Registration
No. 333-33559) with respect to the Shares, including a preliminary
prospectus, and such amendments to such registration statement as may have
been required to the date of this Agreement, has been prepared by the
Company pursuant to and in conformity with the requirements of the
Securities Act of 1933 (the "Act") and the Rules and Regulations (the
"Rules and Regulations") of the Commission thereunder and has been filed
with the Commission under the Act. Copies of such registration statement,
including any amendments thereto, each related preliminary prospectus
(meeting the requirements of Rule 430 or 430A of the Rules and Regulations)
contained therein, the exhibits, financial statements and schedules, have
heretofore been delivered by the Company to you. If such registration
statement has not become effective under the Act, a further amendment to
such registration statement, including a form of final prospectus,
necessary to permit such registration statement to
3
<PAGE>
become effective will be filed promptly by the Company with the
Commission. If such registration statement has become effective under the
Act, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with
Rule 424(b) of the Rules and Regulations. The term "Registration
Statement" as used herein means the registration statement as amended
at the time it becomes or became effective under the Act (the
"Effective Date"), including financial statements and all exhibits, a
registration statement, if applicable, filed pursuant to Rule 462(b)
of the Rules and Regulations increasing the size of the offering
registered under the Act and, if applicable, the information deemed
to be included by Rule 430A or Rule 434 of the Rules and Regulations.
The term "Prospectus" as used herein means (A) the prospectus as
first filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations,(B) if no such filing is required, the form of final
prospectus included in the Registration Statement at the Effective
Date or (C) if a Term Sheet or Abbreviated Term Sheet (as such terms
are defined in Rule 434(b) and 434(c), respectively, of the Rules and
Regulations) is filed with the Commission pursuant to Rule 424(b)(7)
of the Rules and Regulations, the Term Sheet or Abbreviated Term
Sheet and the last Preliminary Prospectus filed with the Commission
prior to the time the Registration Statement became effective, taken
together. The term "Preliminary Prospectus" as used herein means a
preliminary prospectus as contemplated by Rule 430 or 430A of the
Rules and Regulations included at any time in the Registration
Statement.
(ii) The Commission has not issued, and, to the knowledge of the
Company, is not threatening to issue, an order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus, nor instituted
proceedings for that purpose. Each Preliminary Prospectus at its date of
issue, the Registration Statement and the Prospectus and any amendments or
supplements thereto contains or will contain, as the case may be, all
statements which are required to be stated therein by, and in all material
respects conform or will conform, as the case may be, to the requirements
of, the Act and the Rules and Regulations. Neither the Registration
Statement nor any amendment thereto, as of the applicable effective date,
and neither the Prospectus nor any supplement thereto contains or will
contain, as the case may be, any untrue statement of a material fact or
omits or will omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of the Underwriters specifically for use in the preparation thereof.
(iii) The filing of the Registration Statement and the
execution, delivery and performance of this Agreement have been duly
authorized by the Board of Directors of
4
<PAGE>
the Company; this Agreement constitutes a valid and legally binding
obligation of the Company enforceable in accordance with its terms
(except as may be limited by bankruptcy, rehabilitation, insolvency,
reorganization, moratorium or similar laws affecting creditors'
rights generally, by general principles of equity, and by public
policy underlying or reflected in applicable securities laws and
regulations); the issue and sale of the Firm Shares by the Company
and the performance of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in
a violation of the Company's charter or bylaws or result in a breach
or violation of any of the terms and provisions of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company or
its subsidiaries under, any statute, or under any indenture,
mortgage, deed of trust, note, loan agreement, sale and leaseback
arrangement or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which they are bound or to
which any of the properties or assets of the Company or its
subsidiaries is subject, or (assuming compliance with the
registration and filing requirements of all applicable state
securities or Blue Sky laws) violate or conflict with any law, order,
rule or regulation or decree of any court or governmental agency or
body having jurisdiction over the Company or its subsidiaries or
their properties, except to such extent as does not materially
adversely affect the business of the Company and its subsidiaries,
taken as a whole; and no consent, approval, authorization, order,
registration or qualification of or with any court or governmental
agency or body is required for the consummation of the transactions
herein contemplated, except such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or under the Act
or Rules and Regulations or any state securities or Blue Sky laws.
(iv) Except as described in the Prospectus, neither the Company
nor any of its subsidiaries has sustained, since the date of the latest
audited financial statements included in the Prospectus, any material loss
or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree. Except as contemplated in
the Prospectus, subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company and
its subsidiaries, taken as a whole, have not incurred any material
liabilities or material obligations, direct or contingent, other than in
the ordinary course of business, or entered into any material transactions
not in the ordinary course of business, and there has not been any material
change in the capital stock or long-term debt of the Company and its
subsidiaries, taken as a whole, or any material adverse effect on the
condition (financial or other), net worth, business, affairs, properties,
management, prospects or results of operations of the Company and its
subsidiaries, taken as a whole (a "Material Adverse Effect"). All material
tax returns required to be filed by the Company and each of its
subsidiaries in any jurisdiction have been filed and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received
5
<PAGE>
by the Company or any of its subsidiaries have been paid, other than
those being contested in good faith and for which adequate reserves
have been provided; and the Company and its subsidiaries have no knowledge
of any tax proceeding or action pending or threatened against the Company
or its subsidiaries which might have a Material Adverse Effect.
(v) Except described in the Prospectus, there is not now pending
or, to the knowledge of the Company, threatened or contemplated, any
action, suit or proceeding to which the Company or its subsidiaries is a
party before or by any court or public, regulatory or governmental agency
or body which might be expected to result (individually or in the
aggregate) in a Material Adverse Effect, or might be expected to materially
and adversely affect (individually or in the aggregate) the properties or
assets thereof. No contract or document of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement is not so described or filed as
required.
(vi) The authorized capital stock of the Company, including the
Common Stock, conforms as to legal matters to the description thereof
contained in the Prospectus; all the outstanding shares of capital stock of
the Company (including the Shares to be sold by the Selling Stockholders)
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive rights, rights of first
refusal or similar rights that have not been waived or satisfied; and the
Shares to be issued and sold by the Company hereunder have been duly
authorized and, when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares will not be
subject to any preemptive rights, rights of first refusal or similar right.
(vii) Each of Company and its subsidiaries has been duly
organized and is validly existing and in good standing under the laws of
its jurisdiction of organization, with full power and authority (corporate
or other) to own, lease and operate its properties and conduct its business
as described in the Registration Statement; each of the Company and its
subsidiaries is duly qualified and is in good standing to do business in
each state or other jurisdiction in which its ownership or leasing of
property or conduct of business requires such qualification, except where
the failure to be so qualified would not have a Material Adverse Effect;
and the outstanding shares of capital stock of the Company's subsidiaries
have been duly authorized and validly issued, are fully paid and
non-assessable and are owned by the Company (directly or indirectly) free
and clear of any mortgage, pledge, lien, encumbrance, charge or adverse
claim and are not the subject of any agreement or understanding with any
person (except to the Company's lenders); no options, warrants or other
rights to purchase, agreement or other obligations to issue or other rights
to convert any obligations into shares of capital stock or ownership
interests in the subsidiaries are outstanding.
6
<PAGE>
(viii) Deloitte & Touche LLP, the accounting firm which has
certified the financial statements filed with the Commission as a part of
the Registration Statement, is an independent public accounting firm within
the meaning of the Act and the Rules and Regulations.
(ix) The financial statements, together with related schedules
and notes forming part of the Registration Statement and the Prospectus
(and any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial position
of the Company and its subsidiaries on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which
they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as otherwise
disclosed therein; and the other financial and statistical information and
data set forth in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) is, in all material respects, fairly
presented and prepared on a basis consistent with such financial statements
and the books and records of the Company.
(x) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or bylaws or other organizational or
governing documents or in default in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any other agreement, indenture or instrument
material to the conduct of the business of the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which it or any of the Company's subsidiaries
or their respective property is bound, except for such defaults which,
individually or in the aggregate, would not have a Material Adverse Effect.
(xi) Neither the Company nor any subsidiary is in violation of
any other laws, ordinances or governmental rules or regulations to which it
is subject, except for violations which, individually or in the aggregate,
would not have a Material Adverse Effect, and neither the Company nor any
subsidiary has, at any time during the past five years,(A) made any
unlawful contributions to any candidate for any political office, or failed
fully to disclose any contribution in violation of law, or (B) made any
payment to any state, federal or foreign government official, or other
person charged with similar public or quasi-public duty (other than payment
required or permitted by applicable law).
(xii) Each of the Company and its subsidiaries have such
certificates, permits, licenses, franchises and authorizations of
governmental or regulatory authorities (collectively, "permits"), as are
necessary to conduct its business or own, lease and operate its respective
properties, except for those the absence of which would not result in a
Material
7
<PAGE>
Adverse Effect; the Company and its subsidiaries has fulfilled and
performed all of its material obligations with respect to such permits and
no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit; and, except as
described in the Prospectus, such permits contain no restrictions that are
materially burdensome to the Company and/or any of its subsidiaries.
(xiii) Each of the Company and its subsidiaries owns or
possesses the patents, patent licenses, trademarks, trade names, service
marks, service names, copyrights and other intellectual property rights
(collectively, "Intellectual Property") necessary to carry on its business
as presently conducted and, except as otherwise set forth in the
Prospectus, neither the Company nor any of its subsidiaries have received
any notice of infringement or conflict with asserted rights of others with
respect to the Intellectual Property which, individually or in the
aggregate, if the subject of any unfavorable decision, ruling or finding,
could reasonably be expected to have a Material Adverse Effect.
(xiv) Each of the Company and its subsidiaries has good and
marketable title to all property owned by it, free and clear of all liens,
claims, encumbrances, restrictions and defects, except such as are
described in the Registration Statement or do not interfere with the use
made or proposed to be made of such property or liens for taxes not yet due
and payable; and any property held under lease or sublease by the Company
or its subsidiaries is held under valid, subsisting and enforceable leases
or subleases with such exceptions as are not material and do not interfere
with the use made or proposed to be made of such property by the Company
and its subsidiaries, and neither the Company nor any subsidiary has any
notice or knowledge of any material claim of any sort which has been
asserted, or any notice or knowledge of any material claim of any sort
which may be asserted, by anyone adverse to the Company's or any
subsidiary's rights as lessee or sublessee under any lease or sublease
described above, or affecting or questioning the Company's or any of its
subsidiaries' rights to the continued possession of the leased or subleased
premises under any such lease or sublease in conflict with the terms
thereof.
(xv) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration
of the environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates any real property
contaminated with any substance that is subject to any environmental laws,
is liable for any off-site disposal or contamination pursuant to any
environmental laws, or is subject to any claim relating to any
environmental laws, which violation, contamination, liability or claim
would individually or in the
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aggregate have a Material Adverse Effect; and the Company is not
aware of any pending investigation which might lead to such a claim.
(xvi) The Company has not, directly or indirectly, (A) taken
any action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares pursuant to the distribution contemplated by
this Agreement or (B) since the filing of the Registration Statement,
except for the Underwriters, (1) sold, bid for, purchased, or paid anyone
any compensation for soliciting purchases of, the Shares or (2) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company (except for the sale of Shares
by the Selling Stockholders under this Agreement).
(xvii) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(xviii) The Company and each of its subsidiaries carry, OR are
covered by, insurance in such amounts and covering such risks as is
reasonably adequate for the conduct of their respective businesses and the
value of their respective properties.
(xix) No holder of any security of the Company has any right
to require registration of shares of Common Stock or any other security of
the Company, except as disclosed in the Registration Statement.
(xx) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(xxi) There are no outstanding subscriptions, rights,
warrants, options, calls, convertible securities, commitments of sale or
liens related to or entitling any person to purchase or otherwise to
acquire any shares of the capital stock of, or other ownership interest in,
the Company or its subsidiaries, except as disclosed in the Registration
Statement.
(xxii) There is (A) no significant unfair labor practice
complaint pending against the Company or any of its subsidiaries or, to the
best knowledge of the Company, threatened against any of them, before the
National Labor Relations Board or any state or local labor relations board,
and no material grievance or arbitration proceeding arising out of or under
any collective bargaining agreement is so pending against the Company or
any of its subsidiaries or, to the best knowledge of the Company,
threatened against any of them, and (B) no significant strike, labor
dispute, slowdown or stoppage pending against the Company or any of its
subsidiaries, to the best knowledge of the Company, is threatened
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against the Company or any of its subsidiaries except for such actions
specified in clause (A) or (B) above, which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(b) Each Selling Stockholder, severally and not jointly, represents
and warrants as to itself to and agrees with each Underwriter and the Company
that:
(i) All authorizations and consents necessary for the execution
and delivery by it of this Agreement and the sale and delivery of the
Shares to be sold by such Selling Stockholder hereunder have been given and
are in full force and effect on the date hereof and, if applicable, will be
in full force and effect on the Option Closing Date.
(ii) Such Selling Stockholder has, and on the Option Closing Date
will have, good and marketable title to the Shares to be sold by such
Selling Stockholder, free and clear of all restrictions on transfer (other
than those contained in the custody agreement and the irrevocable power of
attorney described below), liens, mortgages, pledges, encumbrances, claims,
equities and security interests whatsoever, and has, and on the Option
Closing Date will have, full legal right, power and authority to enter into
this Agreement, the Custody Agreement (the "Custody Agreement") between the
Selling Stockholders and the Company, as custodian (the "Custodian"), and
to sell, assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder.
(iii) Upon delivery of and payment for such Shares hereunder,
the several Underwriters will acquire good and marketable title to such
Shares to be sold by such Selling Stockholder hereunder, free and clear of
all restrictions on transfer, liens, mortgages, pledges, encumbrances,
claims, equities and security interests whatsoever.
(iv) The execution, delivery and performance of this Agreement
by or on behalf of such Selling Stockholder, compliance by such Selling
Stockholder with all the provisions hereof and the consummation by such
Selling Stockholder of the transactions on its part contemplated hereby
will not require any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental body
(except as such may be required under the Act, state securities laws or
Blue Sky laws or the By-laws and rules of the NASD) and will not conflict
with or constitute a breach of any of the terms or provisions of, or a
default under, the organizational documents of such Selling Stockholder, if
not an individual, or any agreement, indenture or other instrument to which
such Selling Stockholder is a party or by which such Selling Stockholder or
property of such Selling Stockholder is bound, or (assuming compliance with
the registration and filing requirements of all applicable state securities
or Blue Sky laws) violate or conflict with any laws, administrative
regulation or ruling or court decree applicable to such Selling Stockholder
or property of such Selling Stockholder.
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(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which might be reasonably
expected to, cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Shares pursuant to the distribution contemplated by this Agreement, and
such Selling Stockholder is not aware of any such actions taken or to be
taken by affiliates of such Selling Stockholder.
(vi) When the Registration Statement becomes effective and at
all times subsequent thereto, such information in the Registration Statement
and Prospectus and any amendments or supplements thereto as specifically
refers to such Selling Stockholder will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(vii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Stockholder hereunder have been placed in
the custody of the Custodian under the Custody Agreement, duly executed and
delivered by such Selling Stockholder, with the Custodian having the
authority to deliver the Shares to be sold by such Selling Stockholder
hereunder, and such Selling Stockholder has duly executed and delivered a
Power of Attorney (the "Power of Attorney") appointing each of
H. R. Brutsche III, James H. Clark, Jr. and John D. Maxson as such Selling
Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with the
Attorneys-in-Fact having authority to execute and deliver this Agreement on
behalf of such Selling Stockholder, to determine the purchase price to be
paid by the Underwriters to the Selling Stockholders as provided in Section
3, to authorize the delivery of the Shares to be sold by it hereunder and
otherwise to act on behalf of such Selling Stockholder in connection with
the transactions contemplated by this Agreement and the Custody Agreement.
(viii) The Shares represented by the certificates held in
custody for such Selling Stockholder under the Custody Agreement are
subject to the interests of the Underwriters hereunder, and the
arrangements made by such Selling Stockholder for such custody, and the
appointment by such Selling Stockholder of the Custodian under the Custody
Agreement and of the Attorneys-in-Fact by the Power of Attorney, are to
that extent irrevocable.
(ix) The obligations of such Selling Stockholder
hereunder shall not be terminated by operation of law, whether by the
death or incapacity of any individual Selling Stockholder or by the
occurrence of any other event, and if any Selling Stockholder should
die or become incapacitated, or if any other such event should occur
before the delivery of the Shares hereunder, certificates
representing the Shares shall be delivered by or on behalf
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of such Selling Stockholder in accordance with the terms and
conditions of this Agreement and of the Custody Agreement, and
actions taken by the Custodian pursuant to the Custody Agreement or
by the Attorneys-in-Fact pursuant to the Power of Attorney shall be
as valid as if such death, incapacity or other event had not
occurred, regardless of whether or not the Custodian or
Attorneys-in-Fact, or any of them, shall have received notice of such
death, incapacity or other event.
(x) Such Selling Stockholder is not prompted to sell shares of
Common Stock by any information concerning the Company or any of its
subsidiaries which is required to be (and is not) included in the
Registration Statement.
(c) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby; and any certificate signed by or on behalf of a Selling
Stockholder as such and delivered to you or to counsel for the Underwriters
shall be deemed a representation and warranty by such Selling Stockholder to
each Underwriter as to the matters covered thereby.
5. ADDITIONAL COVENANTS. The Company and, where expressly indicated, the
Selling Stockholders, covenant and agree with the several Underwriters that:
(a) If the Registration Statement is not effective under the Act, the
Company will use its commercially reasonable efforts to cause the Registration
Statement to become effective as promptly as possible, and it will notify you,
promptly after it shall receive notice thereof, of the time when the
Registration Statement has become effective. The Company (i) will prepare and
timely file with the Commission under Rule 424(b) of the Rules and Regulations,
if required, a Prospectus containing information previously omitted at the time
of effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations or otherwise or a Term Sheet or Abbreviated Term Sheet, as
applicable;(ii) will not file any amendment to the Registration Statement or
supplement to the Prospectus of which the Underwriters shall not previously
have been advised and furnished with a copy or to which the Underwriters shall
have reasonably objected in writing or which is not in compliance with the Rules
and Regulations; and (iii) will promptly notify you after it shall have received
notice thereof of the time when any amendment to the Registration Statement
becomes effective or when any supplement to the Prospectus has been filed.
(b) The Company will advise the Underwriters promptly, after it shall
receive notice or obtain knowledge thereof, of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information, or of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution or threatening of any proceedings for that
purpose, and the Company will use its commercially reasonable efforts to prevent
the issuance of
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any such stop order preventing or suspending the use of the Prospectus and,
if issued, to obtain as soon as possible the lifting thereof.
(c) The Company will cooperate with the Underwriters and their
counsel in endeavoring to qualify the Shares for sale under the securities laws
of such jurisdictions as they may have designated and will make such
applications, file such documents and furnish such information as may be
necessary for that purpose, provided the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent or to subject itself to taxation as doing business in any
jurisdiction where it is not now so taxed. The Company will, from time to time,
file such statements, reports and other documents as are or may be required to
continue such qualifications in effect for so long a period as the Underwriters
may reasonably request.
(d) The Company will deliver to, or upon the order of, the
Underwriters, without charge from time to time, as many copies of any
Preliminary Prospectus as they may reasonably request. The Company will deliver
to, or upon the order of, the Underwriters without charge as many copies of the
Prospectus, or as it thereafter may be amended or supplemented, as they may from
time to time reasonably request. The Company consents to the use of such
Prospectus by the Underwriters and by all dealers to whom the Shares may be
sold, both in connection with the offering or sale of the Shares and for such
other purposes and for such period of time thereafter as the Prospectus is
required by law to be delivered in connection with the offering or sale of the
Shares. The Company will deliver to the Underwriters at or before the Closing
Date three signed copies of the Registration Statement and all amendments
thereto including all exhibits filed therewith, and will deliver to the
Underwriters such number of copies of the Registration Statement, without
exhibits, and of all amendments thereto, as they may reasonably request.
(e) The Company will not file any amendment or supplement to the
Registration Statement, whether before or after the time when it becomes
effective, or make any amendment or supplement to the Prospectus, including the
issuance or filing of any term sheet within the meaning of Rule 434, of which
you shall not previously have been advised or to which you shall reasonably
object; and will prepare and file with the Commission, promptly upon your
reasonable request, any amendment to the Registration Statement or supplement to
the Prospectus, or make any amendment or supplement to the Prospectus, including
the issuance or filing of any term sheet within the meaning of Rule 434, which
may be necessary or advisable in connection with the distribution of the Shares
by you, and to use its commercially reasonable efforts to cause the same to
become promptly effective.
(f) If, during the period in which a prospectus is required by law to
be delivered by an Underwriter or dealer, any event shall occur as a result of
which, in the judgment of the Company or in your judgment or in the opinion of
counsel for the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in light
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<PAGE>
of the circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
prepare and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus
as so amended or supplemented will not, in the light of the circumstances
when it is so delivered, be misleading, or so that the Prospectus will comply
with law.
(g) The Company will make generally available to its stockholders and
will file as an exhibit in a report pursuant to the Exchange Act, as soon as it
is practicable to do so, but in any event not later than 15 months after the
effective date of the Registration Statement, an earnings statement in
reasonable detail, covering a period of at least 12 consecutive months beginning
after the effective date of the Registration Statement, which earnings statement
shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the
Rules and Regulations and will advise the Underwriters in writing when such
statement has been so made available.
(h) The Company will, for a period of three years from the Closing
Date, deliver to the Representatives at their principal executive offices a
reasonable number of copies of annual reports, quarterly reports, current
reports and copies of all other documents, reports and information furnished by
the Company to its stockholders or filed with any securities exchange pursuant
to the requirements of such exchange or with the Commission pursuant to the Act
or the Exchange Act. The Company will deliver to the Representatives similar
reports with respect to any significant subsidiaries, as that term is defined in
the Rules and Regulations, which are not consolidated in the Company's financial
statements. Any report, document or other information required to be furnished
under this paragraph (h) shall be furnished as soon as practicable after such
report, document or information becomes available.
(i) The Company will apply the proceeds from the sale of the Shares
as set forth in the description under "Use of Proceeds" in the Prospectus, which
description complies in all respects with the requirements of Item 504 of
Regulation S-K.
(j) The Company will supply you with copies of all correspondence to
and from, and all documents issued to and by, the Commission in connection with
the registration of the Shares under the Act.
(k) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Company will furnish to you, as soon as they have been prepared,
copies of any unaudited interim consolidated financial statements of the Company
and its subsidiaries for any periods subsequent to the periods covered by the
financial statements appearing in the Registration Statement and the Prospectus.
(l) The Company will use its commercially reasonable efforts to
obtain approval for quotation of the Common Stock on the Nasdaq National Market
(the "Nasdaq").
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(m) The Selling Stockholders, severally and not jointly, and the
Company hereby agree to, and the Company shall, concurrently with the
execution of this Agreement, deliver an agreement executed by (i) each of the
directors and officers of the Company and (ii) each Selling Stockholder,
pursuant to which each such person and entity agrees, not to, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge (other than
to the Company) or grant any option to purchase or otherwise dispose or
transfer (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other disposition or transfer)(i)
any shares of Common Stock or other capital stock of the Company, or (ii) any
other securities convertible into, or exchangeable or exercisable for, shares
of Common Stock or such other capital stock, beneficially owned (within the
meaning of Rule 13d-3 under the Exchange Act) by such person, without the
prior written consent of A. G. Edwards & Sons, Inc. for a period of 180 days
after the date of the Prospectus, other than (A) pursuant to a tender or
exchange offer for shares of Common Stock,(B) to an immediate family member
or a trust established for the benefit of such person or an immediate family
member of such person (provided that any such family member or trust shall
have executed and delivered to the Underwriters an agreement of substantially
the tenor of this Section 5(m)),(C) pursuant to a qualified domestic
relations order (provided that any such party shall have executed and
delivered to the Underwriters an agreement of substantially the tenor of this
Section 5(m)),(D) pursuant to a pledge or gift of such shares (provided that
any such pledgee or donee shall have executed and delivered to the
Underwriters an agreement of substantially the tenor of this Section 5(m)),
or (E) by operation of law. Notwithstanding the foregoing, during such
period the Company may (1) grant awards pursuant to the Company's 1997
Omnibus Plan,(2) issue shares of its Common Stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date
hereof and disclosed in the Prospectus and (3) issue shares of its Common
Stock to its Employees' Stock Ownership Plan and Employees' Stock Equivalence
Plan.
(n) Each of the Selling Stockholders will use its commercially
reasonable efforts to do and perform all things required or necessary to be
done and performed under this Agreement by it prior to the Closing Date or
any Option Closing Date, as the case may be, and to satisfy all conditions
precedent to the delivery of the Shares.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase and pay for the Shares, as provided herein, will
be subject to the accuracy in all material respects, as of the date hereof
and as of the Closing Date (and, if applicable, the Option Closing Date), of
the representations and warranties of the Company and the Selling
Stockholders contained herein, to the performance in all material respects by
the Company and the Selling Stockholders of their covenants and obligations
hereunder and to the following additional conditions:
(a) All filings required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been made. No stop order suspending the effectiveness of
the Registration Statement, as
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amended from time to time, shall have been issued and no proceeding for that
purpose shall have been initiated or, to the knowledge of the Company or any
Underwriter, threatened or contemplated by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to
the reasonable satisfaction of the Underwriters.
(b) No Underwriter shall have disclosed in writing to the Company
on or prior to the Closing Date (and, if applicable, the Option Closing
Date), that the Registration Statement or Prospectus or any amendment or
supplement thereto contains an untrue statement of fact which, in the opinion
of counsel to the Underwriters, is material, or omits to state a fact which,
in the opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On the Closing Date (and, if applicable, the Option Closing
Date), you shall have received the opinion of Gardere & Wynne, counsel for
the Company, addressed to you and dated the Closing Date (and, if
applicable, the Option Closing Date), to the effect that:
(i) Each of the Company and its United States subsidiaries is a
corporation, validly existing and, where applicable, in good standing under
the laws of its jurisdiction of organization, with the corporate power and
authority to own, lease and operate its properties and conduct its business
as described in the Prospectus; each of the Company and its United States
subsidiaries is duly qualified and is in good standing to do business in
each state or other jurisdiction in which its ownership or leasing of
property or conduct of business requires such qualification, except where
the failure to be so qualified would not have a Material Adverse Effect;
the outstanding shares of capital stock of the Company's subsidiaries have
been duly authorized and validly issued, are fully paid and non-assessable
and, to the knowledge of such counsel after due inquiry, are owned of
record by the Company free and clear of any mortgage, pledge, lien,
encumbrance, charge or adverse claim (other than restrictions on transfer
imposed by applicable securities laws) and are not the subject of any
agreement or understanding with any person, other than the pledge of such
shares to the Company's lenders; and, to the knowledge of such counsel
after due inquiry, no options, warrants or other rights to purchase, or
agreements or other obligations to issue, or rights to convert any
obligations into, shares of capital stock or ownership interests in the
subsidiaries are outstanding.
(ii) The authorized capital stock of the Company, including the
Common Stock, conforms as to legal matters to the description thereof
contained under the caption "Description of Capital Stock" in the
Prospectus; all the outstanding shares of capital stock of the Company
(including the Shares to be sold hereunder by the Selling Stockholders)
have been duly authorized and validly issued and are fully paid,
non-assessable and, to the knowledge of such counsel after due inquiry,
were not issued or sold by the Company in
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violation of any statutory preemptive rights or contractual preemptive
rights, rights of first refusal or similar rights that have not been waived
or satisfied; and the shares of Common Stock to be issued and sold by the
Company hereunder have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor as provided by this Agreement,
will be validly issued, fully paid and non-assessable, and, to the knowledge
of such counsel after due inquiry, the issuance of such Shares will not
violate any statutory preemptive rights or any contractual preemptive
rights, rights of first refusal or similar rights of any other person.
(iii) The Registration Statement has become effective under
the Act and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated by the Commission.
(iv) The Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective or issue
dates, complied as to form in all material respects with the requirements
of the Act and the applicable Rules and Regulations (except that such
counsel need express no opinion as to the financial statements and the
notes thereto, related schedules and other statistical and financial data
included therein).
(v) To the knowledge of such counsel after due inquiry, there
are no contracts or documents required to be filed as exhibits to the
Registration Statement or required to be described in the Prospectus that
are not so filed or described as required, and statements contained in the
Prospectus, insofar as they purport to summarize the provisions of such
contracts and documents, present fair summaries of such provisions.
(vi) No authorization, approval, consent, order, registration
or qualification of or with any court or governmental body, authority or
agency is required as a condition to the Company's execution and delivery
of, and the performance of its obligations under, this Agreement, except
such as may be required under the Act or the Rules and Regulations or as
may be required by the NASD or under state securities and Blue Sky laws (as
to each of which exceptions such counsel need express no opinion).
(vii) To the knowledge of such counsel after due inquiry,
neither the Company nor any of its subsidiaries is in violation of its
respective charter, bylaws or other organizational or governing documents
and, to the knowledge of such counsel after due inquiry, neither the
Company nor any of its subsidiaries is in default in the performance of any
obligation, agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any other agreement, indenture
or instrument material to the conduct of the business of the Company and
its subsidiaries, taken as a whole, to which the
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Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound.
(viii) The filing of the Registration Statement has been duly
authorized by the Board of Directors of the Company. This Agreement has
been duly authorized, executed and delivered by the Company and is a valid
and binding agreement of the Company enforceable in accordance with its
terms (except as may be limited by bankruptcy, rehabilitation, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, by general principles of equity, and by public policy underlying
or reflected in applicable securities laws and regulations). The Company's
performance of this Agreement and its consummation of the transactions
contemplated herein will not (A) conflict with or result in a violation of
the Company's charter or bylaws, (B) result in a breach or violation of
any of the terms and provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any properties or assets of the Company or its subsidiaries under any
indenture, mortgage, deed of trust, note, loan agreement, sale and
leaseback arrangement, or other agreement or instrument, in any case known
to such counsel after due inquiry, to which the Company or any of its
subsidiaries is a party or by which any of them are bound or to which any
of the properties or assets of the Company or its subsidiaries is subject,
(C) violate any statute of the United States of America or the State of
Texas or the Delaware General Corporate Law, in any case generally
applicable to transactions of the type contemplated hereby, or (D) to the
knowledge of such counsel, violate any order, rule, regulation or decree of
any court or governmental agency or body having jurisdiction over the
Company or its subsidiaries or their properties, except, in the case of any
such violation, breach, default, conflict, creation or imposition, to such
extent as individually, or in the aggregate, does not have a Material
Adverse Effect.
(ix) To the knowledge of such counsel after due inquiry, other
than as set forth in the Prospectus, there are no legal, governmental or
regulatory proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or of which the business or properties of the
Company or any of its subsidiaries is subject that are required to be
described in the Prospectus and are not so described.
(x) To the knowledge of such counsel after due inquiry,(A) the
Company and its subsidiaries have such permits from governmental agencies
of the United States and the State of Texas ("Permits") as are necessary to
conduct their businesses and own, lease and operate their respective
properties as described in the Prospectus, except where the failure to have
a Permit would not, individually or in the aggregate, have a Material
Adverse Effect; (B) the Company and its subsidiaries have fulfilled and
performed all of their material obligations with respect to such Permits,
and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such Permit, subject
in each case to
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such qualifications as may be set forth in the Prospectus, except
where the failure to fulfill or perform such material obligations or
the occurrence of any such event would not, individually or in the
aggregate, have a Material Adverse Effect; and (C) each Permit is in full
force and effect and each of the Company and its subsidiaries is operating
in compliance with its Permits. There are no proceedings pending or, to
the knowledge of such counsel after due inquiry, threatened against the
Company or any of its subsidiaries that seek to cause any Permit to be
revoked, withdrawn, canceled, suspended or not renewed, except where the
failure of a Permit to be in full force and effect would not, individually
or in the aggregate, have a Material Adverse Effect.
(xi) The statements made in the Registration Statement under
the captions "Dividend Policy," "Capitalization" and "Description of Capital
Stock," to the extent that they constitute summaries of documents referred
to therein, present fair summaries of such documents in all material
respects and, insofar as they purport to describe matters of law or legal
conclusions, are accurate in all material respects.
(xii) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(xiii) To the knowledge of such counsel after due inquiry, no
holder of any security of the Company has any right to require registration
of shares of Common Stock or any other security of the Company under the
Act, except as described in the Registration Statement, and the sale of the
Shares in accordance with this Agreement does not violate the terms of any
such agreement described in the Registration Statement.
Such counsel shall also state that they have participated in the
preparation of the Registration Statement and Prospectus and in conferences
with officers and other representatives of the Company, counsel for the
Underwriters, representatives of the independent public accountants for the
Company and your representatives at which the contents of the Registration
Statement and Prospectus and related matters were discussed, and that,
although they are not passing upon and do not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (or any amendment thereof or
supplement thereto prior to the Closing Date or the Option Closing Date, as
the case may be, as of the date of such amendment or supplement), on the
basis of the foregoing (relying as to materiality to a large degree upon the
opinions of officers and other representatives of the Company), no facts have
come to their attention that lead them to believe that (1) the Registration
Statement, as of the time it became effective (or any amendment thereto made
prior to the Closing Date or the Option Closing Date, as the case may be, as
of the date of such amendment), contained or as of the Closing Date or the
Option Closing Date, as the case may be, contains an untrue statement of a
material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements
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therein not misleading, or (2) the Prospectus, as of the date thereof (or any
amendment thereof or supplement thereto made prior to the Closing Date or the
Option Closing Date, as the case may be, as of the date of such amendment or
supplement), contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (it being understood that, with respect
to the financial statements and the notes thereto or other financial or
statistical data included in the Registration Statement or the Prospectus,
such counsel need express no opinion).
(d) On the Closing Date (and, if applicable, the Option Closing
Date), you shall have received the opinions of counsel from law firms in such
countries (other than the United States) as are reasonably requested by the
Representatives to the effect that (A) each of the Company's non-United States
subsidiaries validly exists and, where applicable, is in good standing under the
laws of its jurisdiction of organization with the power and authority to own,
lease and operate its properties and conduct its business as described in the
Prospectus and (B) each of the Company and its subsidiaries is duly qualified
and is in good standing to do business in each country or other jurisdiction in
which its ownership or leasing of property or conduct of business requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect.
(e) If applicable, on the Option Closing Date you shall have received
an opinion of counsel from a law firm reasonably satisfactory to the
Representatives for each Selling Stockholder, addressed to you and dated the
Option Closing Date, to the effect that:
(i) If such Selling Stockholder is not a natural person, such
Selling Stockholder has duly authorized the execution and delivery of the
Custody Agreement and the Power of Attorney. Such Selling Stockholder has
duly executed and delivered the Custody Agreement and the Power of
Attorney.
(ii) If such Selling Stockholder is not a natural person, this
Agreement has been duly authorized on behalf of such Selling Stockholder.
This Agreement has been duly authorized (if such Selling Stockholder is not
a natural person), executed and delivered on behalf of such Selling
Stockholder, and is a valid and binding agreement of such Selling
Stockholder, enforceable against such Selling Stockholder in accordance
with its terms (except as may be limited by bankruptcy, rehabilitation,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, by general principles of equity and by public policy
underlying or reflected in applicable securities laws and regulations).
(iii) To the knowledge of such counsel after due inquiry,
such Selling Stockholder has full legal right, power and authority, and all
necessary approvals, authorizations and orders of any court, or
governmental or regulatory agency or body as are
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required for the execution, delivery and performance of this Agreement and
the Custodian Agreement except as may be required under the Act or the Rules
and Regulations or as may be required by the NASD or under the state
securities and Blue Sky laws (as to each of which exceptions counsel need
express no opinion).
(iv) To the knowledge of such counsel after due inquiry, such
Selling Stockholder is the registered owner of the Option Shares to be sold
by such Selling Stockholder hereunder, and upon delivery of and payment for
such Option Shares as contemplated by this Agreement, each of the
Underwriters who has acquired Option Shares from such Selling Stockholder
in good faith and without notice of any adverse claim within the meaning of
Chapter 8 of the Texas Uniform Commercial Code will acquire the Option
Shares being sold by such Selling Stockholder on the Option Closing Date
free of any adverse claim. The owner of such Option Shares, if other than
such Selling Stockholder, is precluded from asserting against the
Underwriters the ineffectiveness of any authorized endorsement or
instruction, assuming the Underwriters purchased such Option Shares for
value in good faith and without notice of any adverse claim.
(f) You shall have received on the Closing Date (and, if applicable,
the Option Closing Date), from Vinson & Elkins L.L.P., counsel to the
Underwriters, such opinion or opinions, dated the Closing Date (and, if
applicable, the Option Closing Date) with respect to the incorporation of the
Company, the validity of the Shares, the Registration Statement, the Prospectus
and other related matters as you may reasonably require; the Company and Selling
Stockholders shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass on such matters.
(g) You shall have received at or prior to the Closing Date from
Vinson & Elkins L.L.P., a memorandum or memoranda, in form and substance
satisfactory to you, with respect to the qualification for offering and sale by
the Underwriters of the Shares under state securities or Blue Sky laws of such
jurisdictions as the Underwriters may have designated to the Company.
(h) On the business day immediately preceding the date of this
Agreement and on the Closing Date (and, if applicable, the Option Closing Date),
you shall have received from Deloitte & Touche LLP, a letter or letters, dated
the date of this Agreement and the Closing Date (and, if applicable, the Option
Closing Date), respectively, in form and substance satisfactory to you,
confirming that they are independent public accountants with respect to the
Company within the meaning of the Act and the published Rules and Regulations,
and the answer to Item 509 of Regulation S-K set forth in the Registration
Statement is correct insofar as it relates to them, and stating to the effect
set forth in Schedule III hereto.
(i) Except as contemplated in the Prospectus, (i) neither the Company
nor any of its subsidiaries shall have sustained since the date of the latest
audited financial statements
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included in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, and (ii) subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries shall have incurred any
liability or obligation, direct or contingent, or entered into transactions,
and there shall not have been any change in the capital stock or long-term
debt of the Company and its subsidiaries or any change in the condition
(financial or other), net worth, business, affairs, management, prospects or
results of operations of the Company or its subsidiaries, the effect of
which, in any such case described in clause (i) or (ii), is in your judgment
so material or adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered on
such Closing Date (and, if applicable, the Option Closing Date) on the terms
and in the manner contemplated in the Prospectus.
(j) There shall not have occurred any of the following: (i) a
suspension or material limitation in trading in securities generally on the New
York Stock Exchange or the American Stock Exchange or the establishing on such
exchanges by the Commission or by such exchanges of minimum or maximum prices
which are not in force and effect on the date hereof; (ii) a general moratorium
on commercial banking activities declared by either federal or state
authorities; (iii) the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national emergency or
war, if the effect of any such event specified in this clause (iii) in your
judgment makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares in the manner contemplated in the
Prospectus; (iv) any calamity or crisis, change in national, international or
world affairs, act of God, change in the international or domestic markets, or
change in the existing financial, political or economic conditions in the United
States or elsewhere, if the effect of any such event specified in this clause
(iv) makes it impracticable or inadvisable to proceed with the public offering
or the delivery of the Shares in the manner contemplated in the Prospectus; or
(v) the enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of any court or other governmental
authority, or the taking of any action by any federal, state or local government
or agency in respect of fiscal or monetary affairs, if the effect of any such
event specified in this clause (v) in your judgment makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares in
the manner contemplated in the Prospectus.
(k) You shall have received certificates, dated the Closing Date
(and, if applicable, the Option Closing Date) and signed by the President and
the Chief Financial Officer of the Company stating that (i) they have carefully
examined the Registration Statement and the Prospectus as amended or
supplemented and nothing has come to their attention that would lead them to
believe that either the Registration Statement or the Prospectus, or any
amendment or supplement thereto as of their respective effective dates,
contained, and the Prospectus as amended or supplemented at such Closing Date,
contains any untrue statement of a material fact, or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein,
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in light of the circumstances under which they were made, not misleading,
and, that (ii) all representations and warranties made herein by the Company
are true and correct in all material respects at such Closing Date, with the
same effect as if made on and as of such Closing Date, and all agreements
herein to be performed by the Company on or prior to such Closing Date have
been duly performed in all material respects.
(l) The Company shall have delivered to you the agreements specified
in Section 5(n) hereof.
(m) The Company and each of the Selling Stockholders shall not have
failed, refused or been unable, at or prior to the Closing Date (and, if
applicable, the Option Closing Date) to have performed in all material respects
any agreement on their part to be performed or any of the conditions herein
contained and required to be performed or satisfied by them at or prior to such
Closing Date.
(n) You shall have received on the Closing Date (i) a United States
Treasury Department Form W-9 from each Selling Stockholder who is a U.S. Person
(as defined under applicable U.S. federal tax legislation) and (ii) a United
States Treasury Department Form W-8 from each Selling Stockholder who is not a
U.S. Person to the effect that such Selling Stockholder is not a U.S. Person.
(o) The Company and the Selling Stockholders shall have furnished to
you at the Closing Date (and, if applicable, the Option Closing Date) such other
certificates as you may have reasonably requested as to the accuracy, on and as
of such date, of the representations and warranties of the Company and the
Selling Stockholders herein and as to the performance by the Company and the
Selling Stockholders of their obligations hereunder.
(p) The Shares shall have been approved for trading upon official
notice of issuance on the Nasdaq.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Vinson & Elkins L.L.P., counsel for the several Underwriters. The
Company and Selling Stockholders will furnish you with such conformed copies of
such opinions, certificates, letters and documents as you may request.
If any of the conditions specified above in this Section 6 shall not have
been satisfied at or prior to the Closing Date (and, if applicable, the Option
Closing Date) or waived by you in writing, this Agreement may be terminated by
you on notice to the Company and the Selling Stockholders.
7. INDEMNIFICATION. (a) The Company and the Selling Stockholders, jointly
and severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who
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controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any losses, claims, damages,
liabilities and judgments, joint or several, to which such Underwriter or
such controlling person may become subject, insofar as such losses, claims,
damages, liabilities or judgments arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and will reimburse
each Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company and the Selling
Stockholders shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or judgment arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by you or by any
Underwriter through you, specifically for use in the preparation thereof; and
provided, further, that if any Preliminary Prospectus or the Prospectus
contained any alleged untrue statement or allegedly omitted to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading and such statement or omission shall have
been corrected in a revised Preliminary Prospectus or in the Prospectus or in
an amended or supplemented Prospectus, the Company and the Selling
Stockholders shall not be liable to any Underwriter or controlling person
under this subsection (a) with respect to such alleged untrue statement or
alleged omission to the extent that any such loss, claim, damage, liability
or judgment of such Underwriter or controlling person results from the fact
that such Underwriter sold Shares to a person to whom there was not sent or
given, at or prior to the written confirmation of such sale, such revised
Preliminary Prospectus or Prospectus or amended or supplemented Prospectus.
Notwithstanding the foregoing, in no event shall a Selling Stockholder be
liable under the provisions of this Section 7 for any amount in excess of the
aggregate amount of proceeds that such Selling Stockholder received from the
sale of the Shares pursuant to this Agreement. The Company, the Selling
Stockholders and the Underwriters acknowledge and agree that the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement or the Prospectus consists of the information set
forth in the last paragraph on the front cover page of the Prospectus
(insofar as such information relates to the Underwriters), legends required
by Item 502(d) of Regulation S-K under the Act and the information in
paragraphs three, seven, and eight under the caption "Underwriting" in the
Prospectus. This indemnity agreement shall be in addition to any liabilities
which the Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and, each person, if any, who controls the
Company within the meaning of Section 15 of
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the Act or Section 20 of the Exchange Act, and each Selling Stockholder and
each person, if any, who controls such Selling Stockholder within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, against any
losses, claims, damages, liabilities or judgments, joint or several, to which
the Company or any such director, officer or controlling person or any such
Selling Stockholder or controlling person of such Selling Stockholder may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages, liabilities or judgments arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by any such Underwriter
specifically for use in the preparation thereof; and will reimburse any legal
or other expenses reasonably incurred by the Company or any such director,
officer or controlling person or any such Selling Stockholder or controlling
person of such Selling Stockholder in connection with investigating or
defending any such loss, claim, damage, liability or action. This indemnity
agreement shall be in addition to any liabilities which the Underwriters may
otherwise have.
(c) Any party which proposes to assert the right to be indemnified
under this Section 7 shall, within ten days after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party under this Section 7,
notify each such indemnifying party of the commencement of such action, suit or
proceeding, enclosing a copy of all papers served, but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
such indemnifying party from any liability which it may have to any indemnified
party otherwise than under this Section 7. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party, similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and,
except as hereinafter provided, 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. The indemnified party shall have the right to employ its own
counsel in any such action, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the employment of counsel by
such indemnified party at the expense of the indemnifying party has been
authorized by the indemnifying party, (ii) the indemnified party shall have been
advised by such counsel that there may be a conflict of interest between the
indemnifying party and the indemnified party in the conduct of the defense, or
certain aspects of the defense, of such action (in which case the indemnifying
party shall not have the right to direct the defense of such action with respect
to those
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matters or aspects of the defense on which a conflict exists or may exist on
behalf of the indemnified party) or (iii) the indemnifying party shall have
failed to assume the defense and employ counsel reasonably satisfactory to
the indemnified party, in any of which events such fees and expenses to the
extent applicable shall be borne by the indemnifying party. An indemnifying
party shall not be liable for any settlement of any action or claim effected
without its written consent, but if settled with the written consent of the
indemnifying party, such indemnifying party agrees to indemnify and hold
harmless any indemnified party from and against any loss or liability by
reason of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding. Each indemnified party, as a condition of
such indemnity, shall cooperate in good faith with the indemnifying party in
the defense of any such action or claim.
(d) If the indemnification provided for in this Section 7 is for any
reason, other than pursuant to the terms thereof, judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right to appeal) to be
unavailable to an indemnified party under subsections (a) or (b) above in
respect of any losses, claims, damages, liabilities or judgments referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or judgments in
such proportion as is appropriate to reflect the relative benefits received by
the Company, the Selling Stockholders and the Underwriters from the offering of
the Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault, as applicable, of the Company, the Selling Stockholders and
the Underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as other relevant equitable considerations. The relative benefits
received by, as applicable, the Company, the Selling Stockholders and the
Underwriters shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
and the Selling Stockholders bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Selling Stockholders and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this subsection (d) were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such
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purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) Each Selling Stockholder hereby designates the Company as its
authorized agent, upon which process may be served in any action, suit or
proceeding which may be instituted in any state or federal court in the State of
Missouri by any Underwriter or person controlling any Underwriter asserting a
claim for indemnification or contribution under or pursuant to this Section 7,
and each Seller will accept the jurisdiction of such court in such action, and
waives, to the fullest extent permitted by applicable law, any defense based
upon lack of personal jurisdiction or venue. A copy of any such process shall
be sent or given to such Selling Stockholder, at the address for notices
specified in Section 13 hereof.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, and agreements of the Company and the Selling
Stockholders contained in Sections 7 and 12 herein or in certificates delivered
pursuant hereto, and the agreements of the Underwriters contained in Section 7
hereof, shall remain operative and in full force and effect regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any Underwriter or any controlling person, the Company or any of its
officers, directors or any controlling persons, or the Selling Stockholders, and
shall survive delivery of the Shares to the Underwriters hereunder.
9. SUBSTITUTION OF UNDERWRITERS. (a) If any Underwriter shall default in
its obligation to purchase the Shares which it has agreed to purchase hereunder,
you may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Stockholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
parties reasonably satisfactory to you to purchase such Shares on such terms.
In the event that, within the respective prescribed periods, you notify the
Company and the Selling Stockholders that you have so arranged for the purchase
of such Shares, or the Company and the Selling Stockholders notify you that they
have so arranged for the purchase of such Shares, you or the Company and the
Selling Stockholders shall have the right to
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postpone the Closing Date for a period of not more than seven days, in order
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and
the Company agrees to file promptly any amendments to the Registration
Statement or the Prospectus which in your opinion may thereby be made
necessary. The term "Underwriter" as used in this Agreement shall include
any persons substituted under this Section 9 with like effect as if such
person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters made by you or the
Company and the Selling Stockholders as provided in subsection (a) above, the
aggregate number of Shares which remains unpurchased does not exceed one tenth
of the total Shares to be sold on the Closing Date, then the Company and the
Selling Stockholders shall have the right to require each non-defaulting
Underwriter to purchase the Shares which such Underwriter agreed to purchase
hereunder and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters made by you or the
Company and the Selling Stockholders as provided in subsection (a) above, the
number of Shares which remains unpurchased exceeds one tenth of the total Shares
to be sold on the Closing Date, or if the Company and the Selling Stockholders
shall not exercise the right described in subsection (b) above to require the
non-defaulting Underwriters to purchase Shares of the defaulting Underwriter or
Underwriters, then this Agreement shall thereupon terminate, without liability
on the part of any non-defaulting Underwriter or the Company and the Selling
Stockholders except for the expenses to be borne by the Company and the
Underwriters as provided in Section 12 hereof and the indemnity and contribution
agreements in Section 7 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10. EFFECTIVE DATE AND TERMINATION. (a) This Agreement shall become
effective at 1:00 p.m., St. Louis time, on the first business day following the
effective date of the Registration Statement, or at such earlier time after the
effective date of the Registration Statement as you in your discretion shall
first release the Shares for offering to the public; provided, however, that the
provisions of Section 7 and 12 hereof shall at all times be effective. For the
purposes of this Section 10(a), the Shares shall be deemed to have been released
to the public upon release by you of the publication of a newspaper
advertisement relating to the Shares or upon release of telegrams, facsimile
transmissions or letters offering the Shares for sale to securities dealers,
whichever shall first occur.
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(b) This Agreement may be terminated by you at any time before it
becomes effective in accordance with Section 10(a) by notice to the Company
and the Selling Stockholders; provided, however, that the provisions of this
Section 10 and of Section 7 and Section 12 hereof shall at all times be
effective. In the event of any termination of this Agreement pursuant to
Section 9 hereof or this Section 10(b), the Company and the Selling
Stockholders shall not then be under any liability to any Underwriter except
as provided in Section 7 hereof or Section 12 hereof.
(c) This Agreement may be terminated by you at any time at or prior
to the Closing Date by notice to the Company and the Selling Stockholders if
any condition specified in Section 6 hereof shall not have been satisfied on
or prior to the Closing Date. Any such termination shall be without
liability of any party to any other party except as provided in Sections 7
and 12 hereof.
(d) This Agreement also may be terminated by you, by notice to the
Company and the Selling Stockholders, as to any obligation of the
Underwriters to purchase the Option Shares, if any condition specified in
Section 6 hereof shall not have been satisfied at or prior to the Option
Closing Date or as provided in Section 9 of this Agreement.
If you terminate this Agreement as provided in Sections 10(b), 10(c) or
10(d), you shall notify the Company and the Selling Stockholders by telephone
or telegram, confirmed by letter.
11. AGREEMENTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder,
severally and not jointly, agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes with respect to
the Shares to be sold by such Selling Stockholder; and
(b) To take all reasonable actions in cooperation with the Company
and the Underwriters to cause the Registration Statement to become
effective at the earliest possible time, to do and perform all things to
be done and performed under this Agreement prior to the Closing Date and
to satisfy all conditions precedent to the delivery of the Shares pursuant
to this Agreement.
12. COSTS AND EXPENSES. The Company will bear and pay the costs and
expenses incident to the registration of the Shares and public offering
thereof, including, without limitation, (a) the fees and expenses of the
Company's accountants and the fees and expenses of counsel for the Company
and the Selling Stockholders, (b)the preparation, printing, filing, delivery
and shipping of the Registration Statement, each Preliminary Prospectus, the
Prospectus and any amendments or supplements thereto and the printing,
delivery and shipping of this Agreement, the Agreement Among Underwriters,
the Selected Dealer Agreement, Underwriters' Questionnaires and Powers of
Attorney and Blue Sky Memoranda, (c) the furnishing of copies of such
documents to the
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Underwriters, (d) the registration or qualification of the Shares for
offering and sale under the securities and Blue Sky laws of the various
states, including the reasonable fees and disbursements of Underwriters'
counsel relating to such registration or qualification, (e) the fees payable
to the NASD and the Commission in connection with their review of the
proposed offering of the Shares, (f) all printing and engraving costs related
to preparation of the certificates for the Shares, including transfer agent
and registrar fees, (g) all initial transfer taxes, if any,(h) all fees and
expenses relating to the authorization of the Shares for trading on Nasdaq,
(i) all travel expenses, including air fare and accommodation expenses, of
representatives of the Company in connection with the offering of the Shares
and (j) all of the other costs and expenses incident to the performance by
the Company of the registration and offering of the Shares; provided,
however, that the Underwriters will bear and pay the fees and expenses of the
Underwriters' counsel (other than fees and disbursements relating to the
registration or qualification of the Shares for offering and sale under the
securities and Blue Sky laws of the various states), the Underwriters'
out-of-pocket expenses and any advertising costs and expenses incurred by the
Underwriters incident to the public offering of the Shares.
If this Agreement is terminated by you in accordance with the provisions
of Section 10(c), the Company shall reimburse the Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements
of counsel to the Underwriters.
13. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to the
Underwriters shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed c/o A.G. Edwards & Sons, Inc. at One North
Jefferson Avenue, St. Louis, Missouri 63103, Attention: Syndicate, facsimile
number (314) 289-7387, or if sent to the Company shall be mailed, delivered,
sent by facsimile transmission, or telegraphed and confirmed to the Company
at Vari-Lite International, Inc., 201 Regal Row, Dallas, Texas 75247,
Attention: H.R. Brutsche III, President, facsimile number (214) 630-5867, or
if sent to any Selling Stockholder shall be mailed, delivered, sent by
facsimile transmission or telegraphed and confirmed to such Selling
Stockholder, c/o the Attorneys-in-Fact at 201 Regal Row, Dallas, Texas 75247,
Attention: H.R. Brutsche III. Notice to any Underwriter pursuant to Section
7 shall be mailed, delivered, sent by facsimile transmission or telegraphed
and confirmed to such Underwriter's address as it appears in the
Underwriters' Questionnaire furnished in connection with the offering of the
Shares or as otherwise furnished to the Company and the Selling Stockholder.
14. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and the Selling Stockholders, and the Company
and their respective heirs, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person, corporation or other entity, other than the parties hereto and their
respective heirs, successors and assigns and the controlling persons,
officers and directors referred to in Section 7, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained; this Agreement and all conditions and provisions hereof
being intended to be and being for the sole and exclusive benefit of the
parties hereto and their respective heirs, successors
30
<PAGE>
and assigns and said controlling persons and said officers and directors, and
for the benefit of no other person, corporation or other entity. No purchaser
of any of the Shares from any Underwriter shall be construed a successor or
assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders under this
Agreement you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Stockholders shall be entitled to act and rely
upon any statement, request, notice or agreement on behalf of the
Underwriters, made or given by you on behalf of the Underwriters, as if the
same shall have been made or given in writing by the Underwriters.
15. COUNTERPARTS. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
16. PRONOUNS. Whenever a pronoun of any gender or number is used
herein, it shall, where appropriate, be deemed to include any other gender
and number.
17. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Missouri.
[Remainder of page intentionally left blank]
31
<PAGE>
If the foregoing is in accordance with your understanding, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, each of the Selling
Stockholders and the Underwriters.
VARI-LITE INTERNATIONAL, INC.
By:
H.R. Brutsche III
President
Selling Stockholders Named in Schedule I
Hereto
By:
H.R. Brutsche III
Attorney-in-Fact
Accepted in St. Louis, Missouri as of the
date first above written, on behalf of ourselves
and each of the several Underwriters named in
Schedule II hereto.
A.G. EDWARDS & SONS, INC.
By:
Name:
Title:
EVEREN Securities, Inc.
By:
Name:
Title:
32
<PAGE>
SCHEDULE I
NUMBER OF
SELLING STOCKHOLDERS OPTION SHARES
-------------------- -------------
-------
Total 300,000
-------
-------
33
<PAGE>
SCHEDULE II
NUMBER
NAME OF SHARES
---- ---------
A.G. Edwards & Sons, Inc.
EVEREN Securities, Inc.
---------
Total 2,000,000
---------
---------
II-1
<PAGE>
SCHEDULE III
Pursuant to Section 6(g) of the Underwriting Agreement, Deloitte & Touche
LLP shall furnish letters to the Underwriters to the effect that:
1. They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable Rules and Regulations thereunder.
2. In their opinion, the financial statements and any supplementary
financial information and schedules audited (and, if applicable, prospective
financial statements and/or pro forma financial information examined) by them
and included in the Prospectus or the Registration Statement comply as to
form in all material respects with the applicable accounting requirements of
the Act and the applicable Rules and Regulations thereunder; and, if
applicable, they have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
consolidated interim financial statements, selected financial data, pro forma
financial information, prospective financial statements and/or condensed
financial statements derived from audited financial statements of the Company
for the periods specified in such letter, as indicated in their reports
thereon, copies of which have been furnished to the Representatives of the
Underwriters (the "Representatives").
3. On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information referred
to below, performing the procedures specified by the AICPA for a review of
interim financial information as discussed in SAS No. 71, Interim Financial
Information, on the latest available interim financial statements of the
Company and its subsidiaries, inspection of the minute books of the Company
and its subsidiaries since the date of the latest audited financial
statements included in the Prospectus, inquiries of officials of the Company
and its subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(a) any material modifications should be made to the unaudited
statements of consolidated income, statements of consolidated financial
position and statements of consolidated cash flows included in the Prospectus
for them to be in conformity with generally accepted accounting principles,
or the unaudited statements of consolidated income, statements of
consolidated financial position and statements of consolidated cash flows
included in the Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the related
published Rules and Regulations thereunder.
(b) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding items in
the unaudited consolidated financial
III-1
<PAGE>
statements from which such data and items were derived, and any such
unaudited data and items were not determined on a basis substantially
consistent with the basis for the corresponding amounts in the audited
consolidated financial statements included in the Prospectus.
(c) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed financial
statements referred to in Clause (a) and any unaudited income statement data
and balance sheet items included in the Prospectus and referred to in Clause
(b) were not determined on a basis substantially consistent with the basis
for the audited consolidated financial statements included in the Prospectus.
(d) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act and
the published rules and regulations thereunder or the pro forma adjustments
have not been properly applied to the historical amounts in the compilation
of those statements.
(e) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated capital
stock or any increase in the consolidated long-term debt of the Company and
its subsidiaries, or any decreases in consolidated working capital, net
current assets or net assets or other items specified by the Representatives,
or any changes in any items specified by the Representatives, in each case as
compared with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described in
such letter.
(f) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause (e)
there were any decreases in consolidated net revenues or operating profit or
the total or per share amounts of consolidated net income or any other
changes in any other items specified by the Representatives, in each case as
compared with the comparable period of the preceding year and with any other
period of corresponding length specified by the Representatives, except in
each case for changes, decreases or increases which the Prospectus discloses
have occurred or may occur or which are described in such letter.
(g) In addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraph (3) above,
they have carried out certain specified procedures, not constituting an audit
in accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records of the
Company and its subsidiaries for the periods covered by their reports and any
interim or other periods since the latest period covered by their reports,
which appear in the Prospectus, or in Part II of, or in exhibits and
schedules to, the Registration Statement
III-2
<PAGE>
specified by the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its subsidiaries and have found them to be in agreement.
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<PAGE>
BY-LAWS
OF
VARI-LITE INTERNATIONAL, INC.
(A DELAWARE CORPORATION)
EFFECTIVE: AUGUST 11, 1997
<PAGE>
ARTICLE I
OFFICES
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . -1-
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . -1-
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings . . . . . . . . . . . . . . -1-
Section 2. Annual Meetings. . . . . . . . . . . . . . . . . . . . -1-
Section 3. Notice of Annual Meetings. . . . . . . . . . . . . . . -1-
Section 4. Special Meetings . . . . . . . . . . . . . . . . . . . -1-
Section 5. Notice of Special Meetings . . . . . . . . . . . . . . -1-
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . -1-
Section 7. Order of Business. . . . . . . . . . . . . . . . . . . -2-
Section 8. New Business . . . . . . . . . . . . . . . . . . . . . -2-
Section 9. Voting . . . . . . . . . . . . . . . . . . . . . . . . -3-
Section 10. List of Stockholders . . . . . . . . . . . . . . . . . -3-
Section 11. Inspectors of Votes. . . . . . . . . . . . . . . . . . -3-
Section 12. Actions Without a Meeting. . . . . . . . . . . . . . . -4-
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers . . . . . . . . . . . . . . . . . . . . . . . . -4-
Section 2. Number, Tenure and Qualification . . . . . . . . . . . -4-
Section 3. Resignations . . . . . . . . . . . . . . . . . . . . . -4-
Section 4. Nominations. . . . . . . . . . . . . . . . . . . . . . -4-
Section 5. Removal. . . . . . . . . . . . . . . . . . . . . . . . -6-
Section 6. Vacancies. . . . . . . . . . . . . . . . . . . . . . . -6-
MEETINGS OF THE BOARD OF DIRECTORS
Section 7. Time and Place of Meetings . . . . . . . . . . . . . . -6-
Section 8. Annual Meetings. . . . . . . . . . . . . . . . . . . . -6-
Section 9. Regular Meetings--Notice . . . . . . . . . . . . . . . -6-
Section 10. Special Meetings--Notice . . . . . . . . . . . . . . . -6-
Section 11. Quorum and Manner of Acting. . . . . . . . . . . . . . -6-
COMMITTEES OF DIRECTORS
Section 12. Executive Committee; How Constituted and Powers. . . . -7-
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<PAGE>
Section 13. Organization . . . . . . . . . . . . . . . . . . . . . -7-
Section 14. Meetings . . . . . . . . . . . . . . . . . . . . . . . -7-
Section 15. Other Committees . . . . . . . . . . . . . . . . . . . -7-
Section 16. Minutes of Committees. . . . . . . . . . . . . . . . . -8-
Section 17. Alternate Members of Committees. . . . . . . . . . . . -8-
GENERAL
Section 18. Actions Without a Meeting. . . . . . . . . . . . . . . -8-
Section 19. Presence at Meetings by Means of Communications
Equipment. . . . . . . . . . . . . . . . . . . . . . . -8-
ARTICLE IV
NOTICES
Section 1. Type of Notice . . . . . . . . . . . . . . . . . . . . -8-
Section 2. Waiver of Notice . . . . . . . . . . . . . . . . . . . -8-
Section 3. Authorized Notices . . . . . . . . . . . . . . . . . . -9-
ARTICLE V
OFFICERS
Section 1. Description. . . . . . . . . . . . . . . . . . . . . . -9-
Section 2. Election . . . . . . . . . . . . . . . . . . . . . . . -9-
Section 3. Salaries . . . . . . . . . . . . . . . . . . . . . . . -9-
Section 4. Term . . . . . . . . . . . . . . . . . . . . . . . . . -9-
Section 5. Duties of the Chairman . . . . . . . . . . . . . . . . -9-
Section 6. Duties of the President. . . . . . . . . . . . . . . .-10-
Section 7. Duties of Vice President--Finance. . . . . . . . . . .-10-
Section 8. Duties of Vice Presidents and Assistant Vice
Presidents. . . . . . . . . . . . . . . . . . . . . .-10-
Section 9. Duties of Secretary and Assistant Secretaries. . . . .-10-
Section 10. Duties of Treasurer and Assistant Treasurers . . . . .-11-
Section 11. Duties of Controller and Assistant Controllers . . . .-11-
ARTICLE VI
INDEMNIFICATION
Section 1. Actions Other Than by or in the Right of the
Corporation
Section 2. Actions by or in the Right of the Corporation. . . . .-12-
Section 3. Determination of Right to Indemnification. . . . . . .-12-
Section 4. Right to Indemnification . . . . . . . . . . . . . . .-12-
Section 5. Prepaid Expenses . . . . . . . . . . . . . . . . . . .-12-
Section 6. Right to Indemnification upon Application;
Procedure upon Application . . . . . . . . . . . . . .-13-
Section 7. Other Rights and Remedies. . . . . . . . . . . . . . .-13-
Section 8. Insurance. . . . . . . . . . . . . . . . . . . . . . .-13-
Section 9. Mergers. . . . . . . . . . . . . . . . . . . . . . . .-13-
Section 10. Savings Provision. . . . . . . . . . . . . . . . . . .-13-
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<PAGE>
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
Section 1. Right to Certificate . . . . . . . . . . . . . . . . .-14-
Section 2. Facsimile Signatures . . . . . . . . . . . . . . . . .-14-
Section 3. New Certificates . . . . . . . . . . . . . . . . . . .-14-
Section 4. Transfers. . . . . . . . . . . . . . . . . . . . . . .-14-
Section 5. Record Date. . . . . . . . . . . . . . . . . . . . . .-15-
Section 6. Registered Stockholders. . . . . . . . . . . . . . . .-15-
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. . . . . . . . . . . . . . . . . . . . . . .-15-
Section 2. Reserves . . . . . . . . . . . . . . . . . . . . . . .-15-
Section 3. Annual Statement . . . . . . . . . . . . . . . . . . .-15-
Section 4. Checks . . . . . . . . . . . . . . . . . . . . . . . .-15-
Section 5. Fiscal Year. . . . . . . . . . . . . . . . . . . . . .-15-
Section 6. Corporate Seal . . . . . . . . . . . . . . . . . . . .-15-
Section 7. Certificate of Incorporation . . . . . . . . . . . . .-15-
ARTICLE IX
AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-16-
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<PAGE>
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of Vari-Lite
International, Inc. (the "Corporation") shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other place or places, both within and without the State of Delaware, as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. TIME AND PLACE OF MEETINGS. All meetings of the stockholders
shall be held at such time and place, either within or without the State of
Delaware, as the Board of Directors shall designate and as shall be stated in
the notice of the meeting.
Section 2. ANNUAL MEETINGS. Annual meetings of the stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors of the Corporation and stated in the notice of the
meeting. At the annual meeting, the stockholders shall elect by a plurality
vote by written ballot a Board of Directors and transact such other business as
may properly be brought before the meeting.
Section 3. NOTICE OF ANNUAL MEETINGS. Written notice of the annual
meeting, stating the place, date and hour of the meeting, shall be given to each
stockholder of record entitled to vote at such meeting not less than 10 nor more
than 60 days before the date of the meeting.
Section 4. SPECIAL MEETINGS. Special meetings of the stockholders may be
called at any time by the Chief Executive Officer or the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors, and shall be called by the Chief Executive Officer, the President or
the Secretary at the request in writing of the holders of not less than fifty
percent (50%) of the voting power represented by all the shares issued,
outstanding and entitled to be voted at the proposed special meeting, unless the
Certificate of Incorporation provides for a different percentage, in which event
such provision of the Certificate of Incorporation shall govern. Such request
shall state the purpose or purposes of the proposed meeting. Business
transacted at special meetings shall be confined to the purposes stated in the
notice of the meeting.
Section 5. NOTICE OF SPECIAL MEETINGS. Written notice of a special
meeting, stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given to each stockholder of
record entitled to vote at such meeting not less than 10 nor more than 60 days
before the date of the meeting.
Section 6. QUORUM. The holders of stock having a majority of the voting
power of the stock entitled to be voted thereat, present in person or
represented by proxy, shall constitute a quorum for the
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<PAGE>
transaction of business at all meetings of the stockholders. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to
time without notice (other than announcement at the meeting at which the
adjournment is taken of the time and place of the adjourned meeting) until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted that
might have been transacted at the meeting as originally notified. If the
adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 7. ORDER OF BUSINESS. The order of business at annual meetings
of stockholders and, so far as practicable, at other meetings of stockholders
shall be determined by the Chief Executive Officer.
Section 8. NEW BUSINESS. At an annual meeting of stockholders, only such
new business shall be conducted, and only such proposals shall be acted upon, as
shall have been properly brought before the annual meeting. For any new
business proposed by the Board of Directors to be properly brought before the
annual meeting, such new business shall be approved by the Board of Directors
and shall be stated in writing and filed with the Secretary of the Corporation
at least five days before the date of the annual meeting, and all business so
approved, stated and filed shall be considered at the annual meeting. Any
stockholder may make any other proposal at the annual meeting, but unless
properly brought before the annual meeting such proposal shall not be acted upon
at the annual meeting. For a proposal to be properly brought before an annual
meeting by a stockholder, the stockholder must have given proper and timely
notice thereof in writing to the Secretary of the Corporation as specified
herein. To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation not later than
the date that corresponds to 120 days prior to the date the Corporation's proxy
statement was released to stockholders in connection with the previous year's
annual meeting of stockholders. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a description of the proposal desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business and any other stockholders known by such
stockholder to be supporting such proposal, (c) the class and number of shares
of the stock that are held of record, beneficially owned and represented by
proxy on the date of such stockholder notice and on the record date of the
meeting (if such date shall have been made publicly available) by the
stockholder and by any other stockholders known by such stockholder to be
supporting such proposal on such dates, (d) any financial interest of the
stockholder in such proposal, and (e) all other information that would be
required to be filed with the Securities and Exchange Commission if, with
respect to any such item of business, such stockholder or stockholders were a
participant in a solicitation subject to Section 14 of the Securities Exchange
Act of 1934, as amended.
The Board of Directors may reject any stockholder proposal not
made strictly in accordance with the terms of this Section 8. Alternatively, if
the Board of Directors fails to consider the validity of any stockholder
proposal, the presiding officer of the annual meeting shall, if the facts
warrant, determine and declare at the annual meeting that the stockholder
proposal was not made in strict accordance with the terms of this Section 8 and,
if he should so determine, he shall so declare at the annual meeting and any
such business or proposal not properly brought before the annual meeting shall
not be acted upon at the annual meeting. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees of the Board of Directors, but, in connection
with such reports, no new business shall be acted upon at such annual meeting
unless stated,
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<PAGE>
filed and received as herein provided.
Section 9. VOTING. Except as otherwise provided in the Certificate of
Incorporation, each stockholder shall, at each meeting of the stockholders, be
entitled to one vote in person or by proxy for each share of stock of the
Corporation held by him and registered in his name on the books of the
Corporation on the date fixed pursuant to the provisions of Section 5 of
Article VII of these By-Laws as the record date for the determination of
stockholders who shall be entitled to notice of and to vote at such meeting.
Shares of its own stock belonging to the Corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held directly or indirectly by the Corporation, shall
not be entitled to vote. Any vote by stock of the Corporation may be given at
any meeting of stockholders by the stockholder entitled thereto, in person or by
his proxy appointed by an instrument in writing subscribed by such stockholder
or by his attorney thereunto duly authorized and delivered to the Secretary of
the Corporation or to the secretary of the meeting; provided, however, that no
proxy shall be voted or acted upon after three years from its date, unless said
proxy shall provide for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and unless otherwise made
irrevocable by law. At all meetings of the stockholders, all matters, except
where other provision is made by law, the Certificate of Incorporation or these
By-Laws, shall be decided by the vote of a majority of the votes cast by the
stockholders present in person or by proxy and entitled to vote thereat, a
quorum being present. Unless demanded by a stockholder of the Corporation
present in person or by proxy at any meeting of the stockholders and entitled to
vote thereat, or so directed by the presiding officer of the meeting, the vote
thereat on any question other than the election or removal of directors need not
be by written ballot. Upon a demand of any such stockholder for a vote by
written ballot on any question or at the direction of such presiding officer
that a vote by written ballot be taken on any question, such vote shall be taken
by written ballot. On a vote by written ballot, each ballot shall be signed by
the stockholder voting, or by his proxy, if there be such proxy, and shall state
the number of shares voted.
Section 10. LIST OF STOCKHOLDERS. It shall be the duty of the Secretary
or other officer of the Corporation who shall have charge of its stock ledger,
either directly or through another officer of the Corporation designated by him
or through a transfer agent appointed by the Board of Directors, to prepare and
make, at least ten days before every meeting of the stockholders, a complete
list of the stockholders entitled to vote thereat, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days before said meeting,
either at a place within the city where said meeting is to be held, which place
shall be specified in the notice of said meeting, or, if not so specified, at
the place where said meeting is to be held. The list shall also be produced and
kept at the time and place of said meeting during the whole time thereof, and
may be inspected by any stockholder of record who shall be present thereat. The
stock ledger shall be the only evidence as to who are the stockholders entitled
to examine the stock ledger, such list or the books of the Corporation, or to
vote in person or by proxy at any meeting of stockholders.
Section 11. INSPECTORS OF VOTES. The presiding officer of the meeting may
appoint one or more inspectors of votes to act at each meeting of the
stockholders, unless the Board of Directors shall have theretofore made such
appointments. Each inspector of votes shall first subscribe an oath or
affirmation faithfully to execute the duties of an inspector of votes at the
meeting with strict impartiality and according to the best of his ability. Such
inspectors of votes, if any, shall take charge of the ballots, if any, at the
meeting, and after the balloting on any question, shall count the ballots cast
and shall make
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<PAGE>
a report in writing to the secretary of the meeting of the results of the
balloting. An inspector of votes need not be a stockholder of the
Corporation, and any officer of the Corporation may be an inspector of votes
on any question other than a vote for or against his election to any position
with the Corporation or on any other question in which he may be directly
interested.
Section 12. ACTIONS WITHOUT A MEETING. All actions of the stockholders of
the Corporation shall be taken at an annual or special meeting of stockholders
and may not be taken by a consent or consents in writing.
ARTICLE III
BOARD OF DIRECTORS
Section 1. POWERS. The business and affairs of the Corporation shall be
managed by its Board of Directors, which shall have and may exercise all powers
of the Corporation and take all lawful acts as are not by statute, the
Certificate of Incorporation or these By-Laws directed or required to be
exercised or taken by the stockholders.
Section 2. NUMBER, TENURE AND QUALIFICATION. The number of directors
shall be fixed from time to time exclusively pursuant to a resolution adopted by
a majority of the Board of Directors. The number of directors which shall
constitute the whole Board of Directors shall not be less than one. The
directors shall be divided, with respect to the time for which they severally
hold office into three classes, Class I, Class II and Class III, as nearly equal
in number as is reasonably possible, with the initial term of office of Class I
directors to expire at the 1998 annual meeting of stockholders, the initial term
of office of Class II directors to expire at the 1999 annual meeting of
stockholders and the initial term of office of Class III directors to expire at
the 2000 annual meeting of stockholders, with each director to hold office until
his or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders directors elected to succeed those directors whose terms
then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified. Directors need not be stockholders. Directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy and entitled to vote on the election of directors at any annual or special
meeting of stockholders. Such election shall be by written ballot.
Section 3. RESIGNATIONS. Any director may resign at any time by giving
written notice of his resignation to the Corporation, effective at the time
specified therein or, if not specified, immediately upon its receipt by the
Corporation. Unless otherwise specified in the notice, acceptance of a
resignation shall not be necessary to make it effective.
Section 4. NOMINATIONS. If a person is to be elected to the Board of
Directors because of a vacancy existing on the Board, nomination shall be made
only by the Board of Directors or of a nominating committee of the Board of
Directors (the Board of Directors as a whole or such committee of the Board
being referred to herein as the "nominating committee") pursuant to the
affirmative vote of the majority of the entire membership of the nominating
committee. The nominating committee shall also make nominations for the
directors to be elected by the stockholders of the Corporation at an annual
meeting of the stockholders as provided in this Section 4.
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Only persons nominated in accordance with the procedures set forth
in this Section 4 shall be eligible for election as directors at an annual
meeting. The nominating committee shall select the management nominees for
election as directors. Except in the case of a nominee substituted as a result
of the death, incapacity, disqualification or other inability to serve as a
management nominee, the nominating committee shall deliver written nominations
to the Secretary at least 30 days prior to the date of the annual meeting.
Management nominees substituted as a result of the death, incapacity,
disqualification or other inability to serve as a management nominee shall be
delivered to the Secretary as promptly as practicable. Provided the nominating
committee selects the management nominees, no nominees for directors except
those made by the nominating committee shall be voted upon at the annual meeting
unless other nominations by stockholders are made in accordance with the
provisions of this Section 4. Ballots bearing the names of all the persons
nominated for election as directors at an annual meeting in accordance with the
procedures set forth in this Section 4 by the nominating committee and by
stockholders shall be provided for use at the annual meeting. However, except
in the case of a management nominee substituted as a result of the death,
incapacity, disqualification or other inability to serve as a management
nominee, if the nominating committee shall fail or refuse to nominate a slate of
directors at least 30 days prior to the date of the annual meeting, nominations
for directors may be made at the annual meeting by any stockholder entitled to
vote and shall be voted upon. No person shall be elected as a director of the
Corporation unless nominated in accordance with the terms set forth in this
Section 4.
Nominations of individuals for election to the Board of Directors
of the Corporation at an annual meeting of stockholders may be made by any
stockholder of the Corporation entitled to vote for the election of directors at
that meeting who complies with the procedures set forth in this Section 4. To
be timely, a stockholder's notice shall be delivered to, or mailed and received
at, the principal executive offices of the Corporation not less than 75 days
prior to the date of the annual meeting of stockholders nor more than 85 days
prior to the date of such annual meeting; provided, however, that if less than
75 days' notice or prior public disclosure of the date of the annual meeting is
given or made, notice by the stockholder to be timely must be so delivered or
received not later than the close of business on the 10th day following the
earlier of (a) the day on which such notice of the date of the annual meetings
was mailed or (b) the day on which such public disclosure was made. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or re-election as a director (A) the name,
age, business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the classes and number of shares of
capital stock of the Corporation that are owned of record and beneficially owned
by such person on the date of such stockholder notice and (D) any other
information relating to such person that is required to be disclosed in
solicitations of proxies with respect to nominees for election as directors
pursuant to Section 14 under the Securities Exchange Act of 1934, as amended;
and (ii) as to the stockholder giving the notice (A) the name and address, as
they appear on the Corporation's books, of such stockholder and any other
stockholders known by such stockholder to be supporting such nominees, and
(B) the classes and number of shares of capital stock of the Corporation that
are owned of record and beneficially owned by such stockholder on the date of
such stockholder notice and by any other stockholders known by such stockholder
to be supporting such nominees on the date of such stockholder notice.
The Board of Directors may reject any nomination by a stockholder
not made in strict accordance with the terms of this Section 4. Alternatively,
if the Board of Directors fails to consider the validity of any nominations by a
stockholder, the presiding officer of the annual meeting shall, if the facts
warrant, determine and declare at the annual meeting that a nomination was not
made in strict accordance with the terms of this Section 4, and, if he should so
determine, he shall so declare at the annual meeting
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and the defective nomination shall be disregarded.
Section 5. REMOVAL. Any director may be removed from office at any time,
but only "for cause" and only by the affirmative vote by written ballot of 80%
of the voting interest of the stockholders of record of the Corporation entitled
to vote, given at an annual meeting or at a special meeting of the stockholders
called for that purpose. The vacancy in the Board of Directors caused by any
such removal shall be filled by the Board of Directors as provided in Section 6
of this Article III. "For cause" means: (i) commission of an act of fraud or
embezzlement against the Corporation; (ii) conviction of a felony or a crime
involving moral turpitude; (iii) gross negligence or willful misconduct in
performing the director's duties to the Corporation or its stockholders; or (iv)
breach of fiduciary duty owed to the Corporation.
Section 6. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
only by a majority of the directors then in office though less than a quorum or
by a sole remaining director. Directors so chosen shall hold office until the
annual meeting next after their election or until their successors are elected
and qualified, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute.
MEETINGS OF THE BOARD OF DIRECTORS
Section 7. TIME AND PLACE OF MEETINGS. The Board of Directors of the
Corporation may hold meetings, both regular and special, at such time and places
as it determines.
Section 8. ANNUAL MEETINGS. The first meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting to the newly elected directors shall
be necessary in order legally to constitute the meeting, provided a quorum shall
be present. If such meeting is not held immediately following the annual
meeting of stockholders, the meeting may be held at such time and place as shall
be specified in a notice given as hereinafter provided for special meetings of
the Board of Directors, or as shall be specified in a written waiver signed by
all of the directors.
Section 9. REGULAR MEETINGS--NOTICE. Regular meetings of the Board of
Directors may be held without notice.
Section 10. SPECIAL MEETINGS--NOTICE. Special meetings of the Board of
Directors may be called by the Chairman of the Board, Chief Executive Officer or
two directors on 12 hours' notice to each director, either personally or by
telephone or by mail, telegraph, telex, cable, wireless or other form of
recorded communication; special meetings shall be called by the Secretary in
like manner and on like notice on the written request of the Chairman of the
Board, Chief Executive Officer or two directors. Notice of any such meeting
need not be given to any director, however, if waived by him in writing or by
telegraph, telex, cable, wireless or other form of recorded communication, or if
he shall be present at the meeting.
Section 11. QUORUM AND MANNER OF ACTING. At all meetings of the Board of
Directors, 50% of the directors at the time in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, except as may be otherwise specifically provided by statute
or by the Certificate of
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Incorporation. If a quorum shall not be present at any meeting of the Board
of Directors, the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
COMMITTEES OF DIRECTORS
Section 12. EXECUTIVE COMMITTEE; HOW CONSTITUTED AND POWERS. The Board of
Directors may in its discretion, by resolution passed by a majority of the whole
Board of Directors, designate an Executive Committee consisting of one or more
of the directors of the Corporation. Subject to the provisions of Section 141
of the General Corporation Law of the State of Delaware, the Certificate of
Incorporation and these By-Laws, the Executive Committee shall have and may
exercise, when the Board of Directors is not in session, all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and shall have the power to authorize the seal of
the Corporation to be affixed to all papers which may require it; but the
Executive Committee shall not have the power to fill vacancies in the Board of
Directors, the Executive Committee or any other committee of directors or to
elect or approve officers of the Corporation. The Executive Committee shall
have the power and authority to authorize the issuance of common stock and grant
and authorize options and other rights with respect to such issuance. The Board
of Directors shall have the power at any time, by resolution passed by a
majority of the whole Board of Directors, to change the membership of the
Executive Committee, to fill all vacancies in it or to dissolve it, either with
or without cause.
Section 13. ORGANIZATION. The Chairman of the Executive Committee, to be
selected by the Board of Directors, shall act as chairman at all meetings of the
Executive Committee and the Secretary shall act as Secretary thereof. In case
of the absence from any meeting of the Executive Committee of the Chairman of
the Executive Committee or the Secretary, the Executive Committee may appoint a
chairman or secretary, as the case may be, of the meeting.
Section 14. MEETINGS. Regular meetings of the Executive Committee, of
which no notice shall be necessary, may be held on such days and at such places,
within or without the State of Delaware, as shall be fixed by resolution adopted
by a majority of the Executive Committee and communicated in writing to all its
members. Special meetings of the Executive Committee shall be held whenever
called by the Chairman of the Executive Committee or a majority of the members
of the Executive Committee then in office. Notice of each special meeting of the
Executive Committee shall be given by mail, telegraph, telex, cable, wireless or
other form of recorded communication or be delivered personally or by telephone
to each member of the Executive Committee not less then 12 hours prior to the
time at which such meeting is to be held. Notice of any such meeting need not
be given to any member of the Executive Committee, however, if waived by him in
writing or by telegraph, telex, cable, wireless or other form of recorded
communication, or if he shall be present at such meeting; and any meeting of the
Executive Committee shall be a legal meeting without any notice thereof having
been given, if all the members of the Executive Committee shall be present
thereat. Subject to the provisions of this Article III, the Executive
Committee, by resolution adopted by a majority of the whole Executive Committee,
shall fix its own rules of procedure.
Section 15. OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more other committees,
each committee to consist of one or more of the directors of the Corporation.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
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Any committee, to the extent provided in the resolution of the Board of
Directors and not prohibited by law, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers that may require it. At any meeting
of a committee, a majority of the members of the committee shall constitute a
quorum for the transaction of business, and the act of a majority of the
members present at any meeting at which a quorum is present shall be the act
of the committee.
Section 16. MINUTES OF COMMITTEES. Each committee shall keep regular
minutes of its meetings and proceedings and report the same to the Board of
Directors at the next meeting thereof.
Section 17. ALTERNATE MEMBERS OF COMMITTEES. The Board of Directors may
designate one or more directors as alternate members of the Executive Committee
or any other committee, who may replace any absent or disqualified member at any
meeting of the committee, or if none be so appointed, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
GENERAL
Section 18. ACTIONS WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
the committee.
Section 19. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATIONS EQUIPMENT.
Members of the Board of Directors, or of any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear one another.
Participation in a meeting conducted pursuant to this section shall constitute
presence in person at the meeting.
ARTICLE IV
NOTICES
Section 1. TYPE OF NOTICE. Whenever, under the provisions of any
applicable statute, the Certificate of Incorporation or these By-Laws, notice is
required to be given to any director or stockholder, the requirement shall not
be construed to mean personal notice, but such notice may be given in writing,
in person or by mail, addressed to such director or stockholder at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when it shall be
deposited in the United States mail. Notice to directors may also be given in
any manner permitted by Article III hereof and shall be deemed to be given at
the time when first transmitted by the method of communication so permitted.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be given
under the provisions of any applicable statute, the Certificate of Incorporation
or these By-Laws, a waiver thereof in writing,
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signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto, and
transmission of a waiver of notice by a director or stockholder by mail,
telegraph, telex, cable, wireless or other form of recorded communication may
constitute such a waiver.
Section 3. AUTHORIZED NOTICES. Unless otherwise specified herein, the
Secretary or such other person or persons as the Chief Executive Officer
designates shall be authorized to give notices for the Corporation.
ARTICLE V
OFFICERS
Section 1. DESCRIPTION. The elected officers of the Corporation shall be
a President, one or more Vice Presidents with or without such descriptive titles
as the Board of Directors shall deem appropriate, a Secretary, a Treasurer and a
Controller and, if the Board of Directors so elects, a Chairman of the Board and
Vice Chairman of the Board (each of whom shall be a director). The Board of
Directors by resolution shall also appoint one or more Assistant Secretaries,
Assistant Treasurers, Assistant Controllers and such other officers and agents
as from time to time may appear to be necessary or advisable in the conduct of
the affairs of the Corporation. Any two or more offices may be held by the same
person.
Section 2. ELECTION. The Board of Directors at its first meeting after
each annual meeting of stockholders shall elect and appoint the officers to fill
the positions designated in Section 1 of this Article V.
Section 3. SALARIES. The Board of Directors shall fix all salaries of
all elected officers of the Corporation.
Section 4. TERM. An officer of the Corporation shall hold office until
he resigns or his successor is chosen and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the whole Board of Directors. The Board of
Directors shall fill any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise.
Section 5. DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of the
Board, if any, shall be the Chief Executive Officer of the Corporation and,
subject to the provisions of these By-Laws, shall have general supervision of
the affairs of the Corporation and shall have general and active control of all
its business. He shall preside, when present, at all meetings of stockholders
and at all meetings of the Board of Directors. He shall see that all orders and
resolutions of the Board of Directors and the stockholders are carried into
effect. He shall have general authority to execute bonds, deeds and contracts
in the name of the Corporation and affix the corporate seal thereto; to sign
stock certificates; to cause the employment or appointment of such employees and
agents of the Corporation as the proper conduct of operations may require, and
to fix their compensation, subject to the provisions of these By-Laws; to remove
or suspend any employee or agent who shall have been employed or appointed under
his authority or under authority of an officer subordinate to him; to suspend
for cause, pending final action by the authority which shall have elected or
appointed him, any officer subordinate to the Chairman of the Board; and, in
general, to exercise all the powers and authority usually appertaining to the
chief executive officer of a corporation,
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except as otherwise provided in these By-Laws.
Section 6. DUTIES OF THE PRESIDENT. In the absence of a Chairman of the
Board, the President shall be the ranking and Chief Executive Officer of the
Corporation, and shall have the duties and responsibilities, and the authority
and power, of the Chairman of the Board. The President shall be the Chief
Operating Officer of the Corporation and as such shall have, subject to review
and approval of the Chairman of the Board, if one be elected, the responsibility
for the operation of the Corporation and the authority of the Chairman of the
Board.
Section 7. DUTIES OF VICE PRESIDENT--FINANCE. There may be designated a
Vice President--Finance, who, if so designated, shall be the Chief Financial
Officer of the Corporation. He shall have active control of and responsibility
for all matters pertaining to the financial affairs of the Corporation. His
authority shall include the authorities of the Treasurer and Controller. He
shall be responsible for approval of all filings with governmental agencies. He
shall have the authority to execute and deliver bonds, deeds, contracts and
stock certificates of and for the Corporation, and to affix the corporate seal
thereto by handwritten or facsimile signature and all other powers customarily
appertaining to his office, except to the extent otherwise limited or enlarged.
He shall report to the President and to the Executive Committee and the Board of
Directors of the Corporation at their request on all financial matters of the
Corporation.
Section 8. DUTIES OF VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS. In
the absence of the President or in the event of his inability or refusal to act,
the Vice President (or in the event there be more than one Vice President, the
Vice Presidents in the order designated by the Board, or in the absence of any
designation, in the order of their election) shall perform the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. If a Vice President is appointed or
elected Chief Operating Officer of the Company, he or she shall be under the
supervision of the President and shall perform such duties as may be prescribed
by the President. The Vice Presidents shall perform such other duties and have
such other powers as the Board of Directors or the President may from time to
time prescribe.
Section 9. DUTIES OF SECRETARY AND ASSISTANT SECRETARIES. The Secretary
or an Assistant Secretary shall attend all meetings of the Board of Directors
and all meetings of the stockholders and record all proceedings of the meetings
of the stockholders of the Corporation and of the Board of Directors in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. The Secretary shall be under the supervision of the
President and shall perform such other duties as may be prescribed by the
President. The Secretary shall have charge of the seal of the Corporation and
have authority to affix the seal to any instrument requiring it. When so
affixed, the seal shall be attested by the signature of the Secretary or
Treasurer or an Assistant Secretary or Assistant Treasurer, which may be a
facsimile. The Secretary shall keep and account for all books, documents,
papers and records of the Corporation except those for which some other officer
or agent is properly accountable. The Secretary shall have authority to sign
stock certificates, and shall generally perform all the duties usually
appertaining to the office of the secretary of a corporation.
Assistant Secretaries in the order of their seniority, unless
otherwise determined by the Board of Directors, shall assist the Secretary, and
in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary. They shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
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Section 10. DUTIES OF TREASURER AND ASSISTANT TREASURERS. The Treasurer
shall have the responsibility for and custody over all assets of the
Corporation, and the responsibility for handling of the liabilities of the
Corporation. He shall cause proper entries of all receipts and disbursements of
the Corporation to be recorded in its books of account. He or she shall have
the responsibility for all matters pertaining to taxation and insurance. He or
she shall have the authority to endorse for deposit or collection, or otherwise,
all commercial paper payable to the Corporation, and to give proper receipts or
discharges for all payments to the Corporation. He or she shall be responsible
for all terms of credit granted by the Corporation and for the collection of all
its accounts. He or she shall have the authority to execute and deliver bonds,
deeds, contracts and stock certificates of and for the Corporation, and to affix
the corporate seal thereto by handwritten or facsimile signature and all other
powers customarily appertaining to his office, except to the extent otherwise
limited or enlarged. The Treasurer shall be under the supervision of the Vice
President--Finance and he or she shall perform such other duties as may be
prescribed to him by the Vice President--Finance, if one be designated.
Assistant Treasurers, in the order of their seniority, shall assist the
Treasurer, and in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer.
Section 11. DUTIES OF CONTROLLER AND ASSISTANT CONTROLLERS. The
Controller shall be the Chief Accounting Officer of the Corporation. He shall
be responsible for all matters pertaining to the accounts of the Corporation,
with the supervision of the books of account, their installation, arrangement
and classification. The Controller shall maintain adequate records of all
assets, liabilities and transactions; see that an adequate system of internal
audit thereof is currently and regularly maintained; coordinate the efforts of
the Corporation's independent public accountants in its external audit program;
receive, review and consolidate all operating and financial statements of the
Corporation; and prepare financial statements, reports and analyses. The
Controller shall have supervision of the accounting practices of the
Corporation. The Controller shall cause to be maintained an adequate system of
financial control through a program of budgets, financial planning and
interpretive reports. The Controller shall initiate and enforce accounting
measures and procedures whereby the business of the Corporation shall be
conducted with the maximum efficiency and economy. The Controller shall have
all other powers customarily appertaining to the office of controller, except to
the extent otherwise limited or enlarged. The Controller shall be under the
supervision of the Vice President--Finance, if one be designated.
The Assistant Controllers, in the order of their seniority, shall
assist the Controller, and if the Controller is unavailable, perform the duties
and exercise the powers of the Controller.
ARTICLE VI
INDEMNIFICATION
Section 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. To
the fullest extent permitted by law, the Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (all of such persons being
hereafter referred to in this Article VI as a "Corporate Functionary"), against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action,
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suit or proceeding, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement or conviction, or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal action or proceeding, that he
had reasonable cause to believe that his conduct was unlawful.
Section 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. To the fullest
extent permitted by law, the Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a Corporate
Functionary against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit, if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation,
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. DETERMINATION OF RIGHT TO INDEMNIFICATION. Any
indemnification under Sections 1 or 2 of this Article VI (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the Corporate Functionary is proper
in the circumstances because he has met the applicable standard of conduct set
forth in Sections 1 or 2 of this Article VI. Such determination shall be made
(i) by a majority vote of the directors who are not parties to such action, suit
or proceeding, even though less than a quorum, (ii) if there are no such
directors or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders.
Section 4. RIGHT TO INDEMNIFICATION. Notwithstanding the other
provisions of this Article VI, to the extent that a Corporate Functionary has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 or 2 of this Article VI (including the
dismissal of a proceeding without prejudice or the settlement of a proceeding
without admission of liability), or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 5. PREPAID EXPENSES. Expenses incurred by a Corporate
Functionary in defending a civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the Corporate Functionary to repay such amount if
it shall ultimately be determined he is not entitled to be indemnified by the
Corporation as authorized in this Article VI.
Section 6. RIGHT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON
APPLICATION. Any indemnification of a Corporate Functionary under Sections 2, 3
and 4, or any advance under Section 5, of this Article VI shall be made promptly
upon, and in any event within 60 days after, the written request of the
Corporate Functionary, unless with respect to applications under Sections 2, 3
or 5 of this Article
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VI, a determination is reasonably and promptly made in accordance with
Section 3 of this Article VI as to justify the Corporation in not
indemnifying or making an advance of expenses to the Corporate Functionary.
The right to indemnification or advance of expenses granted by this Article
VI shall be enforceable by the Corporate Functionary in any court of
competent jurisdiction if his claim for indemnification or advancement of
expenses is denied, in whole or in part, or if no disposition of such claim
is made within 60 days. The expenses of the Corporate Functionary incurred
in connection with successfully establishing his right to indemnification, in
whole or in part, in any such proceeding shall also be indemnified by the
Corporation.
Section 7. OTHER RIGHTS AND REMEDIES. The indemnification and
advancement of expenses provided by or granted pursuant to this Article VI shall
not be deemed exclusive of any other rights to which any person seeking
indemnification and/or advancement of expenses or may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a Corporate
Functionary and shall inure to the benefit of the heirs, executors and
administrators of such a person. Any repeal or modification of these By-Laws or
relevant provisions of the Delaware General Corporation Law and other applicable
law, if any, shall not affect any then existing rights of a Corporate
Functionary to indemnification or advancement of expenses.
Section 8. INSURANCE. Upon resolution passed by the Board of Directors,
the Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article VI or the General Corporation Law of Delaware.
Section 9. MERGERS. For purposes of this Article VI, references to "the
Corporation" shall include, in addition to the resulting or surviving
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this Article VI with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
Section 10. SAVINGS PROVISION. If this Article VI or any portion hereof
shall be invalidated on any ground by a court of competent jurisdiction, the
Corporation shall nevertheless indemnify each Corporate Functionary as to
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit, proceeding or investigation,
whether civil, criminal or administrative, including a grand jury proceeding or
action or suit brought by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article VI that shall not have been
invalidated.
-13-
<PAGE>
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
Section 1. RIGHT TO CERTIFICATE. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board, the President or a Vice
President and by the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by him in the Corporation. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, option or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences or rights shall be set forth in full or summarized on the face or
back of the certificate that the Corporation shall issue to represent such class
or series of stock; provided, that, except as otherwise provided in Section 202
of the General Corporation Law of the State of Delaware, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate that the Corporation shall issue to represent such class or series
of stock a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
or rights.
Section 2. FACSIMILE SIGNATURES. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. NEW CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation and alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed
or the issuance of such new certificate.
Section 4. TRANSFERS. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation, subject to any proper
restrictions on transfer, to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 5. RECORD DATE. The Board of Directors may fix, in advance, a
record date for stockholders' meetings or for any other lawful purpose, which
shall be no fewer than 10 nor more than 60 days before the date of the meeting
or other action. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
-14-
<PAGE>
Section 6. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, and shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not provided by the laws of the
State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, if any, may be declared by the Board of Directors (but not any
committee thereof) at any meeting, pursuant to law. Dividends may be paid in
cash, in property or in shares of the capital stock or other securities.
Section 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute discretion,
thinks proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interest of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
Section 3. ANNUAL STATEMENT. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the Corporation.
Section 4. CHECKS. All checks or demands for money and promissory notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time prescribe.
Section 5. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization, and the word
"Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, reproduced or otherwise.
Section 7. CERTIFICATE OF INCORPORATION. These By-Laws are subject to
the terms of the Certificate of Incorporation of the Corporation.
ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended or repealed or new By-Laws adopted
only in accordance with the Certificate of Incorporation of the Corporation and
any other requirements specified in these By-Laws.
-15-
<PAGE>
CERTIFICATION
I, Michael P. Herman, Secretary of Vari-Lite International, Inc., a
Delaware corporation, hereby certify that the foregoing is a true, accurate and
complete copy of the By-Laws of Vari-Lite International, Inc., adopted by its
Board of Directors as of August 11, 1997.
/s/ Michael P. Herman
------------------------------------
Michael P. Herman, Secretary
-16-
<PAGE>
[LOGO]
CUSIP 922152 10 3
ORGANIZED UNDER THE LAWS OF SEE REVERSE FOR CERTAIN
THE STATE OF DELAWARE DEFINITIONS
THIS CERTIFIES THAT
IS THE REGISTERED HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, OF THE PAR VALUE OF $0.10
PER SHARE, OF
VARI-LITE INTERNATIONAL, INC.
(HEREINAFTER REFERRED TO AS THE "CORPORATION"), TRANSFERABLE ON THE
BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY
AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE
ISSUED UNDER AND ARE SUBJECT TO ALL THE PROVISIONS OF THE CERTIFICATE
OF INCORPORATION AND BY-LAWS OF THE CORPORATION AND ALL AMENDMENTS
THERETO, COPIES OF WHICH ARE ON FILE WITH THE TRANSFER AGENT, TO ALL
OF WHICH THE HOLDER OF THIS CERTIFICATE ASSENTS BY ACCEPTANCE HEREOF.
THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER
AGENT.
IN WITNESS WHEREOF, THE CORPORATION HAS CAUSED THIS CERTIFICATE TO
BE SIGNED BY THE FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS,
AND THE FACSIMILE OF ITS CORPORATE SEAL.
DATED:
Secretary [SEAL] President
<PAGE>
Countersigned:
ChaseMellon Shareholder Services, L.L.C.
Transfer Agent,
By
Authorized Signature
<PAGE>
The Corporation will furnish to any stockholder, upon request and without
charge, a full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof which the Corporation is authorized to issue and the qualifications,
limitations or restrictions of such preferences and/or rights of each class of
stock or series thereof. Any such request should be made to the Secretary of the
Corporation at its principal place of business or to the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
TEN COM --as tenants in UNIF GIFT MIN ACT -- ... Custodian
common .......................... (Minor)
TEN ENT --as tenants by the under Uniform Gifts to Minors Act
entireties .......................... (State)
JT TEN -- as joint tenants
with right of
survivorship and
not as tenants in
common
PLEASE INSERT SOCIAL SECURITY
OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
FOR VALUE RECEIVED, .......... HEREBY SELLS,
ASSIGNS AND TRANSFERS UNTO
............................................
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF
ASSIGNEE
.............................................
...................................... SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND
HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS
.............................................
........ ATTORNEY TO TRANSFER THE SAID SHARES
ON THE BOOKS OF THE WITHIN-NAMED CORPORATION
WITH FULL POWER OF SUBSTITUTION IN THE
PREMISES.
Dated, ...........................
...................................
(SIGNATURE)
NOTICE:
<TABLE>
<S> <C> <C>
ASSIGN ............................
</TABLE>
MENT MUST CORRESPOND
<TABLE>
<S> <C> <C>
(SIGNATURE)NAME(S) AS WRITTEN UPON
THE-->
</TABLE>
FACE OF THE CERTIFICATE
WITHOUT ALTERATION OR
<TABLE>
<S> <C> <C>
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION
</TABLE>
WHATEVER.
<TABLE>
<S> <C> <C>
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
</TABLE>
<PAGE>
September 18, 1997
Vari-Lite International, Inc.
201 Regal Row
Dallas, Texas 75247
Gentlemen:
We have served as counsel for Vari-Lite International, Inc., a Delaware
corporation (the "Company"), and certain stockholders of the Company (the
"Selling Stockholders"), in connection with the Registration Statement on
Form S-1 (No. 333-33559) (the "Registration Statement"), filed with the
Securities and Exchange Commission on August 13, 1997, as amended on
September 18, 1997, covering the proposed public offering of 2,000,000
shares of Common Stock, $0.10 par value, of the Company ("Common Stock") to
be issued and sold by the Company (the "Company Shares"), and, subject to the
exercise of an over-allotment option granted by the Selling Stockholders, up
to an additional 300,000 shares of Common Stock to be sold by the Selling
Stockholders (the "Selling Stockholders Shares").
With respect to the foregoing, we have examined such documents and
questions of law as we have deemed necessary to render the opinions expressed
below. Based upon the foregoing, we are of the opinion that:
1. The Company Shares, when sold, issued and delivered in the manner
and for the consideration stated in the Prospectus constituting a part of the
Registration Statement and in the Underwriting Agreement described in the
Registration Statement, will be duly authorized, validly issued, fully paid
and nonassessable.
2. The Selling Stockholder Shares when issued to the Selling
Stockholders pursuant to the terms of that certain Merger Agreement, dated as
of August 27, 1997, by and between the Company and Vari-Lite International,
Inc., a Texas corporation ("Vari-Lite Texas"), which provides for the merger
of Vari-Lite Texas into the Company, with the Company being the surviving
corporation and the conversion of each share of Common Stock of Vari-Lite
Texas into shares of Common Stock, will be duly authorized, validly issued,
fully paid and nonassessable.
We consent to the use of this letter opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name in the Registration
Statement and in the Prospectus included therein under the heading "Legal
Matters."
Very truly yours,
GARDERE & WYNNE, L.L.P.
By: /s/ Alan J. Perkins
-------------------------------------
Alan J. Perkins, Partner
<PAGE>
AMENDMENT NO. 1
TO THE EMPLOYMENT AGREEMENT DATED AS OF JULY 1, 1995
BETWEEN VARI-LITE HOLDINGS, INC. AND H. R. BRUTSCHE III
W I T N E S S E T H :
WHEREAS, Vari-Lite Holdings, Inc. (the "Company") and H. R. Brutsche III
(the "Executive") entered into an Employment Agreement ("Agreement") dated as of
July 1, 1995; and
WHEREAS, the Company changed its name effective December 27, 1995 to Vari-
Lite International, Inc.; and
WHEREAS, the Executive and the Company desire to amend the Agreement in
certain respects retroactively so as to be effective as of July 1, 1995;
NOW, THEREFORE, in consideration of the foregoing, the Agreement is hereby
amended as follows:
Section 9 of the Agreement is hereby amended by adding to the end thereof a
new subsection (h) reading as follows:
(h) CONTINUED MEDICAL COVERAGE. In addition to any benefit described
in this Section 9, if the employment of the Executive is
terminated for any reason other than for Cause, but the Executive
continues to maintain a relationship with the Company or any of
its affiliates by serving on the Board of Directors of one or
more of such entities, the Executive and his dependents shall be
entitled to continue to be covered under the medical and dental
plans maintained by the Company and its affiliates after the
continuation coverage period provided under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
for as long as the Executive continues to serve on the Board of
Directors of the Company or one of its affiliates. The Executive
and his dependents will be required to pay the premium charged by
the medical and the dental plans to COBRA continuees for such
continued coverage and shall be subject to the same requirements
concerning the timing of premium payments as apply to COBRA
continuees under the medical and dental plans.
IN WITNESS WHEREOF the parties hereto have executed this Amendment No. 1 to
the Agreement on this 11th day of August, 1997, but to be effective as of July
1, 1995.
COMPANY:
Vari-Lite International, Inc.
By: /s/ Michael P. Herman
---------------------------------
Michael P. Herman
Vice President - Finance
EXECUTIVE:
/s/ H.R. Brutsche III
---------------------------------
H. R. Brutsche III
<PAGE>
AMENDMENT NO. 1
TO THE CONSULTING AGREEMENT DATED AS OF JULY 1, 1995
BETWEEN VARI-LITE HOLDINGS, INC. AND JOHN D. MAXSON
W I T N E S S E T H :
WHEREAS, Vari-Lite Holdings, Inc. (the "Company") entered into a Consulting
Agreement ("Agreement") with John D. Maxson (the "Consultant") effective as of
July 1, 1995; and
WHEREAS, the Company changed its name effective December 27, 1995 to Vari-
Lite International, Inc.; and
WHEREAS, the Company and the Consultant desire to amend the Agreement in
certain respects retroactively so as to be effective as of July 1, 1995;
NOW, THEREFORE, in consideration of the foregoing, the Agreement is hereby
amended as follows:
Section 3 is hereby amended by replacing subsection (c) with the following:
(c) OTHER EMPLOYEE BENEFITS. Consultant and his dependents shall be
entitled to continue coverage under the medical and dental plans
maintained by the Company and its affiliates after the continuation
coverage period provided under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), for as long as
Consultant continues to serve on the Board of Directors of the Company
or any of its affiliates. The Consultant and his dependents will be
required to pay the premium charged by the medical and the dental
plans to COBRA continuees for such continued coverage and shall be
subject to the same requirements concerning the timing of premium
payments as apply to COBRA continuees under the medical and dental
plans. Except as expressly provided in this Agreement, Consultant
shall not be entitled, based on his status as a consultant, to
participate in or receive benefits under any other programs maintained
by the Company for its employees, including, without limitation, life,
vision, disability, pension, profit sharing, or other retirement plans
or other fringe benefits.
IN WITNESS WHEREOF the parties hereto have executed this Amendment No. 1 to
the Agreement on this 11th day of August, 1997, but to be effective as of July
1, 1995.
COMPANY:
Vari-Lite International, Inc.
By: /s/ H.R. Brutsche III
------------------------------------
H. R. Brutsche III
Chairman of the Board and President
CONSULTANT:
/s/ John D. Maxson
-----------------------------------------
John D. Maxson
<PAGE>
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
INSURER: John Hancock Mutual Life Insurance Company
POLICY: Modified Premium Whole Life Policy;
Policy Number 67151530
INSURED: Harry R. Brutsche III
OWNER: Brown Brothers Harriman Trust Company of Texas, trustee of
the Harry R. Brutsche III Insurance Trust, dated October 6,
1995
EMPLOYER: Vari-Lite Holdings, Inc.
EFFECTIVE DATE: October 12, 1995
This SPLIT-DOLLAR LIFE INSURANCE AGREEMENT is made and effective as of the
12th day of October, 1995 by and between Owner, Insured and Employer
(collectively, the "Parties") to define the rights, duties and obligations of
the Parties relative to the modified premium whole life insurance policy, policy
number 67151530 (the "Policy"), issued effective as of October 12, 1995 to Owner
by Insurer insuring the life of Insured. A copy of the Policy is attached
hereto as Exhibit A.
Owner, Employer and Insured hereby agree as follows:
I. BENEFICIARY DESIGNATION RIGHTS
Owner may designate a beneficiary or beneficiaries to receive any proceeds
payable under the Policy on death of Insured which are in excess of
Employer's share of such proceeds, as determined by this Agreement.
II. PREMIUM PAYMENT METHOD
Each year, Employer agrees to forward the full amount of the annual premium
due under the Policy for that year to Insurer on the date such premium is
due until the occurrence of a termination event under Article VI. Each
year, Owner agrees that he will pay to Employer, as partial reimbursement
by Owner to Employer of the annual premium for the Policy, an amount equal
to the economic benefit received by Insured during that tax year. The
amount payable by Owner may be paid to Employer by payroll deduction or
according to any other method which is agreeable to the Parties.
Alternatively, if Employer and Owner agree that Employer shall pay to
Insurer or that Owner shall reimburse to Employer some amount other than
the amount stated in this Article II, the rights of Employer and Owner
under the Policy shall be adjusted accordingly. If Employer is not
reimbursed by Owner for a year for the full amount of the entire economic
benefit received by Insured during that year, the economic benefit to the
extent not reimbursed shall be reported by Employer as taxable income for
that year to Insured.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 1
<PAGE>
III. OWNER'S RETAINED INCIDENTS OF OWNERSHIP
Except as to the limited policy security rights specifically granted
Employer in the Assignment of Life Insurance Policy as Collateral in the
form attached hereto as Exhibit B (the "Assignment") and as provided in
Article VI, Owner retains all incidents of ownership in the Policy
(including the right to surrender or cancel the Policy and the right to
borrow against the Policy).
Owner's right to borrow against the Policy shall be limited to an amount
equal to the maximum loan value reduced by the Cumulative Unreimbursed
Premiums (as defined in Article IV) paid or advanced by Employer under
Article II.
Owner's right to withdraw from the Policy's cash value under the Policy's
partial surrender provisions shall be limited to the "partial surrender
value" of the Policy, reduced by the Cumulative Unreimbursed Premiums. For
purposes of this paragraph, "partial surrender value" of the Policy means
the cash value of the Policy less any indebtedness and the cost of
insurance until the next annual premium due date.
IV. DIVISION OF POLICY DEATH PROCEEDS
Division of the death proceeds of the Policy shall be made as follows:
A. Employer shall be entitled to an amount equal to the cumulative
premiums paid to Insurer by Employer less the amount of aggregate
reimbursements paid to Employer by Owner under Article II (the
"Cumulative Unreimbursed Premiums"). The beneficiary or beneficiaries
designated by Owner in accordance with Article I shall be entitled to
any remainder of such proceeds.
B. If any interest is due upon the death proceeds under the terms of the
Policy, Owner and Employer shall share such interest in the same
manner that their respective share of the death proceeds (as defined
in the preceding paragraph) bears to the total death proceeds,
excluding such interest.
C. If, upon the death of Insured, there is a refund of unearned premiums
under the Policy provisions, then, in such event, any refund shall be
apportioned as follows:
1. Where Owner (or his assignee) has contributed to the Policy
premium at the last required premium interval, the refund of
unearned premiums shall be divided between Employer and Owner (or
his assignee) as their respective share of the premium payment
shall bear to the total premium for such interval.
2. Where Owner (or his assignee) has not contributed to the premium
at the last premium interval, the refund of unearned premium
shall be refunded in total to Employer.
V. DIVISION OF THE NET CASH SURRENDER VALUE
Division of the net cash surrender value of the Policy prior to death of
Insured shall be made as follows:
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 2
<PAGE>
Employer shall be entitled to an amount equal to the Cumulative
Unreimbursed Premiums. Owner shall be entitled to any remainder of such
net cash surrender value. To the extent that the Cumulative Unreimbursed
Premiums exceed the net cash surrender value of the Policy, Owner shall be
solely responsible for repayment of same to Employer.
VI. TERMINATION OF AGREEMENT
This Agreement shall terminate upon the occurrence of any one of the
following events:
A. Termination of Insured's Employment Agreement with Employer dated as
of July 1, 1995 (the "Employment Agreement") in accordance with its
terms;
B. Delivery by Owner to Employer of Owner's request, at any time, to
receive a release of the Assignment from Employer and agreement by
Owner to pay the premiums;
C. Owner's failure to reimburse Employer upon 30 days' written notice
from Employer for Owner's proportionate share of premiums to Employer,
if any, as mutually agreed upon by Owner and Employer pursuant to
Article II;
D. Death of Insured; or
E. Breach of the terms of this Agreement by Employer.
Except as provided below with respect to a breach of this Agreement by
Employer, upon termination of this Agreement, Owner shall have a 90-day
option to pay to Employer an amount equal to the aggregate of the
Cumulative Unreimbursed Premiums and receive a release of the Assignment
from Employer. Employer agrees that Owner may obtain this amount from the
Policy by effectuating a policy loan or a withdrawal or by partial
surrender of the Policy, as long as Employer receives reimbursement of the
full amount of the Cumulative Unreimbursed Premiums. To assure that
Employer will receive its entire interest, Employer may request that Owner
provide Employer with collateral which is satisfactory to Employer, in its
sole discretion.
Alternatively, if Insured is to perform future services for Employer and if
Insured is entitled to receive deferred compensation for these services
pursuant to a separate agreement or agreements between Insured and
Employer, then Employer shall have the right under this Agreement to
release to Owner its interest in all or any portion of such compensation in
partial or complete satisfaction of that deferred payment obligation.
If this Agreement is terminated (i) on account of a breach of this
Agreement by Employer, (ii) in connection with the retirement by Insured
from the employment of Employer on or after age 55, or (iii) in connection
with a "change of control" of Employer as defined in Section 9(e) of the
Employment Agreement, Employer shall waive its right to repayment of the
Cumulative Unreimbursed Premiums paid as of the termination date. Within
30 days of such termination date, Employer shall release the Assignment and
Owner shall become the sole and absolute owner of the Policy. Owner may
thereafter elect to continue to keep the Policy in effect by paying the
premiums thereon, or alternatively, may elect to surrender the Policy
pursuant to the terms thereof. If Employer does not release the Assignment
of the Policy within this 30-day period, the Assignment will automatically
terminate pursuant to the terms hereof.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 3
<PAGE>
Nothing herein shall be construed to represent an ownership right or
interest of Owner or Insured in or to any particular asset of
Employer, nor shall Owner or Insured be deemed to be in constructive
receipt of such amount. Owner does not have any right to a release
of the Assignment by Employer without reimbursement of the Cumulative
Unreimbursed Premiums but, instead, such right shall vest solely with
the Employer. Owner may not anticipate, pledge, assign, hypothecate
or, in any manner, exercise rights, ownership or control over this
interest of Employer.
Should Owner (or his assignees) fail to exercise one of these options
within the prescribed 90-day period, the Policy will be surrendered
to Insurer and the proceeds distributed between Employer and Owner as
prescribed by Article V.
VII. OWNER'S ASSIGNMENT RIGHTS
Owner may, at any time, assign to any individual, trust or other
organization all of his right, title and interest in the Policy and
all of his rights, options, privileges and duties created under this
Agreement.
VIII. STATUS OF AGREEMENT AS ERISA PLAN
This Agreement, together with the Policy and the Assignment attached
hereto, constitutes an employee welfare benefit plan as defined in
Section 3(1) of the Employee Retirement Income Security Act of 1974
("ERISA").
IX. NAMED FIDUCIARY
Employer is hereby designated the "Named Fiduciary" as defined in
Section 402(a)(2) of ERISA until resignation or removal by Employer's
Board of Directors. The business address of Employer is 201 Regal
Row, Dallas, Texas 75247.
The Named Fiduciary is hereby granted sole and absolute discretion to
manage, control and administer the Agreement and to make all benefit
entitlement determinations under the Agreement. The Named Fiduciary
may allocate to others certain aspects of the management and
operation responsibilities of the Agreement, including the
designation of persons who are not named fiduciaries to carry out
fiduciary responsibilities under the Agreement. The Named Fiduciary
shall effect such allocation of its responsibilities by delivering to
Employer a written instrument signed by it that specifies the nature
and extent of the responsibilities allocated, including if
appropriate the designation of persons who are not named fiduciaries
to carry out fiduciary responsibilities under this Agreement. All
documents related to the Agreement shall be retained by the Named
Fiduciary and made available for examination at the above address. A
copy of the Agreement, Assignment and Policy have been provided to
Owner upon the execution of this Agreement.
X. FUNDING
The funding policy for the Agreement shall be to maintain the Policy
in force by paying, when due, all premiums required.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 4
<PAGE>
XI. BASIS OF PREMIUM PAYMENTS AND BENEFITS
Payments under this Agreement shall be in accordance with the
provisions of Articles II through V, herein.
XII. CLAIMS PROCEDURE
If Owner or its beneficiary ("Claimant") fails to receive benefits to
which it believes it is entitled under this Agreement, such person
may file with the Named Fiduciary, at the address noted above, a
written claim for such benefits.
If a claim for benefits is denied, the Claimant may within 60 days
following such denial, file with the Named Fiduciary a written claim
objecting to the denial of such benefits. The Claimant or its
representative may review the Agreement and any other documents which
relate to the claim and may submit written comments to the Named
Fiduciary. The Named Fiduciary shall render a written decision
concerning the claim not later than 90 days after receipt of such
claim. If the claim is denied, in whole or in part, such decision
shall include (a) the reason or reasons for the denial; (b) a
reference to the Agreement provisions constituting the basis of the
denial; (c) a description of any additional material or information
necessary for the Claimant to perfect his claim; (d) an explanation
as to why such information or material is necessary; and (e) an
explanation of the Agreement's appeal procedure. The claim shall be
deemed to be denied if no response is received by the end of the
review period.
The Claimant may file with the Named Fiduciary a written notice of
appeal of the Named Fiduciary's decision not later than 60 days after
receiving the Named Fiduciary's written decision. The Named
Fiduciary shall render a written decision on the appeal not later
than 60 days after the appeal. Such decision shall include the
specific reasons for the decision, including a reference to the
Agreement's specific provisions where appropriate. The Named
Fiduciary may extend the foregoing 90-day and 60-day periods during
which it must respond to the Claimant by up to an additional 90 and
60 days respectively, if special circumstances beyond its control so
require; provided that notice of such extension is given to the
Claimant prior to the expiration of the initial 90-day or 60-day
period, as the case may be.
XIII. PREMIUM WAIVER
If the Policy contains a premium waiver provision, any premium waived
shall be considered for all purposes of this Agreement as having been
paid by Owner.
XIV. AMENDMENT
This Agreement may be amended at any time and from time to time by a
written instrument executed by Employer, Owner and Insured, and, if
appropriate, their respective heirs, successors, personal
representatives and assignees.
XV. AGREEMENT BINDING UPON PARTIES
This Agreement shall bind Employer, Owner and Insured, and their
respective heirs, successors, personal representatives and assignees.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 5
<PAGE>
XVI. INSURER NOT A PARTY TO AGREEMENT
Insurer is not responsible for the legal or tax validity or effect of
this Agreement. Further, Insurer shall not be deemed a party to this
Agreement but will respect the rights of the Parties as herein
developed upon receiving an executed copy of this Agreement.
Insurer shall not be responsible to account for the actual premium
contributions of the Parties hereunder but shall rely solely upon the
written declarations of the Parties in any distributions or
settlement of the Policy's lifetime or death values. Payment or
other performance of its contractual obligations in accordance with
the Policy provisions shall fully discharge Insurer from any and all
liability.
XVII. CONTROLLING STATE LAW
This Agreement shall be subject to and construed under the laws of
the State of Texas, to the extent not preempted by ERISA.
[THE NEXT FOLLOWING PAGE IS THE SIGNATURE PAGE.]
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 6
<PAGE>
This Split-Dollar Life Insurance Agreement is executed and
effective as of the date first above written.
INSURED:
/s/ Harry R. Brutsche
--------------------------------------------------
Harry R. Brutsche III
OWNER:
BROWN BROTHERS HARRIMAN TRUST COMPANY OF TEXAS, as
Trustee of the Harry R. Brutsche III Insurance
Trust, dated October 6, 1995
By: /s/ Susan Hickey
----------------------------------------------
Name: /s/ Susan Hickey
----------------------------------------------
Title: Vice President
----------------------------------------------
EMPLOYER:
VARI-LITE HOLDINGS, INC.
By: /s/ Michael P. Herman
----------------------------------------------
Michael P. Herman
Vice President--Finance
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 7
<PAGE>
INSURER: John Hancock Mutual Life Insurance Company
POLICY: Modified Premium Whole Life Policy;
Policy Number 67151530
INSURED: Harry R. Brutsche III
OWNER: Brown Brothers Harriman Trust Company of Texas, trustee of the Harry
R. Brutsche III Insurance Trust, dated October 6, 1995
EMPLOYER: Vari-Lite Holdings, Inc.
This Split-Dollar Life Insurance Agreement was recorded by Insurer on July 22,
1997.
John Hancock Mutual Life Insurance Company
By: /s/ Bob Shin
-------------------------------
Name: Bob Shin
-------------------------------
Title: Secretary
-------------------------------
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 8
<PAGE>
AMENDED AND RESTATED
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
This AMENDED AND RESTATED SPLIT-DOLLAR LIFE INSURANCE AGREEMENT is made and
effective as of the 12th day of October, 1995, by and between Vari-Lite
Holdings, Inc. ("Employer"), Brown Brothers Harriman Trust Company of Texas,
trustee of the Harry R. Brutsche III Insurance Trust, dated October 6, 1995
("Owner"), and Harry R. Brutsche III ("Insured").
W I T N E S S E T H:
WHEREAS, Insured has served as Chief Executive Officer of Employer and on
the Board of Directors of Employer and has contributed substantially to the
success of Employer; and
WHEREAS, Employer desired for Insured to continue to serve as its Chief
Executive Officer and on its Board of Directors; and
WHEREAS, to retain the services of Insured, Employer assisted him in
establishing and maintaining an adequate life insurance program; and
WHEREAS, Employer and Insured entered into a split-dollar life insurance
agreement effective as of December 12, 1990 (the "Agreement") to define their
respective rights, duties and obligations regarding a $2,000,000 face amount
whole life insurance policy with supplemental insurance option, policy number
8592771 (the "Policy"), issued to Harry R. Brutsche III as owner and insured by
Massachusetts Mutual Life Insurance Company (the "Insurer") insuring the life of
Insured, a copy of which is attached hereto as Exhibit A; and
WHEREAS, the face amount of the Policy was subsequently reduced to
$1,200,000; and
WHEREAS, pursuant to the Agreement, Employer made the entire premium
payment to Insurer and Insured recognized as taxable income each year an amount
equal to the economic benefit received by Insured during that year and Employer
and Insured recognized and acknowledged the interest of Employer in the benefits
and values of the Policy to the extent of the premium payments made by Employer
to Insurer; and
WHEREAS, Employer desires to continue assisting Insured in maintaining an
adequate insurance program; and
WHEREAS, Insured has assigned all of his ownership, rights and interests in
the Policy to Brown Brothers Harriman Trust Company of Texas, in their capacity
as trustee of the Harry R. Brutsche III Insurance Trust, dated October 6, 1995;
and
WHEREAS, the Employer, Insured and Owner desire to amend and restate the
Agreement in order to (i) restate the rights, duties and obligations of
Employer, Insured and Owner relative
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 1
<PAGE>
to the Policy and the Agreement, (ii) provide for the reimbursement by Owner
each year to Employer of a portion of the annual premium payment made by
Employer equal to the economic benefit received by Insured during that year,
and (iii) confirm the limited policy security rights specifically granted in
the Policy to Employer as collateral;
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants herein contained, the parties hereto agree as follows:
I. BENEFICIARY DESIGNATION RIGHTS
Owner may designate a beneficiary or beneficiaries to receive any proceeds
payable under the Policy on death of Insured which are in excess of
Employer's share of such proceeds as determined by this Agreement.
II. PREMIUM PAYMENT METHOD
Each year, Employer agrees to forward the full amount of the annual premium
due under the Policy for that year to Insurer on the date such premium is
due until the occurrence of a termination event under Article VI. Each
year, Owner agrees that he will pay to Employer, as partial reimbursement
by Owner to Employer of the annual premium for the Policy, an amount equal
to the economic benefit received by Insured during that tax year. The
amount payable by Owner may be paid to Employer by payroll deduction or
according to any other method which is agreeable to the parties.
Alternatively, if Employer and Owner agree that Employer shall pay to
Insurer or that Owner shall reimburse to Employer some amount other than
the amount stated in this Article II, the rights of Employer and Owner
under the Policy shall be adjusted accordingly. If Employer is not
reimbursed by Owner for a year for the full amount of the entire economic
benefit received by Insured during that year, the economic benefit to the
extent not reimbursed shall be reported by Employer as taxable income for
that year to Insured.
III. OWNER'S RETAINED INCIDENTS OF OWNERSHIP
Except as to the limited policy security rights specifically granted
Employer in the Assignment of Life Insurance Policy as Collateral in the
form attached hereto as Exhibit B (the "Assignment") and as provided in
Article VI, Owner retains all incidents of ownership in the Policy
(including the right to surrender or cancel the Policy and the right to
borrow against the Policy).
Owner is required to apply all dividends declared on the Policy to purchase
paid-up insurance on the life of Insured. Owner agrees not to terminate or
alter this dividend option without the consent of Employer.
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 2
<PAGE>
Owner's right to borrow against the Policy shall be limited to an amount
equal to the maximum loan value reduced by the Cumulative Unreimbursed
Premiums (as defined in Article IV) paid or advanced by Employer under
Article II.
Owner's right to withdraw from the Policy's cash value under the Policy's
partial surrender provisions shall be limited to the "partial surrender
value" of the Policy, reduced by the Cumulative Unreimbursed Premiums. For
purposes of this paragraph, "partial surrender value" of the Policy means
the cash value of the Policy less any indebtedness and the cost of
insurance until the next annual premium due date.
IV. DIVISION OF POLICY DEATH PROCEEDS
Division of the death proceeds of the Policy shall be made as follows:
A. Employer shall be entitled to an amount equal to the cumulative
premiums paid to Insurer by Employer less the amount of aggregate
reimbursements paid to Employer by Owner under Article II (the
"Cumulative Unreimbursed Premiums"). The beneficiary or beneficiaries
designated by Owner in accordance with Article I shall be entitled to
any remainder of such proceeds.
B. If any interest is due upon the death proceeds under the terms of the
Policy, Owner and Employer shall share such interest in the same
manner that their respective share of the death proceeds (as defined
in the preceding paragraph) bears to the total death proceeds,
excluding such interest.
C. If, upon the death of Insured, there is a refund of unearned premiums
under the Policy provisions, then, in such event, any refund shall be
apportioned as follows:
1. Where Owner (or his assignee) has contributed to the Policy
premium at the last required premium interval, the refund of
unearned premiums shall be divided between Employer and Owner (or
his assignee) as their respective share of the premium payment
shall bear to the total premium for such interval.
2. Where Owner (or his assignee) has not contributed to the premium
at the last premium interval, the refund of unearned premium
shall be refunded in total to Employer.
V. DIVISION OF THE NET CASH SURRENDER VALUE
Division of the net cash surrender value of the Policy prior to death of
Insured shall be made as follows:
Employer shall be entitled to an amount equal to the Cumulative
Unreimbursed Premiums. Owner shall be entitled to any remainder of such
net cash surrender value. To the extent
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 3
<PAGE>
that the Cumulative Unreimbursed Premiums exceed the net cash surrender
value of the Policy, Owner shall be solely responsible for repayment of
same to Employer.
VI. TERMINATION OF AGREEMENT
This Agreement shall terminate upon the occurrence of any one of the
following events:
A. Termination of Insured's Employment Agreement with Employer dated as
of July 1, 1995 (the "Employment Agreement") in accordance with its
terms;
B. Delivery by Owner to Employer of Owner's request, at any time, to
receive a release of the Assignment from Employer and agreement by
Owner to pay the premiums;
C. Owner's failure to reimburse Employer upon 30 days' written notice
from Employer for Owner's proportionate share of premiums to Employer,
if any, as mutually agreed upon by Owner and Employer pursuant to
Article II; or
D. Death of Insured; or
E. Breach of the terms of this Agreement by Employer.
Except as provided below with respect to a breach of this Agreement by
Employer, upon termination of this Agreement, Owner shall have a 90-day
option to pay to Employer an amount equal to the Cumulative Unreimbursed
Premiums and receive a release of the Assignment from Employer. Employer
agrees that Owner may obtain this amount from the Policy by effectuating a
policy loan or a withdrawal or by partial surrender of the Policy, as long
as Employer receives reimbursement of the full amount of the Cumulative
Unreimbursed Premiums. To assure that Employer will receive its entire
interest, Employer may request that Owner provide Employer with collateral
which is satisfactory to Employer, in its sole discretion.
Alternatively, if Insured is to perform future services for Employer and if
Insured is entitled to receive deferred compensation for these services
pursuant to a separate agreement or agreements between Insured and
Employer, then Employer shall have the right under this Agreement to
release to Owner its interest in all or any portion of such compensation in
partial or complete satisfaction of that deferred payment obligation.
If this Agreement is terminated (i) on account of a breach of this
Agreement by Employer, (ii) in connection with the retirement by Insured
from the employment of Employer on or after age 55, or (iii) in connection
with a "change of control" of Employer as defined in Section 9(e) of the
Employment Agreement, Employer shall waive its right to repayment of the
Cumulative Unreimbursed Premiums paid as of the termination date. Within
30 days of such termination date, Employer shall release the Assignment and
Owner shall become the sole and absolute owner of the Policy. Owner
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 4
<PAGE>
may thereafter elect to continue to keep the Policy in effect by paying the
premiums thereon, or alternatively, may elect to surrender the Policy
pursuant to the terms thereof. If Employer does not release the Assignment
of the Policy within this 30-day period, the Assignment will automatically
terminate pursuant to the terms hereof.
Nothing herein shall be construed to represent an ownership right or
interest of Owner or Insured in or to any particular asset of Employer, nor
shall Owner or Insured be deemed to be in constructive receipt of such
amount. Owner does not have any right to a release of the Assignment by
Employer without reimbursement of the Cumulative Unreimbursed Premiums but,
instead, such right shall vest solely with Employer. Owner may not
anticipate, pledge, assign, hypothecate or, in any manner, exercise rights,
ownership or control over this interest of Employer.
Should Owner (or his assignees) fail to exercise one of these options
within the prescribed 90-day period, the Policy will be surrendered to
Insurer and the proceeds distributed between Employer and Owner as
prescribed by Article V.
VII. OWNER'S ASSIGNMENT RIGHTS
Owner may, at any time, assign to any individual, trust or other
organization all of his right, title and interest in the Policy and all of
his rights, options, privileges and duties created under this Agreement.
VIII. STATUS OF AGREEMENT AS ERISA PLAN
This Agreement, together with the Policy and the Assignment attached
hereto, constitutes an employee welfare benefit plan as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974 ("ERISA").
IX. NAMED FIDUCIARY
Employer is hereby designated the "Named Fiduciary" as defined in Section
402(a)(2) of ERISA until resignation or removal by Employer's Board of
Directors. The business address of Employer is 201 Regal Row, Dallas,
Texas 75247.
The Named Fiduciary is hereby granted sole and absolute authority to
manage, control and administer the Agreement and to make all benefit
entitlement determinations under the Agreement. The Named Fiduciary may
allocate to others certain aspects of the management and operation
responsibilities of the Agreement, including the designation of persons who
are not named fiduciaries to carry out fiduciary responsibilities under the
Agreement. The Named Fiduciary shall effect such allocation of its
responsibilities by delivering to Employer a written instrument signed by
it that specifies the nature and extent of the responsibilities allocated,
including if appropriate the designation of persons who are not named
fiduciaries to carry out fiduciary responsibilities under this Agreement.
All documents related to the Agreement shall be retained by the Named
Fiduciary and
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 5
<PAGE>
made available for examination at the above address. Copies of the
Agreement, Assignment and Policy have been provided to Owner upon the
execution of this Agreement.
X. FUNDING
The funding policy for the Agreement shall be to maintain the Policy in
force by paying, when due, all premiums required.
XI. BASIS OF PREMIUM PAYMENTS AND BENEFITS
Payments under this Agreement shall be in accordance with the provisions of
Articles II through V, herein.
XII. CLAIMS PROCEDURE
If Owner or his beneficiary ("Claimant") fails to receive benefits to which
he believes he is entitled under this Agreement, such person may file with
the Named Fiduciary, at the address noted above, a written claim for such
benefits.
If a claim for benefits is denied, the Claimant may within 60 days
following such denial, file with the Named Fiduciary a written claim
objecting to the denial of such benefits. The Claimant or his
representative may review the Agreement and any other documents which
relate to the claim and may submit written comments to the Named Fiduciary.
The Named Fiduciary shall render a written decision concerning the claim
not later than 90 days after receipt of such claim. If the claim is
denied, in whole or in part, such decision shall include (a) the reason or
reasons for the denial; (b) a reference to the Agreement provisions
constituting the basis of the denial; (c) a description of any additional
material or information necessary for the Claimant to perfect his claim;
(d) an explanation as to why such information or material is necessary; and
(e) an explanation of the Agreement's appeal procedure. The claim shall be
deemed to be denied if no response is received by the end of the review
period.
The Claimant may file with the Named Fiduciary a written notice of appeal
of the Named Fiduciary's decision not later than 60 days after receiving
the Named Fiduciary's written decision. The Named Fiduciary shall render a
written decision on the appeal not later than 60 days after the appeal.
Such decision shall include the specific reasons for the decision,
including a reference to the Agreement's specific provisions where
appropriate. The Named Fiduciary may extend the foregoing 90-day and 60-
day periods during which it must respond to the Claimant by up to an
additional 90 and 60 days respectively, if special circumstances beyond its
control so require; provided that notice of such extension is given to the
Claimant prior to the expiration of the initial 90-day or 60-day period, as
the case may be.
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 6
<PAGE>
XIII. PREMIUM WAIVER
If the Policy contains a premium waiver provision, any premium waived shall
be considered for all purposes of this Agreement as having been paid by
Owner.
XIV. AMENDMENT
This Agreement may be amended at any time and from time to time by a
written instrument executed by Employer, Owner and Insured, and, if
appropriate, their respective heirs, successors, personal representatives
and assignees.
XV. AGREEMENT BINDING UPON PARTIES
This Agreement shall bind Employer, Owner and Insured, and their respective
heirs, successors, personal representatives and assignees.
XVI. INSURER NOT A PARTY TO AGREEMENT
Insurer is not responsible for the legal or tax validity or effect of this
Agreement. Further, Insurer shall not be deemed a party to this Agreement
but will respect the rights of the parties as herein developed upon
receiving an executed copy of this Agreement.
Insurer shall not be responsible to account for the actual premium
contributions of the parties hereunder but shall rely solely upon the
written declarations of the parties in any distributions or settlement of
the Policy's lifetime or death values. Payment or other performance of its
contractual obligations in accordance with the Policy provisions shall
fully discharge Insurer from any and all liability.
XVII. CONTROLLING STATE LAW
This Agreement shall be subject to and construed under the laws of the
State of Texas, to the extent not preempted by ERISA.
[THE NEXT FOLLOWING PAGE IS THE SIGNATURE PAGE.]
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 7
<PAGE>
This Amended and Restated Split-Dollar Life Insurance Agreement is executed
and effective as of the date first above written.
INSURED:
/s/ Harry R. Brutsche III
-----------------------------------------
Harry R. Brutsche III
OWNER:
BROWN BROTHERS HARRIMAN TRUST COMPANY
OF TEXAS, as Trustee of the Harry R.
Brutsche III Insurance Trust, dated
October 6, 1995
By: /s/ Susan Hickey
-------------------------------------
Name: Susan Hickey
-----------------------------------
Title: Vice President
----------------------------------
EMPLOYER:
VARI-LITE HOLDINGS, INC.
By: /s/ Michael P. Herman
-------------------------------------
Michael P. Herman
Vice President--Finance
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 8
<PAGE>
INSURER: Massachusetts Mutual Life Insurance Company
POLICY: Whole Life Policy with Supplemental Insurance Option;
Policy Number 8592771
INSURED: Harry R. Brutsche III
OWNER: Brown Brothers Harriman Trust Company of Texas, as Trustee of
the Harry R. Brutsche III Insurance Trust, dated October 6, 1995
EMPLOYER: Vari-Lite Holdings, Inc.
EFFECTIVE DATE: December 12, 1990
This Amended and Restated Split-Dollar Life Insurance Agreement was recorded by
Insurer on August 12, 1997.
By: /s/ Cheryl M. Foster
------------------------------------
Name: Cheryl M. Foster
----------------------------------
Title: Assistant Secretary
---------------------------------
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 9
<PAGE>
AMENDED AND RESTATED
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
This AMENDED AND RESTATED SPLIT-DOLLAR LIFE INSURANCE AGREEMENT is made and
effective as of the 12th day of October, 1995, by and between Vari-Lite
Holdings, Inc. ("Employer"), Brown Brothers Harriman Trust Company of Texas,
trustee of the John D. Maxson 1995 Irrevocable Trust, dated October 11, 1995
("Owner") and John D. Maxson ("Insured").
W I T N E S S E T H:
WHEREAS, Insured has served on the Board of Directors of Employer and has
contributed substantially to the success of Employer; and
WHEREAS, Employer desired for Insured to continue to serve on its Board of
Directors; and
WHEREAS, to retain the services of Insured, Employer assisted him in
establishing and maintaining an adequate life insurance program; and
WHEREAS, Employer and Insured entered into a split-dollar life insurance
agreement during and effective as of December 1990 (the "Original Agreement") to
define their respective rights, duties and obligations regarding a $2,000,000
face amount whole life insurance policy (the "Original Policy") issued to John
D. Maxson as owner and insured by Massachusetts Mutual Life Insurance Company
(the "Original Insurer"); and
WHEREAS, pursuant to the Original Agreement, Employer made the entire
premium payment to Original Insurer and Insured recognized as taxable income
each year an amount equal to the economic benefit received by Insured during the
year and Employer and Insured have recognized and acknowledged the interest of
Employer in the benefits and values of the Original Policy to the extent of the
premium payments made by Employer to Original Insurer; and
WHEREAS, Employer desires to continue assisting Insured in maintaining an
adequate insurance program; and
WHEREAS, Employer and Insured desire to amend and restate the Original
Agreement in order to (i) restate the rights, duties and obligations of the
parties under the Original Agreement, (ii) surrender the Original Policy and to
contribute the cash surrender value of the Original Policy toward the purchase
of flexible premium adjustable life insurance insuring the life of John D.
Maxson, policy number A10137201L (the "New Policy"), issued by American General
Life Insurance Company (the "Insurer") to Brown Brothers Harriman Trust Company
of Texas, in their capacity as trustee of the John D. Maxson 1995 Irrevocable
Trust, dated October 11, 1995, a copy of which is attached as Exhibit A, (iii)
provide for the reimbursement
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 1
<PAGE>
by Owner each year to Employer of a portion of the annual premium payment
made by Employer equal to the economic benefit received by Insured during
that year, and (iv) confirm the limited policy security rights specifically
granted in the New Policy to Employer as collateral, including the extent to
which such rights accrued to Employer with respect to premium payments by
Employer to Original Insurer on the Original Policy;
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants herein contained, the parties hereto agree as follows:
I. BENEFICIARY DESIGNATION RIGHTS
Owner may designate a beneficiary or beneficiaries to receive any proceeds
payable under the New Policy on death of Insured which are in excess of
Employer's share of such proceeds, as determined by this Agreement.
II. PREMIUM PAYMENT METHOD
Employer was obligated by the terms of the Original Policy and the Original
Agreement to pay all premiums required to keep the Original Policy in
force, including any additional premiums required because the Original
Policy was issued with a substandard rating. As of October 12, 1995,
Employer's interest in the Original Policy was $205,006.22, which is an
amount equal to the total premiums for the Original Policy paid by Employer
to Original Insurer (hereinafter referred to as "Employer's Interest in the
Original Policy").
Employer and Insured agree to surrender the Original Policy and to
contribute the cash surrender value of the Original Policy as an
unscheduled premium toward the purchase of the New Policy and that Employer
will have an initial interest in the New Policy equal to Employer's
Interest in the Original Policy.
Each year thereafter, Employer agrees to forward the full amount of the
annual premium due under the New Policy for that year to Insurer on the
date such premium is due until the occurrence of a termination event under
Article VI. Each year, Owner agrees that he will pay to Employer, as
partial reimbursement by Owner to Employer of the annual premium for the
New Policy, an amount equal to the economic benefit received by Insured
during that tax year. The amount payable by Owner may be paid to Employer
by payroll deduction or according to any other method which is agreeable to
the parties.
Alternatively, if Employer and Owner agree that Employer shall pay to
Insurer or that Owner shall reimburse to Employer some amount other than
the amount stated in this Article II, the rights of Employer and Owner
under the New Policy shall be adjusted accordingly. If Employer is not
reimbursed by Owner for a year for the full amount of the economic benefit
received by Insured during that year, the economic benefit to the extent
not reimbursed shall be reported by Employer as taxable income for that
year to Insured.
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 2
<PAGE>
III. OWNER'S RETAINED INCIDENTS OF OWNERSHIP
Except as to the limited policy security rights specifically granted
Employer in the Assignment of Life Insurance Policy as Collateral in the
form attached hereto as Exhibit B (the "Assignment") and as provided in
Article VI, Owner retains all incidents of ownership in the New Policy
(including the right to surrender or cancel the New Policy and the right to
borrow against the New Policy).
Owner's right to borrow against the New Policy shall be limited to an
amount equal to the maximum loan value reduced by the Cumulative
Unreimbursed Premiums (as defined in Article IV) paid or advanced by
Employer under Article II.
Owner's right to withdraw from the New Policy's cash value under the New
Policy's partial surrender provisions shall be limited to the "partial
surrender value" of the New Policy, reduced by the Cumulative Unreimbursed
Premiums. For purposes of this paragraph, "partial surrender value" of the
New Policy means the cash value of the New Policy less any indebtedness and
the cost of insurance until the next annual premium date.
IV. DIVISION OF POLICY DEATH PROCEEDS
Division of the death proceeds of the New Policy shall be made as follows:
A. Employer shall be entitled to an amount equal to the SUM of (i)
Employer's Interest in the Original Policy and (ii) the cumulative
premiums paid to Insurer by Employer less the amount of aggregate
reimbursements paid to Employer by Owner under Article II with respect
to the New Policy (collectively the "Cumulative Unreimbursed
Premiums"). The beneficiary or beneficiaries designated by Owner in
accordance with Article I shall be entitled to any remainder of such
proceeds.
B. If any interest is due upon the death proceeds under the terms of the
New Policy, Owner and Employer shall share such interest in the same
manner that their respective share of the death proceeds (as defined
in the preceding paragraph) bears to the total death proceeds,
excluding such interest.
C. If, upon the death of Insured, there is a refund of unearned premiums
under the New Policy provisions, then, in such event, any refund shall
be apportioned as follows:
1. Where Owner (or his assignee) has contributed to the New Policy
premium at the last required premium interval, the refund of
unearned premiums shall be divided between Employer and Owner (or
his assignee) as their respective share of the premium payment
shall bear to the total premium for such interval.
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 3
<PAGE>
2. Where Owner (or his assignee) has not contributed to the premium
at the last premium interval, the refund of unearned premium
shall be refunded in total to Employer.
V. DIVISION OF THE NET CASH SURRENDER VALUE
Division of the net cash surrender value of the New Policy prior to death
of Insured shall be made as follows:
Employer shall be entitled to an amount equal to the Cumulative
Unreimbursed Premiums. Owner shall be entitled to any remainder of such
net cash surrender value. To the extent the Cumulative Unreimbursed
Premiums exceed the net cash surrender value of the New Policy, Owner shall
be solely responsible for repayment of same to Employer.
VI. TERMINATION OF AGREEMENT
This Agreement shall terminate upon the occurrence of any one of the
following events:
A. Termination of both Insured's Consulting Agreement (the "Consulting
Agreement") with Employer dated as of July 1, 1995 in accordance with
its terms and Insured's directorship with Employer for any reason;
B. Delivery by Owner to Employer of Owner's request, at any time, to
receive a release of the Assignment from Employer and agreement by
Owner to pay the premiums;
C. Owner's failure to reimburse Employer upon 30 days' written notice
from Employer for Owner's proportionate share of premiums to Employer,
if any, as mutually agreed upon by Owner and Employer pursuant to
Article II;
D. Death of Insured; or
E. Breach of the terms of this Agreement by Employer.
Except as provided below with respect to a breach of this Agreement by
Employer, upon termination of this Agreement, Owner shall have a 90-day
option to pay to Employer an amount equal to the Cumulative Unreimbursed
Premiums and receive a release of the Assignment from Employer. Employer
agrees that Owner may obtain this amount from the New Policy by
effectuating a policy loan or a withdrawal or by partial surrender of the
New Policy, as long as Employer receives reimbursement of the full amount
of the Cumulative Unreimbursed Premiums. To assure that Employer will
receive its entire interest, Employer may request that Owner provide
Employer with collateral which is satisfactory to Employer, in its sole
discretion.
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 4
<PAGE>
Alternatively, if Insured is to perform future services for Employer and if
Insured is entitled to receive deferred compensation for these services
pursuant to a separate agreement or agreements between Insured and
Employer, then Employer shall have the right under this Agreement to
release to Owner its interest in all or any portion of such compensation in
partial or complete satisfaction of that deferred payment obligation.
If this Agreement is terminated (i) on account of a breach of this
Agreement by Employer, (ii) in connection with the retirement by Insured
from his directorship and consulting relationship with Employer on or after
age 60, or (iii) in connection with a "change of control" of Employer as
defined in Section 6(e) of the Consulting Agreement, Employer shall waive
its right to repayment of the Cumulative Unreimbursed Premiums paid as of
the termination date. Within 30 days of such termination date, Employer
shall release the Assignment and Owner shall become the sole and absolute
owner of the Policy. Owner may thereafter elect to continue to keep the
Policy in effect by paying the premiums thereon, or alternatively, may
elect to surrender the Policy pursuant to the terms thereof. If Employer
does not release the Assignment of the Policy within this 30-day period,
the Assignment will automatically terminate pursuant to the terms hereof.
Nothing herein shall be construed to represent an ownership right or
interest of Owner or Insured in or to any particular asset of Employer, nor
shall Owner or Insured be deemed to be in constructive receipt of such
amount. Owner does not have any right to a release of the Assignment by
Employer without reimbursement of the Cumulative Unreimbursed Premiums but,
instead, such right shall vest solely with the Employer. Owner may not
anticipate, pledge, assign, hypothecate or, in any manner, exercise rights,
ownership or control over this interest of Employer.
Should Owner (or his assignees) fail to exercise one of these options
within the prescribed 90-day period, the New Policy will be surrendered to
Insurer and the proceeds distributed between Employer and Owner as
prescribed by Article V.
VII. OWNER'S ASSIGNMENT RIGHTS
Owner may, at any time, assign to any individual, trust or other
organization all of its right, title and interest in the New Policy and all
of its rights, options, privileges and duties created under this Agreement.
VIII. STATUS OF AGREEMENT AS ERISA PLAN
This Agreement, together with the New Policy and the Assignment attached
hereto, constitutes an employee welfare benefit plan as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974 ("ERISA").
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 5
<PAGE>
IX. NAMED FIDUCIARY
Employer is hereby designated the "Named Fiduciary" as defined in Section
402(a)(2) of ERISA until resignation or removal by Employer's Board of
Directors. The business address of Employer is 201 Regal Row, Dallas,
Texas 75247.
The Named Fiduciary is hereby granted sole and absolute authority to
manage, control and administer the Agreement and to make all benefit
entitlement determinations under the Agreement. The Named Fiduciary may
allocate to others certain aspects of the management and operation
responsibilities of the Agreement, including the designation of persons who
are not named fiduciaries to carry out fiduciary responsibilities under the
Agreement. The Named Fiduciary shall effect such allocation of its
responsibilities by delivering to Employer a written instrument signed by
it that specifies the nature and extent of the responsibilities allocated,
including if appropriate the designation of persons who are not named
fiduciaries to carry out fiduciary responsibilities under this Agreement.
All documents related to the Agreement shall be retained by the Named
Fiduciary and made available for examination at the above address. A copy
of the Agreement, Assignment and New Policy have been provided to Owner,
upon the execution of this Agreement.
X. FUNDING
The funding policy for the Agreement shall be to maintain the New Policy in
force by paying, when due, all premiums required.
XI. BASIS OF PREMIUM PAYMENTS AND BENEFITS
Payments under this Agreement shall be in accordance with the provisions of
Articles II through V, herein.
XII. CLAIMS PROCEDURE
If Owner or its beneficiary ("Claimant") fails to receive benefits to which
it believes it is entitled under this Agreement, such person may file with
the Named Fiduciary, at the address noted above, a written claim for such
benefits.
If a claim for benefits is denied, the Claimant may within 60 days
following such denial, file with the Named Fiduciary a written claim
objecting to the denial of such benefits. The Claimant or its
representative may review the Agreement and any other documents which
relate to the claim and may submit written comments to the Named Fiduciary.
The Named Fiduciary shall render a written decision concerning the claim
not later than 90 days after receipt of such claim. If the claim is
denied, in whole or in part, such decision shall include (a) the reason or
reasons for the denial; (b) a reference to the Agreement provisions
constituting the basis of the denial; (c) a description of any additional
material or information necessary for the Claimant to perfect his claim;
(d) an
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 6
<PAGE>
explanation as to why such information or material is necessary; and (e) an
explanation of the Agreement's appeal procedure. The claim shall be deemed
to be denied if no response is received by the end of the review period.
The Claimant may file with the Named Fiduciary a written notice of appeal
of the Named Fiduciary's decision not later than 60 days after receiving
the Named Fiduciary's written decision. The Named Fiduciary shall render a
written decision on the appeal not later than 60 days after the appeal.
Such decision shall include the specific reasons for the decision,
including a reference to the Agreement's specific provisions where
appropriate. The Named Fiduciary may extend the foregoing 90-day and 60-
day periods during which it must respond to the Claimant by up to an
additional 90 and 60 days respectively, if special circumstances beyond its
control so require; provided that notice of such extension is given to the
Claimant prior to the expiration of the initial 90-day or 60-day period, as
the case may be.
XIII. AMENDMENT
This Agreement may be amended at any time and from time to time by a
written instrument executed by Employer, Owner and Insured and, if
appropriate, their respective heirs, successors, personal representatives
and assignees.
XIV. AGREEMENT BINDING UPON PARTIES
This Agreement shall bind Employer, Owner and Insured, and their respective
heirs, successors, personal representatives and assignees.
XV. INSURER NOT A PARTY TO AGREEMENT
Insurer is not responsible for the legal or tax validity or effect of this
Agreement. Further, Insurer shall not be deemed a party to this Agreement
but will respect the rights of the parties as herein developed upon
receiving an executed copy of this Agreement.
Insurer shall not be responsible to account for the actual premium
contributions of the parties hereunder but shall rely solely upon the
written declarations of the parties in any distributions or settlement of
the New Policy's lifetime or death values. Payment or other performance of
its contractual obligations in accordance with the New Policy provisions
shall fully discharge Insurer from any and all liability.
XVI. CONTROLLING STATE LAW
This Agreement shall be subject to and construed under the laws of the
State of Texas, to the extent not preempted by ERISA.
[THE NEXT FOLLOWING PAGE IS THE SIGNATURE PAGE.]
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 7
<PAGE>
This Amended and Restated Split-Dollar Life Insurance Agreement is executed
and effective as of the date first above written.
INSURED:
/s/ John D. Maxson
----------------------------------------
John D. Maxson
OWNER:
BROWN BROTHERS HARRIMAN TRUST COMPANY
OF TEXAS, as Trustee of the John D.
Maxson 1995 Irrevocable Trust, dated
October 11, 1995
By: /s/ Susan Hickey
-------------------------------------
Name: Susan Hickey
-----------------------------------
Title: Vice President
----------------------------------
EMPLOYER:
VARI-LITE HOLDINGS, INC.
By: /s/ Michael P. Herman
-------------------------------------
Michael P. Herman
Vice President--Finance
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 8
<PAGE>
INSURER: American General Life Insurance Company
POLICY: Flexible Premium Adjustable Life Policy;
Policy Number A10137201L
INSURED: John D. Maxson
OWNER: Brown Brothers Harriman Trust Company of Texas, Trustee of the
John D. Maxson 1995 Irrevocable Trust, dated October 11, 1995
EMPLOYER: Vari-Lite Holdings, Inc.
This Amended and Restated Split-Dollar Life Insurance Agreement was recorded by
Insurer on August 7, 1997.
American General Life Insurance Company
By: /s/ American General Life Ins Co.
-------------------------------------
Name: Simon J. Leek
-----------------------------------
Title: Administration Officer
----------------------------------
AMENDED AND RESTATED SPLIT-DOLLAR
LIFE INSURANCE AGREEMENT Page 9
<PAGE>
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
INSURER: John Hancock Mutual Life Insurance Company
POLICY: Modified Premium Whole Life Policy;
Policy Number 67127330
INSURED: James H. Clark, Jr.
OWNER: James Howard Cullum Clark
EMPLOYER: Vari-Lite Holdings, Inc.
EFFECTIVE DATE: October 12, 1995
This SPLIT-DOLLAR LIFE INSURANCE AGREEMENT is made and effective as of
the 12th day of October, 1995 by and between Owner, Insured and Employer
(collectively, the "Parties") to define the rights, duties and obligations of
the Parties relative to the modified premium whole life insurance policy,
policy number 67127330 (the "Policy"), issued to Owner by Insurer insuring
the life of Insured. A copy of the Policy is attached hereto as Exhibit A.
Owner, Employer and Insured hereby agree as follows:
I. BENEFICIARY DESIGNATION RIGHTS
Owner may designate a beneficiary or beneficiaries to receive any
proceeds payable under the Policy on death of Insured which are in
excess of Employer's share of such proceeds, as determined by this
Agreement.
II. PREMIUM PAYMENT METHOD
Each year, Employer agrees to forward the full amount of the annual
premium due under the Policy for that year to Insurer on the date such
premium is due until the occurrence of a termination event under Article
VI. Each year, Owner agrees that he will pay to Employer, as partial
reimbursement by Owner to Employer of the annual premium for the Policy,
an amount equal to the economic benefit received by Insured during that
tax year. The amount payable by Owner may be paid to Employer by
payroll deduction or according to any other method which is agreeable to
the Parties.
Alternatively, if Employer and Owner agree that Employer shall pay to
Insurer or that Owner shall reimburse to Employer some amount other than
the amount stated in this Article II, the rights of Employer and Owner
under the Policy shall be adjusted accordingly. If Employer is not
reimbursed by Owner for a year for the full amount of the entire
economic benefit received by Insured during that year, the economic
benefit to the extent not reimbursed shall be reported by Employer as
taxable income for that year to Insured.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 1
<PAGE>
III. OWNER'S RETAINED INCIDENTS OF OWNERSHIP
Except as to the limited policy security rights specifically granted
Employer in the Assignment of Life Insurance Policy as Collateral in the
form attached hereto as Exhibit B (the "Assignment"), Owner retains all
incidents of ownership in the Policy (including the right to surrender
or cancel the Policy and the right to borrow against the Policy).
Owner's right to borrow against the Policy shall be limited to an amount
equal to the maximum loan value reduced by the Cumulative Unreimbursed
Premiums (as defined in Article IV) paid or advanced by Employer under
Article II.
Owner's right to withdraw from the Policy's cash value under the
Policy's partial surrender provisions shall be limited to the "partial
surrender value" of the Policy, reduced by the Cumulative Unreimbursed
Premiums. For purposes of this paragraph, "partial surrender value" of
the Policy means the cash value of the Policy less any indebtedness and
the cost of insurance until the next monthly anniversary.
IV. DIVISION OF POLICY DEATH PROCEEDS
Division of the death proceeds of the Policy shall be made as follows:
A. Employer shall be entitled to an amount equal to the cumulative
premiums paid to Insurer by Employer less the amount of aggregate
reimbursements paid to Employer by Owner under Article II (the
"Cumulative Unreimbursed Premiums"). The beneficiary or
beneficiaries designated by Owner in accordance with Article I
shall be entitled to any remainder of such proceeds.
B. If any interest is due upon the death proceeds under the terms of
the Policy, Owner and Employer shall share such interest in the
same manner that their respective share of the death proceeds (as
defined in the preceding paragraph) bears to the total death
proceeds, excluding such interest.
C. If, upon the death of Insured, there is a refund of unearned
premiums under the Policy provisions, then, in such event, any
refund shall be apportioned as follows:
1. Where Owner (or his assignee) has contributed to the Policy
premium at the last required premium interval, the refund of
unearned premiums shall be divided between Employer and
Owner (or his assignee) as their respective share of the
premium payment shall bear to the total premium for such
interval.
2. Where Owner (or his assignee) has not contributed to the
premium at the last premium interval, the refund of unearned
premium shall be refunded in total to Employer.
To the extent that the Cumulative Unreimbursed Premiums exceed the death
proceeds of the Policy, Owner shall be solely responsible for repayment
of same to Employer.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 2
<PAGE>
V. DIVISION OF THE NET CASH SURRENDER VALUE
Division of the net cash surrender value of the Policy shall be made as
follows:
Employer shall be entitled to an amount equal to the Cumulative
Unreimbursed Premiums. Owner shall be entitled to any remainder of such
net cash surrender value. To the extent that the Cumulative
Unreimbursed Premiums exceed the net cash surrender value of the Policy,
Owner shall be solely responsible for repayment of same to Employer.
VI. TERMINATION OF AGREEMENT
This Agreement shall terminate upon the occurrence of any one of the
following events:
A. Termination of Insured's directorship with Employer for any
reason;
B. Delivery by Owner to Employer of Owner's request, at any time, to
receive a release of the Assignment from Employer and agreement by
Owner to pay the premiums;
C. Owner's failure to reimburse Employer upon 30 days' written notice
from Employer for Owner's proportionate share of premiums to
Employer, if any, as mutually agreed upon by Owner and Employer
pursuant to Article II; or
D. Death of Insured.
Upon termination of this Agreement, Owner shall have a 90-day option to
pay to Employer an amount equal to the aggregate of the Cumulative
Unreimbursed Premiums and receive a release of the Assignment from
Employer. Employer agrees that Owner may obtain this amount from the
Policy by effectuating a policy loan or a withdrawal or by partial
surrender of the Policy, as long as Employer receives reimbursement of
the full amount of the Cumulative Unreimbursed Premiums. To assure that
Employer will receive its entire interest, Employer may request that
Owner provide Employer with collateral which is satisfactory to
Employer, in its sole discretion.
Alternatively, if Insured is to perform future services for Employer and
if Insured is entitled to receive deferred compensation for these
services pursuant to a separate agreement or agreements between Insured
and Employer, then Employer shall have the right under this Agreement to
release to Owner its interest in all or any portion of such compensation
in partial or complete satisfaction of that deferred payment obligation.
Nothing herein shall be construed to represent an ownership right or
interest of Owner or Insured in or to any particular asset of Employer,
nor shall Owner or Insured be deemed to be in constructive receipt of
such amount. Owner does not have any right to a release of the
Assignment by Employer without reimbursement, and may not anticipate,
pledge, assign, hypothecate or, in any manner, exercise rights,
ownership or control over any such right or interest.
Should Owner (or his assignees) fail to exercise one of these options
within the prescribed 90-day period, the Policy will be surrendered to
Insurer and the proceeds distributed between Employer and Owner as
prescribed by Article V.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 3
<PAGE>
VII. OWNER'S ASSIGNMENT RIGHTS
Owner may, at any time, assign to any individual, trust or other
organization all of his right, title and interest in the Policy and all
of his rights, options, privileges and duties created under this
Agreement.
VIII. STATUS OF AGREEMENT AS ERISA PLAN
This Agreement, together with the Policy and the Assignment attached
hereto, constitutes an employee welfare benefit plan as defined in
Section 3(1) of the Employee Retirement Income Security Act of 1974
("ERISA").
IX. NAMED FIDUCIARY
Employer is hereby designated the "Named Fiduciary" as defined in
Section 402(a)(2) of ERISA until resignation or removal by Employer's
Board of Directors. The business address of Employer is 201 Regal Row,
Dallas, Texas 75247.
The Named Fiduciary is hereby granted sole and absolute authority to
manage, control and administer the Agreement and to make all benefit
entitlement determinations under the Agreement. The Named Fiduciary may
allocate to others certain aspects of the management and operation
responsibilities of the Agreement, including the designation of persons
who are not named fiduciaries to carry out fiduciary responsibilities
under the Agreement. The Named Fiduciary shall effect such allocation
of its responsibilities by delivering to Employer a written instrument
signed by it that specifies the nature and extent of the
responsibilities allocated, including if appropriate the designation of
persons who ar not named fiduciaries to carry out fiduciary
responsibilities under this Agreement. All documents related to the
Agreement shall be retained by the Named Fiduciary and made available
for examination at the above address. A copy of the Agreement,
Assignment and Policy have been provided to Owner upon the execution of
this Agreement.
X. FUNDING
The funding policy for the Agreement shall be to maintain the Policy in
force by paying, when due, all premiums required.
XI. BASIS OF PREMIUM PAYMENTS AND BENEFITS
Payments under this Agreement shall be in accordance with the provisions
of Articles II through V, herein.
XII. CLAIMS PROCEDURE
If Owner or his beneficiary ("Claimant") fails to receive benefits to
which he believes he is entitled under this Agreement, such person may
file with the Named Fiduciary, at the address noted above, a written
claim for such benefits.
If a claim for benefits is denied, the Claimant may within 60 days
following such denial, file with the Named Fiduciary a written claim
objecting to the denial of such benefits. The Claimant or its
representative may review the Agreement and any other documents which
relate to the claim and may submit written comments to the Named
Fiduciary. The Named Fiduciary shall render
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 4
<PAGE>
a written decision concerning the claim not later than 90 days after
receipt of such claim. If the claim is denied, in whole or in part,
such decision shall include (a) the reason or reasons for the denial;
(b) a reference to the Agreement provisions constituting the basis of
the denial; (c) a description of any additional material or information
necessary for the Claimant to perfect his claim; (d) an explanation as
to why such information or material is necessary; and (e) an
explanation of the Agreement's appeal procedure. The claim shall be
deemed to be denied if no response is received by the end of the review
period.
The Claimant may file with the Named Fiduciary a written notice of
appeal of the Named Fiduciary's decision not later than 60 days after
receiving the Named Fiduciary's written decision. The Named Fiduciary
shall render a written decision on the appeal not later than 60 days
after the appeal. Such decision shall include the specific reasons for
the decision, including a reference to the Agreement's specific
provisions where appropriate. The Named Fiduciary may extend the
foregoing 90-day and 60-day periods during which it must respond to the
Claimant by up to an additional 90 and 60 days respectively, if special
circumstances beyond its control so require; provided that notice of
such extension is given to the Claimant prior to the expiration of the
initial 90-day or 60-day period, as the case may be.
XIII. PREMIUM WAIVER
If the Policy contains a premium waiver provision, any premium waived
shall be considered for all purposes of this Agreement as having been
paid by Owner.
XIV. AMENDMENT
This Agreement may be amended at any time and from time to time by a
written instrument executed by Employer, Owner and Insured, and, if
appropriate, their respective heirs, successors, personal
representatives and assignees.
XV. AGREEMENT BINDING UPON PARTIES
This Agreement shall bind Employer, Owner and Insured, and their
respective heirs, successors, personal representatives and assignees.
XVI. INSURER NOT A PARTY TO AGREEMENT
Insurer is not responsible for the legal or tax validity or effect of
this Agreement. Further, Insurer shall not be deemed a party to this
Agreement but will respect the rights of the Parties as herein developed
upon receiving an executed copy of this Agreement.
Insurer shall not be responsible to account for the actual premium
contributions of the Parties hereunder but shall rely solely upon the
written declarations of the Parties in any distributions or settlement
of the Policy's lifetime or death values. Payment or other performance
of its contractual obligations in accordance with the Policy provisions
shall fully discharge Insurer from any and all liability.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 5
<PAGE>
XVII. CONTROLLING STATE LAW
This Agreement shall be subject to and construed under the laws of the
State of Texas, to the extent not preempted by ERISA.
This Split-Dollar Life Insurance Agreement is executed and effective as
of the date first above written.
INSURED:
/s/ James H. Clark, Jr.
-----------------------------------------
James H. Clark, Jr.
OWNER:
/s/ James Howard Cullum Clark
-----------------------------------------
James Howard Cullum Clark
EMPLOYER:
VARI-LITE HOLDINGS, INC.
By: /s/ Michael P. Herman
-------------------------------------
Michael P. Herman
Vice President - Finance
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 6
<PAGE>
INSURER: John Hancock Mutual Life Insurance Company
POLICY: Modified Premium Whole Life Policy;
Policy Number 67127330
INSURED: James H. Clark, Jr.
OWNER: James Howard Cullum Clark
EMPLOYER: Vari-Lite Holdings, Inc.
This Split-Dollar Life Insurance Agreement was recorded by Insurer on August
22, 1997.
John Hancock Mutual Life Insurance Company
By: /s/ Bob Shin
---------------------------------------
Name: /s/ Bob Shin
-------------------------------------
Title: Secretary
------------------------------------
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT Page 7
<PAGE>
AMENDED AND RESTATED
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
This AMENDED AND RESTATED SPLIT-DOLLAR LIFE INSURANCE AGREEMENT is
made and effective as of the 12th day of October, 1995, by and between
Vari-Lite Holdings, Inc. ("Employer"), James Howard Cullum Clark ("Owner"),
and James H.Clark, Jr. ("Insured").
W I T N E S S E T H:
WHEREAS, Insured has served on the Board of Directors of Employer and
has contributed substantially to the success of Employer; and
WHEREAS, Employer desired for Insured to continue to serve on its Board
of Directors; and
WHEREAS, to retain the services of Insured, Employer assisted him in
establishing and maintaining an adequate life insurance program; and
WHEREAS, Employer and Insured entered into a split-dollar life insurance
agreement effective as of December 12, 1990 (the "Agreement") to define their
respective rights, duties and obligations regarding a $2,000,000 face amount
whole life insurance policy with supplemental insurance option, policy number
8592938 (the "Policy"), issued to James H. Clark, Jr. as owner and insured by
Massachusetts Mutual Life Insurance Company (the "Insurer") insuring the life
of Insured, a copy of which is attached hereto as Exhibit A; and
WHEREAS, the face amount of the Policy was subsequently reduced to
$1,200,000; and
WHEREAS, pursuant to the Agreement, Employer made the entire premium
payment to Insurer and Insured recognized as taxable income each year an
amount equal to the economic benefit received by Insured during that year and
Employer and Insured recognized and acknowledged the interest of Employer in
the benefits and values of the Policy to the extent of the premium payments
made by Employer to Insurer; and
WHEREAS, Employer desires to continue assisting Insured in maintaining
an adequate insurance program; and
WHEREAS, Insured has assigned all his ownership, rights and interests in
the Policy to James Howard Cullum Clark; and
WHEREAS, Employer, Insured and Owner desire to amend and restate the
Agreement in order to (i) restate the rights, duties and obligations of
Employer, Insured and Owner relative to the Policy and the Agreement, (ii)
provide for the reimbursement by Owner each year to Employer of a portion of
the annual premium payment made by Employer equaL to the economic benefit
received by Insured during that year, and (iii) confirm the limited policy
security rights specifically granted in the Policy to Employer as collateral;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants herein contained, the parties hereto agree as follows:
I. BENEFICIARY DESIGNATION RIGHTS
Owner may designate a beneficiary or beneficiaries to receive any proceeds
payable under the Policy on death of Insured which are in excess of
Employer's share of such proceeds, as determined by this Agreement.
II. PREMIUM PAYMENT METHOD
Each year, Employer agrees to forward the full amount of the annual premium
due under the Policy for that year to Insurer on the date such premium is
due until the occurrence of a termination event under Article VI. Each
year, Owner agrees that he will pay to Employer, as partial reimbursement
by Owner to Employer of the annual premium for the Policy, an amount equal
to the economic benefit received by Insured during that tax year. The
amount payable by Owner may be paid to Employer by payroll deduction or
according to any other method which is agreeable to the parties.
Alternatively, if Employer and Owner agree that Employer shall pay to
Insurer or that Owner shall reimburse to Employer some amount other than
the amount stated in this Article II, the rights of Employer and Owner
under the Policy shall be adjusted accordingly. If Employer is not
reimbursed by Owner for a year for the full amount of the entire economic
benefit received by Insured during that year, the economic benefit to the
extent not reimbursed shall be reported by Employer as taxable income for
that year to Insured.
III. OWNER'S RETAINED INCIDENTS OF OWNERSHIP
Except as to the limited policy security rights specifically granted
Employer in the Assignment of Life Insurance Policy as Collateral in the
form attached hereto as Exhibit B (the "Assignment") and as provided in
Article VI, Owner retains all incidents of ownership in the Policy
(including the right to surrender or cancel the Policy and the right to
borrow against the Policy).
Owner is required to apply all dividends declared on the Policy to purchase
paid-up insurance on the life of Insured. Owner agrees not to terminate or
alter this dividend option without the consent of Employer.
Owner's right to borrow against the Policy shall be limited to an amount
equal to the maximum loan value reduced by the Cumulative Unreimbursed
Premiums (as defined in Article IV) paid or advanced by Employer under
Article II.
2
<PAGE>
Owner's right to withdraw from the Policy's cash value under the Policy's
partial surrender provisions shall be limited to the "partial surrender
value" of the Policy, reduced by the Cumulative Unreimbursed Premiums. For
purposes of this paragraph, "partial surrender value" of the Policy means
the cash value of the Policy less any indebtedness and the cost of
insurance until the next annual premium due date.
IV. DIVISION OF POLICY DEATH PROCEEDS
Division of the death proceeds of the Policy shall be made as follows:
A. Employer shall be entitled to an amount equal to the cumulative
premiums paid to Insurer by Employer less the amount of aggregate
reimbursements paid to Employer by Owner under Article II (the
"Cumulative Unreimbursed Premiums"). The beneficiary or beneficiaries
designated by Owner in accordance with Article I shall be entitled to
any remainder of such proceeds.
B. If any interest is due upon the death proceeds under the terms of the
Policy, Owner and Employer shall share such interest in the same
manner that their respective share of the death proceeds (as defined
in the preceding paragraph) bears to the total death proceeds,
excluding such interest.
C. If, upon the death of Insured, there is a refund of unearned premiums
under the Policy provisions, then, in such event, any refund shall be
apportioned as follows:
1. Where Owner (or his assignee) has contributed to the Policy
premium at the last required premium interval, the refund of
unearned premiums shall be divided between Employer and Owner (or
his assignee) as their respective share of the premium payment
shall bear to the total premium for such interval.
2. Where Owner (or his assignee) has not contributed to the premium
at the last premium interval, the refund of unearned premium
shall be refunded in total to Employer.
V. DIVISION OF THE NET CASH SURRENDER VALUE
Division of the net cash surrender value of the Policy prior to death of
Insured shall be made as follows:
Employer shall be entitled to an amount equal to the Cumulative
Unreimbursed Premiums. Owner shall be entitled to any remainder of such
net cash surrender value. To the extent that the Cumulative Unreimbursed
Premiums exceed the net cash surrender value of the Policy, Owner shall be
solely responsible for repayment of same to Employer.
3
<PAGE>
VI. TERMINATION OF AGREEMENT
This Agreement shall terminate upon the occurrence of any one of the
following events:
A. Termination of both Insured's Consulting Agreement (the "Consulting
Agreement") with Employer dated as of July 1, 1995 in accordance with
its terms and Insured's directorship with Employer for any reason;
B. Delivery by Owner to Employer of Owner's request, at any time, to
receive a release of the Assignment from Employer and agreement by
Owner to pay the premiums;
C. Owner's failure to reimburse Employer upon 30 days' written notice
from Employer for Owner's proportionate share of premiums to Employer,
if any, as mutually agreed upon by Owner and Employer pursuant to
Article II;
D. Death of Insured; or
E. Breach of the terms of this Agreement by Employer.
Except as provided below with respect to a breach of this Agreement by
Employer, upon termination of this Agreement, Owner shall have a 90-day
option to pay to Employer an amount equal to the Cumulative Unreimbursed
Premiums and receive a release of the Assignment from Employer. Employer
agrees that Owner may obtain this amount from the New Policy by
effectuating a policy loan or a withdrawal or by partial surrender of the
New Policy, as long as Employer receives reimbursement of the full amount
of the Cumulative Unreimbursed Premiums. To assure that Employer will
receive its entire interest, Employer may request that Owner provide
Employer with collateral which is satisfactory to Employer, in its sole
discretion.
Alternatively, if Insured is to perform future services for Employer and if
Insured is entitled to receive deferred compensation for these services
pursuant to a separate agreement or agreements between Insured and
Employer, then Employer shall have the right under this Agreement to
release to Owner its interest in all or any portion of such compensation in
partial or complete satisfaction of that deferred payment obligation.
If this Agreement is terminated (i) on account of a breach of this
Agreement by Employer, (ii) in connection with the retirement by Insured
from his directorship and consulting relationship with Employer on or after
age 60, or (iii) in connection with a "change of control" of Employer as
defined in Section 6(e) of the Consulting Agreement, Employer shall waive
its right to repayment of the Cumulative Unreimbursed Premiums paid as of
the termination date. Within 30 days of such termination date, Employer
shall release the Assignment and Owner shall become the sole and absolute
owner of the Policy. Owner may thereafter elect to continue to keep the
Policy in effect by paying the
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premiums thereon, or alternatively, may elect to surrender the Policy
pursuant to the terms thereof. If Employer does not release the Assignment
of the Policy within this 30-day period, the Assignment will automatically
terminate pursuant to the terms hereof.
Nothing herein shall be construed to represent an ownership right or
interest of Owner or Insured in or to any particular asset of Employer, nor
shall Owner or Insured be deemed to be in constructive receipt of such
amount. Owner does not have any right to a release of the Assignment by
Employer without reimbursement of the Cumulative Unreimbursed Premiums but,
instead, such right shall vest solely with the Employer. Owner may not
anticipate, pledge, assign, hypothecate or, in any manner, exercise rights,
ownership or control over this interest of Employer.
Should Owner (or his assignees) fail to exercise one of these options
within the prescribed 90-day period, the Policy will be surrendered to
Insurer and the proceeds distributed between Employer and Owner as
prescribed by Article V.
VII. OWNER'S ASSIGNMENT RIGHTS
Owner may, at any time, assign to any individual, trust or other
organization all of his right, title and interest in the Policy and all of
his rights, options, privileges and duties created under this Agreement.
VIII. STATUS OF AGREEMENT AS ERISA PLAN
This Agreement, together with the Policy and the Assignment attached
hereto, constitutes an employee welfare benefit plan as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974 ("ERISA").
IX. NAMED FIDUCIARY
Employer is hereby designated the "Named Fiduciary" as defined in Section
402(a)(2) of ERISA until resignation or removal by Employer's Board of
Directors. The business address of Employer is 201 Regal Row, Dallas, Texas
75247.
The Named Fiduciary is hereby granted sole and absolute authority to
manage, control and administer the Agreement and to make all benefit
entitlement determinations under the Agreement. The Named Fiduciary may
allocate to others certain aspects of the management and operation
responsibilities of the Agreement, including the designation of persons who
are not named fiduciaries to carry out fiduciary responsibilities under the
Agreement. The Named Fiduciary shall effect such allocation of its
responsibilities by delivering to Employer a written instrument signed by
it that specifies the nature and extent of the responsibilities allocated,
including if appropriate the designation of persons who are not named
fiduciaries to carry out fiduciary responsibilities under this Agreement.
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All documents related to the Agreement shall be retained by the Named
Fiduciary and made available for examination at the above address. Copies
of the Agreement,
Assignment and Policy have been provided to Owner upon the execution of
this Agreement.
X. FUNDING
The funding policy for the Agreement shall be to maintain the Policy in
force by paying, when due, all premiums required.
XI. BASIS OF PREMIUM PAYMENTS AND BENEFITS
Payments under this Agreement shall be in accordance with the provisions of
Articles II through V, herein.
XII. CLAIMS PROCEDURE
If Owner or his beneficiary ("Claimant") fails to receive benefits to which
he believes he is entitled under this Agreement, such person may file with
the Named Fiduciary, at the address noted above, a written claim for such
benefits.
If a claim for benefits is denied, the Claimant may within 60 days
following such denial, file with the Named Fiduciary a written claim
objecting to the denial of such benefits. The Claimant or his
representative may review the Agreement and any other documents which
relate to the claim and may submit written comments to the Named Fiduciary.
The Named Fiduciary shall render a written decision concerning the claim
not later than 90 days after receipt of such claim. If the claim is denied,
in whole or in part, such decision shall include (a) the reason or reasons
for the denial; (b) a reference to the Agreement provisions constituting
the basis of the denial; (c) a description of any additional material or
information necessary for the Claimant to perfect his claim; (d) an
explanation as to why such information or material is necessary; and (e) an
explanation of the Agreement's appeal procedure. The claim shall be deemed
to be denied if no response is received by the end of the review period.
The Claimant may file with the Named Fiduciary a written notice of appeal
of the Named Fiduciary's decision not later than 60 days after receiving
the Named Fiduciary's written decision. The Named Fiduciary shall render a
written decision on the appeal not later than 60 days after the appeal.
Such decision shall include the specific reasons for the decision,
including a reference to the Agreement's specific provisions where
appropriate. The Named Fiduciary may extend the foregoing 90-day and 60-day
periods during which it must respond to the Claimant by up to an additional
90 and 60 days respectively, if special circumstances beyond its control so
require; provided that notice of such extension
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is given to the Claimant prior to the expiration of the initial 90-day or
60-day period, as the case may be.
XIII. PREMIUM WAIVER
If the Policy contains a premium waiver provision, any premium waived shall
be considered for all purposes of this Agreement as having been paid by
Owner.
XIV. AMENDMENT
This Agreement may be amended at any time and from time to time by a
written instrument executed by Employer, Owner and Insured, and, if
appropriate, their respective heirs, successors, personal representatives
and assignees.
XV. AGREEMENT BINDING UPON PARTIES
This Agreement shall bind Employer, Owner and Insured, and their respective
heirs, successors, personal representatives and assignees.
XVI. INSURER NOT A PARTY TO AGREEMENT
Insurer is not responsible for the legal or tax validity or effect of this
Agreement. Further, Insurer shall not be deemed a party to this Agreement
but will respect the rights of the parties as herein developed upon
receiving an executed copy of this Agreement.
Insurer shall not be responsible to account for the actual premium
contributions of the parties hereunder but shall rely solely upon the
written declarations of the parties in any distributions or settlement of
the Policy's lifetime or death values. Payment or other performance of its
contractual obligations in accordance with the Policy provisions shall
fully discharge Insurer from any and all liability.
XVII. CONTROLLING STATE LAW
This Agreement shall be subject to and construed under the laws of the
State of Texas, to the extent not preempted by ERISA.
[THE NEXT FOLLOWING PAGE IS THE SIGNATURE PAGE.]
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This Amended and Restated Split-Dollar Life Insurance Agreement is
executed and effective as of the date first above written.
INSURED:
/s/ James H. Clark, Jr.
--------------------------------------------
James H. Clark, Jr.
OWNER:
/s/ James Howard Cullum Clark
--------------------------------------------
James Howard Cullum Clark
EMPLOYER:
VARI-LITE HOLDINGS, INC.
By: /s/ Michael P. Herman
---------------------------------------
Michael P. Herman
Vice President--Finance
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<PAGE>
INSURER: Massachusetts Mutual Life Insurance Company
POLICY: Whole Life Policy with Supplemental Insurance Option;
Policy Number 8592938
INSURED: James H. Clark, Jr.
OWNER: James Howard Cullum Clark
EMPLOYER: Vari-Lite Holdings, Inc.
EFFECTIVE DATE: December 12, 1990
This Amended and Restates Split-Dollar Life Insurance Agreement was recorded
by Insurer on August 12, 1997.
By: /s/ Cheryl M. Foster
----------------------------------
Name: Cheryl M. Foster
--------------------------------
Title: Assistant Secretary
-------------------------------
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<PAGE>
VARI-LITE INTERNATIONAL, INC.
1997 OMNIBUS PLAN
1. PURPOSES OF THE PLAN
The Vari-Lite International, Inc. 1997 Omnibus Plan (the "Plan") maintained
by Vari-Lite International, Inc. (the "Company") is intended to promote the
growth and general prosperity of the Company and its Subsidiaries by offering
incentives to its key employees and non-employee directors who are primarily
responsible for the growth of the Company and its Subsidiaries and to attract
and retain qualified employees and non-employee directors and thereby benefit
its stockholders based on the growth of the Company. Awards granted under the
Plan may be (a) stock options ("Options") which may be designated as (i)
Nonqualified Stock Options ("NQSOs") not intended to qualify as Incentive Stock
Options ("ISOs") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or (ii) ISOs; (b) stock appreciation rights ("SARs"); (c)
restricted stock awards ("Restricted Stock"); (d) performance awards
("Performance Awards"); or (e) other forms of stock-based incentive awards, as
hereinafter defined (collectively, the "Awards"). For purposes of the Plan,
"Subsidiary" means any corporation in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of the Award, each of
the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in the chain, and "Subsidiaries" means
more than one of any such corporations.
2. SHARES OF STOCK SUBJECT TO THE PLAN
The Awards may be granted with respect to Class B Common Stock, $0.10 par
value of the Company (the "Common Stock"). Shares delivered upon exercise of
the Awards, at the election of the Committee (as hereinafter defined in Section
3), may be Common Stock that is authorized but previously unissued or stock
reacquired by the Company or both. Subject to the provisions of Section 15, the
maximum number of shares of Common Stock with respect to which the Awards may be
granted under the Plan, including to any individual employee, shall not exceed
212,558. Any shares subject to an Award under the Plan, which Award for any
reason expires or is terminated unexercised as to such shares, shall again be
available for the grant of other Awards under the Plan; provided, however, that
forfeited Common Stock or other securities shall not be available for further
Awards if the Participant (as hereinafter defined in Section 4) has realized any
benefits of ownership from such Common Stock.
<PAGE>
3. ADMINISTRATION
Except as provided in the following sentence, the Plan shall be
administered by a committee (the "Committee") composed of not less than two
members of the Board of Directors of the Company (the "Board"), each of whom
shall, unless determined otherwise by the Board, qualify as both outside
directors within the meaning of Prop. Treas. Reg. Section 1.162-27(e)(3) and
non-employee directors within the meaning of Item 404 of Regulation S-K of the
Securities Act of 1933, as amended. The entire Board shall grant Awards to
members of the Committee and perform the functions of the Committee under the
Plan related to such Awards. If a Committee has not been appointed by the
Board, the functions of the Committee provided for herein shall be performed by
the entire Board. Subject to the provisions of the Plan, the Committee shall
have full discretion and the exclusive power to (i) select the employees and
non-employee directors who will participate in the Plan and to grant Awards to
such employees and non-employee directors, (ii) determine the time at which such
Awards shall be granted and any terms and conditions with respect to such Awards
as shall not be inconsistent with the provisions of the Plan, and (iii) resolve
all questions relating to the administration of the Plan.
The interpretation of and application by the Committee of any provision of
the Plan shall be final and conclusive. The Committee, in its sole discretion,
may establish such rules and guidelines relating to the Plan as it may deem
desirable.
The Committee may employ such legal counsel, consultants and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. The Committee shall keep minutes of
its actions under the Plan.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Awards granted
hereunder.
4. ELIGIBILITY
The employees who shall be eligible to participate in the Plan shall be
officers, management and such other key employees of the Company and its
Subsidiaries as the Committee may from time to time determine. Non-employee
directors of the Company or of any Subsidiary shall also be eligible to
participate in the Plan. An employee or non-employee director who has been
granted an Award in one year shall not necessarily be entitled to be granted
an Award in any subsequent year. An individual who is granted an Award under
the Plan shall be referred to herein as a "Participant."
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<PAGE>
5. STOCK OPTIONS
The Committee may grant Options, as follows, which shall be evidenced by a
stock option agreement and may be designated as (i) NQSOs or (ii) ISOs:
(a) NQSOS.
(i) A NQSO is a right to purchase a specified number of shares of Common
Stock during such time as the Committee may determine, not to exceed ten
years, at a price determined by the Committee that, unless deemed otherwise
by the Committee, is not less than the fair market value of the Common
Stock on the date the option is granted.
(ii) The exercise price of the Common Stock subject to the NQSO may be
paid in cash. At the discretion of the Committee, the exercise price may
also be paid by the tender of Common Stock or through a combination of
Common Stock and cash or through such other means as the Committee
determines are consistent with the Plan's purpose and applicable law. No
fractional shares of Common Stock will be issued or accepted.
(iii) Without limiting the foregoing, to the extent permitted by law
(including relevant state law), (A) the Committee may agree to accept, as
full or partial payment of the exercise price of Common Stock issued upon
the exercise of the NQSO, a promissory note of the Participant exercising
the NQSO evidencing the person's obligation to make future cash payments to
the Company, which promissory note shall be payable as determined by the
Committee (but in no event later than five years after the date thereof),
shall be secured by a pledge of the shares of Common Stock purchased and
shall bear interest at a rate established by the Committee and (B) the
Committee may permit the Participant exercising the NQSO, either on a
selective or aggregate basis, to simultaneously exercise the NQSO and sell
the shares of Common Stock acquired, pursuant to a brokerage or similar
arrangement approved in advance by the Committee, and use the proceeds from
sale as payment of the exercise price of such Common Stock.
(b) ISOS.
(i) An ISO is an Award in the form of an Option to purchase Common Stock
that complies with the requirements of Code Section 422 or any successor
section. No ISO may be granted under the Plan to a non-employee director.
(ii) The aggregate fair market value (determined at the time of the grant
of the ISO) of the shares of Common Stock subject to ISOs granted under
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<PAGE>
this Plan and all incentive stock option plans of the Company or its
Subsidiaries which are exercisable by one employee for the first time
during a particular calendar year shall not exceed $100,000. For this
purpose, the fair market value (determined at the respective date of grant
of each ISO) of the Common Stock purchasable by exercise of an ISO (or an
installment thereof) shall be counted against the $100,000 annual
limitation for an employee only for the calendar year such stock is first
purchasable under the terms of the ISO. To the extent that ISOs granted to
an employee exceed the limitation set forth in the preceding sentences,
ISOs granted last shall be treated as NQSOs.
(iii) No ISO may be exercisable more than:
(A) in the case of an employee who owns stock possessing more than
10% of the total combined voting power of all classes of stock of
the Company and its Subsidiaries on the date the ISO is granted
(a "Ten Percent Stockholder"), five years after the date the ISO
is granted; and
(B) in the case of an employee who is not a Ten Percent Stockholder
and in the case of a non-employee director, ten years after the
date the ISO is granted.
(iv) The exercise price of any ISO shall be determined by the Committee and
shall be not less than:
(A) in the case of an employee who is a Ten Percent Stockholder, not
less than 110 percent of the fair market value of the Common
Stock subject to the ISO on the date the ISO is granted; and
(B) in the case of an employee who is not a Ten Percent Stockholder
and in the case of a non-employee director, the fair market value
of the Common Stock subject to the ISO on the date the ISO is
granted.
(v) The Committee may provide that the exercise price under an ISO may be
paid by one or more of the methods available for paying the exercise price
of an NQSO.
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<PAGE>
6. STOCK APPRECIATION RIGHTS
(i) An SAR is a right to receive, upon surrender of the right, but
without payment, an amount payable in cash.
(ii) The amount payable with respect to each SAR shall be equal in value
to the applicable percentage of the excess, if any, of the fair market
value of a share of Common Stock on the exercise date over the exercise
price of the SAR. The exercise price of the SAR shall be determined by the
Committee and shall not be less than the fair market value of a share of
Common Stock on the date the SAR is granted.
(iii) In the case of an SAR granted in tandem with an ISO to an employee
who is a Ten Percent Stockholder, the amount payable with respect to each
SAR shall be equal in value to the applicable percentage of the excess, if
any, of the fair market value of a share of Common Stock on the exercise
date over the exercise price of the SAR, which exercise price shall not be
less than 110% of the fair market value of a share of Common Stock on the
date the SAR is granted.
(iv) The applicable percentage and exercise price shall be established by
the Committee at the time the SAR is granted.
7. RESTRICTED STOCK
Restricted Stock is Common Stock of the Company that is issued to a
Participant at a price determined by the Committee, which price per share may
not be less than par value of the Common Stock, and is subject to restrictions
on transfer and/or such other restrictions on incidents of ownership as the
Committee may determine.
8. PERFORMANCE AWARDS
A Performance Award granted under the Plan (i) may be denominated or
payable in cash, Common Stock (including without limitation, Restricted Stock),
other securities or other Awards and (ii) shall confer on the holder thereof the
right to receive payments, in whole or in part, upon the achievement of such
performance goals during such performance periods as the Committee shall
establish. Subject to the terms of the Plan and any applicable Award agreement,
the performance goals to be achieved during any performance period, the length
of any performance period, the amount of any Performance Award granted and the
amount of any payment or transfer to be made pursuant to any Performance Award
shall be determined by the Committee.
5
<PAGE>
9. OTHER STOCK-BASED INCENTIVE AWARDS
The Committee may from time to time grant Awards under this Plan that
provide the Participant with the right to purchase Common Stock or that are
valued by reference to the fair market value of the Common Stock (including, but
not limited to, phantom securities or dividend equivalents). Such Awards shall
be in a form determined by the Committee (and may include terms contingent upon
a change of control of the Company); provided that such Awards shall not be
inconsistent with the terms and purposes of the Plan. The Committee will
determine the price of any such Award and may accept any lawful consideration.
10. EXERCISE OF OPTIONS
The Committee may provide for the exercise of Options in installments and
upon such terms, conditions and restrictions as it may determine. The Committee
may provide for termination of an Option in the case of termination of
employment or directorship or any other reason.
An Option granted hereunder shall be exercisable, in whole or in part, only
by written notice delivered in person or by mail to the Secretary of the Company
at its principal office, specifying the number of shares of Common Stock to be
purchased and accompanied by payment thereof and otherwise in accordance with
the stock option agreement pursuant to which the Option was granted.
For purposes of this Plan, the fair market value of a share of the Common
Stock shall be (i) if the Common Stock is traded on an established securities
market, the closing price of such Common Stock for the day before the Option is
granted, except for the exercise price of the initial Options to be granted
under the Plan which will be granted contingent on the Company's completion of
its initial public offering at an exercise price equal to the initial public
offering price, and (ii) if the Common Stock is not so traded, an amount
determined by the Committee in good faith and based on such factors as it deems
relevant to such determination.
11. RIGHTS IN EVENT OF DEATH OR DISABILITY
If a Participant dies or becomes disabled (within the meaning of Code
Section 22(e)(3)) prior to termination of his right to exercise an Option in
accordance with the provisions of his stock option agreement without having
totally exercised the Option, the stock option agreement may provide that the
Option may be exercised, to the extent of the shares with respect to which the
Option could have been exercised by the Participant on the date of his death or
disability, by (i) the Participant's estate or by the person who acquired the
right to exercise the Option by bequest or inheritance or by reason of the death
of the Participant or (ii) the Participant or his personal representative in the
event of the Participant's disability,
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<PAGE>
provided the Option is exercised prior to the date of its expiration or not
more than six months from the date of the Participant's death or disability,
whichever first occurs. The date of disability of a Participant shall be
determined by the Committee.
12. AWARD AGREEMENTS
Each Award granted under the Plan shall be evidenced by an Award agreement
between the employee or non-employee director to whom the Award is granted and
the Company, setting forth the number of shares of Common Stock, SARs or units
subject to the Award and such other terms and conditions applicable to the Award
not inconsistent with the Plan as the Committee may deem appropriate. The Award
agreement for an Option shall also be referred to as a stock option agreement.
13. TAX WITHHOLDING
The Committee may establish such rules and procedures as it considers
desirable in order to satisfy any obligation of the Company to withhold federal
income taxes or other taxes with respect to any Award made under the Plan. Such
rules and procedures may provide (i) in the case of Awards paid in shares of
Common Stock, that the person receiving the Award may satisfy the withholding
obligation by instructing the Company to withhold shares of Common Stock
otherwise issuable upon exercise of such Award in order to satisfy such
withholding obligation and (ii) in the case of an Award paid in cash, that the
withholding obligation shall be satisfied by withholding the applicable amount
and paying the net amount in cash to the Participant.
14. CHANGE OF CONTROL
For the purpose of the Plan, a "Change of Control" shall be deemed to have
occurred if (i) the Company is merged or consolidated with another corporation
and as a result of such merger or consolidation less than 50% of the outstanding
voting securities of the surviving or resulting corporation are owned in the
aggregate by the former stockholders of the Company; (ii) the Company sells all
or substantially all of its assets to another corporation, which is not a
wholly-owned subsidiary of the Company; (iii) any person or group within the
meaning of the Securities Exchange Act of 1934, as amended, acquires (together
with voting securities of the Company held by such person or group) 30% or more
of the outstanding voting securities of the Company (whether directly,
indirectly, beneficially or of record) pursuant to any transaction or
combination of transactions; (iv) there is a change of control of the Company of
a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended, whether or not the Company is then subject to such reporting
7
<PAGE>
requirements; or (v) the individuals who, at the beginning of any period of
twelve consecutive months, constituted the Board cease, for any reason, to
constitute at least a majority thereof, unless the nomination for election or
re-election by the Company's stockholders of each new director of the Company
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved. Notwithstanding
the foregoing, however, a Change of Control shall not be deemed to have occurred
upon the consummation of an initial public offering of the Company's capital
stock or the issuance of capital stock by the Company approved by a vote of at
least two-thirds of the directors then in office.
In the event a Change of Control occurs, then, notwithstanding any
provision of the Plan or of any provisions of any Award agreements entered into
between the Company and any Participant to the contrary, all Awards that have
not expired and which are then held by any Participant (or the person or persons
to whom any deceased Participant's rights have been transferred) shall, as of
such Change of Control, become fully and immediately vested and exercisable and
may be exercised for the remaining term of such Awards.
15. DILUTION OR OTHER ADJUSTMENT
If the Company is a party to any merger or consolidation, or undergoes any
merger, consolidation, separation, reorganization, liquidation or the like, the
Committee shall have the power to make arrangements, which shall be binding upon
the holders of unexpired Awards, for the substitution of new Awards for, or the
assumption by another corporation of, any unexpired Awards then outstanding
hereunder. In addition, in the event of a reclassification, stock split,
combination of shares, separation (including a spin-off), dividend on shares of
the Common Stock payable in stock or other similar change in capitalization or
in corporate structure, the Committee shall conclusively determine the
appropriate adjustment in (i) the exercise prices of outstanding Options and
SARs, (ii) the number and kind of shares or other securities as to which
outstanding Awards shall be exercisable and (iii) the aggregate number of shares
with respect to which Awards may be granted under the Plan.
16. TRANSFERABILITY
No Award granted under this Plan shall be sold, pledged, assigned or
transferred other than by will or the laws of descent and distribution, and
except as provided in Section 11, Awards shall be exercisable during the
Participant's lifetime only by the Participant.
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17. AMENDMENT OR TERMINATION
The Committee may at any time amend, suspend or terminate the Plan;
provided, however, that (i) no change in any Awards previously granted may be
made without the consent of the holder thereof and (ii) no amendment (other than
an amendment authorized by Section 15) may be made increasing the aggregate
number of shares of the Common Stock with respect to which Awards may be granted
or changing the class of employees eligible to receive Awards hereunder, without
the approval of the holders of a majority of the outstanding voting shares of
the Company.
18. GENERAL PROVISIONS
No Award may be exercised by a Participant if such exercise, and the
receipt of cash or stock thereunder, would be, in the opinion of counsel
selected by the Company, contrary to law or the regulations of any duly
constituted authority having jurisdiction over the Plan.
A bona fide leave of absence approved by a duly constituted officer of the
Company or any of its Subsidiaries shall not be considered interruption or
termination of service of any Participant for any purposes of the Plan or Awards
granted thereunder, except that no Awards may be granted to a Participant while
he is on a bona fide leave of absence. No Participant shall have any rights as
a stockholder with respect to any shares subject to Awards granted to him under
the Plan prior to the date as of which he is actually recorded as the holder of
such shares upon the stock records of the Company.
Nothing contained in the Plan or in Awards granted thereunder shall confer
upon any employee or non-employee director any right to (i) continue in the
employ of the Company or any of its Subsidiaries or continue serving on the
Board or (ii) interfere in any way with the right of the Company or any of its
Subsidiaries to terminate his employment or service on the Board at any time.
Any Award agreement may provide that stock issued upon exercise of any
Awards may be subject to such restrictions, including, without limitation,
restrictions as to transferability and restrictions constituting substantial
risks of forfeiture as the Committee may determine at the time such Award is
granted.
19. EFFECTIVE DATE
The Plan shall become effective on the date of its adoption by the Board,
subject to approval of the Plan by the holders of a majority of the outstanding
voting shares of the Company within 12 months after the date of the Plan's
adoption by the Board. In the event of the failure to obtain such stockholder
approval, the Plan shall
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<PAGE>
be null and void and the Company shall have no liability thereunder. No
Award granted under the Plan shall be exercisable until such stockholder
approval has been obtained.
20. TERMINATION
No Award may be granted under the Plan on or after the date which is ten
years following the effective date specified in Section 19, but Awards
previously granted may be exercised in accordance with their terms.
21. GOVERNING LAW
The Plan and all Award agreements shall be construed and enforced in
accordance with an governed by the laws of the State of Texas.
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VARI-LITE INTERNATIONAL, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Agreement, dated as of _______, 199____, is by and between Vari-Lite
International, Inc. (the "Company") and _____________________ (the "Optionee").
WITNESSETH:
WHEREAS, pursuant to the Vari-Lite International, Inc. 1997 Omnibus Plan
(the "Plan"), the Company has determined that its interests will be advanced by
providing an incentive to the Optionee to acquire a proprietary interest in the
Company and, as a stockholder, to share in its success, with added incentive to
work effectively for and in the Company's interest;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereby agree as follows:
SECTION 1
GRANT
The Company hereby grants to the Optionee, as a matter of separate
agreement and not in lieu of salary or any other compensation for services, the
right and option (the "Option") to purchase _____________ shares of authorized
but unissued Class B Common Stock, $0.10 par value ("Common Stock"), of the
Company on the terms and conditions herein set forth in this Agreement. This
Option is intended to constitute an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 2
PRICE
The exercise price of the shares of Common Stock subject to this Option
shall be equal to the fair market value of the shares on the date of the grant
or $__________ per share.
SECTION 3
WHEN EXERCISABLE
The Option may be exercised by the Optionee, in whole or part, at any time
and from time to time within a period of _____ years from the day and year first
written above.
The Option may not be exercised prior to one year from the date of this
Agreement. Thereafter, the Option shall be exercisable only as follows:
<PAGE>
(a) Percentage of
Total Shares
Subject to Vesting Vesting Date Expiration Date
------------------ ------------ ---------------
20%
40%
60%
80%
100%
(b) At any time after five years from the date of this Agreement, the
Option shall be exercisable in full except to the extent that it has already
been exercised.
SECTION 4
HOW EXERCISABLE
Subject to such administrative regulations as the committee of the Board of
Directors of the Company (the "Board") appointed to administer the Plan (the
"Committee") may from time to time adopt, the Optionee or beneficiary shall, in
order to exercise this Option:
(a) give written notice to the Committee of the exercise price and the
number of shares which he will purchase and furnish an undertaking to
make payment of such exercise price in United States dollars before
issuance of such shares; or
(b) give written notice to the Committee of the exercise price and the
number of shares for which he is requesting approval from the
Committee to tender other shares of Common Stock in exchange for
Option shares.
If a Committee has not been appointed by the Board to administer the Plan, for
purposes of this Agreement, "Committee" shall mean the entire Board.
Any notice shall include an undertaking to furnish or execute such
documents as the Committee in its discretion shall deem necessary (i) to
evidence such exercise, in whole or in part, of the Option, (ii) to determine
whether registration is then required under the Securities Act of 1933, as
amended, or any other law, as then in effect, and (iii) to comply with or
satisfy the requirements of the Securities Act of 1933, as amended, or any other
law, as then in effect.
In addition, if an exercise under paragraph (b) above is requested, the
notice shall include an undertaking to tender to the Company (i) promptly after
receipt of denial by the Committee of the paragraph (b) request, full payment in
United States dollars of the Option exercise price for the shares being
purchased hereunder or (ii) promptly after receipt of approval by the Committee
of exercise of this Option or portion thereof by payment of Common Stock, full
payment in Common Stock in exchange for the shares being purchased hereunder.
2
<PAGE>
The Committee shall advise the Optionee (or beneficiary, if applicable) in
writing, within 20 business days after receipt by the Committee of notice of
exercise by the Optionee (or beneficiary), whether the Committee approves the
exchange of Common Stock for Option stock being purchased. The Company must
receive full payment in United States dollars or the appropriate number of
shares of Common Stock, whichever applies, of the Option exercise price within
five business days after the date of the Committee's notice, unless the
Committee extends the time of payment.
If the Committee approves payment by the Optionee by tendering shares of
Common Stock, the Committee may also, upon confirming that the Optionee owns the
number of additional shares being tendered, authorize the issuance of a new
certificate for the number of shares being acquired pursuant to the exercise of
the Option less the number of shares being tendered upon the exercise and return
to the Optionee (or not require surrender of) the certificate for the shares
being tendered upon the exercise.
If the Optionee does not elect or is denied the right to exercise the
Option by tendering shares of Common Stock, the Committee may permit the
Optionee to exercise the Option by delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company cash or a check payable and acceptable to the Company to
pay the Option exercise price; provided that the Optionee and the broker shall
comply with such procedures and enter into such agreements of indemnity and
other agreements as the Committee shall prescribe as a condition of such payment
procedure.
SECTION 5
TRANSFER
This Option shall not be transferable by the Optionee in any way other than
by will and the laws of descent and distribution. During the lifetime of the
Optionee, this Option shall be exercisable only by him. Any other attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option
shall be void and have no effect unless in accordance with the terms set forth
herein.
SECTION 6
TERMINATION OF OPTION
(a) Upon termination of employment with the Company and its Subsidiaries
of the Optionee for any reason other than death, disability (as defined in
Paragraph (c) of this Section 6) or "cause" (as defined in Paragraph (b) of this
Section 6), whether by reason of resignation or discharge, the Option shall
terminate on the earlier of (i) the date of its expiration under Section 3 or
(ii) three months from the date on which the Optionee's employment terminated.
(b) If the Company terminates the employment of the Optionee for "cause",
the Option shall terminate on the date his employment is terminated. For
purposes of this Agreement, the Optionee's employment shall be deemed terminated
for "cause" if his employment terminates for
3
<PAGE>
(i) willful violation by the Optionee of any rule or regulation that may be
established from time to time for the conduct of the Company's business, (ii)
failure or inability by the Optionee for any reason to devote his full
business time to the Company's business, (iii) gross neglect by the Optionee
of the interests of the Company, (iv) breach of fiduciary duty by the
Optionee involving personal profit, (v) willful violation by the Optionee of
any law, rule or regulation (other than traffic violations or similar minor
offenses), or (vi) material breach by the Optionee of any provision of an
agreement between Optionee and the Company or its Subsidiaries (as defined in
Section 1 of the Plan).
(c) The Option shall terminate on the earlier of (i) the date of its
expiration under Section 3 or (ii) six months from the date of the Optionee's
permanent disability, provided: (i) the Optionee at the time of his disability
was in the employ of the Company or any of its Subsidiaries and (ii) the
Optionee was entitled to exercise a portion or all of the Option on the day
immediately prior to his disability. For purposes of this Agreement,
"disability" shall have the meaning set forth in Code Section 22(e)(3).
(d) If the Optionee dies (i) while he is employed by the Company or any of
its Subsidiaries, or (ii) after termination of employment but within the period
provided in Paragraph (a) or (c) of this Section 6, the person or persons to
whom the Optionee's rights are transferred by will or the laws of descent and
distribution may exercise that portion of the Option that is exercisable at the
time of death for a period ending on the earlier of (i) the date of its
expiration under Section 3 or (ii) six months after the date of death.
SECTION 7
WITHHOLDING TAXES
The Company shall have the right to retain and withhold from any payment,
under the Option, any amount that is to be withheld or otherwise deducted and
paid with respect to such payment.
SECTION 8
ADJUSTMENTS TO OPTION
(a) Subject to any required action by the Committee and the Company's
stockholders, the number of shares provided for in the Option and the exercise
price per share thereof may be proportionately adjusted as determined by the
Committee for any increase or decrease in the number of issued shares of the
Company resulting from the payment of a share dividend, a share split or any
transaction which is a "corporate transaction" (as defined in the Treasury
regulations promulgated under or applicable to Code Section 424).
(b) In the event of a Change of Control (as defined in Section 14 of the
Plan), any and all outstanding Options not fully vested shall automatically vest
in full and shall be immediately exercisable. The date on which such
accelerated vesting and immediate exercisability shall occur shall be the date
of the occurrence of the Change of Control.
4
<PAGE>
(c) In the event of a change in the Company's shares which is limited to a
change of all of its authorized shares with par value into the same number of
shares with a different par value or without par value, the shares resulting
from any such change shall be deemed to be shares within the meaning of the
Plan.
(d) Except as herein before expressly provided in Paragraphs (a) and (b)
of this Section 8, the Optionee shall have no rights by reason of any
subdivision or consolidation of shares of any class or payment of any share
dividend or any other increase or decrease in the number of shares of any class
or by reason of any dissolution, liquidation, merger, consolidation or spin-off
of assets or stock of another corporation, and any issuance by the Company of
shares of any class, or securities convertible into shares of any class, shall
not affect the Option, and no adjustment by reason thereof shall be made with
respect to the number or exercise price of the Company's shares subject to the
Option. The grant of the Option shall not affect in any way the right or power
of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge, consolidate, dissolve,
liquidate, sell or transfer all or any part of its business or assets.
SECTION 9
IMPACT ON OTHER BENEFITS
The value of the Option (either on the date of grant of the Option or at
the time the shares are vested) shall not be includable as compensation or
earnings to the Optionee for purposes of any other benefit plan offered by the
Company.
SECTION 10
ADMINISTRATION
The Committee shall have full authority and discretion (subject only to the
express provisions of the Plan) to decide all matters relating to the
administration and interpretation of the Plan and this Agreement. All such
Committee determinations shall be final, conclusive and binding upon the
Company, the Optionee and any and all interested parties.
SECTION 11
AGREEMENT TO CONTINUE IN EMPLOYMENT
Nothing in the Plan or this Agreement shall confer on the Optionee any
right to continue in the employ of the Company or any of its Subsidiaries or
interfere in any way with the right of the Company or any of its Subsidiaries to
terminate his employment.
5
<PAGE>
SECTION 12
SUBJECT TO PLAN; AMENDMENT(S)
This Agreement and the grant and exercise thereof are subject to the terms
of the Plan, as amended, which is incorporated herein by reference and made a
part hereof, but the terms of the Plan shall not be considered an enlargement of
any benefits under this Agreement. In addition, this Option is subject to any
rules and regulations promulgated pursuant to the Plan, now or hereinafter in
effect. Except as provided in Sections 14 and 15 of the Plan and Section 8 of
this Agreement, this Option may not in any way be amended or terminated without
the Optionee's written consent.
SECTION 13
FORCE AND EFFECT
The various provisions of this Agreement are severable in their entirety.
Any determination of invalidity or unenforceability of any one provision shall
have no effect on the continuing force and effect of the remaining provisions.
SECTION 14
GOVERNING LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Texas.
IN WITNESS THEREOF, the parties have signed this Agreement as of the date
first above written.
VARI-LITE INTERNATIONAL, INC.
By:
----------------------------------
H.R. Brutsche III, President
----------------------------------
Optionee
6
<PAGE>
VARI-LITE INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
This Agreement, dated as of _______, 199____, is by and between Vari-Lite
International, Inc. (the "Company") and _____________________ (the "Optionee").
WITNESSETH:
WHEREAS, pursuant to the Vari-Lite International, Inc. 1997 Omnibus Plan
(the "Plan"), the Company has determined that its interests will be advanced by
providing an incentive to the Optionee to acquire a proprietary interest in the
Company and, as a stockholder, to share in its success, with added incentive to
work effectively for and in the Company's interest;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereby agree as follows:
SECTION 1
GRANT
The Company hereby grants to the Optionee, as a matter of separate
agreement and not in lieu of salary or any other compensation for services, the
right and option (the "Option") to purchase _____________ shares of authorized
but unissued Class B Common Stock, $0.10 par value ("Common Stock"), of the
Company on the terms and conditions herein set forth in this Agreement. This
Option is not intended to constitute an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
SECTION 2
PRICE
The exercise price of the shares of Common Stock subject to this Option
shall be equal to the fair market value of the shares on the date of the grant
or $__________ per share.
SECTION 3
WHEN EXERCISABLE
The Option may be exercised by the Optionee, in whole or part, at any time
and from time to time within a period of _____ years from the day and year first
written above.
The Option may not be exercised prior to one year from the date of this
Agreement. Thereafter, the Option shall be exercisable only as follows:
<PAGE>
(a) Percentage of
Total Shares
Subject to Vesting Vesting Date Expiration Date
------------------ ------------ ---------------
20%
40%
60%
80%
100%
(b) At any time after five years from the date of this Agreement, the
Option shall be exercisable in full except to the extent that it has already
been exercised.
SECTION 4
HOW EXERCISABLE
Subject to such administrative regulations as the committee of the Board of
Directors of the Company (the "Board") appointed to administer the Plan (the
"Committee") may from time to time adopt, the Optionee or beneficiary shall, in
order to exercise this Option:
(a) give written notice to the Committee of the exercise price and the
number of shares which he will purchase and furnish an undertaking to
make payment of such exercise price in United States dollars before
issuance of such shares; or
(b) give written notice to the Committee of the exercise price and the
number of shares for which he is requesting approval from the
Committee to tender other shares of Common Stock in exchange for
Option shares.
If a Committee has not been appointed by the Board to administer the Plan, for
purposes of this Agreement, "Committee" shall mean the entire Board.
Any notice shall include an undertaking to furnish or execute such
documents as the Committee in its discretion shall deem necessary (i) to
evidence such exercise, in whole or in part, of the Option, (ii) to determine
whether registration is then required under the Securities Act of 1933, as
amended, or any other law, as then in effect, and (iii) to comply with or
satisfy the requirements of the Securities Act of 1933, as amended, or any other
law, as then in effect.
In addition, if an exercise under paragraph (b) above is requested, the
notice shall include an undertaking to tender to the Company (i) promptly after
receipt of denial by the Committee of the paragraph (b) request, full payment in
United States dollars of the Option exercise price for the shares being
purchased hereunder or (ii) promptly after receipt of approval by the Committee
of exercise of this Option or portion thereof by payment of Common Stock, full
payment in Common Stock in exchange for the shares being purchased hereunder.
2
<PAGE>
The Committee shall advise the Optionee (or beneficiary, if applicable) in
writing, within 20 business days after receipt by the Committee of notice of
exercise by the Optionee (or beneficiary), whether the Committee approves the
exchange of Common Stock for Option stock being purchased. The Company must
receive full payment in United States dollars or the appropriate number of
shares of Common Stock, whichever applies, of the Option exercise price within
five business days after the date of the Committee's notice, unless the
Committee extends the time of payment.
If the Committee approves payment by the Optionee by tendering shares of
Common Stock, the Committee may also, upon confirming that the Optionee owns the
number of additional shares being tendered, authorize the issuance of a new
certificate for the number of shares being acquired pursuant to the exercise of
the Option less the number of shares being tendered upon the exercise and return
to the Optionee (or not require surrender of) the certificate for the shares
being tendered upon the exercise.
If the Optionee does not elect or is denied the right to exercise the
Option by tendering shares of Common Stock, the Committee may permit the
Optionee to exercise the Option by delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company cash or a check payable and acceptable to the Company to
pay the Option exercise price; provided that the Optionee and the broker shall
comply with such procedures and enter into such agreements of indemnity and
other agreements as the Committee shall prescribe as a condition of such payment
procedure.
SECTION 5
TRANSFER
This Option shall not be transferable by the Optionee in any way other than
by will and the laws of descent and distribution. During the lifetime of the
Optionee, this Option shall be exercisable only by him. Any other attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option
shall be void and have no effect unless in accordance with the terms set forth
herein.
SECTION 6
TERMINATION OF OPTION
(a) Upon termination of employment or service as a director with the
Company and its Subsidiaries of the Optionee for any reason other than death,
disability (as defined in Paragraph (c) of this Section 6) or "cause" (as
defined in Paragraph (b) of this Section 6), whether by reason of resignation or
discharge, the Option shall terminate on the earlier of (i) the date of its
expiration under Section 3 or (ii) three months from the date on which the
Optionee's employment or service as a director terminated.
3
<PAGE>
(b) If the Company terminates the employment or directorship of the
Optionee for "cause," the Option shall terminate on the date his employment or
directorship is terminated. For purposes of this Agreement, the Optionee's
employment or directorship shall be deemed terminated for "cause" if his
employment or directorship terminates for (i) willful violation by the Optionee
of any rule or regulation that may be established from time to time for the
conduct of the Company's business, (ii) failure or inability by the Optionee for
any reason to devote his full business time to the Company's business, (iii)
gross neglect by the Optionee of the interests of the Company, (iv) breach of
fiduciary duty involving personal profit, (v) willful violation by the Optionee
of any law, rule or regulation (other than traffic violations or similar minor
offenses), or (vi) material breach by the Optionee of any provision of an
agreement between Optionee and the Company or its Subsidiaries (as defined in
Section 1 of the Plan).
(c) The Option shall terminate on the earlier of (i) the date of its
expiration under Section 3 or (ii) six months from the date of the Optionee's
permanent disability, provided: (i) the Optionee at the time of his disability
was in the employ or serving as a director of the Company or any of its
Subsidiaries and (ii) the Optionee was entitled to exercise a portion or all of
the Option on the day immediately prior to his disability. For purposes of this
Agreement, "disability" shall have the meaning set forth in Code Section
22(e)(3).
(d) If the Optionee dies (i) while he is employed by or serving as a
director of the Company or any of its Subsidiaries, or (ii) after termination of
employment or directorship but within the period provided in Paragraph (a) or
(c) of this Section 6, the person or persons to whom the Optionee's rights are
transferred by will or the laws of descent and distribution may exercise that
portion of the Option that is exercisable at the time of death for a period
ending on the earlier of (i) the date of its expiration under Section 3 or (ii)
six months after the date of death.
SECTION 7
WITHHOLDING TAXES
The Company shall have the right to retain and withhold from any payment,
under the Option, any amount that is to be withheld or otherwise deducted and
paid with respect to such payment. At its discretion, the Company may require
the Optionee, if he receives shares under a nonqualified stock option grant, to
reimburse the Company for any taxes that are required to be withheld by the
Company, and may withhold any distribution in whole or in part until the Company
is so reimbursed. In lieu thereof, the Company shall have the right to withhold
from any other cash amounts due (or to become due) to the Optionee an amount
equal to such taxes required to be withheld by the Company to reimburse the
Company for any such taxes, or the Company may retain and withhold a number of
shares of Common Stock having a market value not less than the amount of such
taxes and cancel (in whole or in part) any shares of Common Stock so withheld in
order to reimburse the Company for any such taxes.
4
<PAGE>
SECTION 8
ADJUSTMENTS TO OPTION
(a) Subject to any required action by the Committee and the Company's
stockholders, the number of shares provided for in the Option and the exercise
price per share thereof may be proportionately adjusted as determined by the
Committee for any increase or decrease in the number of issued shares of the
Company resulting from the payment of a share dividend, a share split or any
transaction which is a "corporate transaction" (as defined in the Treasury
regulations promulgated under or applicable to Code Section 424).
(b) In the event of a Change of Control (as defined in Section 14 of the
Plan), any and all outstanding Options not fully vested shall automatically vest
in full and shall be immediately exercisable. The date on which such
accelerated vesting and immediate exercisability shall occur shall be the date
of the occurrence of the Change of Control.
(c) In the event of a change in the Company's shares which is limited to a
change of all of its authorized shares with par value into the same number of
shares with a different par value or without par value, the shares resulting
from any such change shall be deemed to be shares within the meaning of the
Plan.
(d) Except as herein before expressly provided in Paragraphs (a) and (b)
of this Section 8, the Optionee shall have no rights by reason of any
subdivision or consolidation of shares of any class or payment of any share
dividend or any other increase or decrease in the number of shares of any class
or by reason of any dissolution, liquidation, merger, consolidation or spin-off
of assets or stock of another corporation, and any issuance by the Company of
shares of any class, or securities convertible into shares of any class, shall
not affect the Option, and no adjustment by reason thereof shall be made with
respect to the number or exercise price of the Company's shares subject to the
Option. The grant of the Option shall not affect in any way the right or power
of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge, consolidate, dissolve,
liquidate, sell or transfer all or any part of its business or assets.
SECTION 9
IMPACT ON OTHER BENEFITS
The value of the Option (either on the date of grant of the Option or at
the time the shares are vested) shall not be includable as compensation or
earnings to the Optionee for purposes of any other benefit plan offered by the
Company.
5
<PAGE>
SECTION 10
ADMINISTRATION
The Committee shall have full authority and discretion (subject only to the
express provisions of the Plan) to decide all matters relating to the
administration and interpretation of the Plan and this Agreement. All such
Committee determinations shall be final, conclusive and binding upon the
Company, the Optionee and any and all interested parties.
SECTION 11
AGREEMENT TO CONTINUE IN EMPLOYMENT
OR SERVICE AS A DIRECTOR
Nothing in the Plan or this Agreement shall confer on the Optionee any
right to continue in the employ of the Company or any of its Subsidiaries or in
the service of the Company as a director or interfere in any way with the right
of the Company or any of its Subsidiaries to terminate his employment or
directorship at any time.
SECTION 12
SUBJECT TO PLAN: AMENDMENT(S)
This Agreement and the grant and exercise thereof are subject to the terms
of the Plan, as amended, which is incorporated herein by reference and made a
part hereof, but the terms of the Plan shall not be considered an enlargement of
any benefits under this Agreement. In addition, this Option is subject to any
rules and regulations promulgated pursuant to the Plan, now or hereinafter in
effect. Except as provided in Sections 14 and 15 of the Plan and Section 8 of
this Agreement, this Option may not in any way be amended or terminated without
the Optionee's written consent.
SECTION 13
FORCE AND EFFECT
The various provisions of this Agreement are severable in their entirety.
Any determination of invalidity or unenforceability of any one provision shall
have no effect on the continuing force and effect of the remaining provisions.
SECTION 14
GOVERNING LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Texas.
6
<PAGE>
IN WITNESS THEREOF, the parties have signed this Agreement as of the date
first above written.
VARI-LITE INTERNATIONAL, INC.
By:
-----------------------------------
H.R. Brutsche III, President
-----------------------------------
Optionee
7
<PAGE>
VARI-LITE INTERNATIONAL, INC.
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED, EFFECTIVE JANUARY 1, 1996)
<PAGE>
TABLE OF CONTENTS
-----------------
Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ii
Alphabetical Listing of Definitions. . . . . . . . . . . . . . . . . . . . . .vi
Employees' Stock Equivalence Plan. . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I: DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II: EMPLOYEE PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III: EMPLOYER AWARDS AND PARTICIPANT FORFEITURES. . . . . . . . . . 12
ARTICLE IV: TERMINATION OF SERVICE - PARTICIPANT VESTING. . . . . . . . . . 16
ARTICLE V: TIME AND METHOD OF PAYMENT OF BENEFITS . . . . . . . . . . . . . 18
ARTICLE VI: EMPLOYER ADMINISTRATIVE PROVISIONS. . . . . . . . . . . . . . . 20
ARTICLE VII: PARTICIPANT ADMINISTRATIVE PROVISIONS. . . . . . . . . . . . . 22
ARTICLE VIII: STOCK COMPENSATION COMMITTEE DUTIES WITH RESPECT
TO PARTICIPANTS' ACCOUNTS . . . . . . . . . . . . . . . . . . 26
ARTICLE IX: MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE X: AMENDMENT AND TERMINATION. . . . . . . . . . . . . . . . . . . . 33
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE i
<PAGE>
INDEX
Page
----
ARTICLE I: DEFINITIONS
Sec. 1.01. Account................................................. 3
Sec. 1.02. Accounting Date......................................... 3
Sec. 1.03. Beneficiary............................................. 3
Sec. 1.04. Board of Directors...................................... 3
Sec. 1.05. Committee............................................... 3
Sec. 1.06. Company................................................. 3
Sec. 1.07. Compensation............................................ 3
Sec. 1.08. Disability.............................................. 4
Sec. 1.09. Effective Date.......................................... 4
Sec. 1.10. Eligible Employee....................................... 4
Sec. 1.11. Employee................................................ 4
Sec. 1.12. Employer................................................ 4
Sec. 1.13. Employer Securities..................................... 5
Sec. 1.14. ESOP.................................................... 5
Sec. 1.15. Forfeiture.............................................. 5
Sec. 1.16. Former Participant...................................... 5
Sec. 1.17. Hour of Service......................................... 5
Sec. 1.18. Late Retirement Date.................................... 6
Sec. 1.19 Normal Retirement Age................................... 6
Sec. 1.20. Participant............................................. 6
Sec. 1.21. Plan.................................................... 7
Sec. 1.22. Plan Administrator...................................... 7
Sec. 1.23. Plan Entry Date......................................... 7
Sec. 1.24. Plan Year............................................... 7
Sec. 1.25. Related Employer........................................ 7
Sec. 1.26. Retirement.............................................. 7
Sec. 1.27. Separation from Service................................. 7
Sec. 1.28. Service................................................. 8
Sec. 1.29. Stock Equivalence Unit.................................. 8
Sec. 1.30. Valuation Date.......................................... 8
Sec. 1.31. Vested.................................................. 8
ARTICLE II: EMPLOYEE PARTICIPANTS
Sec. 2.01. Participation........................................... 9
Sec. 2.02. Year of Service - Participation......................... 9
Sec. 2.03. Break in Service - Participation........................ 9
Sec. 2.04. Participation upon Re-Employment........................ 9
Sec. 2.05. Ineligibility to Become a Participant................... 9
Sec. 2.06. Continuance as a Participant............................ 10
Sec. 2.07. Employment by Employer; Service with Newly Acquired
Entities; Records of Employer.......................... 10
Sec. 2.08. Election Not to Participate............................. 11
ARTICLE III: EMPLOYER AWARDS AND PARTICIPANT FORFEITURES
Sec. 3.01. Amount.................................................. 12
Sec. 3.02. Determination of Awards................................. 12
Sec. 3.03. Time of Crediting of Awards............................. 12
Sec. 3.04. Crediting to Accounts................................... 12
Sec. 3.05. Credit of Benefit....................................... 13
Sec. 3.06. Payment of Dividends.................................... 13
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE ii
<PAGE>
Sec. 3.07. Dilution Provisions..................................... 14
Sec. 3.08. Forfeiture.............................................. 14
Sec. 3.09. Determination of Fair Market Value...................... 14
Sec. 3.10. Substitute Awards....................................... 14
Sec. 3.11. Voting and Dividend Rights.............................. 14
Sec. 3.12. No Effect on Corporate Powers........................... 14
Sec. 3.13. No Claim or Right....................................... 15
ARTICLE IV: TERMINATION OF SERVICE - PARTICIPANT VESTING
Sec. 4.01. Normal Retirement Age................................... 16
Sec. 4.02. Participant Disability or Death......................... 16
Sec. 4.03. Vesting Schedule........................................ 16
Sec. 4.04. Year of Service - Vesting............................... 16
Sec. 4.05. Break in Service - Vesting.............................. 16
Sec. 4.06. Included Years of Service - Vesting..................... 17
Sec. 4.07. Forfeiture Occurs....................................... 17
ARTICLE V: TIME AND METHOD OF PAYMENT OF BENEFITS
Sec. 5.01. Terms and Conditions.................................... 18
Sec. 5.02. Conversion of Stock Equivalence Units; Payment of
Appreciated Value...................................... 19
ARTICLE VI: EMPLOYER ADMINISTRATIVE PROVISIONS
Sec. 6.01. Information to Committee................................ 20
Sec. 6.02. No Liability............................................ 20
Sec. 6.03. Indemnity of Certain Fiduciaries........................ 20
Sec. 6.04. Amendment to Vesting Schedule........................... 20
Sec. 6.05. Applicable Law.......................................... 21
ARTICLE VII: PARTICIPANT ADMINISTRATIVE PROVISIONS
Sec. 7.01. Beneficiary Designation................................. 22
Sec. 7.02. No Beneficiary Designation.............................. 22
Sec. 7.03. Personal Data to Committee.............................. 22
Sec. 7.04. Address for Notification................................ 23
Sec. 7.05. Assignment or Alienation................................ 23
Sec. 7.06. Litigation Against the Plan............................. 24
Sec. 7.07. Appeal Procedure for Denial of Benefits................. 24
ARTICLE VIII: STOCK COMPENSATION COMMITTEE DUTIES WITH RESPECT TO
PARTICIPANTS' ACCOUNTS
Sec. 8.01. Members' Compensation, Expenses......................... 26
Sec. 8.02. Term.................................................... 26
Sec. 8.03. Powers.................................................. 26
Sec. 8.04. General................................................. 26
Sec. 8.05. Manner of Action........................................ 27
Sec. 8.06. Authorized Representative............................... 27
Sec. 8.07. Interested Member....................................... 27
Sec. 8.08. Individual Accounts..................................... 27
Sec. 8.09. Value of Participant's Account.......................... 27
Sec. 8.10. Adjustments of Participants' Accounts................... 28
Sec. 8.11. Account Charged......................................... 28
Sec. 8.12. Unclaimed Account Procedure............................. 28
Sec. 8.13. Records and Statements.................................. 28
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE iii
<PAGE>
Sec. 8.14. Valuation of Accounts................................... 28
Sec. 8.15. Withholding for and Payment of Taxes.................... 28
ARTICLE IX: MISCELLANEOUS
Sec. 9.01. Evidence................................................ 30
Sec. 9.02. No Responsibility for Employer Action................... 30
Sec. 9.03. Fiduciaries Not Insurers................................ 30
Sec. 9.04. Waiver of Notice........................................ 30
Sec. 9.05. Successors.............................................. 30
Sec. 9.06. Word Usage.............................................. 30
Sec. 9.07. State Law............................................... 31
Sec. 9.08. Employment Not Guaranteed............................... 31
Sec. 9.09. Severability............................................ 31
Sec. 9.10. Contrary Provisions..................................... 31
Sec. 9.11. Notice to Employees..................................... 31
Sec. 9.12. Agreement of Participants............................... 31
Sec. 9.13. Action by Employers..................................... 31
Sec. 9.14. Adoption of the Plan by a Related Employer.............. 31
Sec. 9.15. Disassociation of Any Employer from Plan................ 32
Sec. 9.16. Company Voting Rights................................... 32
ARTICLE X: AMENDMENT AND TERMINATION
Sec. 10.01. Amendment by Company.................................... 33
Sec. 10.02. Effective Date of Amendment............................. 33
Sec. 10.03. Discontinuance.......................................... 33
Sec. 10.04. Full Vesting on Termination............................. 33
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE iv
<PAGE>
ALPHABETICAL LISTING OF DEFINITIONS
DEFINITION SEC.#
- ---------- -----
Account............................... 1.01
Accounting Date....................... 1.02
Beneficiary........................... 1.03
Board of Directors.................... 1.04
Committee............................. 1.05
Company............................... 1.06
Compensation.......................... 1.07
Disability............................ 1.08
Effective Date........................ 1.09
Eligible Employee..................... 1.10
Employee.............................. 1.11
Employer.............................. 1.12
Employer Securities................... 1.13
Employment Commencement Date.......... 2.02
ESOP.................................. 1.14
Forfeiture............................ 1.15
DEFINITION SEC.#
- ---------- -----
Former Participant.................... 1.16
Hour of Service....................... 1.17
Late Retirement Date.................. 1.18
Normal Retirement Age................. 1.19
Participant........................... 1.20
Plan.................................. 1.21
Plan Administrator.................... 1.22
Plan Entry Date....................... 1.23
Plan Year............................. 1.24
Related Employer...................... 1.25
Retirement............................ 1.26
Separation From Service............... 1.27
Service............................... 1.28
Stock Equivalence Unit................ 1.29
Valuation Date........................ 1.30
Vested................................ 1.31
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE vi
<PAGE>
VARI-LITE INTERNATIONAL, INC.
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED, EFFECTIVE JANUARY 1, 1996)
VARI-LITE INTERNATIONAL, INC. (formerly VARI-LITE HOLDINGS, INC.), a
corporation organized under the laws of the State of Texas pursuant to
articles of incorporation filed with the Secretary of State of the State of
Texas, established the VARI-LITE HOLDINGS, INC. EMPLOYEES' STOCK EQUIVALENCE
PLAN on September 27, 1995, to be effective on January 1, 1995 for the
benefit of certain Employees (and their Beneficiaries) of an Employer
domiciled outside of the United States of America. The VARI-LITE HOLDINGS,
INC. EMPLOYEES' STOCK EQUIVALENCE PLAN, as amended and restated, shall be
known as the VARI-LITE INTERNATIONAL, INC. EMPLOYEES' STOCK EQUIVALENCE PLAN,
effective January 1, 1996. It is intended that the Plan continue to be (1) a
nonqualified employee retirement plan known as a phantom stock plan under
United States tax laws and (2) a plan maintained outside of the United States
primarily for the benefit of persons, substantially all of whom are
nonresident aliens, thereby satisfying the exception from the application to
the Plan of the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), provided in ERISA Section 4(b)(4).
PURPOSES:
The purposes of this Plan are as follows: (1) to reward Eligible
Employees of an Employer domiciled outside of the United States for their
loyal and faithful service and to provide such Employees with an opportunity
to share in the growth and appreciation of the Company; (2) to further the
long-term growth in earnings of the Company by offering long-term incentives
in addition to current compensation to those Employees of an Employer
domiciled outside of the United States who will be largely responsible for
such growth; (3) to induce Employees of an Employer domiciled outside of the
United States to remain in the employ of the Employer; and (4) to encourage
Employees of an Employer domiciled outside of the United States to secure or
increase on reasonable terms their beneficial interests in the Company. The
benefits provided by this Plan will be in addition to the benefits such
Employees are entitled to receive under any other announced programs of the
Company (or an Employer).
The original Plan, known as VARI-LITE HOLDINGS, INC. EMPLOYEES' STOCK
EQUIVALENCE PLAN, was adopted on September 25, 1997, effective January 1,
1995. The VARI-LITE INTERNATIONAL, INC. EMPLOYEES' STOCK EQUIVALENCE PLAN is
a substitution and amendment of the VARI-LITE HOLDINGS, INC. EMPLOYEES' STOCK
EQUIVALENCE PLAN, in restated form.
There is no cost to an Employee to participate in the Plan. A
participating Employee will be eligible to receive "Units" credited to his
Account established in the Plan. As "Units" are
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 1
<PAGE>
credited to a Participant's Account, such Participant receives a contractual
right that such Units will be "cashed out" in the future. No actual shares
of stock are set aside.
The value of each Unit will be equal in value to one (1) share of common
stock of VARI-LITE INTERNATIONAL, INC. on the date such Unit is credited to a
Participant's Account. Participants will share in the appreciation and
depreciation of the Units credited to his Account. The number of Units to be
contributed, if any, will be determined each Plan Year by the Board of Directors
of the Company. Benefits ultimately available to Participants depends on the
performance of VARI-LITE INTERNATIONAL, INC. as reflected in the value of its
stock.
WITNESSETH:
WHEREAS, VARI-LITE HOLDINGS, INC., established the VARI-LITE HOLDINGS,
INC. EMPLOYEES' STOCK EQUIVALENCE PLAN (the "PLAN") on September 27, 1995,
effective January 1, 1995, for the administration and distribution of awards
made by the Company for the purpose of providing retirement benefits for
Eligible Employees (and their Beneficiaries) employed by an Employer
domiciled outside of the United States that adopts the Plan (hereinafter
referred to as an "Employer");
WHEREAS, VARI-LITE HOLDINGS, INC. changed its name to VARI-LITE
INTERNATIONAL, INC., effective December 27, 1995;
WHEREAS, VARI-LITE INTERNATIONAL, INC. pursuant to Section 10.01 of the
PLAN hereby amends the PLAN, in restated form, effective January 1, 1996;
WHEREAS, VARI-LITE INTERNATIONAL, INC. hereby changes the name of the
PLAN to be known as the VARI-LITE INTERNATIONAL, INC. EMPLOYEES' STOCK
EQUIVALENCE PLAN, effective January 1, 1996;
WHEREAS, the provisions of the PLAN, as restated effective January 1,
1996, apply solely to an Employee whose employment with an Employer
terminates on or after the Effective Date of the Plan. If an Employee's
employment with an Employer terminates prior to the Effective Date, that
Employee is not entitled to benefits under the Plan;
WHEREAS, VARI-LITE INTERNATIONAL, INC. continues this Plan to give
Employees of an Employer the opportunity to participate in the Company's
success and provide an incentive to Employees to take an active interest in
the profitability of the Company and his productivity because all Employees
have an impact on the Company's success as reflected in the value of the
common stock of VARI-LITE INTERNATIONAL, INC.;
NOW, THEREFORE, the Company establishes the following terms and
conditions:
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 2
<PAGE>
ARTICLE I
DEFINITIONS
Sec. 1.01. ACCOUNT. "Account" means the separate Account which the
Committee establishes and maintains for a Participant under the Plan and
which is increased by the fair market value of Stock Equivalence Units
credited to his Account, and increased (or decreased) by his share in the
appreciation (or depreciation) of such Units.
Sec. 1.02. ACCOUNTING DATE. "Accounting Date" is the last day of the
Plan Year, and such additional date or dates determined from time to time by
the Committee.
Sec. 1.03. BENEFICIARY. "Beneficiary" is a person designated by a
Participant who is or may become entitled to a benefit under the Plan. A
Beneficiary who becomes entitled to a benefit under the Plan remains a
Beneficiary under the Plan until the Committee has fully distributed his
benefit to him. A Beneficiary's right to (and the Plan Administrator's or
the Committee's duty to provide to the Beneficiary) information or data
concerning the Plan does not arise until he first becomes entitled to receive
a benefit under the Plan.
Sec. 1.04. BOARD OF DIRECTORS. "Board of Directors" means the Board
of Directors of the Company, as from time to time constituted.
Sec. 1.05. COMMITTEE. "Committee" means the committee of the Board
of Directors, which members are appointed by the Board of Directors, as from
time to time constituted.
Sec. 1.06. COMPANY. "Company" means VARI-LITE INTERNATIONAL, INC. or
its successor. The tax identification number for the Company is as follows:
75-2239444.
Sec. 1.07. COMPENSATION. Any references in this Plan to
"Compensation" is a reference to the definition in this Section 1.07, as
converted into the equivalency of United States currency, unless the Plan
reference specifies a modification to this definition. The Committee will
take into account only Compensation actually paid for the relevant period.
(A) GENERAL DEFINITION OF COMPENSATION. "Compensation" means the
Participant's base salary (whether or not paid in cash) for personal services
actually rendered in the course of employment with the Employer but only to
the extent includible in the gross income of the Participant pursuant to the
tax laws of the country of the Participant's domicile. This definition of
Compensation excludes bonuses and overtime paid to Employees.
Notwithstanding the provisions of this paragraph, the definition of
Compensation shall be modified, if applicable, pursuant to the tax laws of
the country where the Participant is domiciled.
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 3
<PAGE>
(B) DEFINITION OF COMPENSATION FOR CREDITING PURPOSES. To determine a
Participant's share of Units to be credited to his Account under Section
3.04(B) hereof, Compensation means the general definition of Compensation
described in Section 1.07(A) hereof, as converted into the equivalency of
United States currency, but excludes (1) reimbursements or other expense
allowances, (2) fringe benefits (cash and non-cash), (3) moving expenses, and
(4) deferred compensation and welfare benefits unless otherwise required
under applicable laws of the country where the Participant is domiciled.
(C) COMPENSATION DOLLAR LIMITATION. For any Plan Year Committee must
take into account only the first One Hundred Fifty Thousand United States
Dollars ($150,000) (or such other amount currently applicable for the same
period as the Plan Year under the ESOP, as adjusted, or as otherwise provided
by the Committee, which may be higher or lower) of any Participant's
Compensation during any Plan Year.
Sec. 1.08. DISABILITY. "Disability" means total and permanent
disability, the physical or mental condition of a Participant resulting from
bodily injury, disease or mental disorder, which renders the Participant
incapable of engaging in his usual and customary occupation. The total and
permanent disability of a Participant shall be determined by a physician,
selected by the Committee, in accordance with uniform medical principles
consistently applied, upon the basis of such evidence, as the physician deems
necessary and desirable. The Plan considers a Participant disabled on the
date the Committee determines the Participant satisfies the definition of
Disability. Notwithstanding any provision herein, the Committee may require a
Participant to submit to another physical examination performed by a
physician selected by the Committee in order to confirm Disability.
Sec. 1.09. EFFECTIVE DATE. "Effective Date" of the Plan is January
1, 1995.
Sec. 1.10. ELIGIBLE EMPLOYEE. Each Employee becomes an "Eligible
Employee," and thereby eligible to participate in the Plan, on the Plan Entry
Date coincident with or immediately following the later of the date on which
he completes one (1) Year of Service-Participation or has attained age
twenty-one (21). For purposes of an Employee's eligibility, the Plan takes
into account all of his Years of Service-Participation with an Employer or
Related Employer. Notwithstanding the provisions of this paragraph, the
Committee, in its sole discretion, may otherwise determine the criteria and
date on which an Employee becomes an Eligible Employee.
Sec. 1.11. EMPLOYEE. "Employee" means any employee of an Employer
which has adopted this Plan.
Sec. 1.12. EMPLOYER. "Employer" means any foreign subsidiary of the
Company domiciled outside of the United States of America who has adopted
this Plan pursuant to Section 9.14 hereof.
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 4
<PAGE>
Sec. 1.13. EMPLOYER SECURITIES. "Employer Securities" means the same
class or classes of common stock issued by the Company held in the ESOP as of
any date.
Sec. 1.14. ESOP. "ESOP" means the Vari-Lite International, Inc.
Employees' Stock Ownership Plan, and any amendments thereto.
Sec. 1.15. FORFEITURE. "Forfeiture" refers to the amount of a
Participant's Account which is not Vested.
Sec. 1.16. FORMER PARTICIPANT. "Former Participant" means a person
who has been a Participant but has ceased to be a Participant for any reason.
Sec. 1.17. HOUR OF SERVICE. "Hour of Service" means:
(a) Each Hour of Service for which the Employer, either directly
or indirectly, pays an Employee, or for which the Employee is entitled
to payment, for the performance of duties. The Committee credits
Hours of Service under this paragraph (a) to the Employee for the
computation period in which the Employee performs the duties,
regardless of when paid;
(b) Each Hour of Service for back pay, regardless of mitigation
of damages, to which the Employer has agreed or for which the Employee
has received an award. The Committee credits Hours of Service under
this paragraph (b) to the Employee for the computation period(s) to
which the award or the agreement pertains rather than for the
computation period in which the award, agreement or payment is made;
and
(c) Each Hour of Service for which the Employer, either
directly or indirectly, pays an Employee or for which the Employee is
entitled to payment (regardless of whether the employment relationship
is terminated) for reasons other than for the performance of duties
during a computation period, such as leave of absence, vacation,
holiday, sick leave, illness, incapacity (including Disability),
layoff, jury duty or military duty. The Committee will credit no more
than five hundred and one (501) Hours of Service under this paragraph
(c) to an Employee on account of any single continuous period during
which the Employee does not perform any duties (whether or not such
period occurs during a single computation period). The Committee
credits Hours of Service under this paragraph in a manner consistent
with the provisions as set forth under the ESOP.
The Committee will not credit an Hour of Service under more than one of the
above paragraphs. A computation period for purposes of this Section 1.17 is the
Plan Year, Year of Service-
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 5
<PAGE>
Participation or Year Service-Vesting period, Break in Service period or
other period, as determined under the Plan provision for which the Committee
is measuring an Employee's Hours of Service. The Committee will resolve any
ambiguity with respect to the crediting of an Hour of Service in favor of the
Employee. If the Company maintains the plan of a predecessor employer, the
Plan treats service of the Employee with the predecessor employer as Service
with an Employer.
(A) METHOD OF CREDITING HOURS OF SERVICE. The Committee will credit
every Employee with Hours of Service on the basis of the "actual" method.
For purposes of the Plan, "actual" method means the determination of Hours of
Service from records of hours worked and hours for which the Employer makes
payment or for which payment is due from the Employer.
(B) MATERNITY OR PATERNITY LEAVE. Solely for purposes of determining
whether the Employee incurs a Break in Service under any provision of this
Plan, unless otherwise required under applicable law of the jurisdiction in
which the Eligible Employee or Participant is domiciled, the Committee must
credit Hours of Service during an Employee's unpaid absence period due to
maternity or paternity leave. The Committee considers an Employee on
maternity or paternity leave if the Employee's absence is due to the
Employee's pregnancy, the birth of the Employee's child, the placement with
the Employee of an adopted child, or the care of the Employee's child
immediately following the child's birth or placement. The Committee credits
Hours of Service under this paragraph on the basis of the number of Hours of
Service the Employee would receive if he were paid during the absence period
or, if the Committee cannot determine the number of Hours of Service the
Employee would receive, on the basis of eight (8) hours per day during the
absence period. The Committee will credit only the number (not exceeding
five hundred and one (501)) of Hours of Service necessary to prevent an
Employee's Break in Service. The Committee credits all Hours of Service
described in this paragraph to the computation period in which the absence
period begins or, if the Employee does not need these Hours of Service to
prevent a Break in Service in the computation period in which his absence
period begins, the Committee credits these Hours of Service to the
immediately following computation period. If local law of the jurisdiction
in which the Employee is domiciled requires different procedures for
maternity or paternity leave, the Committee will apply such local law with
respect to those affected Employees.
Sec. 1.18. LATE RETIREMENT DATE. "Late Retirement Date" means the date
of termination of an Employee's Service with the Employer for any reason other
than death or Disability where the termination occurs subsequent to the
Employee's Normal Retirement Date.
Sec. 1.19 NORMAL RETIREMENT AGE. "Normal Retirement Age" is sixty-five
(65) years of age.
Sec. 1.20. PARTICIPANT. "Participant" is an Eligible Employee who
becomes a Participant in accordance with the provisions of Section 2.01 hereof.
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 6
<PAGE>
Sec. 1.21. PLAN. "Plan" means the nonqualified employee phantom stock
retirement plan established by the Company in the form of this Agreement,
designated as the VARI-LITE INTERNATIONAL, INC. EMPLOYEES' STOCK EQUIVALENCE
PLAN. The Company has designated this Plan to be a (1) phantom stock plan
under which Stock Equivalence Units will be credited to the Accounts of
Participants in the Plan and (2) a plan maintained outside of the United
States primarily for the benefit of persons, substantially all of whom are
nonresident aliens, thereby satisfying the exception from the application to
the Plan of the provisions of ERISA, provided in ERISA Section 4(b)(4).
Sec. 1.22. PLAN ADMINISTRATOR. "Plan Administrator" is the Company
unless the Company designates another person or entity, including the
Committee, to hold the position of Plan Administrator. In addition to its
other duties, the Plan Administrator has full responsibility for compliance
with the reporting and disclosure rules under any applicable law.
Sec. 1.23. PLAN ENTRY DATE. "Plan Entry Date" means the Effective Date
and every January 1, April 1, July 1, and October 1 after the Effective Date.
Sec. 1.24. PLAN YEAR. "Plan Year" means a twelve (12) consecutive
month period beginning on January 1 of each year and ending on the following
December 31.
Sec. 1.25. RELATED EMPLOYER. "Related Employer" means a member of a
controlled group of corporations (as defined and interpreted under the ESOP),
trades or businesses (whether or not incorporated) which are under common
control (as defined and interpreted under the ESOP) or an affiliated service
group (as defined and interpreted under the ESOP) which includes the Company,
which is domiciled outside of the United States. The term "Employer"
includes all Related Employers for purposes of crediting Hours of Service,
determining Years of Service-Participation and Years of Service-Vesting and
Breaks in Service under Articles II and IV hereof, the definitions of
Employee, Compensation, and for any other purpose required by a Plan
provision or applicable law. Only a Related Employer described in this
Section may adopt this Plan and only an Employee employed by an Employer
described in Section 1.12 hereof is eligible to participate in this Plan.
Sec. 1.26. RETIREMENT. "Retirement" means a Participant's Separation
from Service with an Employer at or after attaining Normal Retirement Age.
Sec. 1.27. SEPARATION FROM SERVICE. "Separation from Service,"
"Separates from Service," or "Separated from Service" means the Employee no
longer has an employment relationship with the Employer.
PAGE 7
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED)
<PAGE>
Sec. 1.28. SERVICE. "Service" means any period of time the Employee is
in the employ of an Employer, including any period the Employee is on an
unpaid leave of absence authorized by the Employer.
Sec. 1.29 STOCK EQUIVALENCE UNIT. "Stock Equivalence Unit" or "Unit"
means amounts awarded under this Plan by the Company in the form of units
which shall be credited pursuant to Section 3.05 to an Account to be
maintained for each Participant. Each Unit shall be equal to the fair market
value (as converted into the equivalency of United States currency) of one
share of Employer Securities on the date such Unit is credited to a
Participant's Account. No actual shares of Employer Securities shall be set
aside or credited under this Plan.
Sec. 1.30. VALUATION DATE. "Valuation Date" means each date on which
each Participant's Account is adjusted under Sections 8.09 and 8.10 hereof.
Sec. 1.31. VESTED. "Vested" refers to the portion of a Participant's
Account which is nonforfeitable for any reason.
END OF ARTICLE I
PAGE 8
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED)
<PAGE>
ARTICLE II
EMPLOYEE PARTICIPANTS
Sec. 2.01. PARTICIPATION. Unless otherwise determined by the
Committee, each Eligible Employee becomes a Participant in the Plan on the
Plan Entry Date (if employed on such date) immediately following the date on
which he became an Eligible Employee.
Sec. 2.02. YEAR OF SERVICE - PARTICIPATION. For purposes of an
Employee's participation in the Plan under Section 2.01 hereof, the Plan
takes into account all of his Years of Service-Participation with an Employer
or Related Employer. "Year of Service-Participation" means an eligibility
computation period during which the Employee completes not less than one
thousand (1,000) Hours of Service. The initial eligibility computation
period is the first twelve (12) consecutive month period measured from the
Employee's Employment Commencement Date. The Plan measures the subsequent
periods by reference to the Plan Year, beginning with the Plan Year which
includes the first anniversary of the Employee's Employment Commencement
Date. "Employment Commencement Date" means the date on which the Employee
first performs an Hour of Service for an Employer or Related Employer.
Sec. 2.03. BREAK IN SERVICE - PARTICIPATION. For purposes of
participation in the Plan, the Plan does not apply any Break in Service rule.
Sec. 2.04. PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose
employment terminates shall re-enter the Plan as a Participant on the date of
his re-employment with an Employer. An Employee who satisfies the Plan's
eligibility conditions but who terminates employment with the Employer prior
to becoming a Participant will become a Participant on the later of the Plan
Entry Date on which he would have entered the Plan had he not terminated
employment or the date of his reemployment. Any Employee who terminates
employment prior to satisfying the Plan's eligibility conditions becomes a
Participant in accordance with the provisions of Section 2.01 hereof.
Sec. 2.05. INELIGIBILITY TO BECOME A PARTICIPANT. Notwithstanding the
provisions of Section 2.01 hereof, and unless otherwise required or
prohibited under the local law of the jurisdiction of the Eligible Employee's
domicile, any Eligible Employee shall not be eligible and shall not become a
Participant, and any Employee who is a Participant shall cease to be eligible
to be a Participant, if:
(a) Such Employee is or becomes a member of a collective
bargaining unit if retirement benefits covering such unit was the
subject of good faith bargaining and coverage under this Plan was not
agreed to under such bargaining;
PAGE 9
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED)
<PAGE>
(b) Such Employee is employed by a Related Employer that is not
an adopting Employer or is excluded from participation by the terms of
the Employer's adoption agreement;
(c) Such individual is not on the payroll of an Employer; or
(d) The date the Employee elects not to participate in the Plan,
pursuant to Section 2.08 hereof.
Sec. 2.06. CONTINUANCE AS A PARTICIPANT. Notwithstanding any other
provision herein, a Participant shall continue as a Participant until whichever
of the following dates first occurs:
(a) The date of such Participant's death;
(b) The date the Participant ceases to be an Employee;
(c) The date the Participant becomes ineligible to participate
in the Plan, pursuant to Section 2.05 hereof; or
(d) The date the Participant elects not to participate in the
Plan, pursuant to Section 2.08 hereof.
After an individual ceases to be a Participant, his Account shall continue
to be held pursuant to the terms of the Plan, and shall share in the
appreciation or depreciation of his Account pending distribution pursuant to
Article V hereof.
Sec. 2.07. EMPLOYMENT BY EMPLOYER; SERVICE WITH NEWLY ACQUIRED
ENTITIES; RECORDS OF EMPLOYER. Notwithstanding any other provision herein,
this provision applies as follows:
(a) In the event the Company or an Employer has or shall acquire
the control of any foreign organization by the purchase of assets or
stock, merger, amalgamation, consolidation or any other similar event,
the Board of Directors may direct to what extent, if any, employment
by such organization shall be deemed to be employment by the Employer,
and, in connection therewith, may specify a special Plan Entry Date.
(b) The personnel records of the Company or the Employer or any
Related Employer shall be conclusive evidence for the purpose of
determining the period of employment of any and all Employees.
PAGE 10
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED)
<PAGE>
Sec. 2.08. ELECTION NOT TO PARTICIPATE. An Eligible Employee, or any
present Participant, may elect not to participate in the Plan or enter into
an agreement with the Committee not to participate in the Plan. For an
election to be effective for a particular Plan Year, the Employee or
Participant must either (1) file the election in writing with the Committee
not later than thirty (30) days prior to the beginning of that Plan Year
unless accepted by the Committee at a different time or (2) enter into an
agreement with the Committee which provides that the Employee or Participant
shall not participate in the Plan (collectively referred to herein as
"election"). The Committee will not credit any Stock Equivalence Units under
the Plan for the Employee or for the Participant for the Plan Year for which
the election is effective, nor for any succeeding Plan Year. Subject to the
following provisions, the Employee or Participant may re-elect to participate
in the Plan unless the election provides otherwise. After an Employee's or
Participant's election not to participate has been effective for at least two
(2) Plan Years, unless the agreement between the Employee and Committee
provides otherwise, the Employee or Participant may re-elect to participate
in the Plan for any Plan Year and subsequent Plan Years. If the Employee or
Participant is permitted to enter or re-enter the Plan, he may re-elect to
participate in the Plan by filing his election in writing with the Committee
not later than thirty (30) days prior to the beginning of the Plan Year for
which his election is to be effective. An Employee or Participant who
re-elects to participate may not again elect not to participate in the Plan.
The Committee must furnish an Employee or a Participant any form required for
purposes of an election under this Section 2.08. An election timely filed is
effective for the entire Plan Year.
A Participant who elects not to participate in the Plan may not receive a
distribution of his Account attributable thereto except as provided under
Article V hereof. For each Plan Year for which a Participant's election not
to participate is effective, his Account, if any, continues to share in
adjustments under Section 8.10 hereof. The Employee or the Participant
receives vesting credit under Article IV hereof for each included Year of
Service-Vesting during the period the election not to participate is
effective.
END OF ARTICLE II
PAGE 11
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED)
<PAGE>
ARTICLE III
EMPLOYER AWARDS AND PARTICIPANT FORFEITURES
Sec. 3.01. AMOUNT. For each Plan Year, the Company may award such
Stock Equivalence Units as the Board of Directors may from time to time deem
advisable. The maximum number of Units that may be awarded each Plan Year
under this Plan shall be set by the Board of Directors. If any Units awarded
under this Plan shall be forfeited or canceled, such Units may again be
awarded under the Plan.
Sec. 3.02. DETERMINATION OF AWARDS. The Company, by action of its
Board of Directors, determines the number of Stock Equivalence Units to be
credited to the Plan, if any, each Plan Year.
Sec. 3.03. TIME OF CREDITING OF AWARDS. The Company shall credit all
Stock Equivalence Units awarded to Participants during the Plan Year within
sixty (60) days of the date of its Board of Directors' resolution authorizing
such award or within a reasonable time thereafter.
Sec. 3.04. CREDITING TO ACCOUNTS.
(A) STOCK EQUIVALENCE UNIT ACCOUNT. The Account of each Participant
shall be credited by his allocable share (determined under the Plan) of (i)
the Stock Equivalence Units (including fractional Units) awarded by the
Company and (ii) Participant Forfeitures of Stock Equivalence Units. Such
award shall be credited in whole Units and fractional Units based on the then
fair market value of Employer Securities as determined in United States
currency. All fractional Units shall be computed at least to the nearest
one-one hundredth (1/100th) of a Unit (i.e., at least two places to the right
of the decimal).
(B) CREDITING PROCEDURES. Accounts shall be adjusted in accordance with
the following:
(1) COMPANY AWARDS. Company awards for the Plan
Year shall be credited, as designated by the Company or
required by applicable law, to the Account of each
Participant. The Committee will credit each Company award
for a Plan Year to each Participant who satisfies the
conditions of Section 3.05 hereof for that Plan Year. The
Committee will make this credit in the same ratio that each
such Participant's Compensation for the Plan Year bears to
the total Compensation for all such Participants for that
Plan Year.
(2) FORFEITURES. Except as provided herein,
Forfeitures occurring during a Plan Year shall be credited
to the Account of each Participant. The
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EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 12
<PAGE>
Committee will credit Forfeitures for a Plan Year to each
Participant who satisfies the conditions of Section 3.05 hereof
for that Plan Year. Forfeitures shall be credited according to
the ratio that the Compensation for the Plan Year of each such
Participant bears to the total Compensation of all such
Participants for that Plan Year. In making a credit of
Forfeitures under this provision, the Committee will base
Forfeitures of Stock Equivalence Units upon the fair market
value of such Units as of the Accounting Date of the
Forfeitures. The Company, however, in its sole discretion,
may apply such Forfeitures to reduce Company awards in
future Plan Years or to pay administrative expenses of the
Plan.
Sec. 3.05. CREDIT OF BENEFIT. The Committee will determine the
crediting of benefits (Company awards and Participant Forfeitures) on the
basis of the Plan Year.
(A) COMPENSATION TAKEN INTO ACCOUNT. In crediting a Company award or
Participant Forfeiture to a Participant's Account, the Committee will take
into account only the Compensation determined for the portion of the Plan
Year in which the Employee actually is a Participant.
(B) HOURS OF SERVICE REQUIREMENT. The Committee will not credit any
portion of a Company award or Participant Forfeitures, if any, for a Plan
Year to any Participant's Account if the Participant does not complete a
minimum of one thousand (1,000) Hours of Service during the Plan Year, unless
the Participant terminates employment during the Plan Year because of death
or Disability or because of the attainment of Normal Retirement Age in the
current Plan Year or in a prior Plan Year.
(C) EMPLOYMENT REQUIREMENT. If the conditions of Section 3.05(B) hereof
are satisfied and the Participant Separates from Service during a Plan Year
and is not employed by an Employer on the last day of the Plan Year, such
Participant will not share in the credit of Company awards and Participant
Forfeitures, if any, for that Plan Year unless the Participant Separates from
Service because of death or Disability or because of the attainment of Normal
Retirement Age in the current Plan Year or in a prior Plan Year.
Sec. 3.06. PAYMENT OF DIVIDENDS. Subject to the provisions of
Section 3.11 hereof, at the same time that any cash dividends are paid on
Employer Securities, a similar amount per share may be credited in Units to
each Participant's Account in respect of every Stock Equivalence Unit with
which he has been credited. For purposes of crediting Units under this
Section 3.06, the value of each Unit shall be the fair market value of the
Units as of the trading date immediately preceding the date the dividends are
paid if the Employer Securities are publicly traded on an established
securities market; otherwise, the fair market value of the Units shall be
determined as of the Accounting Date immediately preceding the date the
dividends are paid, or such other method of valuation as the Committee shall
determine from time to time.
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 13
<PAGE>
Sec. 3.07. DILUTION PROVISIONS. Subject to the provisions of Section
3.11 hereof, in the event the dividends declared on Employer Securities are
payable in shares of Employer Securities or in the event of a stock split,
the number of Stock Equivalence Units credited to a Participant's Account may
be adjusted by adding thereto the number of additional Units which would have
been distributed thereon if the Participant had held outstanding shares of
Employer Securities on the date fixed for determining shareholders entitled
to receive such stock dividend or split.
In the event of any change other than as specified in this paragraph in
the number or kind of outstanding shares of Employer Securities or of any
stock or other securities into which the Employer Securities shall have been
changed or for which it shall have been exchanged by reason of
recapitalization, merger, consolidation, spin-off, reorganization,
combination or exchange of shares or other similar corporate change, if the
Company determines that such change equitably requires an adjustment in the
number of Stock Equivalence Units or other modifications in this Plan, such
adjustment shall be made.
Sec. 3.08. FORFEITURE. In the event of the Participant's Separation
from Service other than through death, Disability or Normal Retirement Age,
he shall forfeit all right, title, and interest to the value of Stock
Equivalence Units credited to his Account which are not Vested pursuant to
Section 4.03 hereof.
Sec. 3.09. DETERMINATION OF FAIR MARKET VALUE. The fair market value
of each Stock Equivalence Unit shall be equal to the closing price of one
share of Employer Securities on the day immediately preceding any Conversion
Date (as defined in Section 5.02(A) hereof) if the Employer Securities are
publicly traded on an established securities market, or if the Employer
Securities are not publicly traded, the price determined by the Committee as
of the Accounting Date coincident with or immediately following the
Conversion Date.
Sec. 3.10. SUBSTITUTE AWARDS. The Committee may substitute
restricted stock grants or other forms of awards for Stock Equivalence Units
if in the opinion of the Company such substitution would result in more
favorable tax consequences to the Participants or the Company or for other
reasons which, in the opinion of the Company, make such substitution
desirable.
Sec. 3.11. VOTING AND DIVIDEND RIGHTS. No Participant shall be
entitled to any voting rights nor be entitled to receive any dividends with
respect to Stock Equivalence Units credited to his Account, unless the Board
of Directors provides otherwise.
Sec. 3.12. NO EFFECT ON CORPORATE POWERS. The presence of
outstanding Stock Equivalence Units awarded under this Plan shall not affect
in any manner the Company's (or any Employer's) right or power to make,
authorize or consummate (1) any or all adjustments, recapitalizations,
reorganizations or other changes in the capital structure of the Company (or
any
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 14
<PAGE>
Employer) or its business; (2) any merger or consolidation of the Company (or
any Employer); (3) any issue by the Company (or any Employer) of debt
securities or preferred or preference stock which would rank above the common
stock of the Company (or any Employer); (4) the dissolution or liquidation of
the Company (or any Employer); (5) any sale, transfer or assignment of all or
any part of the assets or business of the Company (or any Employer); or (6)
any other corporate act or proceeding, whether of a similar character or
otherwise.
Sec. 3.13. NO CLAIM OR RIGHT. No Employee, Participant or other
person shall have any claim or right to be granted an award of Stock
Equivalence Units under the Plan. Neither this Plan nor any action taken
hereunder shall be construed as giving any Employee any right to be retained
in the employ of the Company or any Employer.
END OF ARTICLE III
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 15
<PAGE>
ARTICLE IV
TERMINATION OF SERVICE - PARTICIPANT VESTING
Sec. 4.01. NORMAL RETIREMENT AGE. A Participant who remains
in the employ of the Employer after attaining Normal Retirement Age
shall continue to participate in the Plan until his Late Retirement
Date. A Participant's Account is one hundred percent (100%) Vested
upon and after his attaining Normal Retirement Age (if employed by an
Employer on or after that date).
Sec. 4.02. PARTICIPANT DISABILITY OR DEATH. If a
Participant's employment with the Employer terminates as a result of
death or Disability, the Participant's Account will be one hundred
percent (100%) Vested.
Sec. 4.03. VESTING SCHEDULE. Except as provided in Sections
4.01, 4.02 and 8.12 hereof, for each Year of Service-Vesting, a
Participant's Nonforfeitable Percentage of his Account equals the
percentage in the following vesting schedule:
Percent of
Years of Service-Vesting Nonforfeitable
With the Employer Account
----------------- -------
Less than 3 years . . . . . . . . . . . . . . . . . . . . None
3 years, but less than 4. . . . . . . . . . . . . . . . . 30%
4 years, but less than 5. . . . . . . . . . . . . . . . . 40%
5 years, but less than 6. . . . . . . . . . . . . . . . . 60%
6 years, but less than 7. . . . . . . . . . . . . . . . . 80%
7 years or more . . . . . . . . . . . . . . . . . . . . . . 100%
Sec. 4.04. YEAR OF SERVICE - VESTING For purposes of vesting
under Section 4.03 hereof, Year of Service-Vesting means any Plan Year
during which an Employee completes not less than one thousand (1,000)
Hours of Service.
Sec. 4.05. BREAK IN SERVICE - VESTING For purposes of this
Article IV, a Participant incurs a "Break in Service" if during any
Plan Year he does not complete more than five hundred (500) Hours of
Service, unless he does not complete more than five hundred (500)
Hours of Service because of any of the following: (1) he is
transferred; (2) he is on an approved leave of absence which does not
exceed eighteen (18) months and he returns to employment with the
Employer immediately following the leave of absence; (3) he is
temporarily laid off and he returns to employment with the Employer
immediately following the temporary layoff; or (4) he is in the
service in the armed forces of his country, and he returns to
employment with the
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 16
<PAGE>
Employer within ninety (90) days after termination of military
service without being employed somewhere else. Solely for the
purpose of determining whether an Employee has incurred a Break in
Service, if the Employee is absent from Service because of her
pregnancy, the birth of the Employee's child, the Employee's
receipt of a child through adoption, or the Employee's caring for
the child immediately after birth or adoption, the Employee shall
be entitled to the Hours of Service that he would have received but
for that absence for one (1) year after the absence began. Eight
(8) Hours of Service shall be credited for each day of such
absence. However, no more than a total of five hundred one (501)
hours can be credited. The five-hundred one (501) hours shall be
credited to the Plan Year in which the absence first begins if such
hours prevent a Break in Service in that period; otherwise, the
five hundred one (501) hours shall be credited to the next Plan
Year. In the event that the local law of the domicile of a
Participant or Participants under the Plan requires a different
result in regard to the break in service-vesting rules, the
Committee shall apply such local law as to those affected
participants.
Sec. 4.06. INCLUDED YEARS OF SERVICE - VESTING
(A) INCLUDED YEARS OF SERVICE. For purposes of determining
Years of Service-Vesting under Section 4.04 hereof, the Plan takes
into account all Years of Service-Vesting an Employee completes with
the Employer or a Related Employer, except for any Year of Service
before a Break in Service if the number of consecutive Breaks in
Service equals or exceeds the greater of five (5) or the aggregate
number of the Years of Service-Vesting prior to the Break in Service.
This exception applies only if the Participant is not Vested in his
Account at the time he has a Break in Service. The aggregate number
of Years of Service-Vesting before a Break in Service does not include
any Years of Service-Vesting not required to be taken into account
under this exception by reason of any prior Break in Service.
(B) FORFEITURE BREAK IN SERVICE. For the sole purpose of
determining a Participant's Vested percentage of his Account which
accrued for his benefit prior to a Forfeiture Break in Service, the
Plan disregards any Year of Service-Vesting after the Participant
first incurs a Forfeiture Break in Service. The Participant incurs a
Forfeiture Break in Service when he incurs five (5) consecutive Breaks
in Service.
Sec. 4.07. FORFEITURE OCCURS. A Participant's Forfeiture, if
any, of his Account occurs under the Plan as of the last day of the
Plan Year in which the Participant first incurs a Forfeiture Break in
Service. The Committee determines the percentage of a Participant's
Account Forfeiture, if any, under this Section 4.07 solely by
reference to the vesting schedule of Section 4.03 hereof and the
provisions of Sections 4.01 and 4.02 hereof, to the extent they are
applicable. A Participant will not forfeit any portion of his Account
for any other reason or cause except as expressly provided by this
Section 4.07 or as provided under Sections 3.08 and 8.12 hereof.
END OF ARTICLE IV
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 17
<PAGE>
ARTICLE V
TIME AND METHOD OF PAYMENT OF BENEFITS
Sec. 5.01. TERMS AND CONDITIONS. Subject to the express
provisions of this Plan, the Committee shall have complete authority,
in its discretion, to determine the extent and the terms and
conditions under which Stock Equivalence Units may be converted in the
event of the death or Disability of the Participant or in the event
the Participant attains Normal Retirement Age or otherwise Separates
from Service. However, all Stock Equivalence Units awarded under this
Plan shall be subject to the following express terms and conditions
and to such other terms and conditions which, in the reasonable
judgment of the Board of Directors or the Committee, are not
inconsistent with the following, and which the Board of Directors or
the Committee, in its sole discretion, deems appropriate:
(A) NON-TRANSFERABILITY. No Stock Equivalence Units awarded
under this Plan shall be transferable other than by the Last Will and
Testament of the Participant or by the laws of descent and
distribution of the country of the Participant's domicile. During the
lifetime of the holder, Stock Equivalence Units may be converted only
by the holder (or the holder's legal representative in the event the
holder becomes disabled).
(B) REORGANIZATIONS. The number of Stock Equivalence Units
granted under this Plan may be adjusted to reflect, as deemed
appropriate by the Board of Directors, any change in the number or
kind of outstanding Employer Securities as contemplated in Section
3.07 hereof.
(C) NO RIGHTS AS A STOCKHOLDER. A holder of Stock Equivalence
Units shall not have any dividend or voting rights or any other rights
of a stockholder of the Company or any Employer with respect to any
Stock Equivalence Units, unless otherwise provided by the Board of
Directors.
(D) PAYMENT ON STOCK EQUIVALENCE UNITS. The Stock Equivalence
Units awarded under the Plan may be converted at such times and in
such amounts in accordance with Section 5.02(A) hereof. Upon
conversion of the Stock Equivalence Units, the holder shall be
entitled to receive an amount determined and payable as provided in
Section 5.02(B) hereof.
(E) ADEQUATE CASH RESERVES. All amounts payable by the Company
with respect to Stock Equivalence Units shall be subject to the
Company having cash reserves which are adequate, in the sole
determination of the Board of Directors to satisfy the Company's
obligations under this Plan. Should the Board of Directors determine
that cash reserves are inadequate to make any payment due under the
Plan, such payment shall be made on such subsequent payment date that
cash reserves are determined to be adequate.
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 18
<PAGE>
Sec. 5.02. CONVERSION OF STOCK EQUIVALENCE UNITS; PAYMENT OF
APPRECIATED VALUE.
(A) CONVERSION. A Participant's Vested Stock Equivalence Units
credited to his Account may be converted only by the Committee for
payment pursuant to Section 5.02(B) hereof upon: either his death or
Disability or Separation from Service upon or after his attainment of
Normal Retirement Age or separation from Service for any other reason
(the "Conversion Date").
(B) AMOUNT PAYABLE. Upon conversion of Stock Equivalence Units
by the Committee for payment to the Participant in accordance with the
terms of this Plan, the Participant shall be entitled to receive the
value of his Account as hereinafter provided. The value of a
Participant's Account shall be determined by multiplying the number of
Units, including fractional Units, credited to his Account as of any
date, whether attributable to contributions, dividends or other
adjustments, by the value of the Units as of such date. Such value
shall be determined by converting the value of such Stock Equivalence
Units to reflect a value of such Stock Equivalence Units in United
States currency. At the Company's election, the Company shall pay to
such Participant the amount specified above in either: (i) five (5)
substantially equal annual installments; or (ii) a single lump sum
cash payment determined as of the Conversion Date or Accounting Date,
whichever is applicable under Section 3.09 hereof. Amounts payable by
the Company shall be made to the Participant in the currency of the
Company. Subject to the adequacy of cash reserves, as provided in
Section 5.01(E) hereof, the payments made pursuant to this Section
shall commence no later than sixty (60) days following the end of the
Company's fiscal year following the date of conversion pursuant to
Section 5.02(A) or as soon as administratively practicable following
the end of such fiscal year. Payments made by the Company to a
Participant shall be subject to such conditions as deemed advisable by
the Company and Committee to permit compliance by the Company and the
Employer with applicable tax withholding laws.
END OF ARTICLE V
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 19
<PAGE>
ARTICLE VI
EMPLOYER ADMINISTRATIVE PROVISIONS
Sec. 6.01. INFORMATION TO COMMITTEE. The Employer must
supply current information to the Committee as to the name, date of
birth, date of employment, annual Compensation, leaves of absence,
Years of Service-Participation, Years of Service-Vesting and date of
termination of employment of each Employee who is, or who will be
eligible to become, a Participant under the Plan, together with any
other information which the Company or the Committee considers
necessary. The Employer's records as to the current information the
Employer furnishes to the Committee are conclusive as to all persons.
Sec. 6.02. NO LIABILITY. The Company assumes no obligation
or responsibility to any Employee, Former Participant, Participant or
Beneficiary for any act of, or failure to act, on the part of its
Committee (unless the Company is the Committee) or the Plan
Administrator (unless the Company is the Plan Administrator).
Sec. 6.03. INDEMNITY OF CERTAIN FIDUCIARIES. The Company
indemnifies and saves harmless the Plan Administrator, Committee, and
the members of the Committee, and each of them, from and against any
and all loss resulting from liability to which the Plan Administrator,
the Committee, or the members of the Committee, may be subjected by
reason of any act or conduct (except willful misconduct or gross
negligence) in their official capacities in the administration of this
Plan, including all court costs and other expenses reasonably incurred
in their defense, in case the Company fails to provide such defense.
The indemnification provisions of this Section 6.03 do not relieve the
Plan Administrator, or any Committee member from any liability he may
have under applicable law for breach of a fiduciary duty. In the case
of any Committee member, the indemnification provisions of this
Section 6.03 do not relieve such member from any liability, to the
extent that a court of competent jurisdiction from which no appeal can
be taken, enters a final judgment that the Committee member's actions
or omissions were the result of gross negligence or willful
misconduct. The Plan Administrator, the Committee members, and the
Company may execute a letter agreement further delineating the
indemnification agreement of this Section 6.03, provided the letter
agreement is consistent with and does not violate applicable law. The
indemnification provisions of this Section 6.03 extend to any other
fiduciary solely to the extent provided by a letter agreement executed
by such person and the Company.
Sec. 6.04. AMENDMENT TO VESTING SCHEDULE. Though the Company
reserves the right to amend the vesting schedule of Section 4.03
hereof at any time, the Committee will not apply the amended schedule
to reduce the Nonforfeitable percentage of any Participant's Account
(determined as of the later of the date the Company adopts the
amendment, or the date the amendment becomes effective) to a
percentage less than the Vested percentage computed under
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 20
<PAGE>
the Plan without regard to the amendment. An amended vesting
schedule will apply to a Participant only if the Participant
receives credit for at least one (1) Hour of Service after the new
schedule becomes effective.
If the Company makes a permissible amendment to the vesting
schedule, each Participant having at least three (3) Years of
Service-Vesting with the Employer may elect to have the percentage
of his Vested Account computed under the Plan without regard to the
amendment. The Participant must file his election with the
Committee within sixty (60) days of the latest of (1) the Company's
adoption of the amendment; (2) the effective date of the amendment;
or (3) his receipt of a copy of the amendment. The Committee as
soon as practicable, must forward a true copy of any amendment to
the vesting schedule to each affected Participant, together with an
explanation of the effect of the amendment, the appropriate form
upon which the Participant may make an election to remain under the
vesting schedule provided under the Plan prior to the amendment and
notice of the time within which the Participant must make an
election to remain under the prior vesting schedule. The election
described in this Section 6.04 does not apply to a Participant if
the amended vesting schedule provides for vesting at least as rapid
at all times as the vesting schedule in effect prior to the
amendment. For purposes of this Section 6.04, an amendment to the
vesting schedule includes any Plan amendment which directly or
indirectly affects the computation of the Vested percentage of a
Participant's rights to his Account.
Sec. 6.05. APPLICABLE LAW. The Company, the Board of
Directors, each Employer, the Committee, and the Plan Administrator
will follow and apply the laws of the United States of America in
regard to all aspects of the Plan, unless otherwise required by the
local laws of any applicable jurisdiction.
END OF ARTICLE VI
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 21
<PAGE>
ARTICLE VII
PARTICIPANT ADMINISTRATIVE PROVISIONS
Sec. 7.01. BENEFICIARY DESIGNATION. Any Participant from time to time
may designate, in writing, any person or persons contingently or successively
to whom the Committee will pay the Vested portion of his Account in the event
of his death, and the Participant may designate the form and method. The
Committee will prescribe the form for the written designation of Beneficiary
and upon the Participant's filing the form with the Committee, the form
effectively revokes all designations filed prior to that date by the same
Participant.
Sec. 7.02. NO BENEFICIARY DESIGNATION. Unless otherwise required by
applicable law, if a Participant fails to name a Beneficiary in accordance
with Section 7.01 hereof, or if the Beneficiary named by a Participant
predeceases him, or if the Beneficiary designation is invalid or void, the
Committee will pay the Participant's Vested Account in the following order of
priority to:
(a) The Participant's surviving spouse;
(b) The Participant's surviving children, including
adopted children, in equal shares;
(c) The Participant's surviving parents, in equal
shares; or
(d) The Participant's estate.
If the Beneficiary does not predecease the Participant, but dies prior to
distribution of the Participant's entire Vested Account, the Committee will
pay the remaining Vested Account to the Beneficiary's estate unless the
Participant's Beneficiary designation provides otherwise.
Sec. 7.03. PERSONAL DATA TO COMMITTEE. Each Participant and each
Beneficiary of a deceased Participant must furnish to the Committee such
evidence, data or information as the Company or the Committee considers
necessary or desirable for the purpose of administering the Plan. The
provisions of this Plan are effective for the benefit of each Participant
upon the condition precedent that each Participant will furnish promptly
full, true and complete evidence, data and information when requested by the
Committee, provided the Committee advises each Participant of the effect of
his failure to comply with its request. Any adjustment required by reason of
lack of proof or the misstatement of the ages of persons entitled to benefits
hereunder, by the Participant or otherwise, shall be in such manner as the
Company or the Committee deems equitable.
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 22
<PAGE>
Any notice or information which according to the terms of the Plan or the
rules of the Committee must be filed with the Committee, shall be deemed so
filed if addressed and either delivered in person or mailed, postage fully
prepaid, to the Committee. If mailed, any such notice or information shall
be addressed to the Committee Chairman c/o VARI-LITE INTERNATIONAL, INC. and
mailed to its corporate headquarters address.
Whenever a provision herein requires that a Participant (or the
Participant's Beneficiary) give notice to the Committee within a specified
number of days or by a certain date, and the last day of such period, or such
date falls on a Saturday, Sunday, or Company holiday, the Participant (or the
Participant's Beneficiary) will be deemed in compliance with such provision
if notice is delivered in person to the Committee or is mailed, properly
addressed, postage prepaid, and postmarked on or before the business day next
following such Saturday, Sunday or Company holiday. The Committee may, in
its sole discretion, modify or waive any specified requirement notice;
provided, however, that such modification or waiver must be administratively
feasible, must be in the best interest of the Participant, and must be made
on the basis of rules of the Committee which are applied uniformly to all
Participants.
Sec. 7.04. ADDRESS FOR NOTIFICATION. Each Participant, each
Beneficiary of a deceased Participant and other person entitled to benefits
hereunder must file with the Committee from time to time, in writing, his
mailing address and any change of mailing address. Any communication,
statement or notice addressed to a Participant, Former Participant, or
Beneficiary, at his last mailing address filed with the Committee, or as
shown on the records of the Company or the Employer, binds the Participant,
Former Participant, or Beneficiary, for all purposes of this Plan. Any check
representing payment hereunder and any communication addressed to a
Participant, Former Participant, an Employee, a former Employee, or
Beneficiary, at such person's last address filed with the Committee, or if no
such address has been filed, then at such person's last address as indicated
on the records of the Company or the Employer, shall be deemed to have been
delivered to such person on the date on which such check or communication is
deposited, postage prepaid, in the mail.
If the Committee, for any reason, is in doubt as to whether payments are
being received by the person entitled thereto, it shall, by registered mail
addressed to the person concerned, at his address last known to the
Committee, notify such person that all unmailed and future payments shall be
henceforth withheld until he provides the Committee with evidence of his
existence and his proper mailing address.
Sec. 7.05. ASSIGNMENT OR ALIENATION. A Participant, Former
Participant, or Beneficiary may not anticipate, assign or alienate (either at
law or in equity) any benefit provided under the Plan, and the Committee will
not recognize any such anticipation, assignment or alienation. A benefit
under the Plan is not subject to attachment, garnishment, levy, execution or
other legal or equitable process.
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 23
<PAGE>
Sec. 7.06. LITIGATION AGAINST THE PLAN. A court of competent
jurisdiction may authorize any appropriate equitable relief to redress
violations of applicable law or to enforce any provisions of applicable law
or the terms of the Plan. A fiduciary may receive reimbursement of expenses
properly and actually incurred in the performance of his duties with the Plan.
Sec. 7.07. APPEAL PROCEDURE FOR DENIAL OF BENEFITS. A Participant,
Former Participant, or a Beneficiary ("Claimant") may file with the Committee
a written claim for benefits, if the Participant, Former Participant, or
Beneficiary determines the distribution procedures of the Plan have not
provided him his proper Vested Account. The Committee must render a decision
on the claim within sixty (60) days of the Claimant's written claim for
benefits. The Plan Administrator must provide adequate notice in writing to
the Claimant whose claim for benefits under the Plan the Committee has
denied. The Plan Administrator's notice to the Claimant must set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions
on which the Committee based its denial;
(c) A description of any additional material and
information needed for the Claimant to perfect his claim and
an explanation of why the material or information is needed;
and
(d) That any appeal the Claimant wishes to make of the
adverse determination must be in writing to the Committee
within seventy-five (75) days after receipt of the Plan
Administrator's notice of denial of benefits. The Plan
Administrator's notice must further advise the Claimant that
his failure to appeal the action to the Committee in writing
within the seventy-five (75) day period will render the
Committee's determination final, binding and conclusive.
If the Claimant should appeal to the Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and
comments he, or his duly authorized representative, feels are pertinent. At
the hearing (or prior thereto upon five (5) business days written notice to
the Committee), the Claimant, or his duly authorized representative, may
review Plan documents in the possession of the Plan Administrator which are
pertinent to the claim. Either the Claimant, Committee, or Plan
Administrator may cause a court reporter to attend the hearing and record the
proceedings. In such event, a complete written transcript of the proceeding
shall be furnished to all parties by the court reporter. The full expense of
any court reporter and such transcripts shall be borne by the party causing
the court reporter to attend the hearing. The Committee will re-examine all
facts related to the appeal and make a final determination as to whether the
denial of benefits is justified under the circumstances. The Committee must
advise the Claimant of its decision within sixty (60) days of the Claimant's
written request for review, unless special
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 24
<PAGE>
circumstances (such as a hearing) would make the rendering of a decision
within the sixty (60) day limit unfeasible, but in no event may the Committee
render a decision respecting a denial for a claim for benefits later than one
hundred-twenty (120) days after its receipt of a request for review.
The Committee's notice of denial of benefits must identify the name of
each member of the Committee and the name and address of the Committee member
to whom the Claimant may forward his appeal.
END OF ARTICLE VII
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 25
<PAGE>
ARTICLE VIII
STOCK COMPENSATION COMMITTEE
DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
Sec. 8.01. MEMBERS' COMPENSATION, EXPENSES. The Company may appoint a
Committee to administer the Plan, the members of which may or may not be a
Participant in the Plan, or which may be the Plan Administrator acting alone.
In the absence of a Committee appointment, the Plan Administrator assumes
the powers, duties and responsibilities of the Committee. The members of the
Committee may serve for reasonable compensation for services as such, but the
Company will pay all expenses of the Committee, except to the extent the Plan
properly pays for such expenses.
Sec. 8.02. TERM. Each member of the Committee serves until the
appointment of his successor.
Sec. 8.03. POWERS. The Committee is empowered to satisfy and operate
the Plan in accordance with the terms of the Plan and applicable law. The
Committee will follow and apply the laws of the United States of America
unless otherwise required to apply local law of the applicable jurisdiction.
In case of a vacancy in the membership of the Committee, the remaining
members of the Committee may exercise any and all of the powers, authority,
duties and discretion conferred upon the Committee pending the filling of the
vacancy.
Sec. 8.04. GENERAL. The Committee has, without limitation, the
following powers and duties:
(a) To select a Secretary, who need not be a member of
the Committee;
(b) To determine eligibility of an Employee for all
benefits under the Plan, the value of a Participant's
Account and the Vested percentage of each Participant's
Account;
(c) To adopt rules of procedure and regulations and
guidelines necessary for the proper and efficient
administration of the Plan provided the rules are not
inconsistent with the terms of this Plan;
(d) To construe and enforce the terms of the Plan and
the rules and regulations it adopts, including
interpretation of the Plan documents and documents related
to the Plan's operation;
(e) To credit Stock Equivalence Units under the Plan;
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 26
<PAGE>
(f) To review and render decisions respecting a claim
for (or denial of a claim for) a benefit under the Plan;
(g) To furnish the Company or any Employer with
information which the Company or the Employer may require
for tax or other purposes;
(h) To engage the service of agents whom it may deem
advisable to assist it with the performance of its duties;
and
(i) To construe and interpret the Plan and the rules
and regulations adopted and to answer all questions arising
in the administration, interpretation and application of the
Plan document and documents related to the Plan's operation.
The Committee shall not violate the terms of the Plan or applicable law.
All decisions, determinations, directions, interpretations, and applications
of the Plan by the Committee in good faith shall be final and binding upon
all persons, including (but not limited to) the Company, any Employer, and
all Participants, Former Participants, and Beneficiaries unless in violation
of the Plan or applicable law.
Sec. 8.05. MANNER OF ACTION. The decision of a majority of the members
of the Committee appointed and qualified controls.
Sec. 8.06. AUTHORIZED REPRESENTATIVE. The Committee may authorize any
one of its members, or its Secretary, to sign on its behalf any notices,
directions, applications, certificates, consents, approvals, waivers, letters
or other documents. The Committee must evidence this authority by an
instrument signed by all members.
Sec. 8.07. INTERESTED MEMBER. No member of the Committee may decide or
determine any matter concerning the distribution, nature or method of
settlement of his own benefits under the Plan, except in exercising an
election available to that member in his capacity as a Participant, unless
the Plan Administrator is acting alone in the capacity of the Committee.
Sec. 8.08. INDIVIDUAL ACCOUNTS. The Committee will maintain a separate
Account in the name of each Participant to reflect the Stock Equivalence
Units credited to each Participant under the Plan.
Sec. 8.09. VALUE OF PARTICIPANT'S ACCOUNT. The value of each
Participant's Account shall be determined by multiplying the number of Units
credited to that Participant's Account by the current fair market value, as
determined at Section 3.09 hereof, of each Unit.
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 27
<PAGE>
Sec. 8.10. ADJUSTMENTS OF PARTICIPANTS' ACCOUNTS. A "Valuation Date"
under this Plan is each Accounting Date and if the Employer Securities are
publicly traded on an established securities market, the day preceding any
Conversion Date, in addition to each interim valuation date determined under
Section 8.14 hereof. As of each Valuation Date, the Committee must adjust
Accounts to reflect appreciation or depreciation since the last Valuation
Date. The valuation period is the period beginning the day after the last
Valuation Date and ending on the current Valuation Date. The Committee will
credit the Company awards and Participant Forfeitures, if any, in accordance
with Article III hereof.
Sec. 8.11. ACCOUNT CHARGED. The Committee shall charge all
distributions made to a Participant or to his Beneficiary from his Account
against the Account of the Participant when made.
Sec. 8.12. UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require the
Committee, the Employer, or the Company to search for, or to ascertain the
whereabouts of, any Participant or Beneficiary. The Committee, by certified
or registered mail addressed to his last known address of record with the
Committee, the Company, or the Employer, shall notify any Participant or
Beneficiary, that he is entitled to a distribution under this Plan, and the
notice shall quote the provisions of this Section 8.12. If the Participant
or Beneficiary, fails to claim his distributive share or make his whereabouts
known in writing to the Committee within six (6) months from the date of
mailing of the notice, the Committee shall treat the Participant's or
Beneficiary's unclaimed payable Account as forfeited and shall reallocate and
use the amount of the unclaimed payable Account to reduce the Company's award
for the Plan Year in which the Forfeiture occurs.
Sec. 8.13. RECORDS AND STATEMENTS. The records of the Committee
pertaining to the Plan shall be open to the inspection of the Plan
Administrator, the Company and any Employer at all reasonable times and may
be audited from time to time by any person or persons as the Plan
Administrator, Company, any Employer or Committee may specify in writing.
The Committee shall furnish the Plan Administrator, Company, or any Employer
with whatever information relating to the Plan, the Plan Administrator,
Company, any Employer or Committee considers necessary.
Sec. 8.14. VALUATION OF ACCOUNTS. The Committee must value the
Accounts of the Participants as of each Accounting Date, and the Committee
also must value such Accounts on such other dates, as determined by the
Company or the Committee. If a Valuation Date would otherwise occur on a
Saturday, Sunday, or holiday, then the Valuation Date shall mean the
preceding business day.
Sec. 8.15. WITHHOLDING FOR AND PAYMENT OF TAXES. If any Stock
Equivalence Units credited to the Plan, or any benefits payable under the
Plan, shall become liable for the payment of any estate, inheritance, income,
or other tax, charge or assessment, which in
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 28
<PAGE>
the Committee's or Company's opinion the Company shall or may be required to
pay, the Company shall have full power and authority to pay or withhold such
tax, charge or assessment out of any moneys or other property in its hands
for the account of the person whose interest hereunder are liable for such
tax. The Company or Committee, prior to making any payment to any
Beneficiary hereunder, may require such releases or other documents from any
lawful taxing authority and may require such indemnity from such Beneficiary
as the Company or Committee shall deem necessary for its protection.
END OF ARTICLE VIII
VARI-LITE INTERNATIONAL, INC
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED) PAGE 29
<PAGE>
ARTICLE IX
MISCELLANEOUS
Sec. 9.01. EVIDENCE. Anyone required to give evidence under the
terms of the Plan may do so by certificate, affidavit, document or other
information which the person to act in reliance may consider pertinent,
reliable and genuine, and to have been signed, made or presented by the
proper party or parties. The Company, any Employer and the Committee are
fully protected in acting and relying upon any evidence described under the
immediately preceding sentence.
Sec. 9.02. NO RESPONSIBILITY FOR EMPLOYER ACTION. The Committee does
not have any obligation or responsibility with respect to any action required
by the Plan to be taken by any Employer, the Company, any Participant, Former
Participant, or Eligible Employee, or for the failure of any of the above
persons to act or make any payment or contribution, or to otherwise provide
any benefit contemplated under this Plan. The Committee need not inquire
into or be responsible for any action or failure to act on the part of the
others, or on the part of any other person who has any responsibility
regarding the management, administration or operation of the Plan, whether by
the express terms of the Plan or by a separate agreement authorized by the
Plan or by the provisions of applicable law. Any action required of a
corporate Employer must be by its board of directors or its designate.
Sec. 9.03. FIDUCIARIES NOT INSURERS. The Committee, the Plan
Administrator, the Company, and all Employers in no way guarantee the Plan
from loss or depreciation. Neither any Employer nor the Company guarantee
the payment of any money which may be or becomes due to any person from the
Plan.
Sec. 9.04. WAIVER OF NOTICE. Any person entitled to notice under the
Plan may waive the notice, unless applicable law specifically or impliedly
prohibits such a waiver.
Sec. 9.05. SUCCESSORS. The Plan is binding upon all persons entitled to
benefits under the Plan, their respective heirs and legal representatives,
upon the Company and each Employer, their successors and assigns, and upon
the Committee, the Plan Administrator and their successors.
Sec. 9.06. WORD USAGE. Words used in the masculine also apply to the
feminine and neuter where applicable, and wherever the context of the Plan
dictates, the plural includes the singular and the singular includes the
plural. Whenever a noun, or pronoun in lieu thereof, is used in this Plan in
plural form and there may be only one person within the scope of the word so
used, or in singular form and there be more than one (1) person within the
scope of the word so used, such word, or pronoun used in lieu thereof, shall
have a singular or plural meaning, as
PAGE 30
VARI-LITE INTERNATIONAL, INC.
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED)
<PAGE>
the case may be. The words "herein," "hereof," and "hereunder" and other
similar compounds of the word "here" shall mean and refer to the entire Plan,
not to any particular provision or Section. Article and Section headings are
included for convenience of reference and are not intended to add to, or
subtract from, the terms of the Plan.
Sec. 9.07. STATE LAW. Texas law and the laws of the United States of
America will determine all questions arising with respect to the provisions
of this Plan, such as (but not limited to) the execution, construction,
administration and enforcement of the Plan, except to the extent superseded
by other applicable law.
Sec. 9.08. EMPLOYMENT NOT GUARANTEED. Nothing contained in this
Plan, or any modification or amendment to the Plan, or in the creation of any
Account, or the payment of any benefit, gives any Employee, Participant,
Former Participant, or any Beneficiary any right to continue employment, any
legal or equitable right against any Employer, the Company, or the Employee
of any Employer, or its agents or employees, or against the Plan
Administrator, or Committee, except as expressly provided by the Plan,
applicable law, or by a separate agreement.
Sec. 9.09. SEVERABILITY. Notwithstanding any provision
contained in the Plan to the contrary, the provisions of this Plan
shall be deemed severable and the validity or unenforceability of any
provision shall not affect the validity or enforceability of the other
provisions thereof.
Sec. 9.10. CONTRARY PROVISIONS. The provisions of this
Article IX shall govern notwithstanding anything contained in the Plan
to the contrary.
Sec. 9.11. NOTICE TO EMPLOYEES. Notice of the Plan and of
any amendments thereto, of eligibility of each Employee, and notice of
such other matters as may be required by law or this instrument, shall
be given by the Employer to the Employees in such form as the
Committee may deem appropriate and reasonable and in conformity to
lawful requirements.
Sec. 9.12. AGREEMENT OF PARTICIPANTS. Each Participant, by
becoming such, for himself or herself, and such Participant's heirs,
executors, administrators, legal representatives and Beneficiaries,
ipso facto, approves and agrees to be bound by the provisions of this
Plan.
Sec. 9.13. ACTION BY EMPLOYERS. Any written action herein
permitted or required to be taken by an Employer shall be by
resolution of its board of directors (or other governing body thereof)
or by written instrument executed by a person or group of persons who
has been authorizd by resolution of its board of directors (or other
governing body thereof) as having authority to take such action.
Sec. 9.14. ADOPTION OF THE PLAN BY A RELATED EMPLOYER. Any
business enterprise which on or after the Effective Date is or becomes
a Related Employer as
PAGE 31
VARI-LITE INTERNATIONAL, INC.
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED)
<PAGE>
defined at Section 1.25 hereof may adopt this Plan, effective as of the date
indicated in its instrument of adoption, if (1) the Company permits the
Related Employer to adopt the Plan and (2) such Related Employer executes an
instrument in writing duly authorized by it adopting this Plan and delivers a
copy thereof to the Committee. Throughout this Plan, a distinction is
purposely drawn between rights and obligations of the Company and rights and
obligations of an Employer. The rights and obligations specified as
belonging to the Company shall belong only to it, including but not limited
to, appointment of the Committee and amendment or termination of the Plan. A
Related Employer's instrument of adoption may provide for the following: (1)
making such changes with respect to the Plan as are approved by the
Committee, and (2) the designation of the name of the Plan with respect to
its Employees. An Employer may withdraw from this Plan without affecting any
other Employer. If an Employer withdraws or its participation is terminated
by the Board of Directors, such Employer may, in its sole discretion, adopt
for its Employees alone and independent of this Plan its own plan with
respect to itself and its Participants
(a) METHOD OF ADOPTING THE PLAN BY A RELATED EMPLOYER.
In order to adopt the Plan, the board of directors (or other
governing body thereof) of the adopting Related Employer
must approve a resolution expressly adopting the Plan for
the benefit of its Employees and the requirements set forth
above must be satisfied.
(b) TRANSMITTAL OF RESOLUTION. Upon the Company's request,
a certified copy of the adopting Related Employer's resolution
shall be transmitted to the Company and approval of the Board of
Directors of the Company shall be deemed to constitute the
adoption of the Plan by the adopting Related Employer as of the
date specified in such adopting Related Employer's resolution or
other agreement.
Sec. 9.15. DISASSOCIATION OF ANY EMPLOYER FROM PLAN. Any Employer
may withdraw from the provisions of this Plan at any time upon the expiration
of thirty (30) days after deliver of written notice of its intent to do so to
the Committee and the Company, and shall thereupon cease to be a party to
this Plan. Withdrawal from the Plan by an Employer shall not affect the
continued operation of the Plan with respect to the Company and other
Employers.
Sec. 9.16. COMPANY VOTING RIGHTS. Notwithstanding any other
provisions of the Plan, the Company shall retain the right to direct the
voting of any shares of Company stock held in trust by reason of this Plan.
The Company shall be entitled to direct the Trustee of the VARI-LITE
INTERNATIONAL, INC. EMPLOYEES' STOCK EQUIVALENCE TRUST as to the voting of
any Company stock held.
END OF ARTICLE IX
PAGE 32
VARI-LITE INTERNATIONAL, INC.
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED)
<PAGE>
ARTICLE X
AMENDMENT AND TERMINATION
Sec. 10.01. AMENDMENT BY COMPANY. The Company, by action of
its Board of Directors, has the right at any time and from time to
time to amend this Plan in any manner it deems necessary or advisable.
The Company may not make any amendment which affects the rights,
duties or responsibilities of the Plan Administrator or the Committee
without the written consent of the affected Plan Administrator or the
affected member of the Committee. The Company must make all
amendments in writing.
Sec. 10.02. EFFECTIVE DATE OF AMENDMENT. Any such amendment shall
become effective as provided therein upon its execution.
Sec. 10.03. DISCONTINUANCE. The Company, by action of its Board of
Directors, has the right, at any time, to suspend or discontinue its awards
under the Plan. The Company, by action of its Board of Directors, has the
right to terminate, at any time, this Plan. The Plan will terminate upon the
first to occur of the following:
(a) The date terminated by action of the Company;
(b) The dissolution or merger of the Company, unless
the successor makes provision to continue the Plan, in which
event the successor must substitute itself as the Company
under this Plan.
Sec. 10.04. FULL VESTING ON TERMINATION. Upon either full or
partial termination of the Plan, an affected Participant's right to
his Account shall be one hundred percent (100%) Vested.
END OF ARTICLE X
PAGE 33
VARI-LITE INTERNATIONAL, INC.
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED)
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Amended and Restated
Plan in multiple copies in Dallas, Dallas County, Texas, on the 17th day of
September, 1997, to be effective the 1st day of January, 1996.
"COMPANY"
VARI-LITE INTERNATIONAL, INC.
By: /s/ H.R. Brutsche III
--------------------------------------
Title: President
-----------------------------------
Print Name: H.R. Brutsche III
------------------------------
PAGE 34
VARI-LITE INTERNATIONAL, INC.
EMPLOYEES' STOCK EQUIVALENCE PLAN
(AS AMENDED AND RESTATED)
<PAGE>
VARI-LITE HOLDINGS, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
OCTOBER 1, 1994
<PAGE>
VARI-LITE HOLDINGS, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
a. "Base Salary" . . . . . . . . . . . . . . . . . . . . . . . 1
b. "Board" . . . . . . . . . . . . . . . . . . . . . . . . . . 1
c. "Committee" . . . . . . . . . . . . . . . . . . . . . . . . 1
d. "Company" . . . . . . . . . . . . . . . . . . . . . . . . . 1
e. "Department". . . . . . . . . . . . . . . . . . . . . . . . 1
f. "Discretionary Award" . . . . . . . . . . . . . . . . . . . 1
g. "Formula Derived Award" . . . . . . . . . . . . . . . . . . 1
h. "Incentive Award" . . . . . . . . . . . . . . . . . . . . . 2
i. "Operating Income". . . . . . . . . . . . . . . . . . . . . 2
j. "Participant" . . . . . . . . . . . . . . . . . . . . . . . 2
k. "Plan". . . . . . . . . . . . . . . . . . . . . . . . . . . 2
l. "Plan Year" . . . . . . . . . . . . . . . . . . . . . . . . 2
m. "Team". . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Gender and Number. . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III - INCENTIVE AWARDS . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Formula Derived Awards . . . . . . . . . . . . . . . . . . . . . 2
3.2 Discretionary Awards . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV - PERFORMANCE MEASUREMENT AND AWARD DETERMINATION . . . . . . . 3
4.1 Procedure for Measuring Company Performance. . . . . . . . . . . 3
4.2 Basis of Formula Derived Awards. . . . . . . . . . . . . . . . . 3
4.3 Effect of Level of Attainment of Company Performance . . . . . . 4
4.4 Procedure for Measuring Subsidiary Performance . . . . . . . . . 4
4.5 Effect of Level of Attainment of Subsidiary Performance. . . . . 5
4.6 Procedure for Measuring Department Performance . . . . . . . . . 5
4.7 Effect of Level of Attainment of Department Performance. . . . . 5
4.8 Procedure for Measuring Team Performance . . . . . . . . . . . . 5
4.9 Effect of Level of Attainment of Team Performance. . . . . . . . 5
4.10 Procedure for Measuring Individual Performance . . . . . . . . . 5
4.11 Effect of Individual Performance Rating. . . . . . . . . . . . . 6
4.12 Calculation of Formula Derived Award . . . . . . . . . . . . . . 6
-i-
<PAGE>
ARTICLE V - PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Form and Timing. . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 New Participants . . . . . . . . . . . . . . . . . . . . . . . . 7
5.3 Termination Due to Death, Total Disability, or Retirement. . . . 7
ARTICLE VI - ADMINISTRATIVE PROVISIONS . . . . . . . . . . . . . . . . . . 7
6.1 Authority to Administer. . . . . . . . . . . . . . . . . . . . . 7
6.2 Amendment of the Plan. . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VII - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 8
7.1 No Right of Continued Employment . . . . . . . . . . . . . . . . 8
7.2 No Right of Assignment . . . . . . . . . . . . . . . . . . . . . 8
7.3 Withholding for Taxes. . . . . . . . . . . . . . . . . . . . . . 8
7.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 8
-ii-
<PAGE>
VARI-LITE HOLDINGS, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
This Plan is executed as of June 13, 1995 by Vari-Lite Holdings, Inc. (the
"Company") to be effective as of October 1, 1994.
W I T N E S S E T H:
WHEREAS, the Company desires to provide a financial incentive to its
employees to continue in its employ and share in its success based on the
achievement of predetermined strategic goals of the Company; and
WHEREAS, the Company believes that adoption of the Vari-Lite Holdings, Inc.
Annual Incentive Compensation Plan (hereinafter referred to as the "Plan") will
provide that incentive to its employees;
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, the Company hereby adopts the Plan as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. Unless by the context hereof a different meaning is
clearly indicated, whenever used in the Plan, the following words shall have the
meanings hereinafter set forth:
a. "Base Salary" means the Participant's base compensation for the Plan
Year without regard to any bonus, commission, overtime, or any other
form of compensation paid to him by the Company or its subsidiaries
during the Plan Year.
b. "Board" means the board of directors of the Company.
c. "Committee" means the committee appointed by the Board to administer
the Plan, or in the absence of a committee, means the entire Board.
d. "Company" means Vari-Lite Holdings, Inc.
e. "Department" means any department of the Company or its subsidiaries,
with a defined management group, for which performance measures under
this Plan are applied.
f. "Discretionary Award" means the portion, if any, of a Participant's
Incentive Award for a Plan Year that is not determined by defined
objective performance criteria.
g. "Formula Derived Award" means the portion, if any, of a Participant's
Incentive Award for a Plan Year that is determined by defined
objective performance criteria.
<PAGE>
h. "Incentive Award" means the total of a Participant's Formula Derived
Award and Discretionary Award for any Plan Year.
i. "Operating Income" means earnings before interest, taxes, incentive
compensation payments under the Plan and extraordinary items (as
determined by the Executive Committee of the Board).
j. "Participant" means an eligible employee of the Company or a
subsidiary of the Company under Article II hereof.
k. "Plan" means the "Vari-Lite Holdings, Inc. Annual Incentive
Compensation Plan" herein described, as the same may be amended from
time to time.
l. "Plan Year" means the Company's fiscal year, October 1 through
September 30. The first Plan Year of the Plan shall be the period
from October 1, 1994 through September 30, 1995.
m. "Team" means a group of individuals assigned a specific project during
a Plan Year for which performance measures under this Plan are
applied.
1.2 GENDER AND NUMBER. Except as otherwise indicated by the context, any
masculine terminology used herein also includes the feminine and neuter, and
vice versa, and the definition of any term in a singular shall also include the
plural, and vice versa.
ARTICLE II
ELIGIBILITY
2.1 ELIGIBILITY. All full-time employees of the Company and its
subsidiaries (approved by the Committee) shall participate in the Plan for a
Plan Year. If an employee commences full-time employment with the Company or an
approved subsidiary during a Plan Year, he shall not be considered an eligible
employee for that Plan Year unless his full-time employment commencement date
with the Company or that subsidiary occurs on or before June 30 of that Plan
Year. For purposes of this Plan, an employee shall be considered a full-time
employee if he is scheduled to work a minimum of 30 hours a week throughout the
Plan Year and is thereby entitled to coverage under the Showco/Vari-Lite Welfare
Benefit Plan.
ARTICLE III
INCENTIVE AWARDS
3.1 FORMULA DERIVED AWARDS. Each Plan Year each Participant shall have
the opportunity to earn a specified percentage of his Base Salary for that Plan
Year as a Formula Derived Award. The range of percentage of Base Salary that a
Participant may earn as a Formula Derived Award for a Plan Year is specified in
Section 4.3 and is determined by that Participant's level of responsibility
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and potential impact on Company performance, as reflected by the highest tier
into which he is categorized for that Plan Year under the following schedule:
Tier 1 - Chairman of the Board, President & Chief Executive Officer
Tier 1.5 - Chief Operating Officer (if different from Chief Executive
Officer)
Tier 2 - Senior Executives (U.S. Grades G, R, C, D) (U.K. Grade PC)
Tier 3 - Vice Presidents (U.S. Grade RS) (U.K. Grades TC, BT)
Tier 4 - Middle Management (U.S. Grades S, M, U, E, J,) (U.K. Grades
TT, GM)
Tier 5 - Supervisory Employees (U.S. Grades P, Z, R.E.M., TW, TP)
(U.K. Grades EJ, SR, AL, TO, JN)
Tier 6 - All other employees (U.S. Grades TE, CC, K, TR, A, PF)(U.K.
Grades LZ, N, CH, B, E, TB)
3.2 DISCRETIONARY AWARDS. In addition to Formula Derived Awards that may
be earned by Participants for each Plan Year, the Committee may, in its sole and
absolute discretion, award a discretionary bonus to any Participant for that
Plan Year. The Committee may determine to make Discretionary Awards for a Plan
Year regardless of whether the Company attains the threshold level of its
Operating Income goal for that Plan Year.
ARTICLE IV
PERFORMANCE MEASUREMENT AND AWARD DETERMINATION
4.1 PROCEDURE FOR MEASURING COMPANY PERFORMANCE. Prior to the beginning
of each Plan Year, commencing with the Plan Year beginning October 1, 1994, the
Committee shall determine the Operating Income goal of the Company for that Plan
Year and the threshold, target, and maximum levels of attainment of that goal.
No Participant shall be deemed to have earned a Formula Derived Award for a Plan
Year unless the Company attains at least the threshold level of Operating Income
established for that Plan Year.
4.2 BASIS OF FORMULA DERIVED AWARDS. The Plan is based on the premises
that Incentive Awards should focus attention on the interests of shareholders,
reflect the positions of employment and levels of responsibility of Participants
with the Company, and provide rewards consistent with competitive practices.
The Formula Derived Award a Participant may earn for a Plan Year may be based
solely on attainment by the Company of its Operating Income goal for that Plan
Year or may be based in part on attainment by the Company of that Operating
Income goal and in part on the attainment of performance measures established by
the Committee for that Plan Year based on subsidiary, Department, Team or
individual performance, or a combination thereof. The relative weight placed on
each performance measure (I.E., Company, subsidiary, Department, Team or
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<PAGE>
individual performance) by the Committee may vary for any Participant based on
his position with the Company, or its subsidiaries and Departments.
Prior to the beginning of each Plan Year, commencing with the Plan Year
beginning October 1, 1994, the Committee shall determine the performance
measures that shall be used for that Plan Year to determine the Formula Derived
Award for each Participant. If a Participant's Formula Derived Award for a Plan
Year is to be based on a combination of Company, subsidiary, Department, Team
and individual performance measures, the Committee shall also determine the
weight assigned to each performance measure which shall be reflective of the
relative importance of each such performance measure in evaluating the
performance of that Participant. Generally, it is expected that the potential
Formula Derived Awards of subsidiary, Department and Team Participants will be
weighted more heavily on subsidiary, Department and Team performance and less on
Company performance. The potential Formula Derived Awards of senior executives
will be weighted more on Company performance.
4.3 EFFECT OF LEVEL OF ATTAINMENT OF COMPANY PERFORMANCE. The schedule
below reflects the maximum percentage of Base Salary a Participant may earn as a
Formula Derived Award for a Plan Year based on the level of attainment by the
Company of its Operating Income goal for that Plan Year.
TIER THRESHOLD TARGET MAXIMUM
---- --------- ------ -------
1 11.25% 22.50% 45.00%
1.5 10.00 20.00 40.00
2 7.50 15.00 30.00
3 5.00 10.00 20.00
4 3.75 7.50 15.00
5 2.00 4.00 8.00
6 1.25 2.50 5.00
If the level of attainment by the Company of its Operating Income goal for a
Plan Year is between the threshold and the target level or between the target
and the maximum level established for that Plan Year, the maximum percentage of
Base Salary that each Participant may earn as a Formula Derived Award for that
Plan Year under the above schedule shall be interpolated. For example, if the
Operating Income of the Company for a Plan Year is equal to the threshold level
established for that Plan Year, the Formula Derived Award for a Tier 3
Participant for that Plan Year shall not exceed 5% of his Base Salary for that
Plan Year. If the actual Operating Income of the Company for a Plan Year is
equal to a level halfway between the threshold and target level for that Plan
Year, the Formula Derived Award for a Tier 3 Participant for that Plan Year
shall not exceed 7.5% of his Base Salary for that Plan Year.
4.4 PROCEDURE FOR MEASURING SUBSIDIARY PERFORMANCE. The performance of a
subsidiary of the Company for a Plan Year shall be based on that subsidiary's
Operating Income for that Plan Year. Prior to the beginning of each Plan Year,
commencing with the Plan Year beginning
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<PAGE>
October 1, 1994, the Committee shall determine the Operating Income goal of
each subsidiary for that Plan Year.
4.5 EFFECT OF LEVEL OF ATTAINMENT OF SUBSIDIARY PERFORMANCE. If a
subsidiary does not attain at least 50% of its Operating Income goal for a Plan
Year, each Participant who has a portion of his potential Formula Derived Award
for that Plan Year based on that subsidiary's performance will not earn that
portion of his Formula Derived Award for that Plan Year. If the subsidiary
attains at least 50% of its Operating Income goal for a Plan Year, each
Participant who has a portion of his potential Formula Derived Award for that
Plan Year based on that subsidiary's performance will earn the same percentage
(but not in excess of 100%) of that portion of his potential Formula Derived
Award.
4.6 PROCEDURE FOR MEASURING DEPARTMENT PERFORMANCE. Prior to the
beginning of each Plan Year, commencing with the Plan Year beginning October 1,
1994, the Committee shall determine the performance measures for each Department
for that Plan Year.
4.7 EFFECT OF LEVEL OF ATTAINMENT OF DEPARTMENT PERFORMANCE. Prior to the
beginning of each Plan Year, commencing with the Plan Year beginning October 1,
1994, the Committee shall determine the levels of performance that each
Department must attain for a Plan Year in order for a Participant to earn a
specified percentage of that portion, if any, of his potential Formula Derived
Award based on that Department's performance for that Plan Year.
4.8 PROCEDURE FOR MEASURING TEAM PERFORMANCE. Prior to the beginning of
each Plan Year, commencing with the Plan Year beginning October 1, 1994, the
Committee shall determine the performance measures for each Team for that Plan
Year.
4.9 EFFECT OF LEVEL OF ATTAINMENT OF TEAM PERFORMANCE. Prior to the
beginning of each Plan Year, commencing with the Plan Year beginning October 1,
1994, the Committee shall determine the levels of performance that each Team
must attain for a Plan Year in order for a Participant to earn a specified
percentage of that portion, if any, of his potential Formula Derived Award based
on that Team's performance for that Plan Year.
4.10 PROCEDURE FOR MEASURING INDIVIDUAL PERFORMANCE. Individual
performance of a Participant for a Plan Year shall be based on the rating he
receives pursuant to his annual performance review for that Plan Year. Prior to
the beginning of each Plan Year, commencing with the Plan Year beginning October
1, 1994, each Participant in conjunction with his supervisors shall develop
performance objectives for that Plan Year. Each Participant's supervisors shall
conduct an annual performance review of the Participant and shall rate him based
on his accomplishment of his performance objectives for that Plan Year. The
rating of a Participant shall be determined by his supervisors acting in their
sole discretion. A Participant may appeal the rating he receives from his
supervisors in accordance with established procedures of the Company. In all
cases, the final decision belongs to the Company.
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<PAGE>
4.11 EFFECT OF INDIVIDUAL PERFORMANCE RATING. If a Participant has a
portion of his potential Formula Derived Award for a Plan Year based on his
individual performance rating for that Plan Year, the percentage of that portion
of his potential Formula Derived Award that he will earn based on his
performance rating is determined as follows:
Performance Rating Percentage
------------------ ----------
Less than 2 0%
2 50%
3 75%
4 and higher 100%
If his performance rating is between 2 and 4, the percentage will be
interpolated. By way of example, if a Participant's performance rating for a
Plan Year is 2.5, the percentage of that portion of his potential Formula
Derived Award that he will earn based on his performance rating will be 62.5%
(I.E., 2.5 divided by 4.0).
4.12 CALCULATION OF FORMULA DERIVED AWARD. The table below illustrates how
the potential Formula Derived Award for a Participant is determined for a Plan
Year. The weight for each performance measure for the Plan Year is stated in
the first column which is multiplied by that Participant's Base Salary for that
Plan Year. That product is then multiplied by the percentage obtained from the
schedule in Section 4.3 based on his category of employment and the Operating
Income of the Company for that Plan Year. Finally, that new product is
multiplied by the percentage determined under Sections 4.3, 4.5, 4.7, 4.9 or
4.11, whichever is applicable, based on the level of attainment of that specific
performance measure. For purposes of illustration, (i) the Participant is a
Tier 2 employee, (ii) 80% of his potential Formula Derived Award is based on
Company performance and 20% of his potential Formula Derived Award is based on
subsidiary performance, (iii) the Company attains the threshold level of its
Operating Income goal for the Plan Year, (iv) the subsidiary attains 50% of its
Operating Income goal for that Plan Year and (v) his Base Salary is $100,000 for
that Plan Year. The actual Formula Derived Award earned by that Participant for
that Plan Year shall be calculated as follows:
BASE % of BASE PERCENT FORMULA DERIVED
PERFORMANCE MEASURE WEIGHT SALARY SALARY EARNED AWARD
- ------------------- ------ ------ --------- ------- ---------------
Company 80% $100,000 7.5% 100% $6,000
Subsidiary 20% 100,000 7.5% 50% 750
Department 0% N/A N/A N/A 0
Team 0% N/A N/A N/A 0
Individual 0% N/A N/A N/A 0
------
$6,750
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<PAGE>
ARTICLE V
PAYMENTS
5.1 FORM AND TIMING. The Company shall make payment of the Incentive
Award amount earned by each Participant for a Plan Year to such Participant in
cash no later than 90 days after the end of that Plan Year (the "Payout Date").
Unless a Participant's full-time employment terminates due to death, total
disability or retirement at or after age 65, the Participant must be employed as
a full-time employee by the Company or one of its subsidiaries on the Payout
Date for a Plan Year to be entitled to receive payment of his Incentive Award
for that Plan Year.
5.2 NEW PARTICIPANTS. If an employee becomes a Participant after the
commencement of a Plan Year, the Incentive Award amount earned by that
Participant for that Plan Year, if any, will be prorated to reflect the actual
length of the Participant's service during that Plan Year.
5.3 TERMINATION DUE TO DEATH, TOTAL DISABILITY, OR RETIREMENT. If the
full-time employment of a Participant with the Company and its subsidiaries
terminates during a Plan Year due to death, total disability, or retirement at
or after age 65 and after he has been employed by the Company or a subsidiary
for at least six months during that Plan Year, the Incentive Award amount earned
by that Participant for that Plan Year, if any, will be prorated to reflect the
actual length of the Participant's service with the Company and its subsidiaries
during that Plan Year. If a Participant dies during a Plan Year, payment of the
Incentive Award amount, if any, will be made to the Participant's estate. The
Committee shall determine in its sole discretion whether a Participant is
totally disabled.
ARTICLE VI
ADMINISTRATIVE PROVISIONS
6.1 AUTHORITY TO ADMINISTER. The Committee shall have responsibility for
administration of the Plan. The Committee shall have full authority to
determine performance measures and awards, eligibility, and participation,
interpret the Plan's provisions, set rules, and administer the Plan. The
Committee may delegate administrative responsibilities as it deems appropriate.
Any and all matters involving the Plan, including but not limited to disputes
involving Participants and their beneficiaries, shall be referred to the
Committee. The Committee shall have the exclusive discretionary authority to
construe the terms of the Plan and determine eligibility for all benefits
hereunder. Any such determinations or interpretations of the Plan adopted by
the Committee shall be final and conclusive and shall bind all Participants.
6.2 AMENDMENT OF THE PLAN. The Committee may terminate, amend, or modify
the Plan prior to September 30 of any Plan Year for subsequent Plan Years,
provided that no such termination, amendment, or modification of the Plan shall
adversely affect the rights of any Participant to Incentive Awards earned, but
unpaid, under the Plan. If federal regulations enacted during a Plan Year
negate the validity of the performance measures established under the Plan for
that Plan Year, the Plan shall be amended by the Committee to reflect such
regulatory requirements.
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<PAGE>
ARTICLE VII
GENERAL PROVISIONS
7.1 NO RIGHT OF CONTINUED EMPLOYMENT. Nothing contained in the Plan shall
give any Participant the right to be retained in the employment of the Company
or any of its subsidiaries or affect the right of the Company or any subsidiary
to dismiss any Participant, or shall be deemed to be a contract of employment.
The receipt by a Participant of an Incentive Award for any Plan Year shall not
guarantee that Participant the right to receive an Incentive Award for any
subsequent Plan Year.
7.2 NO RIGHT OF ASSIGNMENT. No right or interest of any Participant in
the Plan shall be assignable or transferable, or subject to any lien, directly,
by operation of law, or otherwise, including levy, garnishment, attachment,
pledge, or bankruptcy.
7.3 WITHHOLDING FOR TAXES. The Company shall have the right to deduct
from all amounts paid under this Plan any taxes required by law to be withheld
with respect to such payments.
7.4 GOVERNING LAW. All questions pertaining to the construction,
regulation, validity, and effect of the provisions of the Plan shall be
determined in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed
effective as of October 1, 1994.
VARI-LITE HOLDINGS, INC.
By: /s/ H.R. Brutsche III
----------------------------
H.R. Brutsche III, President
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<PAGE>
AMENDMENT NO. 1 TO
THE VARI LITE INTERNATIONAL, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
(As Revised and Restated Effective October 1, 1995)
This Amendment No. 1 is executed and effective as of October 1, 1996 by
Vari-Lite International, Inc. (the "Company").
W I T N E S S E T H :
WHEREAS, the Company desired to provide a financial incentive to its
employees to continue in its employ and share in its success based on the
achievement of predetermined strategic goals of the Company and adopted the
Vari-Lite Holdings, Inc. Annual Incentive Compensation Plan, effective October
1, 1994 (hereinafter referred to as the "Plan"); and
WHEREAS, the Company changed its name from "Vari-Lite Holdings, Inc." to
"Vari-Lite International, Inc." effective December 27, 1995 and revised and
restated the Plan effective October 1, 1995; and
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, the Company hereby amends the Plan in the following respects:
Section 3.1 of the Plan is hereby amended to read as follows:
3.1 FORMULA DERIVED AWARDS. Each Plan Year each Participant shall have
the opportunity to earn a specified percentage of his Base Salary for that Plan
Year as a Formula Derived Award. The range of percentage of Base Salary that a
Participant may earn as a Formula Derived Award for a Plan Year is specified in
Section 4.3 and is determined by that Participant's level of responsibility and
potential impact on Company performance, as reflected by the highest tier into
which he is categorized for that Plan Year under the following schedule:
Tier 1 - Chairman of the Board, President & Chief Executive Officer
Tier 1.5 - Chief Operating Officer (if different from Chief Executive
Officer)
Tier 2 - Senior Executives (U.S. Grades G, R, C, D) (U.K. Grade PC)
Tier 3 - Vice Presidents (U.S. Grade RS) (U.K. Grades TC, BT) (Hong
Kong Grade RM) (Spanish Grade BJ)
Tier 4 - Middle Management (U.S. Grades S, M, U, E, J,) (U.K. Grades
TT, GM) (Spanish Grades EJ, GM)
<PAGE>
Tier 5 - Supervisory Employees (U.S. Grades P, Z, R.E.M., TW, TP)
(U.K. Grades EJ, SR, AL, TO, JN) (Hong Kong Grades VG, WJ) (Spanish
Grade LZ)
Tier 6 - All other employees (U.S. Grades TE, CC, K, TR, A, PF) (U.K.
Grades LZ, N, CH, B, E, TB) (Hong Kong Grades GB, BM)
IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to be
executed as of the day and year first above written.
VARI-LITE INTERNATIONAL, INC.
By:/s/ H.R. Brutsche III
------------------------------------
H.R. Brutsche III, President
<PAGE>
INDEMNIFICATION AGREEMENT
This Agreement, dated as of _____________ _____, 1997, is by and between
Vari-Lite International, Inc., a Delaware corporation (the "Corporation"), and
______________ ("Indemnitee").
WITNESSETH:
WHEREAS, the Corporation desires to have qualified persons serving as
directors and officers of the Corporation and its subsidiaries who are willing
to make decisions that in their judgment are in the Corporation's best interest
without any undue threat of personal liability; and
WHEREAS, the Corporation is contemplating an initial public offering of its
common stock (the "Offering"); and
WHEREAS, in connection with the Offering, the Corporation will merge with
Vari-Lite International, Inc., a Texas corporation ("Vari-Lite Texas"), with the
Corporation being the surviving corporation (the "Reincorporation"), and, among
other things, all officers and directors of Vari-Lite Texas will become officers
and directors of the Corporation and each subsidiary of Vari-Lite Texas will
become a subsidiary of the Corporation; and
WHEREAS, upon consummation of the Reincorporation, Indemnitee will serve as
an officer and/or director of the Corporation and/or one or more of its
subsidiaries; and
WHEREAS, the Certificate of Incorporation of the Corporation requires the
Corporation (a) to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (a
"Proceeding") (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was a director, officer, employee, or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (all of such persons being hereinafter
referred to as a "Corporate Functionary"), against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such Proceeding, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, and (b)
to indemnify any person who was or is a party or is threatened to be made a
party to any Proceeding by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a Corporate
Functionary against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with the defense or settlement of such Proceeding, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, except that no indemnification shall be made in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable to the Corporation, unless and only to the extent that the Court of
Chancery shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such Losses which the Court of
Chancery shall deem proper; and
<PAGE>
WHEREAS, the Corporation desires to grant to Indemnitee the maximum
indemnification permitted by law; and
WHEREAS, developments with respect to the terms and availability of
directors' and officers' liability insurance and with respect to the
application, amendment, and enforcement of statutory, charter, and bylaw
indemnification provisions generally have raised questions concerning the
adequacy and reliability of the protection afforded to persons intended to be
protected thereunder; and
WHEREAS, in order to resolve such questions and thereby induce Indemnitee
to serve and continue serving as a director and/or officer of the Corporation
and/or its subsidiaries, the Corporation has determined and agreed to enter into
this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's agreement to serve and
continue serving as a director and/or officer of the Corporation and/or its
subsidiaries, the parties hereto agree as follows:
1. EFFECTIVENESS OF AGREEMENT. This Agreement is expressly contingent on
the consummation of the Reincorporation and the Offering and shall have no legal
force or effect until such time as both events shall have taken place. In
addition, effective as of the consummation of the Reincorporation and the
Offering, any indemnification agreement by and between Indemnitee and Vari-Lite
Texas or any subsidiary of Vari-Lite Texas, will be terminated and superseded in
all respects by this Agreement and shall have no further force or effect.
2. INDEMNITY FOR PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify Indemnitee to the full extent of
all Losses (as hereinafter defined) in connection with any threatened, pending,
or completed Proceeding (other than an action by or in the right of the
Corporation and/or its subsidiaries) to which Indemnitee was or is a party or is
threatened to be made a party by reason of the fact that he is or was a
Corporate Functionary, if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
3. INDEMNITY FOR ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify Indemnitee to the extent of all Losses in connection
with the defense or settlement of any threatened, pending, or completed
Proceeding by or in the right of the Corporation and/or its subsidiaries to
procure a judgment in its favor to which Indemnitee was or is a party or is
threatened to be made a party by reason of the fact that Indemnitee is or was a
Corporate Functionary, if Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which Indemnitee shall have been adjudged to be
liable to the Corporation and/or any of its subsidiaries, unless and only to the
extent that the Court of Chancery or the court in which such Proceeding was
brought shall determine upon application that, despite the adjudication of
liability and in view of all the circumstances of the case, Indemnitee is fairly
and reasonably entitled to indemnity for such Losses which the Court of Chancery
or such other court shall deem proper.
4. EXPENSES RELATED TO A PROCEEDING. If Indemnitee is, by reason of the
fact that Indemnitee is a Corporate Functionary, a party to and is successful,
on the merits or otherwise, in defense of any Proceeding, or in defense of any
claim, issue, or matter therein, Indemnitee shall be indemnified against all
expenses (including attorneys' fees) actually and reasonably incurred by him
(and not paid, reimbursed, or advanced by others) in connection therewith.
2
<PAGE>
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnitee is a
director or officer of the Corporation and/or any of its subsidiaries, and shall
continue thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending, or completed Proceeding or investigation that could lead
to such a Proceeding, by reason of the fact that Indemnitee was serving in any
capacity referred to herein.
6. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Indemnitee of notice of any claim against Indemnitee or the commencement of any
Proceeding, Indemnitee will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the assertion of
any such claim or the commencement thereof; but the omission so to notify the
Corporation will not relieve it from any liability under this Agreement unless
such delay in notification actually prejudiced the Corporation (and then only to
the extent the Corporation was actually prejudiced thereby) and, in addition,
the Corporation shall not be relieved from any liability which it may have to
Indemnitee otherwise than under this Agreement. With respect to any such
Proceeding as to which Indemnitee notifies the Corporation of the commencement
thereof:
(a) The Corporation will be entitled to participate therein at its
own expense.
(b) Except as otherwise provided below, to the extent that it may
wish, the Corporation, jointly with any other indemnifying party similarly
notified, will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Corporation
to Indemnitee of its election so to assume the defense thereof, the
Corporation will not be liable to Indemnitee under this Agreement for any
legal or other fees or expenses subsequently actually and reasonably
incurred by Indemnitee in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ his own counsel in such
Proceeding, but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at
the expense of Indemnitee unless (i) the employment of counsel by
Indemnitee has been authorized by the Corporation, (ii) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between
the Corporation and Indemnitee in the conduct of the defense of such
action, or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and
expenses of counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any Proceeding
brought by or on behalf of the Corporation or as to which Indemnitee shall
have made the conclusion provided for in (ii) above.
(c) The Corporation shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without the Corporation's written consent. The Corporation shall
not settle any action or claim in any manner which would impose any penalty
or limitation on Indemnitee without Indemnitee's written consent. Neither
the Corporation nor Indemnitee will unreasonably withhold consent to any
proposed settlement.
7. ADVANCES OF EXPENSES. Expenses (including attorneys' fees) actually
and reasonably incurred by Indemnitee that are subject to indemnification under
this Agreement (and not paid, reimbursed, or advanced by others) shall be paid
or reimbursed by the Corporation in advance of the final disposition of the
Proceeding within 10 days after the Corporation receives a written request by
Indemnitee accompanied by substantiating documentation of such expenses and a
written undertaking by or on behalf of Indemnitee to repay the amount paid or
reimbursed if it is ultimately determined that he is not entitled to be
indemnified by the Corporation hereunder or that such expenses do not constitute
Losses. The
3
<PAGE>
written undertaking described above must be an unlimited general obligation
of Indemnitee but shall not be secured. Such undertaking shall be without
reference to the financial ability of Indemnitee to make repayment.
8. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION: PROCEDURE
UPON APPLICATION. Upon the written request of Indemnitee to be indemnified
pursuant to this Agreement (other than pursuant to Section 7 hereof), the
Corporation shall cause the Reviewing Party (as hereinafter defined) to
determine, within 45 days, whether or not the Indemnitee has met the relevant
standards for indemnification required by this Agreement. The termination of a
Proceeding by judgment, order, settlement, or conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not of itself create a presumption that
Indemnitee did not meet the requirements for indemnification required by this
Agreement. If a determination of indemnification is to be made by Independent
Legal Counsel (as hereinafter defined), such Independent Legal Counsel shall
render its written opinion to the Corporation and Indemnitee as to what extent
Indemnitee will be permitted to be indemnified. The Corporation shall pay the
reasonable fees of Independent Legal Counsel and indemnify and hold harmless
Indemnitee against any and all reasonable expenses (including attorneys' fees),
claims, liabilities, and damages arising out of or relating to the engagement of
Independent Legal Counsel pursuant hereto and the written opinion of such
Independent Legal Counsel.
9. DEFINITIONS. The following terms shall, for all purposes of this
Agreement, have the indicated meanings:
(a) "Reviewing Party" means (i) a majority of directors of the
Corporation who at the time of voting upon a determination of
indemnification are not parties to the Proceeding with respect to which
Indemnitee is seeking indemnification, even though less than a quorum, (ii)
Independent Legal Counsel selected by a majority of directors who at the
time of selecting such Independent Legal Counsel are not parties to the
Proceeding with respect to which Indemnitee is seeking indemnification, or
(iii) the stockholders of the Corporation.
(b) "Independent Legal Counsel" shall mean an attorney, selected in
accordance with the provisions of Section 9(a) hereof, who shall not have
otherwise performed services for Indemnitee, the Corporation, any person
that controls the Corporation, or any of the directors of the Corporation,
within five years preceding the time of such selection (other than in
connection with seeking indemnification under this Agreement). Independent
Legal Counsel shall not be any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest
in representing either the Corporation or Indemnitee in an action to
determine Indemnitee's rights under this Agreement, nor shall Independent
Legal Counsel be any person who has been sanctioned or censured for ethical
violations of applicable standards of professional conduct.
(c) "Losses" shall mean any and all expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by Indemnitee after realization of or giving effect to
all insurance, bonding, indemnification, and other payments or recoveries
actually received by or for the benefit of Indemnitee, directly or
indirectly, or to which Indemnitee may be entitled, directly or indirectly.
10. ENFORCEABILITY. The right to indemnification or payment,
reimbursement, or advancement of expenses as provided by this Agreement shall be
enforceable by Indemnitee in any court of competent jurisdiction. The burden of
proving that indemnification is not appropriate shall be on the Corporation.
4
<PAGE>
Neither the failure of the Corporation (including its Board of Directors or
Independent Legal Counsel) to have made a determination prior to the
commencement of such action that indemnification is proper in the
circumstances, because Indemnitee has met the applicable standard of conduct,
nor an actual determination by the Corporation (including its Board of
Directors or Independent Legal Counsel) that Indemnitee has not met the
applicable standard of conduct, shall be a defense to the action or create a
presumption that Indemnitee has not met the applicable standard of conduct.
11. PARTIAL INDEMNITY. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Corporation for a portion of Losses,
but not for the total amount thereof, the Corporation shall indemnify Indemnitee
for the portion thereof to which Indemnitee is entitled. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any or all Proceedings
relating in whole or in part to an event subject to indemnification hereunder or
in defense of any issue or matter therein, including dismissal without
prejudice, Indemnitee shall be indemnified against all expenses (including
attorneys' fees) actually and reasonably incurred by him (and not paid,
reimbursed, or advance by others) in connection with such Proceeding, issue, or
matter, as the case may be.
12. REPAYMENT OF EXPENSES. Indemnitee shall reimburse the Corporation for
all reasonable expenses paid by the Corporation in defending any Proceeding
against Indemnitee if and only to the extent that it shall be ultimately
determined that Indemnitee is not entitled to be indemnified by the Corporation
for such expenses under the provisions of this Agreement or that such expenses
do not constitute Losses.
13. CONSIDERATION. The Corporation expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on the
Corporation hereby in order to induce Indemnitee to serve and continue serving
as an officer and/or a director of the Corporation and/or any of its
subsidiaries, and acknowledges that Indemnitee is relying upon this Agreement in
serving in such capacities.
14. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification and
payment, reimbursement, and advancement of expenses provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may be
entitled under any other agreement, vote of stockholders, as a matter of law, or
otherwise, but any indemnification of Indemnitee pursuant to the Certificate of
Incorporation or By-Laws of the Corporation is limited to Losses.
15. SUBROGATION. If a payment is made under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of such Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights.
16. SEVERABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
thereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereto.
17. NOTICE. Any notice, consent, or other communication to be given under
this Agreement by either party to the other party shall be in writing and shall
be either (a) personally delivered, (b) mailed by registered or certified mail,
postage prepaid with return receipt requested, (c) delivered by overnight
express delivery service or same-day local courier service, or (d) delivered by
telex or facsimile transmission to the address set forth beneath the signature
of the parties below, or at such other address as may be designated by the
parties from time to time in accordance with this Section. Notices delivered
5
<PAGE>
personally, by overnight express delivery service, or by local courier service
shall be deemed given as of actual receipt. Mailed notices shall be deemed
given three business days after mailing. Notices delivered by telex or
facsimile transmission shall be deemed given upon receipt by the sender of the
answerback (in the case of a telex) or transmission confirmation (in the case of
a facsimile transmission).
18. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION;
REIMBURSEMENT.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Delaware.
(b) This Agreement shall be binding upon and inure to the benefit of
Indemnitee and his heirs, executors, administrators, personal
representatives, and assigns, and upon the Corporation and its successors
and assigns.
(c) No amendment, modification, termination, or cancellation of this
Agreement shall be effective unless made in writing and signed by both
parties hereto.
(d) If Indemnitee is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such
action, the Corporation shall reimburse Indemnitee for all reasonable fees
(including attorneys' fees) and expenses actually and reasonably incurred
in bringing and pursuing such action.
(e) Words of any gender used in this Agreement shall be held and
construed to include any other gender.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the date first above written.
VARI-LITE INTERNATIONAL, INC.
By:
---------------------------------------------
H.R. Brutsche III, President
Address of Vari-Lite International, Inc.:
201 Regal Row
Dallas, Texas 75247
Fax: (214) 630-5867
---------------------------------------------
---------------------------------------------
Address of Indemnitee:
---------------------------------------------
---------------------------------------------
6
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is executed as of August 27, 1997, by
and between Vari-Lite International, Inc., a Texas corporation ("Vari-Lite
Texas"), and Vari-Lite International, Inc., a Delaware corporation
("Vari-Lite Delaware").
WITNESSETH:
WHEREAS, the authorized capital stock of Vari-Lite Delaware consists of
40,000,000 shares of Common Stock, $0.10 par value ("Vari-Lite Delaware
Common Stock"), of which 100 shares are issued and outstanding and owned by
H.R. Brutsche III, and 10,000,000 shares of Preferred Stock, $0.10 par value,
none of which are issued and outstanding; and
WHEREAS, the authorized capital stock of Vari-Lite Texas consists of (a)
2,000,000 shares of Class A Common Stock, $0.10 par value ("Vari-Lite Texas
Class A Common Stock"), of which 200,000 are issued and outstanding and (b)
8,000,000 shares of Class B Common Stock, $0.10 par value ("Vari-Lite Texas
Class B Common Stock" and together with Vari-Lite Texas Class A Common Stock,
"Vari-Lite Texas Common Stock"), of which (i) 1,405,406 shares are issued and
outstanding, (ii) 212,558 shares are reserved for issuance in connection with
awards that may be granted under the Vari-Lite International, Inc. 1997
Omnibus Plan ("Omnibus Plan"), and (iii) 64,361 shares are reserved for
issuance upon the exercise of outstanding warrants to purchase Vari-Lite
Texas Class B Common Stock (collectively "Warrants"); and
WHEREAS, the respective boards of directors of Vari-Lite Texas and
Vari-Lite Delaware deem it to be desirable and in the best interests of the
respective corporations and their respective shareholders that the two
corporations merge into a single corporation (the "Merger"), and, pursuant to
resolutions duly adopted, such boards of directors have approved and adopted
this Agreement and have directed that this Agreement be submitted to the
respective shareholders of Vari-Lite Texas and Vari-Lite Delaware for
approval and adoption; and
WHEREAS, the sole stockholder of Vari-Lite Delaware has approved and
adopted this Agreement and the Merger in accordance with the requirements of
the Delaware General Corporation Law;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements and covenants contained herein, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
1.1. MERGER. In accordance with the provisions of the Texas Business
Corporation Act and the Delaware General Corporation Law at the Effective
Time (defined below) of the Merger, Vari-Lite Texas shall be merged into
Vari-Lite Delaware, which shall be the surviving corporation (in its capacity
as such surviving corporation Vari-Lite Delaware is hereinafter sometimes
referred to as the "Surviving Corporation," and Vari-Lite Texas and Vari-Lite
Delaware are hereinafter sometimes referred to collectively as the
"Constituent Corporations"), and as such Vari-Lite Delaware shall continue to
be governed by the laws of the State of Delaware.
<PAGE>
1.2. EFFECTIVE TIME. The Merger shall become effective on such date
as a Certificate of Merger, executed, adopted and approved in accordance with
the Delaware General Corporation Law, shall have been filed with the
Secretary of State of Delaware. The time when the Merger shall become
effective is herein called the "Effective Time." The action described above
shall be conclusive evidence, for all purposes of this Agreement, of
compliance with all conditions precedent.
1.3. CONTINUATION OF CORPORATE EXISTENCE. Except as may otherwise be
set forth herein, at the Effective Time, the corporate existence and identity
of Vari-Lite Delaware, with all its purposes, powers, franchises, privileges,
rights and immunities shall continue under the laws of the State of Delaware,
unaffected and unimpaired by the Merger, and the corporate existence and
identity of Vari-Lite Texas, with all its purposes, powers, franchises,
privileges, rights and immunities, shall be merged with and into Vari-Lite
Delaware and the Surviving Corporation shall be vested fully therewith, and
the separate corporate existence and identity of Vari-Lite Texas shall
thereafter cease, except to the extent continued by applicable law. At the
Effective Time, the Surviving Corporation shall have the following rights and
obligations:
(a) The Surviving Corporation shall have all the rights, privileges,
immunities and powers, including without limitation the rights and
obligations of Vari-Lite Texas under the Omnibus Plan and the Warrants, and
shall be subject to all of the duties and liabilities, of a corporation
organized under the laws of the State of Delaware.
(b) The Surviving Corporation shall succeed to, without other
transfer, and shall possess and enjoy, all of the rights, privileges,
immunities, powers, purposes and franchises, of both a public and private
nature, of the Constituent Corporations, and all property, real, personal
and mixed, and all debts due to either of the Constituent Corporations on
whatever account, and all other choses in action, and every other interest
of or belonging to either of the Constituent Corporations shall be deemed
to be transferred to and vested in the Surviving Corporation without
further act or deed, and shall thereafter be the property of the Surviving
Corporation as they were of the respective Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of said
Constituent Corporations shall not revert or be in any way impaired by
reason of the Merger.
(c) The Surviving Corporation shall thenceforth be responsible and
liable for all debts, liabilities, obligations and duties of either of the
Constituent Corporations, and any claim existing or action or proceeding
pending by or against either Constituent Corporation may be prosecuted as
if the Merger had not occurred, or the Surviving Corporation may be
substituted in its place. Neither the rights of creditors nor any liens
upon the property of either Constituent Corporation shall be impaired by
the Merger.
1.4. ADDITIONAL ACTIONS. If at any time the Surviving Corporation
shall deem or be advised that any further transfers, assignments, conveyances,
assurances in law or other acts or things are necessary or desirable to vest or
confirm in the Surviving Corporation title to any property or assets of either
of the Constituent Corporations, each Constituent Corporation and its proper
officers and directors shall execute and deliver any and all such proper
transfers, assignments, conveyances and assurances in law and shall do all other
acts and things as are necessary or proper to vest or confirm title to such
property and assets in the Surviving Corporation and to otherwise carry out the
purposes and intent of this Agreement.
<PAGE>
ARTICLE II
CORPORATE GOVERNANCE
2.1. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
Vari-Lite Delaware in effect at the Effective Time shall constitute the
Certificate of Incorporation of the Surviving Corporation until amended,
altered or repealed in the manner provided by law.
2.2. BY-LAWS. The By-Laws of Vari-Lite Delaware in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation, until
amended, altered or repealed.
2.3. DIRECTORS. The directors of Vari-Lite Delaware at the Effective
Time shall be the directors of the Surviving Corporation and shall hold
office in accordance with the Certificate of Incorporation and By-Laws of the
Surviving Corporation until the end of their respective stated terms of
office or until their respective successors are elected and qualified.
2.4. OFFICERS. The officers of Vari-Lite Delaware at the Effective
Time shall be the officers of the Surviving Corporation and shall hold office
subject to the By-Laws of the Surviving Corporation.
ARTICLE III
TREATMENT OF CAPITAL STOCK
3.1. CONVERSION OF CAPITAL STOCK. At the Effective Time, the manner of
converting the issued capital stock of the Constituent Corporations shall be
as follows:
(a) Except as provided in Section 3.2, each share of Vari-Lite Texas
Common Stock which is outstanding immediately prior to the Effective Time
shall, at the Effective Time, by virtue of the Merger and without action on
the part of the holder thereof, be converted into 3.76368 shares of Vari-
Lite Delaware Common Stock.
(b) Each share of Vari-Lite Texas Common Stock held by Vari-Lite
Texas in its treasury immediately prior to the Effective Time shall, at the
Effective Time, by virtue of the Merger and without any further action, be
converted into 3.76368 shares of Vari-Lite Delaware Common Stock and remain
held in the treasury of Vari-Lite Delaware.
(c) Each share of Vari-Lite Delaware Common Stock outstanding
immediately prior to the Effective Time shall, at the Effective Time, by
virtue of the Merger and without any action on the part of the holder
thereof, be cancelled and returned to the status of authorized but unissued
stock of the Surviving Corporation.
(d) No fractional shares of Vari-Lite Delaware Common Stock and no
certificates or scrip certificates therefor shall be issued, and any
fractions of shares of Vari-Lite Delaware Common Stock that a shareholder
would otherwise be entitled to receive shall be rounded upward or downward
to the nearest whole share without compensation or adjustment of any kind.
(e) All of the shares of Vari-Lite Delaware Common Stock, when
delivered pursuant to the provisions of this Agreement, shall be validly
issued, fully paid and nonassessable.
<PAGE>
(f) If any stock certificate evidencing shares of Vari-Lite Delaware
Common Stock is requested to be issued in a name other than that in which
the surrendered certificate evidencing shares of Vari-Lite Texas Common
Stock is registered, it shall be a condition of such issuance that the
surrendered stock certificate shall be properly endorsed in blank or
otherwise in proper form for transfer and that the person requesting such
exchange pay to the Surviving Corporation any applicable transfer or other
taxes or establish to the satisfaction of the Surviving Corporation that
any such tax has been paid or is not payable.
3.2 DISSENTING SHARES. To the extent that appraisal rights are
available under the Texas Business Corporation Act, shares of Vari-Lite Texas
Common Stock that are issued and outstanding immediately prior to the
Effective Time and that have not been voted for approval and adoption of this
Agreement and the Merger and with respect to which appraisal rights have been
properly demanded in accordance with the applicable provisions of the Texas
Business Corporation Act ("Dissenting Shares") shall not be converted into
shares of Vari-Lite Delaware Common Stock in the manner provided for in
Section 3.1 at or after the Effective Time unless and until the holder of
such shares withdraws his demand for such appraisal (in accordance with the
applicable provisions of the Texas Business Corporation Act) or becomes
ineligible for such appraisal. If a holder of Dissenting Shares withdraws
his demand for such appraisal (in accordance with the applicable provisions
of the Texas Business Corporation Act) or becomes ineligible for such
appraisal, then, as of the Effective Time or the occurrence of such event,
whichever later occurs, such holder's Dissenting Shares shall cease to be
Dissenting Shares and shall be converted into shares of Vari-Lite Delaware
Common Stock in the manner provided for in Section 3.1. After the Effective
Time, the Surviving Corporation will comply with its statutory obligations to
holders of Dissenting Shares.
ARTICLE IV
TERMINATION; MISCELLANEOUS
4.1. TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether or not approved by the shareholders of the
Constituent Corporations, by mutual agreement of the Boards of Directors of
the Constituent Corporations.
4.2. AMENDMENT; MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement
of Vari-Lite Texas and Vari-Lite Delaware at any time prior to the Effective
Time, without shareholder approval.
4.3. COUNTERPARTS. This Agreement may be executed by the parties hereto
in counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument.
[THE NEXT FOLLOWING PAGE IS THE SIGNATURE PAGE HEREOF]
<PAGE>
IN WITNESS WHEREOF, the Constituent Corporations have executed this
Agreement as of the date first above written.
VARI-LITE INTERNATIONAL, INC.
(a Texas corporation)
By:/s/ H.R. Brutsche III
-----------------------------------------
H.R. Brutsche III, Chairman of the Board,
Chief Executive Officer and President
VARI-LITE INTERNATIONAL, INC.
(a Delaware corporation)
By:/s/ H.R. Brutsche III
-----------------------------------------
H.R. Brutsche III, Chairman of the Board,
Chief Executive Officer, and President
<PAGE>
EXHIBIT 21.1
List of Subsidiaries of Vari-Lite International, Inc.
<TABLE>
Name Jurisdiction of Incorporation Owner
- ---- ----------------------------- -----
<S> <C> <C>
Vari-Lite, Inc. Delaware Vari-Lite International, Inc.
Vari-Lite Asia, Inc. Japan Vari-Lite International, Inc.
Vari-Lite Hong Kong, Ltd. Hong Kong Vari-Lite International, Inc.
Vari-Lite Europe Holdings, Ltd. United Kingdom Vari-Lite International, Inc.
Concert Production Lighting, Inc. Delaware Vari-Lite International, Inc.
Showco, Inc. Delaware Vari-Lite International, Inc.
IGNITION! Creative Group, Inc. Delaware Vari-Lite International, Inc.
Irideon, Inc. Delaware Vari-Lite International, Inc.
Irideon, Ltd. United Kingdom Irideon, Inc.
Vari-Lite Europe, Ltd. United Kingdom Vari-Lite Europe Holdings, Ltd.
Vari-Lite Spain, S.A. Spain Vari-Lite Europe Holdings, Ltd.
Theatre Projects Lighting
Services, Ltd. United Kingdom Vari-Lite Europe Holdings, Ltd.
Brilliant Stages, Ltd. United Kingdom Vari-Lite Europe Holdings, Ltd.
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Vari-Lite
International, Inc. and Subsidiaries on Form S-1 of our report dated August 27,
1997 (October , 1997, as to the first paragraph of Note F) on the consolidated
financial statements, appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to our firm under the
heading "Experts" in such Prospectus, which is part of this Registration
Statement.
Dallas, Texas
October , 1997
-------------------
The consolidated financial statements of Vari-Lite International, Inc. and
Subsidiaries appearing in the above Prospectus are presented to give effect to
the Company's reincorporation in Delaware and related recapitalization, in which
the shares of Class A and Class B Common Stock will be converted into shares of
the Company's new common stock and a class of preferred stock will be
authorized, as described in Note F to the consolidated financial statements. On
the effective date of the Registration Statement, the above consent is in the
form that we will sign upon the effectiveness of such events assuming that, from
August 27, 1997 to the effective date of such events, no other material events
have occurred which would affect the consolidated financial statements and notes
thereto.
Deloitte & Touche LLP
Dallas, Texas
September 18, 1997
